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Home My WebLink AboutStaff Report 14845 City of Palo Alto (ID # 14845) Utilities Advisory Commission Staff Report Meeting Date: 11/2/2022 Report Type: VII. NEW BUSINESS City of Palo Alto Page 1 Title: Staff Recommends That the Utilities Advisory Commission (UAC) Approve a Recommendation That Council Recommend Building the Fiber Backbone and Options for Fiber-to-the-Premises (FTTP) From: Director of Utilities Lead Department: Utilities Recommendation Staff recommends that the Utilities Advisory Commission (UAC) approve a recommendation that Council recommend building the fiber backbone and the following options for Fiber-to-the- Premises (FTTP): Option 1. Build fiber backbone and FTTP within five years with $98M Revenue Bond. The business models developed anticipate construction costs of $127.9 million to build the fiber backbone and FTTP distribution network, and $15 million to provide City-owned ISP services totaling $142.9 million for the entire project. The fiber fund has a balance of $34 million, leaving a funding gap of $98 million which may be covered with a revenue bond. Option 2. Build fiber backbone and FTTP under a phased approach without new bond financing. Use $34M from the Fiber fund and $13M from the Electric fund to build the fiber backbone and build phase 1 of the FTTP distribution network in a phased approach based on areas with lowest construction cost, highest demand, or least competition. Option 3. Build fiber backbone, pause City-owned ISP plans, and collaborate with private ISPs. Build the fiber backbone to increase reliability and capacity for dark fiber licensing and support “smart city” initiatives. Collaborate with ISP providers to improve broadband in Palo Alto. Pause FTTP efforts and redistribute some fiber surplus to support other City initiatives such as grid modernization or electrification. 6 Packet Pg. 106 City of Palo Alto Page 2 Executive Summary This report is a culmination of recent research and findings on building fiber backbone and citywide FTTP, including follow-up information from the joint session held on September 19, 2022 (Staff Report #13956). This meeting will provide UAC an opportunity to review the findings and information accumulated so far, consider the options to recommend for moving forward, and provide staff with feedback on any remaining outstanding information needed for UAC recommendation to Council. Included in this report are follow-up information requested from the joint session and recommended options to provide for Council recommendation: 1. Comparisons to other California municipalities providing fiber service 2. Use of Micro-trenching to reduce construction costs and accelerate FTTP buildout 3. Use of Fiber Fund surplus for FTTP and other City services 4. Options to build FTTP and enhance broadband in Palo Alto Background On September 19, 2022 the Council and UAC held a joint session to discuss the City’s fiber backbone network plan and findings from research into providing citywide FTTP. During the joint session, the Council and UAC reviewed plans to build the fiber backbone and evaluated the feasibility of expanding the City’s current licensing of dark fiber to end users by building out the network to connect to homes and businesses with a citywide FTTP distribution network to offer broadband services. Building out the network to connect to homes and businesses is commonly known as building out the “last mile” in a network. There have been multiple discussions regarding the tradeoffs for offering FTTP to the community as a service, investments needed to build out and support City-owned broadband, the benefits and risks of becoming a new internet service provider (ISP), and various financial models and organizational structure. The City’s consultant, Magellan, presented information demonstrating how building the last mile in the City’s fiber network infrastructure supports the City’s initiatives, provides the community with more choice among broadband providers, and becomes a valuable telecommunication investment for the future. Additionally, it was acknowledged that while the City operates its own utilities, and the fiber network has a successful dark fiber business model, the competitive landscape for FTTP would be very different from managing other City-owned utilities and dark fiber licensing. The City would not only have to build a reliable FTTP distribution network capable of delivering ultra- high-speed Internet options, but also capture market share, provide responsive customer service and support, implement and install FTTP, and respond to competitors’ efforts. Given the information presented so far for consideration, the tradeoffs and resources needed to implement and support FTTP, several options for building FTTP have come into focus and are summarized below for further discussion. 