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Where we are now How we got here Future Options Conclusions – Path Forward 2
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Net Cash Funding of Broadband $2,250,000 $2,000,000 $1,750,000 $1,500,000 $1,250,000 $1,000,000 $750,000 $500,000 $250,000 $0 -$250,000 -$500,000 -$750,000 -$1,000,000 -$1,250,000 2017 2010 2011 2012 2013 2014 2015 2016 Forecast Annual Revenue 1,183,519 1,581,991 1,618,726 1,972,125 2,188,813 2,023,220 2,046,069 2,099,412 Annual O&M Expense (709,660) (671,688) (691,317) (885,425) (979,511) (1,021,403 (931,788) (819,866) Net Capital Expense (738,743) (577,036) (430,646) (708,512) (648,005) (773,532) (757,500) (943,616) Net Cash to/(from) Electric (405,962) 292,200 623,852 376,696 545,262 223,167 352,917 317,234 4
Total Inception To-Date (12/16) Operating Revenues $16,238,616 Operating Costs* $ 9,796,292 Capital Investment $20,719,472 Capital Contributions (Others) $ 7,099,252 Net Cash Funding (Ratepayers) ** $10,454,226 * Does not include depreciation expense: $9,800,600 ** Includes NoaNet Assessments and Support: $3,276,329 5
Transport Fiber Premium Service Up to 1,000 Mbps: MRC = $800 Access Internet (NEW) 100/150 Mbps: MRC = $100/$150 Fixed Wireless Residential/Small Business Best Effort Service Internet Wholesale Customers Point-to-Point Wireless Dark Fiber Limited Offering 6
Broadband Revenue History $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 2017 2010 2011 2012 2013 2014 2015 2016 Forecast Other Revenue 1,746 155 50,815 248,194 286,664 345,737 522,741 524,641 Fixed Wireless 134,023 142,380 133,765 113,516 97,395 89,610 75,282 69,708 Internet Transport Service 330,196 370,388 278,533 286,457 135,091 119,181 76,764 44,324 WiFi 3,164 3,090 2,378 1,107 468 364 312 312 TDM 199,813 213,844 164,521 148,184 146,124 86,428 69,372 69,372 Ethernet 514,578 852,134 988,714 1,174,667 1,523,071 1,381,900 1,301,597 1,391,055 7
Includes fibers acquired through agreements: Pacific Northwest National Laboratories Bonneville Power Administration City of Richland Department of Energy Energy Northwest Franklin PUD 8
Covering O&M and Capital Costs Incremental customer growth & revenue preservation Limited and Focused Capital investment Multi-tenant/cellular /access-internet Line Extension Credit = 75% x MRC x Term Partnerships & Strategic Agreements NoaNet NCS – Comprehensive Services NoaNet Momentum (20.72% ownership) Total Assets: $98.7M 2017 Projected Revenues: $35M Long term debt paid off in 2016 +3,000 miles of fiber; present in every county 9
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Broadband is the “Next Utility” Bridge the “Digital Divide” Businesses and public entities under served Limited access and high costs Enhance Livability of the Community Schools, hospitals, libraries, city services Promote Economic Development Link BPUD Operations Together Also link with NoaNet and other PUDs across the state 12
Broadband Planning 2009 Last Formal Business Plan Document Now done “dynamically” Annual budget cycle Regular strategic discussions/workshops Updates to wholesale rates, terms and conditions Strategic Planning w/ Commissioners June and October 2011 December 2012 June and July 2013 May and June 2015 December 2016 (Access Internet Promotional) NoaNet Network Coordinated Services Decision November 23, 2010 January 2011: Implementation February 2014: Expanded Billing, Outside Plant and Engineering Services January 2017: Fee structure change to gross revenues vs. line item services 13
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Status Quo (Staff Recommendation) Cover O&M and capital expenses Revenue preservation transitioning to growth Access-internet; small and medium businesses Cellular expansion to small cell and 5G Aggressive – “Legacy Investment” Invest more (FTTx) Community “left behind”? Education, entertainment, health care Partnerships and/or Sell Assets NoaNet Other Interested Parties 15
Commoditization of Services Faster/Cheaper with Increasing Competition Constrained Market/Revenue Saturation “Incremental customer growth” may not increase revenue New revenue streams needed Fund continued reliable operation of core network Preserve original purpose If additional return on investment is desired Capital Investment Diminishing Appetite – District and Customers Core Network Built/Costly Line Extensions 16
