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HomeMy WebLinkAbout2000-12-13 City CouncilTO: City of Palo Alto C ty Manager’s,Report HONORABLE CITY COUNCIL 1"2oi FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE: SUBJECT: NOVEMBER 13, 2000 CMR:419:00 RECOMMENDATION TO APPROVE THE BUSINESS PLAN FOR THE CONTINUED DEVELOPMENT AND GROWTH OF THE DARK FIBER LEASING PROGRAM AND CONCEPTUALLY APPROVE THE ESTABLISHMENT OF A FIBER UTILITY RECOMMENDATION The Utilities Advisory Commission recommends that Council: Approve expanding the organization and staff to support the Dark Fiber Leasing Program contingent upon staff returning to Council with a Budget Amendment Ordinance outlining the additional staffing requirements and any other operational support costs that may be identified. - Staff recommends that Council: Conceptually approve the Fiber Utility Strategic/Operations Plan cohtingent on staff returning with a comprehensive implementation plan for establishing a Fiber Utility and modifying the presentation to include strategies from the Utilities Department Strategic Plan. PROJECT DESCRIPTION The Fiber Utility Operations/Strategic Plan is a working document outlining various aspects of establishing and operating an independent Fiber Utility. It is intended to be a high-level document that focuses on select key issues related to the ongoing operations of fiber optic ventures within the City of Palo Alto. Some of the immediate issues include: Growing the dark fiber leasing program; The impacts of competition in the City; The importance and benefits of conducting a Fiber to the Home Trial; Projected revenues and potential expenses; Conducting research to explore other potential fiber related initiatives; CMR:419:00 Page 1 of 4 Expanding staff to support the increased scope of operations; and Identifying and minimizing risks associated with operating a fiber utility. While the plan does not outline the specifics for establishing an independent Fiber Utility, it is expected that a full implementation plan will be developed and presented at a future date in support of establishing such an entity within the City of Palo Alto. BOARD/COMMISSION REVIEW AND RECOMMENDATIONS The Utilities Advisory Commission (UAC) unanimously passed a motion to recommend that the City Council approve the steps recommended by staff to further the utilization of the City’s dark fiber backbone and to inform the Council that the UAC continues to endorse the fiber-to-the-home trial. This motion passed 4-0 at the UAC meeting held 11/1/00. The need for additional staff required to support ongoing operations of the Dark Fiber Leasing Program was discussed. Presently resources are being shared within the Electric group and critical elements of the fiber unit are not being accomplished. Additionally, response time goals to the customer are not being met. It was also discussed that the revenues from the dark fiber leasing show that it is a viable program and that without the support to further develop this business there is a great potential for lost business and revenues. Existing customers, as a result of their marketing efforts, have submitted the majority of the new engineering requests. Completion of these projects result in limited additional revenues since there is rarely an increased scope of fiber backbone leased. Previous employees that have left and are now working for other local service providers have also created other customer demands. When the network was p!anned, it was perceived that a number of" service providers and telecommunication carriers would come in and lease bundles of fiber instead of building out their own network. Unfortunately, that did not occur. Not only have some of the major carriers still built out their own network through Palo Alto, technology shifts have also made it possible to carry more traffi~ on limited strands of fiber. This enforces the need for the dark fiber program staff to market the service to other businesses. Each customer the City establishes service with results in leased fiber and increased revenue. In general, each customer another service provider contracts, results in an insignificant revenue gain and no additional fiber backbone lease. Presently there is no dedicated marketing effort in place. Such an effort would only increase the demands on an already limited resource pool. However, it is paramount that such a marketing effort be implemented. A majority of small and medium sized CMR:419:00 Page 2 of 4 -businesses are not being solicited while the aggressive marketing efforts of other service providers focus on larger customers. As a result of the discussions at the UAC, a recommendation from a Commission member was made it modify the Fiber Plan to reflect the strategies as outlined in the Utilities Department Strategic Plan and later present it as an information item to the City Council. Other discussion from another Commission member suggested that he would support an intended plan of going forward with an independent, financially accountable Fiber Utility. RESOURCE IMPACT Four additional staff members are required for the remainder of this year and 1 additional person (splicing crew) will be anticipated for July 2001. There are two present temporary positions available for splicing that will be evaluated prior to making the decision to hire another full time line-crew member. The following staff positions are foreseen to be required in support of expanding the Dark Fiber Leasing Program. The Dark Fiber group is also researching outsourcing capabilities with regards to construction of substructure. Project Estimator and Work Order Preparation Marketing/Sales Representative Project Coordinator, Account Manager Office Specialist The graph below shows the increase in revenues assuming a conservative 20 percent ¯ growth projection through 2005. It also shows the estimated expenses associated with an increase in labor and other associated operational expenses. To summarize, there are sufficient long-term lease agreements in place to recover the initial funding of the dark fiber network project. While increasing the staff to support present operations and market to new customers will have a short-term effect on the recovery of the initial funding, the annual growth projections of 20 percent become increasingly conservative as the utility’s abilities to meet customer requests and attract new customers improve. CMR:419:00 Page 3 of 4 $3,000 $2,500 $2,000 $1,500 $1,000 $5OO $o Sales Cost of Sales Net Profit 2000 2001 2002 2003 2004 2005 1000 1200 1440 1728 2073 2488 370 720 792 871 958 1054 630 480 648 857 1115 1434 Projected Dark Fiber Sales and Expenses 2000-2005 (Values in O00’s) POLICY IMPLICATIONS This presently does not represent any changes from current City policies. However, in the future, should the staff pursue establishing a Fiber Utility: such action would result in changes to current City policies. ATTACHMENTS Attachment "A": City of Palo Alto Utilities, Fiber Utility Operations/Strategic Plan PREPARED BY: Leo Creger DEPARTEMENT HEAD APPROVAL: ULRICH Utilities CITY MANAGER APPROVAL: HARRISON Assistant City Manager CMR:419:00 Page 4 of 4 c~ 0 , © I © o ~ o~,~ o~,~ s,o00$ m. sonI~A ~,0005 u! ~onlVA Utilities Advisory Committee November 1, 2000 Excerpt Minutes- Item 3 Fiber .Business Plan Ferguson: If anybody else wishes to speak on item 3, the Fiber Business Plan~ at the close of the slide presentation, please pass a slip up here to One of the Utility Staffers. Leo do