Politics & Government

Tacoma could spend $200,000 or more fighting for its vision of money-losing Click

The News Tribune

The Tacoma City Council faces a long, expensive fight if it ever is to realize its vision for Click Cable TV.

A lawsuit filed in June challenges whether the city can continue using revenue generated from Tacoma Power ratepayers to subsidize Click.

The threat of that suit prompted the city to hire a Seattle law firm earlier this year. The initial contract will pay K&L Gates $200,000 to defend the city, but Tacoma officials suspect that cost would rise as the case makes it way through the legal system.

What’s more, the suit has halted a number of initiatives related to Click, including a pair of audits that are supposed to inform the City Council about the viability of the network and the future of its broadband operations.

The current council wants Click to move to a new business model in which it would upgrade to gigabit internet speeds, become a municipally owned and operated company and sell retail internet, cable and phone service on the open market.

But the delay caused by the lawsuit could mean there could be up to five new people on the City Council by the time major decisions on the network’s future need to be made.

Councilman Marty Campbell, who helped craft the vision for Click, said he has faith that the new council would support the current one’s vision.

“I wish we could do it sooner, but I hope we get an opportunity to see how well it would really work,” Campbell said recently.

Currently, Click sells wholesale internet to two local internet service providers and sells cable directly to customers. The network has kept cable TV rates well below that of its competitors but has been steadily losing customers and millions of dollars each year, according to utility executives.

The lawsuit, filed by a former Tacoma mayor, former city attorney and former Tacoma Public Utilities director, asks that Tacoma Power ratepayers be reimbursed the roughly $21 million that the plaintiffs estimate they’ve paid in subsidies to Click over the last several years. They’re also seeking attorney’s fees.

The lawsuit’s argument that ratepayers shouldn’t be subsidizing Click comes in part from a memo that former city attorney and now city manager Elizabeth Pauli sent the City Council in 2015.

That memo says: “Electric utility revenues may not be used to pay for costs directly associated with providing commercial telecommunications services (such as cable television and internet service) to the public, because such costs are not sufficiently related to providing electricity to electric utility customers and thus must be paid for from non-utility revenues such as rates or charges to the telecommunication services customers or general government tax dollars.”

The city has turned to a familiar face to help it fight that suit.

K&L Gates — and specifically, attorney Liz Thomas, who is being paid $425 an hour — led the city and Tacoma Power to victory 20 years ago during the very early days of Click. That’s when the city went to court to confirm the authority of Tacoma Power to build and operate the Click network and issue power revenue bonds for its development, city attorney Bill Fosbre said.

In its latest arrangement with the firm, the city has already spent about $50,000 of that $200,000, Fosbre said this week. Any amount higher than $200,000 would have to be approved by the City Council.

Fosbre said that while the city hopes to resolve the lawsuit as soon as possible, the case is not scheduled to go before a judge for at least a year. If that time line holds, it’s likely the city would go over $200,000 in legal fees to K&L Gates and need to revise the contract upward, with council approval.

The lawsuit has put several important pieces of work related to Click’s expansion on hold:

  • A pair of independent audits ordered by the City Council. One would determine whether the cost-splitting method between Click and Tacoma Power, which uses parts of Click’s network to communicate between substations, is fair, or whether Tacoma Power should be paying more or less for its use of Click. The second was a market analysis meant to inform policymakers about whether a potential Click foray into retail broadband makes sense in Tacoma, where it would face competition from Comcast and CenturyLink.
  • The City Council’s vote on a funding plan for Click’s new business model. In September, the Tacoma Public Utilities board approved a plan that calls for using between $6 to $10 million in Tacoma Power revenues per year initially to help Click as it got on its feet. The City Council, which also oversees the utility, hadn’t taken up that vote and still must, city legal staff have said. Mayor Marilyn Strickland has said the council will vote on the funding plan once it sees a detailed business plan for Click’s expansion.
  • Finalization of the business plan that would forecast Click’s progress and detail products, pricing, marketing strategies and how the new company would penetrate enough of Tacoma’s market to eventually operate in the black.

Making Click’s new business model successful is expected to include $1.5 million a year in labor savings. How that number would be reached is expected to be part of the in-depth business plan, but because that plan hasn’t been finalized or brought to policymakers, those details also are also up in the air.

City Council members have pointed out that when the council approved the 2017-18 budget for the city and Tacoma Public Utilities last fall, it approved funding for Click’s expansion to a new business model, including $13 million in capital upgrades. Those expenditures also are on hold.

Campbell said he wished the city could move forward more quickly: He and Strickland, a leader in the fight to keep Click public, both will term out at the end of 2017.

If the lawsuit stays on schedule, they won’t get a chance to vote on the all-in funding plan, review the audits or see Click’s transformation up close.

“I think we’ve taken the best steps that we can at every turn … I wish we could move quicker and faster — I come from a more entrepreneurial background where we move quicker,” Campbell said.

Candice Ruud: 253-597-8441, @candiceruud