6 Packet Pg. 107 City of Palo Alto Page 3 Discussion The following discussion topics include some follow-up information requested from the joint session in addition to exploring the options for building FTTP. Comparisons to other Municipalities with Fiber According to the Institute for Local Self-Reliance Community Broadband Map, in the United States there are 83 municipal networks serving 148 communities with a publicly owned FTTP citywide network. More broadly, there are 260 communities with some form of publicly owned fiber service limited to parts of the community, usually in business districts and approximately 150 communities with publicly owned dark fiber available.1 Staff searched for comparable municipalities in the State of California and found instead of providing citywide FTTP resembling what the City of Palo Alto is exploring, most municipalities are either: 1. Developing a City-owned fiber optic network master plan to serve government facilities, commercial corridors, and/or residents a. Developing master plans: Fremont, Glendale b. Completed master plans: Vallejo, San Leandro, 2. Only providing dark fiber and commercial ISP; not offering residential ISP a. Burbank, Los Angeles, Santa Monica 3. Providing limited instead of citywide FTTP services to select areas/communities a. Loma Linda provides FTTP to homes built after 2004 b. Rancho Cucamonga provides FTTP in greenfield developments c. Santa Monica provides FTTP in select multi-family developments 4. Providing FTTP through a city-funded and owned asset model where private companies access the public right-of-way (PROW) through a franchise agreement or public-private partnership a. Brentwood licenses conduit to Sonic in select areas b. Culver City, Ontario, and Vallejo partnered with CLEC Onward to provide FTTP c. Santa Cruz partnered with Cruzio Internet to provide FTTP d. Fullerton partnered with SiFi Networks, GigabitNow and Ting to build a citywide network. The network has only been operational for 1-2 years. Staff compiled a list of municipalities in California (Attachment A) with short descriptors for how they’re utilizing their fiber optic assets. While there are other California municipalities offering dark fiber service, city-operated commercial ISP, and municipal FTTP in select areas, there is currently no city providing a city-owned and citywide FTTP internet service comparable to what Palo Alto is exploring. 1 Institute for Local Self-Reliance Community Broadband map: https://muninetworks.org/communitymap 6 Packet Pg. 108 City of Palo Alto Page 4 Micro-trenching as an Alternative Construction Method In response to Council’s question on micro-trenching as a method to reduce construction costs, Utilities, Public Works and Magellan evaluated the benefits and disadvantages of applying micro-trenching in Palo Alto’s FTTP buildout. In recent years, “micro-trenching” has emerged as a new construction method for deploying fiber infrastructure. Whereas traditional standards call for fiber to be buried at least 24-36 inches below grade either with directional boring or trenching, micro-trenching uses thinner, shallower cuts averaging 8-16 inches in depth. Typically, these cuts are made either in the pavement, sidewalk or the joint between the pavement and guttering. Proponents of micro- trenching note the shallower placement reduces construction cost by 40%-50% and can accelerate construction schedules by three to four times of the typical timeline. Street closures can also be reduced. The challenge of implementing micro-trenching at a much shallower depth than other methods of fiber construction results in vulnerability to dig-ups of fiber conduit, higher number of outages, and may contribute to deteriorating road conditions. Thus far, only a few cities (e.g., Austin, Texas) have successfully allowed fiber network builders to use micro- trenching as the preferred construction methodology to deploy broadband and other telecommunication services. Effective January 2022, state law requires the City to allow micro-trenching for the installation of underground fiber if the installation in the micro-trench is limited to fiber, unless the City makes a written finding that allowing micro-trenching for a fiber installation would have a specific, adverse impact on the public health or safety. The law also requires the City to adopt or amend its existing policies, ordinances, codes, or construction rules to allow for micro- trenching for fiber. The Public Works Department in collaboration with the City Attorney’s Office, Utilities and Urban Forestry, is developing a micro-trenching standard for the City. As of the writing of this report, the City has not received any inquiries from the incumbent ISPs (wired and wireless) to use micro-trenching to deploy fiber. As a part of ongoing efforts to explore potential cost savings for building FTTP, staff evaluated micro-trenching and found although there may be construction cost savings of $10 – $20 million (high level estimate) in the