Lit services revenue growth Access Internet - Small & Medium Businesses Dark fiber Adapt to customer demands Strategic opportunities Wireless/Cellular BPUD Fixed wireless - managed ramp down Retail Service Provider Networks competing and covering gaps Cellular backhaul expanding to small cell Future 5G platform Evaluate business case for: increased capital investment Increased line extension credits; i.e. longer term return on investment Net Cash Flow Positive (Forward and Look Back) Negative if short term capital investment delivers long term gains 17
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240 day initial promo Up to $10K credit towards construction 2 year contract 100 Mbps Access internet $100 150 Mbps Access internet $150 1-5 phone lines $25 each
Customer churn Cost driven Reliability driven Construction costs higher than expected Can’t execute fiber builds on time Poor broadband network service (reliability) May create demand for a large future investment by the District
Limited time offer marketing Allows promo cut-off at any time Closely track actual build costs If multiple builds are greater than $10k; then stop Establish overall maximum $ investment cap
Approved Promo for 60 day initial period $10K line extension credit Rates Establish reporting milestones Requested approval at December 13 Commission Meeting
Less than $6500 33 quotes 11 new orders 9 require laterals ($10k-$20K) $6500-$10K 22 quotes 4 new orders 5 require laterals ($5k-$35K) $10K + 37 On-Net 23 quotes 4 new orders 15 change orders 24
Model Fiber Customers Average Fiber Build Costs Capital Average Fiber Revenue Monthly Revenue Payback Years 100 $6,500 $650,000 $125 $12,500 4.3 Actual New Builds 01/2017-04/2017 Fiber Customers Average Fiber Build Costs Net Capital Average Fiber Revenue Monthly Revenue Payback Years 17 $6,612 $112,410 $130 $2,215 4.2 On-Net Actuals Fiber Customers Average Fiber Build Costs Capital Average Fiber Revenue Monthly Revenue Payback Years 5 $0 $0 $120 $600 0.0 Combined New Builds & On-Net Fiber Customers Average Fiber Build Costs Capital Average Fiber Revenue Monthly Revenue Payback Years 22 $6,612 $112,410 $128 $2,815 3.3
KENNEWICK 5 YEAR PRO FORMA WITH ACCESS INTERNET LINE ITEM DESCRIPTION 2016 2017 2018 2019 2020 2021 Revenues 1.5% 1.25% 1.0% 0.75% 0.05% % Revenue Increase for transport Transport Revenues $2,080,716 $2,111,927 $2,138,326 $2,159,709 $2,175,907 $2,176,995 Transport Churn $(10,000) $(10,000) $(10,000) $(10,000) First Year Access Interent Revenue $55,000 $65,000 $65,000 $65,000 Access Internet Revenues $153,600 $307,200 $460,800 $614,400 $2,080,716 $2,156,927 $2,346,926 $2,521,909 $2,691,707 $2,791,395 Total Revenues Operating Expenses $(842,971) $(855,812) $(881,486) $(907,931) $(935,169) $(963,224) O&M Direct Costs Capital Expenditures $(1,039,033) $(500,000) $(500,000) $(500,000) $(500,000) $(500,000) Capital Direct Costs Aid to Construction $42,713 $(125,000) $(175,000) $(200,000) $(250,000) $(150,000) Backbone Fiber $- $(650,000) $(650,000) $(650,000) $(650,000) Access Internet Line Extension $(996,320) $(1,275,000) $(1,325,000) $(1,350,000) $(1,400,000) $(650,000) Total Capital $(1,839,291) $(2,130,812) $(2,206,486) $(2,257,931) $(2,335,169) $(1,613,224) Total O&M and Capital $241,425 $26,115 $140,439 $263,978 $356,538 $1,178,171 SURPLUS (SHORTFALL) FROM OPERATIONS $241,425 $(43,885) $156,839 $276,778 $365,738 $1,163,771 SURPLUS (SHORTFALL) FROM OPERATIONS Original Model 100 customers a year $150K total new revenue, $125 MRC, 50% of revenues first year Assumptions: $6,500 average build costs Churn for 2017 $100K
Sales Cycle is taking longer RSP time to generate demand longer Quote process is taking longer than expected Less churn than expected Existing customers moving to higher Access Rate Access rates are not meeting Small business needs Laterals still needed to get closer to customers 27
Collecting feedback on why quotes below $10K construction have not signed up for service Evaluating laterals Seeing if RSP’s can get more customers to spread costs out Evaluating impact of a Small business Access Rate Evaluating a potential targeted marketing campaign Making changes to Quoting processes Developing Platform Product Models 28
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