Is Tacoma giving away public property in restructure of Click network? City says no.
The city of Tacoma is nearly finished restructuring the business model of its municipal cable TV and wholesale internet system.
The move involves approving a contract that will allow Rainier Connect, a current provider on the Click network, to expand its role to run and upgrade the network, relieving the city of those costs.
The restructure maintains public ownership of the network and assets tied to Tacoma Public Utilities, along with the new and upgraded assets.
In fact, that tops the list of policy goals agreed to in the proposed restructuring, along with equitable and low-income/affordable access.
To hear TPU Director Jackie Flowers describe it, it’s happening not a minute too soon.
Click “is on life support,” Flowers told The News Tribune on Thursday. “We cut the budget so substantially this last year. It’s not sustainable.”
Flowers, along with Karen Larkin, chairperson of the Board of Public Utility, and Mayor Victoria Woodards, recently met with The News Tribune to discuss Click’s future ahead of a public hearing at Tuesday’s council meeting.
Opponents of the move have repeatedly asserted that Click is more profitable than acknowledged by the city and add that if the city can’t make a go of it, how can another vendor?
“I have a trust that I know TPU will be here. I have no faith that Rainier Connect will be here three years from now,” said one woman who offered comment at a public hearing Oct. 23.
“Contracts are broken, there’s hardships ... and then things get renegotiated,” she added. “What is Rainier Connect’s big motivation in this? ... It feels very sneaky.”
Larkin, toward the end of that hearing, highlighted the utility’s transparency efforts in the process.
“If you’re a current customer, you should have received a letter with some attached information, and we will be posting some other information to specific questions that have been raised by public,” Larkin said. “I just would ask you to keep in mind that just because someone stands at the podium and testifies, what they say doesn’t necessarily make it true.”
She added: “I hope that you will get your facts from all sources, including us.”
The question over what to do with Click culminated in the decision earlier this year to move toward an expanded public-private partnership to help shift the costs of its operation.
Included in Click’s future are two words which are bringing fresh attacks, in public meetings and in the courtroom: “declare surplus.”
Surplus declaration
As part of the restructuring, the City Council must “declare surplus” specific Click network assets, which TPU describes in a letter to customers as “simply a legal term to indicate that we no longer plan to use them for utility purposes.”
It adds that the city is not selling the network; “in fact, it will remain a city asset indefinitely.”
“The network is currently used for both electric operations and cable TV and Internet, and City Council would only surplus the parts of the network related to the provision of cable TV and Internet that are not needed for electric operations,” according to the letter.
Items to be declared surplus include inventory, equipment and vehicles used by Click that will be conveyed to Rainier Connect as well as excess capacity of the hybrid fiber coaxial network.
The surplus diagrams can be viewed here.
Operational rights would be transferred to Rainier Connect for 20 years with two additional 10-year extensions. As part of the deal, the city would retain ownership of the excess capacity.
“When we talk about surplus, what we’re saying is we’re surplussing the components of the system that are surplus to Tacoma Power’s needs to run the electrical system,” said Larkin.
The surplus declaration, along with the business model’s restructure that moves operational management over to Rainier Connect, have led to a series of court cases filed by at least three Click customers and the CEO of one of Click’s existing operators.
The common thread in each case filed against the city is one demand: Bring all of this to a vote of the people under laws governing utilities.
So far, legal motions to stop the process and to apply utility law to Click’s telecommunications have not been successful.
Why is this happening?
The surplus action came about as the contract details were refined.
Flowers explained what has happened during the Thursday interview.
“If you think of it like a funnel, we started with this really broad, no-stone-unturned look at all these different models, and then aligned with what was the best path forward for success,” she said. “And then we get a little deeper into the funnel. And we did the competitive process, and we found a partner who could meet the 12 policy goals. And then we would get a little deeper and then started really working the specifics of the policy goals.
“And now we’re to the point where we’ve drafted the agreement. So at the tip of that funnel, that’s where you start to really look at what is the process.”
Larkin further explained the decision to move into the surplus process.
