5 ms·

> Your link shows less than $1 million of debt service on a network that cost $400m. Interest rates are low, but they're not that low! I can't tell if you are

> Your link shows less than $1 million of debt service on a network that cost $400m. Interest rates are low, but they're not that low! I can't tell if you are joking or merely being frivolous, but of course municipal bond interest rates aren't that low. The base fallacy in your comment is that you are comparing the interest payment to the total network build cost and not the outstanding debt. These two are obviously not the same thing and only outstanding debt affects the size of the interest payment. > Read page 14 of the article you linked in light of page 3 of the article I linked. The vast majority of the debt used to build the fiber system is ascribed to EBP, not the fiber division. So it doesn't appear in EBP fiber's profit calculation You are correct in noting that the majority of the debt is ascribed to EBP and not directly to EBP fiber. This does not, however, mean that EPB fiber gets a free ride or receives a subsidy from the electric side. Quite the opposite in fact! As clearly noted also in the research paper you linked to, it is the electric side that receives a subsidy from the fiber side. So not only is the fiber side pulling its weight, it's also creating and sharing the wealth! Normally how this is done in cases like these, is that the department that carries the debt gets an internal transfer from the department utilizing and profiting from the asset that was constructed with the debt financing. In other words, EPB fiber would pay EPB for the use of the fiber network and EPB would use the payment to service the debt. Referring to the EPB financial report, EPB fiber certainly has the money to do so. In addition to their FY15 $17M profit, they have booked a $15M Provision of Depreciation. This $15M is a non-cash expense, so they are basically just sitting on $15M in cash on top of their profit. I'd expect this would be used for the internal transfer to EPB to service the debt. Now for arguments sake, let's assume that EPB fiber was just sitting on that $15M in cash and not sharing with EPB, content in just collecting a mountain of cash. Even so, with EPB fiber making a profit of $17M FY15, that profit is more than enough to cover the debt service in full on EPB fiber's part of the debt (originally $162M). In fact that $17M is almost enough to cover the debt service in full for the whole of EPB, electric utility and all. So, while you may reasonably and justifiably criticize Chattanooga's fiber project for a lot of things, being unprofitable and subsidized is not one of those things.

rayiner 10y ago
The source you linked doesn't show a transfer from EBP fiber to EBP. Moreover, it's not the debt outstanding that matters, but the original capital investment. A real company would be expected to generate a return on the original $390 million that exceeded the weighted average cost of capital. Having a big chunk of that money fronted internally without imputing an interest rate to it is a subsidy. From the article: > One unique and important advantage for EPB of such a close relationship between the electric division and its fiber-optic division is that investment in fiber by the utility for the ostensible purpose of bolstering its smart grid can be socialized amongst its captive electric ratepayers (i.e., every resident and business in its service territory). In practice, this means that at least some percentage of the GON is being subsidized by the parent utility.42 The benefits flow the other way as well. For example, EPB readily admits that “ “cover increases in operating costs.”44 Whether and how these increased rates might be used for the benefit of the utility’s broadband network remains to be seen. revenues from [its] Fiber Optics division have allowed the utility to defer rate increases that would have totaled 5 [percent] over the last four years.”43 Nevertheless, EPB recently raised its rates by 3.5 percent for customers to
- amazon_not 10y ago
  > The source you linked doesn't show a transfer from EBP fiber to EBP. You are correct that no such transfer is explicitly shown. I don't know if it's done or not behind the curtain, but you may recall that I explicitly accounted for this scenario in my fifth paragraph of my previous post. So summarize, EPB fiber's profit in itself is enough to pay for debt service regardless of if an internal transfer is made or not. Furthermore the money doesn't simply disappear, just because it isn't transferred. The profit is still there, regardless of how it is accounted for and where it is kept. EPB fiber is making money, EPG's debt is being paid off (in advance I might add), EPG fiber is not being subsidized (the power side is) and cash is being accumulated. No matter how you look at it, EPB fiber is both profitable and sustainable. > Moreover, it's not the debt outstanding that matters, but the original capital investment. Oh, so we are moving the goal posts now, eh? Not being able to claim that EPB fiber is unprofitable, you are now instead taking issue with it not being profitable enough. But, to address your original point directly, no, the original capital investment does not matter. Only and only the debt outstanding matters if part of the original investment was funded by other means. It's preposterous to claim that an expansion of a project would have to produce returns twice; once on the original project and again in full when the project is built upon via an expansion. > A real company would be expected to generate a return on the original $390 million that exceeded the weighted average cost of capital. This is provably false. If a company built a national network to serve it's own internal communications needs, it would then not be expected to show (additional) returns on that national network, if it later decided to build out a local network in one of the markets in order to expand it's business. The company would only be required to show returns on the additional investment it made in the local market. Doubly so, if the company received a federal grant to build out the original national network. > Having a big chunk of that money fronted internally without imputing an interest rate to it is a subsidy. No money was fronted internally without any interest. EPB made out a $50M loan to EPB fiber which EPB fiber later repaid in full with interest. EPB did receive a $111M federal grant to build a smart grid, which it did. The grant was not used to build EPB fiber's network. That capital was raised separately through a bond.