you want to just launch into it? Crew: What I’d like to present is really a revision to the plan from the last meeting in October. It has undergone changes in lieu of the recommendations made previously as well as some other thoughts as to how to present this and an argument to support what it is we want to do with the fiber business. We start off by calling this a fiber utility. I think that is definitely more indicative of wl-iat we want to be. Not just necessarily a dark fiber lease service. The Mission Statement, Be the premier utility of fiber optic services in the City of Palo Alto with a high level of commitment to the community. Offered services will have high customer value with quality of service that exceeds our customer’s expectations. The market summary, somewhat similai" to wheat you had seen previously. The City of Palo Alto’ s dark fiber highway is a reliable infrastructure that enables the interconnection between telecommunication service providers and City of Palo Alto businesses. There are multiple service providers that lease dark fiber from the City of Pal0 Alto to market their services to local businesses. These service providers tend to focus on potential customers fitting specific revenue characteristics. Due to financial profiles that they select many small, medium and home-based businesses are not being served or even solicited. Many growing City of Palo Alto businesses may also rely on the dark fiber as a means of providing facility interconnectivity between their buildings. The fiber business unit offers a high level of expertise in the design, construction and operation of a fiber optic communication network. Businesses contract with the City of Palo Alto to install and receive access to a dark fiber network with high reliability. There are many reasons for this motivation including to provide a competitive high quality service for the City of Palo Alto, to fill a void in the Palo Alto telecommunications market with a locally owned, managed and operated fiber utility in lieu of some. of the comments we’ve read we really value the importance of this, leverage on similarities in operating an electric and telecommunications utility which when combined may provide for improved asset utilization and efficiency, and to generate revenues to be added to the City’s General Fund. The issue of risk. We must realize that a municipal owned fiber utility is a new business concept. There are inherent risks. Competition has a growing number of companies that are trying to .become a part of this business every day. I know it; I’m getting the calls. Technology shifts are also a risk. What we have today in terms of single mode fiber, infrastructure, equipment, the technology shifts can actually be competition. Service failure. The risk that the venture could fail resulting, from system failures, inadequate customer suppo.rt or lack of planning. That is a risk. The financial risk. There is the risk that the venture may’not generate the revenues to cover the implementation or ongoing support cost. I’d like to talk alittle bit about the competition. They vary in type from the local exchange carriers to wireless solution providers. They compete by providing services to companies based on global alliances and national service agreements. They also compete by leasing limited fiber infrastructure and using technology to maximize lease bandwidth to a larger number of customers. Something when the fiber plan was first developed probably wasn’t conceived. As equipment and technologies continue to evolve present equipment and infrastructure can become obsolete. Dawe__.__~s: Can you disclose specific names of these competitors or no? Crew: If we think about how we minimize these risks there are a couple ways. In the risk of competition many companies out there provide bundled services and charge by bandwidth. We have a different model and I’ll show those models here briefly. Their customers are solicited selectively. We don’t target a specific customer. We w~int the open access. We want any business to realize they can come to us for service or we want to go out after those businesses. The criteria that the competition uses typically leaves out a large number of small, medium and home-based businesses and dismisses any fiber to the home program. It is not in their interest to do that today because they have revenues they want to generate for stockholder value. We don’t have that same scenario to achieve so again, we have ~i means of minimizing that risk. Service failure, our dark fiber-leasing program has had customers for over three years without a single connectivity failure. We need to build a fiber utility staff to assure continued high customer service levels. That’s imperative: To minimize the financial risks, knowing that the existing leases for the dark fiber are sufficient to cover the initial project investment and that future growth from this point on will lead to additional revenues for the city above the initial investment. [Bear] model. What I show here is a typical model of the competition where they are a single service provider. The page shows four single customer connections. For the City of Palo Alto their backbone, two strands of fiber leased, one customer connected to the City of Palo Alto. A common package provided by the service provider can include internet, installation and bandwidth leasing. The technology out today can support many more customers than the four you see there on the existing lease pair. In our model the single service provider or the exchange if we think of the Palo Alto Internet Exchange will service single customer connections similarly. The difference here is with us in this scenario we have eight leased fibers for the City of Palo Alto and we connect four customers thereby diversifying our customer base, minimizing the risk of any single industry affecting us more than another. When we lease the dark fiber to the customer, the customer is responsible for the equipment to generate the desired bandwidth. The City of Palo Alto will charge a fixed price for the fiber regardless of the bandwidth used by the customer. So what is the difference? Well, in their model as the demand for bandwidth or Internet usage increases their revenues should ideally increase. As bandwidth compression equipment advances they are able to support more customers without increasing their leased fiber requirements. In our model, our increase in revenue is dependent on the increase of customers leasing the dark fiber. We lease dedicated secure fiber at a fixed cost regardless of the bandwidth increases the customer requires. What’s nice about this for the customer, for them to increase bandwidth becomes a one- time customer expense to upgrade equipment that they use. Ferguson: Leo, can I interrupt right here because this is the right place to answer this question. How in the world do we enforce the use of our model as against their model? Why doesn’t everybody just gravitate to their model? What is our ability to induce if not enforce the use of our model? Crew: The two big ones that I mentioned there. One is the secure fiber. A customer likes, believe it or not, even though you try and convince them that with virtual networks and even though they are sharing bandwidth on fiber that their path is secure to them only they still have the notion that if they are the only ones on that fiber they feel secure knowing that only their access to that fiber is going to be allowed. That is one