undergrounded “last mile” portions of a FTTP network, these savings are unlikely to be fully realized due to cost factors which would offset a significant portion of potential savings. These cost factors include but are not limited to future outages, tree root protection, and impacts to street conditions. For a more thorough calculation of cost savings applying micro-trench, Magellan may need up to four months to conduct a field survey in the underground areas and redesign the architecture of the FTTP network. Although micro-trenching has the potential to result in reduced construction costs and faster implementation time in high density and rural areas, staff’s research suggests there are long- term risks in Palo Alto such as network reliability, impact to the City’s street pavement condition index score, and the effect on tree canopies – all of which may significantly outweigh 6 Packet Pg. 109 City of Palo Alto Page 5 the construction benefits. Based on these concerns, staff does not recommend using micro- trenching to build the FTTP network in underground districts. Use of Fiber surplus for FTTP and other City services To date, the City has accumulated a surplus of approximately $34 million through its dark fiber licensing revenues. The existing surplus may be used for capital expenditures related to the fiber network, including the FTTP buildout. However, the potential uses for future surpluses are less certain because the legal landscape regarding local government revenues is complex and frequently subject to litigation and ballot initiatives. Staff will continue to monitor legal developments that potentially affect the Fiber utility. Options to build FTTP and enhance broadband service in Palo Alto Upon review of the findings from the joint session and follow-up information incorporated into this report, options for providing FTTP and enhancing broadband service were narrowed down to the following three: Option 1. Build backbone and citywide FTTP within five years with $98M of Revenue Bond financing Based on the current business models and anticipated construction costs for the fiber backbone and FTTP distribution network, the project team estimates a funding gap of approximately $98 million to be allocated in both the Fiber Fund and Electric Fund. The allocation for the construction costs and the bond financing structure would still need to be finalized based on actual plans. Costs Current Estimates 2022 Fiber Backbone $25.6 M Fiber-to-the-Premise $102.3 M Working Capital Set Aside $15.0 M Total Costs $142.9 M Funding Current Estimates 2022 Cost Savings if Built Jointly ($10.9 M) Existing Fiber Fund ($34.0 M) Total New Funding Required $98.0 M New Funding Allocation* Fiber $80 M - $85 M Electric $13 M - $18 M Utility Revenue Bonds are a cost-effective option for long-term capital improvement projects with a large funding gap such as the $98M in this project. There are various revenue bonds structures and potential bond rating assumptions which could be applied for the fiber backbone 6 Packet Pg. 110 City of Palo Alto Page 6 and FTTP distribution network. The bonds are anticipated to be issued by both the Fiber Optics Fund for the FTTP construction, and the Electric Fund for the building the fiber backbone. Given the financial strength of the reserves, assets, and lack of current debt by the Electric utility, the new revenue bonds for the backbone and FTTP has little to no impact on potential future Electric bond issuance(s). The Electric utility is the City’s financially strongest utility, and the other City utilities with outstanding bonds have a triple A credit ratings from Standard and Poor’s therefore, staff anticipates the Electric utility will also receive the highest credit rating as well. The credit rating for the Fiber utility is less certain, as is the credit rating for a combined (Fiber and Electric) bonds issuance. The allocation of construction costs between the two funds and the bond financing structure is still being finalized, and the potential bond rating will be determined after a rating presentation (usually occurs a month prior to the bond issuance). The table below shows the preliminary potential bond structures estimated on a 30-year $98 million (par) bond issuance needed to fund the project gap for the following scenarios: Scenari o Rating Capitalize d Interest All-In True Interest Cost Annual Average Debt Service Total Debt Service (net of Capl) 1* AA+ 18 months 4.42% $6.47 M $186.82 M 2** AA+ None 4.42% $5.96 M $179.45 M 3* AA 18 months 4.49% $6.52 M $188.34 M 4** AA None 4.49% $6.01 M $180.80 M *Scenarios 1 and 3: 18 months Capitalized Interest. First three (interest only) semi-annual debt service payments during project construction are paid by bond funds. This amount is added to the principal bond issuance. **Scenarios 2 and 4: No capitalized interest. First debt service would be due six months after the bond issuance. One of the primary advantages