“As the attorneys worked through the contract with Rainier Connect ... when they started to try and define what is it that you can use and what is it that you can’t use, that they felt that this surplus declaration helped to really clarify what components of the system we’re selling, because we are selling some trucks and equipment, what components of the system are we leasing, and then, what’s the remainder,” she said.
“So I think as the team, the technical folks and the attorneys work through that, using this surplus declaration was a way to clearly define that.”
“And we will have ongoing functions within this network through the fiber pieces in particular,” Flowers added. “And so clearly we’re not going to get rid of it. The fiber pieces we use are kind of like our backbone. It’s how we communicate.”
Mitchell Shook, CEO of Advanced Stream and one of the current providers on the Click Network, has called the move a gift of public funds.
Shook is among those who’ve filed legal challenges to the proposal.
“This is the biggest mistake I’ve ever seen in my whole life,” he told the Board of Public Utility at its hearing Oct. 23. “We’re so proud of this network. It’s been, you know, a pioneering move by the City of Tacoma when it was created. Cities across America are following in our footsteps tonight and just dreaming of what you are about to dispose of. OK, so let’s be really clear about that.”
Shook at the meeting promised the legal challenges would persist.
Both the city and TPU leaders rejected the assertion that the transaction is a gift of public funds.
According to a statement to The News Tribune in response to questions, they said:
“Recently, the Tacoma Public Utilities Board determined that the excess capacity was no longer needed by Tacoma Power because the Board had determined that automated meter reading would be more efficient and reliable using wireless technology. As a result, this excess capacity is no longer necessary for providing utility services.
“The portion of the HFC Network used by Click is part of the excess capacity that no longer serves a utility purpose and thus is surplus to the needs of Tacoma Power. “
The statement noted that “state law provides that property originally acquired for utility purposes which has become surplus to the needs of the city may be leased after a public hearing and adoption of a resolution declaring the property surplus. This statute provides that the determination that the property is surplus must be made by the legislative authority which is the City Council.”
The next chapter
One question that has attracted attention from both sides: If the city can’t make Click pencil out, how will Rainier Connect?
At issue is what the city contends is an outdated business model that relied more on the cable TV side for profitability. The system is running out of time and money to upgrade, officials said.
“If we have one hiccup, the system will go dark,” Larkin said.
Bryan Flint, vice chairman of the Board of Public Utility, described Click’s issues with its current business model in an Oct. 23 public hearing:
“It’s been the fundamental question that we’ve had, for the seven and a half years I’ve been on the board: Who’s taking the risk of investing in the network beyond what we’ve already invested to try to take it from what used to be a cable TV generated profit center, to an internet generated profit center?” Flint said.
“When we got into this business, everybody was in cable. And people used the internet to get email addresses. And so it was sort of like this side business that we had others do ... and all the benefit was in the cable, all the profit was in the cable side of things. Now, almost 20 years later, that’s switched and all the risk is in cable and all the profit is in the internet.
“So really what we’re doing is we’re shifting that risk to a private entity, and Rainier Connect is willing to take on that risk.”
A joint study session with the City Council and members of the Public Utility Board was held Tuesday to go over details of the deal and the 12 policy goals created before Rainier Connect was approved in March as the entity the city would negotiate with in the deal.
The policy presentation can be seen here.
Consultant Joanne Hovis of CTC Technology and Energy said at the meeting the terms were unlike what she had seen negotiated elsewhere.
“It’s really something to be proud of. There are municipal networks out there that have evolved into public-private collaborations with continued public ownership, none that I’ve seen are as good as this,” Hovis said. “This set of goals has not been achieved in other contracts of which I’m aware. It is a substantial set of achievements.”
Mayor Woodards told The News Tribune said she’s staying focused on the end result.
“We’re going to expend our energy working on behalf of the citizens of Tacoma and getting the best partnership we can,” Woodards said.
Meetings and information
A public hearing is planned Oct. 29 at the regular City Council session. Public comment also is being accepted online at https://www.mytpu.org/community-environment/projects/click-network-update/.
That website also has meeting recordings and documents leading up to the surplus declaration and contract vote.
The utility board will vote on the surplus move and contract at a special meeting Oct. 30, then the matter will go to the City Council for final approval Nov. 5.