thing we offer. The second one is back to the bandwidth side. If they want 100-megabit bandwidth connection, they buy the equipment to do that. If they want a gigabit bandwidth connection, they buy the equipment to do that. We lease the fiber to them at the same cost regardless of their bandwidth requirement. In the competitors model as their bandwidth requirements go up their lease rates go up. The more bandwidth they use the more cost. Additionally, the difficulties are the time delays that might be experienced in provisioning additional bandwidth when you have multiple customers on those fiber strands. There is some more effort involved in making sure that that bandwidth is available for them in the shared fiber model. Ferguson: Thank you. Cre.ger: What do we need to do? We need to establish a fiber utility and augment the staff to support marketing and increased customer requests. We need marketing sales representatives, estimators, planners, administrative support, installers and maintenance support. We will continue to have ongoing interface with the other departments within the City, Finance, Public Works, people who assist us today in our fiber endeavors. We also need to market, market and market. We need to focus on the unsolicited businesses to secure long-term leases. Those will include small, medium size businesses, home-based business. We need to try and provide alternatives for construction and installation financing. One of the roadblocks to a smaller company establishing fiber service with the City is the large interconnection cost they might incur to hook up initially to the fiber. So if we are actually creative in trying to work with them to finance that with them, that would be a solution that we could offer. We need to conduct some marketing research and review the legal issues related to developing a high speed internet service for businesses with minimal employees. So for those companies that have just a few employees and could never envision needing a gigabit bandwidth, do we Want to pursue that other model for those type of businesses if they are not being serviced today? That is something we should do some research and look into down the road. We need to investigate partnerships with businesses by providing infrastructure in return for a percentage of revenue. That might be another avenue that we can pursue. We need to leverage our dark fiber to minimize the proliferation of other networks being installed in the City. We already know of two major carriers that will be doing installations in the City that we could possibly minimize some of the road dig ups and construction efforts if we were able to work a deal with them to utilize the dark fiber. My third item here of what we need to do, we need to proceed with a fiber to home trial. We need to do this for a number of reasons. One is to evaluate the construction methodology and determine feasibility for a citywide rollout. We need to determine what is required to maintain a high level of reliability in this system. We need to determine what the customer expectations are and their satisfaction levels with the service. We need to develop cost models and business plan for a citywide build-out. We need to determine if there are other services other than just Internet that are readily available and help those providers develop cost models. They don’t have cost models today either because they don’t have a place to p.ut their service. We need to future-proof the network by building more than what is needed today. We need to uphold the image that the City of Palo Alto strives to lead technological change. I added this last one that I like. We need to market our lessons learned. We get a lot of demands from outside groups, other cities, businesses about what is the City of Palo Alto doing with fiber to the home. I think there is a big benefit in trying to share some of those things later on. Other opportunities. To expand into other fiber related services by leveraging current relationships with businesses and other utilities. Enhance the City of Palo Alto.’s scope of service offerings by developing strategies to maximize the use of dark fiber. Develop a strategic alliance and partnerships with various service providers that can promote a mutual long term revenue stream and increase the City of Palo Alto’s scope of service offerings. Ideally, two of the big carriers coming in would be a possibility. If we could provide turnkey infrastructure solution and consulting services to customers without the expertise or resources to do this, that would be another opportunity that the City could offer. We need to investigate the possibilities to interconnect with neighboring fiber networks to increase the dark fiber utilization in the City of Palo Alto. Thinking of Silicon Valley Power, PG&E, other people who have dark fiber. We have customers who want to get other places. There are customers outside who want to come here. What are our concerns? I mentioned previously that the larger branded competition is here. They are starting to compete in our area. These larger branded competitors are typically the regional and national competitors that offer services we presently can’t compete with or they have a national agreement with some company to provide all their fiber services wherever they are. The increasing real estate costs will drive businesses to nearby cities. The impacts of losing a PAIX II facility to a neighboring city is big concern. High workload demands on the present staff. Marketing may bring in a customer that operations is unable to accommodate presently. And ourselves, the City of Palo Alto has imposed policies and practices which may impede our ability to respond quickly to competition and the loss of key employees may result in lost accounts and lost expertise. As I mentioned before we have to build a group that is exciting, dynamic, fun to work at, to hopefully minimize those losses. Goals and Objectives. From previously 22 customers with 6% network utilization during initial efforts which is prior to 2000. In 1999, 45 engineering requests, over 180 to date in the year 2000. There is a comment here that a number of requests submitted this year were to develop cost estimates for our customers marketing efforts. If they had the cost information up front to go to a customer they were a few steps ahead and could respond to that customer’s demand a little quicker. So they have actually paid to have estimates done for key customers in advance. Break even revenue equals expenses was achieved in February 2000. Goals over the next three years. One million dollars in revenue in the year 2000 with 20% growth on out. I mentioned 20% growth, in the first two years we had 100% growth. It is pretty easy to do when you are going from nothing to a little and a little to a little more with the number of competitors that are in the marketplace we are going to see that the number of customers that are approachable will soon drop. We also think that there will be some implications of consolidation, as some of these businesses tend to merge as they seem to do quite often.’ We may find that some customers fall out or other may join up. So what I’d like say is a 20% growth rate now is a good conservative estimate that supports the financial model for moving forward. I don’t think it’s unreasonable at this point to believe 20% is unachievable. A positive cash balance in the year 2000. Net income more than 33% of sales in the year 2002. Two new long-term customers a quarter. Long term being defined as greater than a three-year lease. Most of them we are seeing now are five to ten years. Client diversity with less than 40% concentration in any single industry. And to expand our fiber into remaining areas of Palo Alto. The revenues and expense projection, if you recall last time I had discussed the fact that I was trying to pull together a number of the revenue figures for the year 2000. This is at this point our best effort and continues to be refined. For the year 2000 we are over one million dollars, at this point. So in effect we have met our 2000 goal to date. What I would like to point out is the expense increase and the net revenue decrease that you would see in the year 2001 is based on the fact that I’m assuming that I will have a staff that grows from where I am today. Then it carries out from there. On the second graph there, net re.venues and balance, which is the one that I am particularly more interested in. You will see the result of the 20% annual gross taking into account the expenses of the included labor, connection costs, and everything else that goes into the dark fiber program and the leasing there. By the year 2005 we are projecting a balance of four million dollars. Rewards. Why do we want to do this? We want to provide another service to the City that generates revenue for return to the City of Palo Alto General Fund. We want to provide a highly reliable communication infrastructure for both the businesses and the residents in the City of Palo Alto. We want to provide a network that promotes and supports open access for service providers and a choice of providers for the end users. The satisfaction of knowing we created positive results out of what was once thought a highly unlikely venture. Lastly, we want to be recognized as a City with innovative programs, striving to set the lead for other municipals to follow. Key Issues. Near term, establish the fiber utility and the staff. Market, market, market. Refine our process within the department integrating a central management system to keep track of our customers. Evaluate our in-house and outsourcing capabilities associated with our fiber teams, our construction efforts, our consulting efforts. And we want to develop a beneficial partnership alliance for the City. Over long term, obviously continue to market. Integrate a fully capable consulting staff that will provide turn-key solutions, recommendations for prospective customers, be recognized as the experts in the fiber optic industry in the City of Palo Alto, use the revenues for expansion into remaining residential and business neighborhoods, and evaluate future service offerings as market conditions allow. If I can point out in the long term, that second from the last there, the intention isn’t to suggest that we would take the revenues from dark fiber and build out a fiber to the home. We realize that while the revenues are there we would rather use that build out our existing infrastructure and support that. To do a fiber to the home we fully believe if it is going to be a citywide rollout some other alternative for funding is going to be required. That concludes this brief. Ferguson: Great. Thank you Leo. As promised this is time for public comment. I have two slips here. Let’s start with Marvin .~e. Mr. Marvin Lee, 1241 Harker Avenue, Palo Alto: I live in the center of the community center neighborhood. I’d like to compliment the Staff on the work that they did. I would however, at the same time like to point out that a point could have been made also when you were in your discussion earlier on strategic planning that the one element that was missing was continual community input. The interesting thing is that Monday night the City Manager held a meeting, John you were there, Rick was there, Bern was there. I don’t know if the others were there. In any event the entire City Council and the entire Senior Staff for the City was there. What the City Manager announced with the support of the entire City Council as expressed by Sandy Akins was that we have come to a turning point. That from now forward because of some major errors on the part of the City Council and Staff we were going to turn increasingly to the community for discussions of priorities, for discussions of what should be done and how it should be done, and that this will be the mode of operation. They have, according to Emily Harrison’s report this morning, asked for additional meetings with the community to discuss priorities and Emily Harrison reported they had 85 invitations to hold meetings in homes, which, they can’t possibly do. Nonetheless, it gives an indication that the community wants this. We want to be participants in the process. Since we’re just about to step into a new era, the era of telecommunications, it is time for us to face up to the fact that we have a community that is more knowledgeable than the Council, more knowledgeable than the Staff. And as Gary Fazzino put it one day from the Mayor’s position, people come up to you as members of the Council and they think that they are smarter than you are and the fact is they are. We have an incredible number of highly skilled and highly intelligent people in this community and they want to be part of that process. John, this is aimed at you. We have asked you many, many times on behalf of [PA Fibernet] to be participants in the discussion in the shaping of this process. The most that I’ve received from you personally is a phone call. I would like then to make a new offer. Since one of the items that came up Monday night was a criticism of the City for using and extensive number of very high cost consultants. I have been authorized by many of the people in the community to offer our services as consultants, professional consultants of the highest possible level, on all levels of engineering and technical design, to you for one dollar a year. Now, that should not be too exorbitant a figure for you to be able to handle. It is a way for us to indicate to you that we are dead serious that we want to be part of this process. And we will be part of this process, if necessary we will do it in spite of your objections. So I would like to compliment the Staff on what they did do. I would like to point out that if John had incorporated the community early we would have been able to tell you that you did not have in your strategic planning telecommunications as a necessary future component, and we would have been happy to elaborate on it. Thank you very much. Ferguson: Thank you Mr. Lee. Arthur Keller. Mr. Keller: Thank you very much. We have the opportunity here to build a utility for the 21st century and beyond. We have to thank Marks and Spencer about 100 years ago for having the foresight for the City of Palo Alto to own its own utilities. As we heard, I noted from Mr. Rosenbaum earlier tonight, the Western Power Association or whatever exactly it is called is going to bring our electric wholesale rates to the City in such a manner that the surplus currently from the electric utilities that it partly goes to the City of Palo Alto coffers will decrease. We have an opportunity in the next 100 years to replace. We can do so in a few years by building out a fiber at home project which will be profitable once it recovers costs in about five or six years, based on the projections that were done and were shown for other statistics that were done earlier. I know that I myself want to and am willing to pay