of option 1 is that it provides every resident and business in Palo Alto with equal access to Palo Alto Fiber within five years. Construction bid prices will be more favorable and competitive than option 2 and 3 because of larger construction project and economies of scale, and the customer take rates would be higher due to speed to market, marketing campaign, and favorable momentum for Palo Alto Fiber. In addition to providing fast, reliable and cost-competitive internet access to all residents and businesses, the new FTTP network will provide more dark fiber licensing opportunities, support “smart city” initiatives for all departments, and serve as future telecommunication infrastructure for City or third-party needs. The disadvantages of option 1 is uncertainty of the customer take rate percentage and how existing ISP incumbents will respond. The take rate is key to making Palo Alto Fiber financially 6 Packet Pg. 111 City of Palo Alto Page 7 sustainable, and existing ISP incumbents may respond in an adversarial manner to further impact take rtes. If the Palo Alto Fiber cannot attain a minimum take rate of 25% after the build out, the City will have to identify other sources of funding to repay the outstanding debt amount. Option 2. Build fiber backbone and FTTP with existing fiber reserves under a phased approach. Phasing the deployment approach reduces the need for bond financing which reduces the City’s financial risk. It also allows the City to begin construction in areas with higher potential take rates, slowly ramping up instead of committing to a full deployment. The phased approach allows the City to build revenues from deployments which could then be reinvested each year to build out more of the fiber network in subsequent areas on an incremental basis instead of taking on more debt. If successful, this model would eventually cover 100% of the City. Staff will provide key financial information (i.e. number of subscribers, revenue, expenses) on a regular basis to inform Council of the new FTTP business. With this information, Council can decide whether the City should 1) continue the phased approach; 2) seek revenue bond financing to accelerate the buildout; 3) pause FTTP expansion. Under the phased approach and assuming a $20 million capital investment from the Fiber Fund, the City can provide access to 20% - 30% of homes and businesses in phase 1. Magellan developed three potential phase 1 deployment models for FTTP with the following initial build out scenarios: 1. Areas with the lowest construction cost and highest density 2. Areas with the highest demand based on deposits 3. Areas without AT&T Fiber, with the goal of increasing take rates Areas of Lowest Cost, Highest Density Areas of Highest Demand Areas without AT&T Fiber Total Cost $20 M $20 M $20 M Single-Family with Access 4,231 3,540 3,186 Multi-Family with Access 6,213 4,712 4,594 Total Homes with Access 10,444 8,252 7,780 Total Businesses with Access 1,064 879 912 Total Homes and Businesses with Access 11,508 9,131 8,692 Option 2 provides the advantage of requiring no initial bond financing. With $34M of Fiber Reserves and $13 - $18M contributions from the Electric Fund, the City can build a dedicated 6 Packet Pg. 112 City of Palo Alto Page 8 fiber backbone for the Electric utility to enhance reliability, security, redundancy, and future electric-related initiatives such as automated SCADA sensors. The City will also be able to provide internet access to approximately 20% - 30% of homes and residents who prefer to switch to City-owned ISP. Council can decide whether to accelerate or decelerate the FTTP expansion plan in one or two years based on how the deployment of Phase 1 goes. Under Option 2, the City will evaluate the feasibility of integrating FTTP expansion into future capital improvement projects such as electric grid modernization, electrification and undergrounding. The disadvantages of Option 2 are primarily its longer implementation time, which would likely impact take rates and weaken the City’s competitive position. Additionally, the phased approach could impact equity as not all parts of the community would be built out at the same time. Option 3. Build fiber backbone, Pause City-owned ISP plans, and Collaborate with private ISPs The City’s fiber optic backbone network was planned, designed and constructed in the mid to late 1990s. The estimated useful life of fiber plant is typically 30 to 40 years. The Utilities Department began to license dark fiber service connections for commercial purposes in the late 1990s. Since then, several sections of the fiber network have reached capacity, which limits the City's ability to effectively serve its existing customers and acquire new customers. Building the fiber backbone is essential to maintaining and improving network reliability, increasing network coverage and capacity for commercial dark fiber customers, and supporting various “smart