by Candice Ruud
What is Click?
Click Network – formally known as Click! Cable TV – is the city of Tacoma’s municipally-owned cable and broadband internet network. It began in the ‘90s and grew out of a fiber optic network built by Tacoma Power to improve maintenance and efficiency of the power grid. With excess capacity built in, Tacoma Public Utilities also saw an opportunity to give Tacoma-area cable customers an alternative to TCI, which had a monopoly in the area and was known for spotty service.
What does Click look like now?
Click’s cable service is sold directly to customers under the brand name and competes with Comcast in the Tacoma area. But Click internet is sold indirectly to customers through two internet service providers – Advanced Stream and Rainier Connect – who lease space on the Click network. Right now, their future and the future of Click is uncertain.
Advanced Stream and Rainier Connect are local businesses, something that a lot of internet customers appreciate. And Click’s cable operation is particularly known for fast, responsive customer service – words rarely used to describe its competitor, Comcast.
Click’s lower-than-average rates also benefit Comcast customers in the Tacoma area – Comcast’s rates have tended to be lower here than in other cities.
Those low rates – two years ago, Click management estimated they were 15 to 30 percent lower than what Comcast charges – have also hurt Click’s bottom line. That year, Click management asked the TPU board and City Council for a 13 percent rate hike for Click cable to bring it closer to what Comcast is charging for the service. It was the first rate hike since 2014, and it was approved. Another rate hike was sought and approved last fall.
So why all the controversy?
Former TPU leadership – namely, former director Bill Gaines – saw Click as a financial burden. TPU management today maintains that Click loses millions of dollars every biennium. In 2015, Wave Broadband of Kirkland made a sole-source bid to the city to lease Click for 40 years and run it as a private cable and internet company, essentially taking control away from the City and opening up the possibility that the system could be sold. If you lived here then, you may recall that Click fans lost their shit.
In the midst of that, TPU board members and the City Council hatched a plan to transform Click into a municipally owned – AND operated – cable, internet, and voice-over-internet company. This was called the “all-in” plan. The local ISPs (Rainier Connect and Advance Stream) would be cut out of the equation in this plan, and the city would get into the business of competing for internet customers with CenturyLink and Comcast directly. It was expected that at least for the first several years, this new business model wouldn’t make enough money to sustain itself, so the board – at the urging of several council members – voted to allow it to use between $6 and $10 million of Tacoma Power revenues every year until the new business could operate in the black. As a sub-fund of Tacoma Power, relying on electric ratepayer revenues wasn’t new for Click – any time it brings in less than it costs to run the system, Tacoma Power revenues make up the difference.
Is TPU management right? Is Click losing money?
This is the million dollar question, and the answer could solve a lot of issues and legal problems for Click – unfortunately, it’s hard to say, because of the way costs are shared between Click and Tacoma Power.
Click’s losses have been estimated at $6.5 million for the 2017-18 biennium and $9.9 million in the 2019-20 biennium, according to a report in The News Tribune.
But some dispute those numbers because they feel the way costs are shared between Click and Power is unfair to Click, and doesn’t give Click enough credit for the value it provides to Tacoma Power.
Right now, Click is responsible for 94 percent of its costs and Tacoma Power only shoulders 6 percent. Management has argued that Click’s network doesn’t play enough of a role in providing electricity to Tacoma Power’s 170,000 residential, industrial and commercial customers, making it improper for electric rates to fill in when Click’s revenues fall short.
In the past, that cost allocation has been closer to 75 percent for Click and 25 percent for Tacoma Power. Some people think that was a fairer cost sharing method – Tacoma Power uses the Click network to communicate between substations and to power its smart meters, of which about 14,000 are still operational. The allocation method is a management decision, not a technical decision.
To solve once and for all the question of how Click’s costs should be split, the Tacoma City Council in late 2016 ordered an independent audit of Click’s finances. It also ordered another independent audit to study whether or not Click, as a city-owned and operated internet, phone and cable business, would be able to gain enough market share in the existing environment to be profitable or financially solvent.
Bids were submitted and consultants were chosen, but according to the city and TPU, those audits were never performed, because Click got sued and the funding method for the all-in plan – that $6 to $10 million a year from Tacoma Power – now face a legal challenge.
Why did Click get sued?
Under the 94-6 cost allocation method, Click looks like it’s losing a lot of money, and Tacoma Power revenues are having to make up the losses. But a 2015 memo from then-City Attorney (now City Manager) Elizabeth Pauli makes it clear that electric rate revenues can only be used on services that are directly related to providing electricity to customers – they can’t be used to pay for the expenses of a commercial telecommunications system. And according to the city charter, all TPU revenue can only be used for the necessary operating expenses of the utilities. “Utility revenue shall never be used to make loans to any other utility, department or agency of the city,” the memo says.
The lawsuit, filed in 2017, asks the court to clarify whether it’s legal for Click to be funded the way it has, with millions of dollars of Tacoma Power revenues making up its shortfalls. It also uses Pauli’s memo as the basis of many of its legal arguments. Filed on behalf of former Tacoma mayor Mike Crowley, former TPU attorney Mark Bubenik, and former TPU director Ted Coates, it also asks that ratepayers be reimbursed $21 million for any past funding Click may have wrongfully gotten from Power.
Notably, last March, a judge ruled that power revenues can’t be used to pay for Click’s telecommunications expenses – but what portion of those costs can be fairly allocated to telecommunications expenses remains the big question.
So what next?
Because of the lawsuit, the City Council and TPU board announced in early 2018 that they would drop the all-in plan – according to a Citizen Tacoma interview with TPU board member Bryan Flint, it’s dead and isn’t likely to be revived. At that time, there was hope that dropping the all-in plan would be looked on favorably by the court.
Now, the city is seeking a private partner to operate Click, and received six bids last year from companies hoping to take it over (they included Rainier Connect, Advanced Stream and – gasp – Wave Broadband). But policymakers are stressing this time that the network is not for sale, and have said whoever they choose to run the business will have to commit to net neutrality, keeping the network affordable for low income customers, protecting customer privacy, open access, and a number of other policy goals.
Three of those six companies were chosen to move forward in the process, and have begun negotiations with the city: Rainier Connect, Wave Broadband (which was recently bought by a San Francisco private equity firm), and Europe-based Yomura Fiber.
Flint says the TPU board and City Council expect to see a proposal from Wave soon.
“What I’ll be looking for is things like, how do we get out of that when they change their business model in a way that’s not advantageous for us, or they’re sold, or they go out of business, or their customer service is terrible and we’re frustrated?” Flint said.
“What’s key to me is we meet as many of those 12 policy goals … as we can and some of the most important ones are the public ownership and net neutrality and access for low income, and that we have a good exit strategy should they fail to perform or they’re not serving the customers.”
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