for fiber at home if it were available today I would write you a check. In fact, if you want, here is my checkbook. The fact of the matter is that right now I am paying $90 a month for 600 and some odd kilobits per second which is one-thirteenth of what I could get with a fiber at home project at the lower speed rate. The price would be somewhat comparable to the $90 a month I’m currently paying, maybe $10-15 more or less. When the study was done where the utilities asked in a not very well publicized letter that was a bill insert in the utility bill, my understanding is about 1,000 residential utility customers were interested in having fiber to the home delivered to their home and having high speed access. I think that there is an opportunity here to capitalize on that. As time goes on, some of those people are finding alternatives. But I, nonetheless, think that with the cost effectiveness of fiber at home the greater speed and not much more cost, people will opt for fiber because of its great speed and cost effectiveness. I want you to think creatively. Think about possibilities for revenue. For example, if fiber to the home were a reality today there are other companies out there, competitive local exchange carriers, that would love to use fiber to the home in order to provide residential telephone service. Do you think that Sprint or MCI would like to provide residential telephone service by leasing capacity on a fiber to the home service? I think that they might well be willing to do that. That can provide a significant revenue source to the City, not merely data access but simply leasing capacity in that fiber. I think that we could think about using revenue bonds or similar financial techniques for providing a funding mechanism for a fiber to the home initiative. I for one would be willing to buy some of those bonds. Thank you very much. Ferguson: Thank you Mr. Keller. We have a third note here from Herb Borock. Mr. Herb Borock, P.O. Box 632, Palo Alto: Good evening Chairman Ferguson and members of the Commission. I’d like to talk to you about three different things. One is the availability of documents related to agenda items as required by the Brown Act. The ’second is a couple items related to the fiber backbone. The third is the business plan before you. I understand that you have copies on paper of this slide show that we were viewing. Under the Brown Act that means that they should have been available for the public as well to be looking at the past three hours. There is no reason why this is the first time to do it. I hope that in the future that material is available on a timely basis. I know that there has been a cycle as there always is in government with getting those kinds of rules implemented. I know it has been an up and down thing with the Utilities Advisory Commission in relation to the Utilities Department from the beginning when this Commission was formed as it has gone through different directors of the department. The second thing I would like to refer to and to get information on by the time this goes to Council are two items related to the fiber backbone. The first is the network that was adopted by the Council for implementation included some fiber backbone run from the utility substation at Newell and Embarcadero, continuing down Embarcadero to Middlefield Road, and down Middlefield Road all the way to the substation at West Meadow. It was indicated that a portion of that would be delayed so that it could be implemented at the same time as the underground district in Leland Manor. One of the last things when Mr. Starr was still the Assistant Director was we were told that that wasn’t gong to be implemented because there wasn’t demand from residents. But there was never any Council direction to change that. So I need to know how much of that originally adopted link along Middlefield Road has not been implemented. For the part that has not been implemented whether there has been conduit installed for it, and how much it would cost to implement what was originally approved. The second thing has to do with the change in the pricing structure. I don’t recall whether it went through this Commission but there was a change made at the Council for long term contracts for a large customer. Although Staff and Mr. Starr had decided that he did not want to say who it was for, he did discuss it at the meeting with the Vice- Mayor who felt that she had a potential conflict. It would seem to me it would be for PAIX who had intended to install a server farm on West Bayshore Road, which they are now not going to do. I think that pricing structure needs to be reviewed again because it may have been structured to serve a particular client who was available rather than making a decision for ar~y client. The third thing has to do with the Fiber Business Plan. I agree with Mr. Keller that one possibility is revenue bonds. But the question is where does the money come from to pay off the revenue bonds? It seems to me that you can’t separate the fiber utility as it is being used now from the various implementations of it, whether it is fiber to the home or universal service, that what the current revenue begins provide is a bootstrap to help start paying off revenue bonds. That if you start parceling out the funds it becomes less likely to implement a universal system. So really the question is all of this information and analysis is excellent but you have to make a bold move. And the bold move is whether or not you want to go ahead and do a universal service fiber to the home and then find the means to make it happen. I’m concerned that the most risk averse group in the process is going to drive it. That is, if the Utilities Department is more risk averse than the City Manager’s Office, the proposal that you are going to get is what the Utilities Department wants. And if it is vis versa, if the City Manager’s Office is more risk averse that’s the proposal that would come before Council. If it is the Council that is the most risk averse, that’s what we are going to end up getting approved. Unless the public is brought in, as Mr. Lee has suggested, early in the process in an active way because I believe that in the community there is strong support for this if people are permitted to participate in the process in a full way. Thank you. Ferguson: Thank you Mr. Borock. Just as a point of information, John. It is true at the last meeting we didn’t have advance distribution of the first draft slides on the fiber business plan but we did play the slides and collect good comments. In the intervening month did the Utility Department get any written or email or telephoned comments or additions to that document which was publicly available at the meeting? Ulrich: I don’t believe so. We’ve had people talk to us and we are well aware of the general comments and consensus of the community because it is active and they do talk to us and we do have communication. But I don’t have specific written comments as you asked. Ferguson: Okay. Commissioners, any comments on the Fiber Business Plan? Dawes_: AT&T is supposed to building a much more advanced system partially fiber, partially co-ax to address some of these needs. Has there been any thought to talk with AT&T about joining forces to build an advanced state-of-the-art thing in a way that would optimize both of our .... minimize our inputs and maximize our outputs? Creger: There has been discussion in fact we have talked with RCN as well. We have looked