city” initiatives for City departments such as Information Technology, Office of Emergency Services, Public Safety, Public Works, Transportation and Utilities. In light of future network and service upgrade plans by the incumbent ISPs and the development of emerging technologies such as mobile and fixed 5G wireless, instead of building out the last mile the same time, the City may postpone its FTTP development. The City could, instead, identify resources to improve coordination of City policies, processes, and access to communication infrastructure in the PROW to facilitate network upgrades. These efforts could enhance transparency and predictability for ISPs planning network upgrades and/or building new networks. In general, municipal strategies for advancing broadband deployment without building their own FTTP are typically to: 1. Facilitate access to key assets such as fiber, communication conduit and utility poles in the PROW in addition to access to City-owned real property; 2. Provide frequently used information such as construction standards and pole requirements to potential broadband service providers; and 3. Streamline and publicize local construction, PROW and permitting processes. The Option 3 benefits of proceeding with building the fiber backbone provides a more robust network and increases capacity to possibly create new opportunities for dark fiber licensing and enable “smart city” initiatives such as sensor infrastructure, traffic management, and smart parking. Rather than allocate the dark fiber reserve fund to a multi-year FTTP construction project, these funds could be redistributed to support other City initiatives such as grid 6 Packet Pg. 113 City of Palo Alto Page 9 modernization or electrification. Instead of building FTTP, the City could focus on working with existing ISPs to enhance broadband service throughout the City with substantially less financial investment and risk for the City as delivery of broadband services would be completely controlled by the existing providers. The downside of Option 3 is if postponing FTTP resumed at a future date, labor and materials costs may be higher, other providers may be further entrenched, and the City’s share of the market would be limited or more difficult to compete, dwindling chances for the community to invest in a community-owned asset. New technologies such as wireless could evolve and become widely available to residents and businesses, further reducing market share. The net result to the community for postponing FTTP is a loss in the opportunity for the City to maintain local control of how broadband is delivered in Palo Alto citizens and businesses, in terms of pricing, internet speeds, net neutrality, and privacy. Resource Impact Option 1 Option 2 Option 3 Description Fiber Backbone + FTTP in 5 Years Fiber Backbone + $20M FTTP Phase 1 Fiber Backbone + Pause City FTTP Expenses: Fiber Backbone $25.6 M $25.6 M $25.6 M Fiber-to-the-Premises $102.3 M $20.0 M $ 0.0 Working Capital $15.0 M $3.0M $ 0.0 Total Costs $142.9 M $48.6 M $25.6 M Funding: Cost Savings if Built Jointly ($10.9 M) ($1.7 M) - Fiber Fund ($34.0 M) ($34.0 M) ($12.8 M) Electric Fund $0.00 ($12.9 M) ($12.8 M) Total Funding/Savings ($57.9M) ($48.6 M) ($25.6 M) New Funding Required $98.0M* $ 0.0 $ 0.0 * Allocation of revenue bond between Electric and Fiber will be determined based on actual construction costs. 6 Packet Pg. 114 City of Palo Alto Page 10 Stakeholder Engagement On September 19, 2022, City Council and Utilities Advisory Commission held a public joint session to discuss the City’s fiber expansion plan and specifically FTTP. The joint session included information for Council and UAC as they consider next steps for FTTP. The information included FTTP engineering design details, construction cost estimates, market analysis results, financial models, and organizational structure options. Environmental Review This report is not a project for the purpose of the California Environmental Quality Act (CEQA). Attachments: • Attachment A: Comparison Chart • Attachment B: Presentation 6 Packet Pg. 115 Attachment A. Comparison to Other Muncipalities with Fiber Examples of Municipal Broadband in California City Type Utilities Offered Incumbent Telecom Providers City-owned FTTP Additional comments/notes Alameda Electric AT&T; Xfinity No Hybrid Fiber Coax network sold to Comcast in 2008. Anaheim Dark Fiber, Electric, Water AT&T; Spectrum No Atherton, Town of None AT&T; Xfinity No Atherton Fiber is not a municipally-owned enterprise. City allowed PROW access. Beverly Hills Solid Waste, Storm Water, Waste Water, Water AT&T; Spectrum Yes Citywide FTTP project halted and resumed, currently the project is under evaluation. Brentwood Garbage, Sewer, Water AT&T; Xfinity No City leases conduit to Sonic in select areas of the city where the city installed empty communication conduit for new housing developments. Burbank Dark Fiber1, Electric, Water AT&T; Spectrum