rayiner 10y ago

The source you linked doesn't show a transfer from EBP fiber to EBP. Moreover, it's not the debt outstanding that matters, but the original capital investment. A real company would be expected to generate a return on the original $390 million that exceeded the weighted average cost of capital. Having a big chunk of that money fronted internally without imputing an interest rate to it is a subsidy. From the article: > One unique and important advantage for EPB of such a close relationship between the electric division and its fiber-optic division is that investment in fiber by the utility for the ostensible purpose of bolstering its smart grid can be socialized amongst its captive electric ratepayers (i.e., every resident and business in its service territory). In practice, this means that at least some percentage of the GON is being subsidized by the parent utility.42 The benefits flow the other way as well. For example, EPB readily admits that “ “cover increases in operating costs.”44 Whether and how these increased rates might be used for the benefit of the utility’s broadband network remains to be seen. revenues from [its] Fiber Optics division have allowed the utility to defer rate increases that would have totaled 5 [percent] over the last four years.”43 Nevertheless, EPB recently raised its rates by 3.5 percent for customers to

amazon_not 10y ago
> The source you linked doesn't show a transfer from EBP fiber to EBP. You are correct that no such transfer is explicitly shown. I don't know if it's done or not behind the curtain, but you may recall that I explicitly accounted for this scenario in my fifth paragraph of my previous post. So summarize, EPB fiber's profit in itself is enough to pay for debt service regardless of if an internal transfer is made or not. Furthermore the money doesn't simply disappear, just because it isn't transferred. The profit is still there, regardless of how it is accounted for and where it is kept. EPB fiber is making money, EPG's debt is being paid off (in advance I might add), EPG fiber is not being subsidized (the power side is) and cash is being accumulated. No matter how you look at it, EPB fiber is both profitable and sustainable. > Moreover, it's not the debt outstanding that matters, but the original capital investment. Oh, so we are moving the goal posts now, eh? Not being able to claim that EPB fiber is unprofitable, you are now instead taking issue with it not being profitable enough. But, to address your original point directly, no, the original capital investment does not matter. Only and only the debt outstanding matters if part of the original investment was funded by other means. It's preposterous to claim that an expansion of a project would have to produce returns twice; once on the original project and again in full when the project is built upon via an expansion. > A real company would be expected to generate a return on the original $390 million that exceeded the weighted average cost of capital. This is provably false. If a company built a national network to serve it's own internal communications needs, it would then not be expected to show (additional) returns on that national network, if it later decided to build out a local network in one of the markets in order to expand it's business. The company would only be required to show returns on the additional investment it made in the local market. Doubly so, if the company received a federal grant to build out the original national network. > Having a big chunk of that money fronted internally without imputing an interest rate to it is a subsidy. No money was fronted internally without any interest. EPB made out a $50M loan to EPB fiber which EPB fiber later repaid in full with interest. EPB did receive a $111M federal grant to build a smart grid, which it did. The grant was not used to build EPB fiber's network. That capital was raised separately through a bond.