at talking to AT&T about that same idea. What we are finding in our discussions though it that they do not lend or they do not tend to want to support open access which is one of our primary goals and objectives of a fiber to the home program. It would seem like they are willing to support City initiatives, i.e., meter-reading and other things that are conducive to the City but I would tend to believe that they would want be able to preempt some service that we want to put over in favor of them doing that service first. Dawes: Thank you. Ferguson: Mr. Rosenbaum. Rosenbaum: John, what is the specific action you are requesting of us? Ulrich: At the last meeting we provided a draft and specifically it would be to embrace the strategies and the plan as outlined tonight to have us go forward and proceed to develop an organization built around expansion of the dark fiber system and .begin moving into the regt of the community and look at fiber to the home trial as the beginning of further expansion to try out and utilize the technology that we learned and meet the commitment that we’ve been attempting to do to serve the neighborhood area with our first trial. Rosenbaum: How about the issue of establishing a separate fiber utility distinct from the electric utility? Is that part of the plan? Ulrich: That would be addressed in the Strategic Plan. As you know we are not technically a telecommunication utility because it is not listed specifically in the charter. So we would have to explore how to do that. In the meantime we believe we can expand and actually establish a fiber backbone without content by just being an infrastructure provider and do that as an adjunct to the electric business. Rosenbaum: So more specifically there is no recommendation at the current time to establish a fiber utility. Is that understood by everybody? Ulrich: Based on lack of it being in the charter, I think I can ask that be done at this point but that is our intent as we move forward. Rosenbaum: It is not in the charter but it would be easy to recommend that the charter be revised to establish a fiber utility. It is not clear to me whether you are making that recommendation or we have sort of a general business plan that is going to involve hiring more people and hoping it all works out.. Ulrich: Well, the latter is more correct for this evening. I am not sure whether I can ask you to embrace us as being a fiber utility at this point but that is our intent. That is the direction that we are moving in and will be back to ask for that more specifically at a later date. Rosenbaum: Well, I guess I’d be happier if there were a request for a fiber utility in this business were to be set off by itself and were to have to produce a profit and transfer to the general fund and if there were some arrangement to pay back the electric utility their two million dollars, I think it would focus us. You have a request in here to hire some number of people, I don’t want to get into that, that is your business but I am a little concern about doing that as a part of the electric utility. Ulrich: I think we have taken this a step as you noticed there is no request here to go to the Council and ask for increased funding or additional budget or additional resources. I can’t hire anybody or expand the organization without approval of. the City Council. My intent was to finish putting this together and then come back with a specific number of people but in the meantime begin the expansion by filling in the fiber system. As we currently have, in order to make more revenue off of what’s existing there now through a marketing effort and expand what Leo and his team are doing and also to come back as our commitment, as you recall, we went out with a second RFP in August and we evaluated those and received them back and we are close to making the recommendation which we would fold into the fiber-to-the-home trial and come back to the Council with a recommendation for expansion and building that out. Ferguson: Is that something that you want to have complete by the council meeting of November 13? Ulrich: I am not sure that we are able to do that. We are actively negotiating discussion with the parties that responded to the RFP and I’m not sure we’ll have that completed. Ferguson: So help me understand and correlate the data that Commissioner Rosenbaum’s comments and questions. What about this fiber plan do you want to present next to Council. If we said this looks good tonight, what would you do with it next to Council? Ulrich: I would take this and have it on the agenda for the 13th of November at the Council. Fer~uson: Is it fair to say that our acting on this simply approves a more detailed expansion of the fiber utility bullet in the larger strategic plan. Ulrich.~___i Yes. Ferguson: So, another Way of saying it is on November 13th you’d like to be able to go to Council and say here’s the Strategic Plan as the UAC finally got comfortable with it, what do you think of it in general and that in specifics, as a for example, here’s one of the innovative new things we would like to explore more fully with your advice and approval as one component of the Strategic Plan. Ulrich: I think the answer is yes. As you recall these two areas, the Strategic Plan and the Fiber Plan have been going along in parallel. In the Fiber Plan, several people mentioned that they didn’t see it in there, but it is, in my mind, and it is in the Strategic Plan as an additional service that we would get into as additional revenue to the city as the change in the electric or the gas business would reduce the amount of return that We could get from that business. It seems to me to be a very appropriate type of adjunct in addition to our other infrastructure and our other business by moving into the fiber business. So I see it clearly as part of the Strategic Plan and as an addition to what we are currently doing. Great business that we ought to be moving forward with. We have not at this point as alluded to by a number of speakers tonight as we have not found a way to finance the significant of our cost that will be to totally build out a total fiber system to the community. The problem is the same as everyone else has is they have not found the need that can be supported by revenue to build out immediately fiber to everybody in the community. There’s clearly people that would benefit from it, that would want to pay for it and would be a great value. So I think that’s the goal that we should have to move towards and get that done. That’s why the Fiber Plan is written the way it is. We can expand what we currently know how to do and do well. Start rolling in additional revenue. What was pointed out by Leo and a couple of the speakers, you’re going to have a dynamic and bold move to find a way to finance this and have a risk model that you are comfortable with, that the City’s comfortable with and how it will ~be paid back. I have no doubt in my mind that this is an opportunity for us and we should be moving ahead on it. What we are trying to do is go through a planning process like this to make sure that everybody in the community is interested in it and our role of doing that is to bring it to you and onto the Council. Ferguson: So given the timing that you had just outlined, is it fair to say that the decision to sign the contract with one of the fiber-to-the-home bidder, that decision is going to come to the Council in November, first of December? Ulrich: Yes, I would like to very