No Commercial Dark Fiber and Business Internet Services. Culver City Dark Fiber, Electric, Water AT&T; Spectrum No Partnership with CLEC Onward - Business Internet. Glendale Dark Fiber, Electric, Water AT&T; Spectrum No Curently working with Magellan on Fiber Optic Business Plan for network expansion Huntington Beach Dark Fiber1, Sewer, Trash, Water Spectrum; Frontier No Loma Linda Refuse, Sewer, Water AT&T; Spectrum Yes1 City FTTP is limited to select areas and provided to homes built after 2004. Los Angeles Dark Fiber1, Electric, Water AT&T; Spectrum No Commercial Dark Fiber and Business Internet Services. Ontario Dark Fiber, Wastewater, Water Spectrum; Frontier No Partnership with CLEC Onward - Residential and Business Internet. Palo Alto Dark Fiber, Electric, Gas, Wastewater, Water AT&T; Xfinity TBD Pasadena Electric, Water AT&T; Spectrum No Commercial Dark Fiber and Business Internet Services. Rancho Cucamonga Broadband, Electric, Water AT&T; Spectrum No City Muni Broadband partners with CLEC Onward - Residential & Business Internet. City funded the fiber. Riverside Dark Fiber, Electric, Water AT&T; Spectrum No Council recently approved agreement with SiFi to build FTTP ($300M) - Open Access Model. San Bruno Fiber, Solid Waste, Waste Water, Water AT&T; San Bruno CityNet Yes2 City-owned San Bruno CityNet Services is the incumbent cable franchise operator. Former name San Bruno Cable. San Leandro None AT&T; Xfinity No City provides conduit while rivate partner provides the fiber and services to businesses for "Lit San Leandro". Santa Clara Dark Fiber, Garbage, Sewer, Water AT&T; Xfinity No Santa Clara electric utility is called Silicon Valley Power. Santa Cruz Water AT&T; Xfinity No 2016: Drop efforts for City and local ISP Curzio Internet to build FTTP under a public-private partnership agreement branded Santa Cruz Fiber. City is not involved with the limited self-funded builds. Santa Monica Dark Fiber, Resource Recovery, Sewer, Water Spectrum; Frontier No Commerical dark fiber and Business Internet Services. San Francisco Dark Fiber, Wastewater, Water AT&T; Xfinity No Shafter Fiber, Sewer, Trash, Water Optimum; AT&T Yes Business and residential FTTP - ISPs include Level 3 and Vast Networks. Vallejo Water AT&T; Xfinity No Partnership with CLEC Onward - Residential and Business Internet. 1. Limited to regions/market segments 2. Hybrid Fiber Coax instead of just Fiber 3. Public-Private Partnership (P3) 6.a Packet Pg. 116 At t a c h m e n t : A t t a c h m e n t A : C o m p a r i s o n C h a r t ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) Building the Fiber Backbone and Options for Fiber-to-the-Premises November 2, 2022 PALO ALTO llill 6.b Packet Pg. 117 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 2 AGENDA •Informational update from Joint Session on Sept. 19, 2022 •Comparisons to California Municipalities with Fiber •Benefits and Risks of Micro-trenching •Use of Fiber Fund Surplus •Fiber-to-the-Premises (FTTP) Deployment Options •Option 1: Build FTTP within five years with revenue bond •Option 2: Phased buildout of FTTP without bond financing •Option 3: Pause FTTP efforts 6.b Packet Pg. 118 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 3 Comparison to Other California Municipalities Citywide fiber optic network master plan Dark fiber licensing and commercial lit internet service Limited FTTP in selected areas Public-private partnership or franchise agreements No city in California is providing city-owned and citywide FTTP 6.b Packet Pg. 119 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 4 Micro-trenching for Fiber Thinner, shallower cuts with average depth of 8-16 inches versus traditional fiber depth of 24-36 inches. Advantages: reduce construction costs by 40%- 50% and accelerate timeline by 3-4 times Disadvantages: vulnerable to dig ups of fiber, outages, deteriorating road conditions, and tree root intrusion Staff does not recommend micro-trenching in Palo Alto currently. City is developing a micro-trench standard to comply with state law. Image from https://certusview.com/microtrenching/ Street Surface Asphalt Sealer Street Sub-Surface Flowable Non-Shrinking Backfill 6.b Packet Pg. 120 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 5 Use of Fiber Fund Surplus •$34 million of fiber surplus accumulated between 2000 - 2022 •Dark fiber surplus –capital expenditures related to the fiber network, including the FTTP buildout •FTTP fiber surplus –potential uses are less certain due to legal landscape regarding local government revenues Staff will continue to monitor legal developments that potentially affect the Fiber utility. 