In 2014, the GON increased its revenues from $80.7 million to $99.9 million.53

Revenue from Internet access sales in particular saw a net increase of about $17 million,54 much of which was due to residential customer growth.55 Overall, residential services accounted for two-thirds of EPB Fiber’s revenues in 2014.56 Expenses and transfers to the city of Chattanooga totaled $84.7 million.57"

This sounds OK to me, what am I missing?

Why is it important that their electricity monopoly subsidized anything? How is that any different than any other new enterprise that has gotten funding from a VC? You don't hear anybody criticize that some star up is only possible because they got money from an investor. How is the source of funding relevant?

"Recent reports estimate that those numbers have risen to over 65,000 residential customers and about 5,500 commercial customers so far in 2015.48 This represents about a 45 percent share of the local residential market for broadband, video, and telephone service. 49 Despite being available to all potential customers, only about eight percent – or fewer than 5,500 – of residential customers that purchase Internet access subscribe to its signature gigabit service.5"

This venture is only 5 years old(2011) and the bond has a maturity length of 25 years! Lastly only 162 million out of the bond issue was used to build out the fiber network, the rest was used to build a smart grid.

I think in such a situation I would perhaps try to play on people's pride and make an emotional appeal.

And/or sell equity to customers. Some are happy to hold part of an enterprise they believe in, and will accept submarket returns. Come to think of it, a cooperative wouldn't be too different.

The source of the funding is a bond, not a subsidy from the power company.

EPB Fiber is profitable, is servicing it's debt in full and is not subsidized by electric ratepayers.

Not only are electric rate payers not subsidizing the fiber network, the fiber network is subsidizing the electric side!

The EPB fiber made $15M profit (FY14) is after debt service. EPB paid $19M in debt service (FY14).

Source: https://static.epb.com/annual-reports/2015/wp-content/upload...

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.

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

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.

I'm happy to concede that if you don't have to actually pay for much of your fiber network, you can indeed show a "profit."

Very well then, but why did you start of this thread with provably false claims? EPB fiber is not subsidized by the electric side (refer to your own research paper if you don't believe me) and Chattanooga is most definitely servicing their debt in full (again check your paper).

> The question is--could Baltimore go out and do this?

Perhaps, I haven't looked into it, so I don't know. But, why Baltimore? Different state, different laws on municipal broadband, much larger metro area and a very different socioeconomic mix.

> Or, what's stopping a private company from doing this in Baltimore?

Nothing much if they have the money and inclination to do so, assuming they can get the appropriate permits and franchises. Apparently Verizon did consider doing it.

> And what's relevant to that is the real capital expenditure to build the fiber network--not just extending a fiber network you had lying around.

So if Verizon decides to build out FiOS in Baltimore, which part of their existing (national and local) fiber network should they according to you include in their network build budget and show an additional return on?

> I'm happy to concede that if you don't have to actually pay for much of your fiber network, you can indeed show a "profit."

Which parts of the EBP fiber network do you feel have not been paid for? And what do you mean by "profit"? Are you claiming that EPB is cooking the books and not really making a profit?

Muni fiber could certainly be unprofitable or unworkable, there's no magic reason why it has to work in practice.