much be able to do that. Its only a matter of getting it all together and coming forward. Frankly, we have a recommendation that we are trying to put together and be able to present it. Ferguson: So one of the useful things that we could do here is to make sure that the larger utility strategy is understood and agreed to by Council and under that strategy we have our first draft strategy for defining and building a fiber utility business whenever it gets divorced officially in the accounting system. But that all sets the backdrop come November 13. It sets the backdrop before the Council’s decision to finally sign a contract to build out the fiber-to-the-home trial. Is that correct? Ulrich: Yes. Like I said I will categorize it that way. Maybe in one sense we are moving too fast and I’ve heard tonight that maybe we are not getting enough public support and comment. I believe, contrary to that, that we will have plenty of opportunity to design and build an appropriate fiber system that will meet the needs of people and will be willing to pay for it. I think categorically, the bad decision to go and build something without having customers support it and want to have it in the community itself must be part of that decision. Ferguson: Okay, that’s helpful context. I really hope that the strategic planning and the fiber planning here don’t inadvertently get in the way of driving home the decision to sign a contract to build out for the trial. Thank you, Commissioner Rosenbaum for the triak The RFP that is out now is for the contractor to build out for the trial so do you see a risk of that? Are these things flowing in a logical lockstep? Are we increasing the risk of a delay in the fiber-to-the-home trial? Ulrich: I don’t think there is a risk in a delay if you are comfortable to approve as we recommend in this format to move ahead with the fiber plan and put the meat on the bones and to make it work. Again, the commitment for resources and for funding, as what we would bring back in a very clear Plan and cost and how it will be done and hopefully, find a way to pay for it. Ferguson: I hope we can stay on that schedule and its time to come to a closure on the launch of the fiber-to-the-home trial. Ulrich: What we did was, I went back and looked at the correspondence file and in August we wrote a letter to all the people that have diligently put their money up and have very active in trying to have us build this. In that letter, we said we would be getting all the proposals back and evaluating it, which will lead to a construction contract in November. So I am pleased that we are moving, as quickly as we said in that letter because we have had a lot of correspondence and a lot of delays. I think if you look back at where we were at a year ago, just after I got here, we were talking about whether everything should be paid for and that there would be absolutely no risk to the City and we’.ve moved a long way from that so I plan to keep on focusing on it and getting it done. Ferguson: Great. I have several comments and I’ve hogged the microphone here too long so I’ll turn to the other Commissioners. Any other comments on the Fiber Plan? Carlson: I’ve got some here, if I can go ahead. I think you’re asking for three things here. You’re asking to move ahead with more staff, more marketing for dark fiber, sounds great. You’re asking to go ahead with the fiber-to-the-home trial, I thought we already approved that, but there’s an implication that we’re going to go ahead with full scale planning for full scale fiber-to-the-home. We got these two tiny molehills; we’ve got this big mountain here. I’m much more interested in the mountain and I ’m hearing some extremely contradictory things about exactly what this mountain looks like. I’m hearing that we don’t really know what the demand is and what the uses are. I know from all the work I’m doing in this area that the private sector is uncertain, pulling back, losing their bond ratings, nobody is really quite ready to step up and put the big dollars into doing this on a broad basis. I’ve got. all these enthusiasts waving their hand and saying its wonderful, there’s a huge demand out there, boy, this is one of the best justifications that I’ve ever seen and sitting back and saying if its all that great than the private sector is going to do it and we shouldn’t be taking that kind of risk. Is it like easy falling off a log, automatically profitable, everybody loves it, or is it very risky, which is it? What exactly is the reason for the Government doing venturing into this clearly pretty uncertain area where certain some enthusiasts think it might be? Ulrich: -That is an area we think about an awful lot. As I mentioned a few minutes ago, some people have brought it up, its going to be very expensive, its going to be multi million dollars, 25 million dollars plus to build out a full system and a lot of benefit technology has made big leaps since we first started talking about the fiber-to-the-home. One of the reasons we want to start conquering the molehill side of it is to learn more from it, minimize the amount of money, but also to make a commitment that we are here to try new things because people of Palo Alto want it and we also know the real business need as our other utilities may not be able to bring in the same revenues because of competition, we need to be able to look at ways to expand revenue opportunities that can take the place of it. We feel very confident that we’ll be leaders in doing that in the fiber area but how to finance it and when people are ready for it, and how to pay for it, that’s the bold leap that was suggested earlier and we are going to have to evaluate quite a bit and have tremendous amount of input from our customers to know that that is where they want us to go. It can be a role, and you have heard me talk the opposite side of this before, it can be a clear role of a government and a city-owned utility to make some of those bold areas and not expect to have an immediate return but will be willing to take the long road to get that money returned that something that a privaie business couldn’t afford to do. We should be able to or should be willing to look at that ’and decide whether that’s an area that our customers and citizens want us to do. Then we’ll be able to go after the big mountain. Carlson: I’m delighted to do that experiment and find out what the demand really is but this is nothing close to our strategic plan that justifies going full scale. We need a tremendous amount of data to go after that mountain. Ulrich: I agree. That would be the plan to gather that information and again not make commitments for spending this bold amount of money and making something much bigger than we know about until we evaluate it further. Ferguson: Any other comments? Commissioner Rosenbaum. Rosenbaum: Just a general comment first. I am sure, John, you appreciate the irony of hoping to increase revenues out of concern that we no longer have a monopoly on electricity by entering a very competitive business with little companies that have people who work twelve hours a day, six days a week. This is a real nut to crack. My concern is a more basic one. We’ve got something in front of us which I assume you plan to take to Council that says City of Palo Alto Fiber Utility. That’s pretty clear and then you tell me that that is not what you are asking for now. I guess what I would like to say, I’m sort of in sympathy with Dick Carlson, there’s a couple of