6.b Packet Pg. 121 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 6 FIBER BACKBONE EXPANSION •Fiber backbone is recommended under all 3 options •Estimated construction cost -$25.6M •Funded by electric and fiber funds; cost and fiber strand allocation will depend on selected option •Supports the City’s fiber licensing service and internal needs: •Existing backbone is reaching end of life 30 –40 years •Improves fiber and electric system reliability •Enables more connectivity for City departments •Provides new capacity for dark fiber licensing 6.b Packet Pg. 122 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 7 OPTION 1-FULL DEPLOYMENT (ADVANTAGES) Advantages to build FTTP within five years with revenue bond •All residents and businesses have equal access to fiber and provides another ISP choice •Higher internet speed and more reliability •Local control including pricing, net neutrality, privacy and data caps •Infrastructure to support for smart city applications to manage traffic, climate, public safety, emergency operations and other civic functions •Reduction in internet spending and improved internet services for entire community 6.b Packet Pg. 123 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 8 OPTION 1-FULL DEPLOYMENT (DISADVANTAGES) Disadvantages of building FTTP within five years with revenue bond •Risk in competition with existing providers •Risk in executing the construction project •Learning curve in operating a competitive business •Take rates of less than 25% would require City to slow down construction and/or subsidize 6.b Packet Pg. 124 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) - 9 OPTION 2 –PHASED DEPLOYMENT •$20M of capital from fiber fund for Phase 1 of FTTP •Enables the City to start deployment debt-free •Deployment options: •Areas with lowest construction cost, highest density •Areas with highest demand (based on deposits) •Areas with least competition 6.b Packet Pg. 125 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -10 OPTION 2-PHASED DEPLOYMENT -ADVANTAGES •No new bonding required •Less financial risk and no debt service •Provide access to 20% -30% of homes and businesses in first phase •Allows the City to build expertise before committing to a full deployment •Allows City to pivot if take rate is below minimum requirement 6.b Packet Pg. 126 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -11 OPTION 2-PHASED DEPLOYMENT -DISADVANTAGES •No economies of scale if buildout is limited •Uncertainty of when residents or businesses have access •Competition is likely to be first to market in other areas, inhibiting the City’s “first mover” advantage if it chooses to continue buildout •Limited benefit of the communications infrastructure to support the City’s needs •Utilities •City departments •Smart and wireless applications 6.b Packet Pg. 127 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -12 OPTION 2 –PHASED DEPLOYMENT SCENARIOS Areas of Lowest Cost, Highest Density Areas of Highest Demand Areas with Least Competition Total Cost $20M $20M $20M Single-Family with Access 4,231 3,540 3,186 Multi-Family with Access 6,213 4,712 4,594 Total Homes with Access 10,444 8,252 7,780 Total Business Access 1,064 879 912 6.b Packet Pg. 128 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -13 OPTION 3-PAUSE FTTP -ADVANTAGES •No capital is invested in FTTP by the City, no risk is taken •City does not compete with existing providers •Incremental benefits to the community by collaborating with existing providers •Fiber surplus can be reinvested 6.b Packet Pg. 129 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -14 OPTION 3-PAUSE FTTP -DISADVANTAGES •City has limited influence over internet services that residents and businesses receive •Speeds •Quality •Pricing •Customer service •No benefit from the FTTP network to support the City’s needs •Utilities •City departments •Smart city applications 6.b Packet Pg. 130 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -15 COST COMPARISONS (In Millions) Option 1 Option 2 Option 3 Description Fiber Backbone + FTTP in 5 Years Fiber Backbone + $20M FTTP Phase 1 Fiber Backbone + Pause City FTTP Expenses: Fiber Backbone $25.6 M $25.6 M $25.6 M Fiber-to-the-Premises $102.3 M $20.0 M $ 0.0 Working Capital $15.0 M $3.0M $ 0.0 Total Costs $142.9 M $48.6 M $25.6 M Funding: Cost Savings if Built Jointly ($10.9 M)($1.7 M)- Fiber Fund ($34.0 M)($34.0 M)($12.8 M) Electric Fund $0.00 ($12.9 M)($12.8 M) Total Funding/Savings ($44.9M)($48.6 M)($25.6 M) New Funding Required $98.0M*$ 0.0 $ 0.0 * Allocation of revenue bond between Electric and Fiber will be determined based on actual construction costs. 6.b Packet Pg. 131 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s ) -16 UAC RECOMMENDATION Staff recommends the UAC select one of the three options to recommend for Council approval: •Option 1. Build Fiber Backbone and FTTP within 5 years with revenue bond of up to $98M •Option 2. Build Fiber Backbone and Phase FTTP buildout without bond financing •Option 3. Build Fiber Backbone, Pause FTTP efforts, and Collaborate with private ISPs 6.b Packet Pg. 132 At t a c h m e n t : A t t a c h m e n t B : P r e s e n t a t i o n ( 1 4 8 4 5 : O p t i o n s f o r F i b e r - t o - t h e - P r e m i s e s )