Two years ago, Tacoma Public Utilities updated the decade-old model it uses to divide the costs of the city’s fiber and coaxial cable network between Tacoma Power and its subsidiary Click Cable TV.
The new model shifted to Click more of the expense of maintaining and operating the fiber network that links the city’s power substations and supplies the backbone of its municipal cable system.
The change greatly increased losses attributed to Click, losses that utility leaders have used to make cases for a 17.5 percent Click cable rate increase and for a 40-year lease of city’s fiber network to a Kirkland company.
Even under the old model, Click was losing money. The cable system projected a $2.7 million loss in the 2011-2012 biennial budget, according to briefing materials presented to the Tacoma Public Utilities board in 2012.
TPU leaders say Click is now losing $9.5 million per year, or $19 million in the 2015-2016 budget. The reasons for the losses include a declining customer base, the rising cost to provide cable content and the cost-allocation change.
The shift to a new cost-allocation method has not received a public airing. Utility board member Bryan Flint said Friday that TPU officials briefed him and other board members one at a time in 2013 about the new cost-allocation model. The board was never asked to sign off on using the new allocation model, which appears to have begun surfacing in the utility’s public presentations earlier this year.
“We weren’t asked to bless it, and we didn’t,” Flint said.
TPU has asked accounting firm Moss Adams to review the new model that shows Click to be a bigger loser than previously thought. The firm is expected to present its report to the TPU board during a Wednesday afternoon study session.
“They are going to verify the calculations that we’ve done,” TPU Director Bill Gaines said. He said generally the new costs charged to Click are justified but demurred when asked for details about the 2013 cost allocation model.
Governments have wide latitude in deciding how to allocate costs to different departments, said Justin Marlowe, a professor of public finance at the University of Washington.
“Cost allocation for internal budgeting and cost analysis purposes is really the Wild West,” Marlowe said. “There is very little in the way of national standards. It’s nothing like financial accounting, where there are very strict rules about general accounting principles.”
Business for both Click and Tacoma Power has changed dramatically since 2003, the last time a cost allocation model was created to divide costs between Click and Tacoma Power.
Tacoma Power now relies less on the $200 million fiber and coaxial cable network than it did in 2003, when TPU was ramping up its smart meter program. The devices use the fiber network to send customer electricity use data to the utility.
But the smart meter pilot program ended in 2009, and the utility has said it doesn’t intend to use those specific devices in the future. Because of that shift, Power will use far less of the fiber infrastructure.
Click, too, has seen changes. It now has about 19,500 cable customers — down from a high of 25,232 in 2010 — and has been shedding customers faster than the rest of the cable industry in recent years.
Because Click is part of Tacoma Power, the electric utility’s customers pay for Click’s losses, which represent roughly 2.5 to 3 percent of their monthly bills, Gaines said. The typical residential customer with electric heat pays $3.20 to $3.84 extra on a $128 monthly bill to cover Click’s costs, utility officials say. Gaines said the increase is not a separate item on a customer’s bill, but is built into the rates all power customers pay.
“If the expenses exceed the revenue, that money has to come from somewhere,” Gaines said. “The only place it can come from is the power fund. Everything in the power fund is paid for by power customers.”
Mayor Marilyn Strickland said Wednesday that she has asked Gaines to clarify the financial picture of Click.
“If we want this process to have integrity, everyone has to understand what’s going on,” she said. “TPU needs to defend the numbers they are presenting.”
Whatever model the city settles on, the mayor says the city faces a decision about Click’s future.
“Whether the number is $3 million or $9 million, it doesn’t change the fact that we can’t keep limping along doing what we’re doing,” Strickland said.