molehills, one we are going ahead with, presumably if we can work out the contract for the fiber-to-the-home trial and I think what you’re really asking for at this time is whether to expand the current effort to use the dark fiber and I think and believe that the Council would appreciate a very focused report saying that this is what we want to do and we want to hire some more people and what its going to cost and we recognize its going to cost more but we think that this will expedite the recovery and at least our initial investment and getting something back. Make a good case of that. I don’t have that in front of me now and I don’t know what I would recommend to the Council based on what you have presented to us so far and you want to go to Council on November 13 with something on fiber. Ulrich: Well, I do and I think I can understand what you’re driving at. I think what we are doing is putting out in front of us where we want-to go and have clarity about that direction but to get to the mountain, ! am not prepared to have a plan that says we are going to do that but to do the molehills along the way the fiber development trial and expansion of the dark fiber is clearly something we want to move ahead with. I think you have to put out, as we did in this document, a more general direction, what the big picture is, where we are going to go but we are not prepared to be able to say specifically how we are going to get there, at this point. So I would appreciate any help and support you can focus back at us to help us get that moving along and suggest clear directions that we can ask for from the City Council. Rosenbaum: Let me follow up on what Dick Carlson said. There are a number of things. One is the establishment of a fiber utility that’s not a trivial task, in terms of promoting fiber. It has both advantages and disadvantages. A fiber utility is an enterprise that would have to stand on its own and would be expected to return profit and to really focus your interest on whether or not to hire these extra people because you’ve really got to be convinced that they are going to be bringing in more than they would cost. So I see a fiber utility or the establishment of a fiber utility which Council would like to see the establishment of a fiber utility that shows vision which gives them an opportunity to show they are looking into the future. That’s one issue. That is independent on whether or not you go out to hire some more people to promote the dark fiber program which I see more likely to succeed. I see that as a separate issue. On this big issue of fiber-to-the- home, that’s way off into the distance, 25 million, 50 million, you’re not recommending that. I think that. you have made it very clear in here that you are not at this time recommending fiber-to-the-home and I think the people in the audience that have waited all this time, recognize that. The fiber-to-the-home trial, that’s going on anyway. So, if you want some feedback from me, I would say to focus on what it is that you want to do right away which is the dark fiber further implementation, prepare something and present that to us and then send that on to the Council. Ulrich: I think the latter part is articulated in the document because we are specific about the additional people and the expectations from the revenue stream that Leo has laid out. I think I can do that without an agreement from Council that we move in and become this full fledged fiber utility and the boot strapping that we are doing is using the revenues that have been generated from the initial investment was made by the electric fund into the establishment of the dark fiber system. I think that would be an excellent next innovative step that we would take to expand, be more profitable with the existing assets, the 31 plus miles that we put out by the additional marketing and the additional support folks that we need to make that happen and to increase the revenue. That’s in the plan. Rosenbaum: Dexter, I suspect that you have a lot more experience than I do in evaluating business plans essentially. Folks are coming to us and we are almost like venture capitalists here. Here is our plan, how do you evaluate this? Does this make sense to recommend to Council that we hire these expertise? Dawes: To me, the business has progressed enough and it shows considerable promise beyond where it is and I think the request for additional people to accelerate marketing and deployment of our assets is as made clear, the operations people are getting backed up and we need to put some muscle behind it. This is a very modest proposal. As far as any next steps, I think to rename it as utility, I don’t think that pertains to anything momentous at this point. I’d like to know when we think we are going to break ground on the trial. Its been a couple of years and going this basically says we are still working on it. I’d like to know when we are going to start work on it, so I could get some feedback from our universal RFQ. That whole thing just went into a huge black hole and maybe we’re sworn to secrecy by the offers but I’d like to get the wisdom of what was proposed or not proposed in that. Ferguson: I’d like to pose a question to Councilmember Beecham. At our last meeting, you asked a long series of very good tough critics that was questions. Just give us your top-level guesstimate of what percent of the criticisms and your questions that you made were answered and reflected in this draft? Beecham: Well, let me doubt that question. I will follow up more directly with John and staff and otherwise, tonight I am looking forward to your advisement and consideration. Ferguson: Okay, that was well done. Any other Commissioners have comments on the Plan? Let me offer some small changes. I think as a standalone document, this was fine as a second draft. I just don’t think its ready for Council. One thing that would help a lot and might make it a nifty addition to the November 13 meeting if it’s possible, is to restructure the facts that are in here. I suggest restructuring them according to the structure in the Strategic Plan itself. In other words, start with Mission Statement, where this Mission statement says we are one of the bundle in the full service and we think that’s an advantage and that’s jumping off point and proceed immediately as you did in the Strategic Plan to Key Objectives and say we are going to enhance utility customer satisfaction. In the case of fiber, what does that mean? What does it mean for the industrial customers and suggest what it means to residences. The City committed in the satisfying residences in the telecom policy decision in 95-96. You may not have data for it but at least put the bullet in here. One of the key objectives is investing in the utility infrastructure, deliver reliable service, show us what that high level strategic objective means in terms of the fiber business plan. Provide superior financial performances that the City in competitive prices to customers. We actually know a few things about that as a result of all the back and forth we did on the fiber-to-the-home trial debate. Suggest that here. We learned a couple of things about it, we are about ready to build it and learn a few more, hear some of the imp!ications for a larger residential build out. It could be this bad, might be this good, give it some practice. The last key objective, which is my favorite, the one think I asked for and pleaded for the last time, I didn’t see it in here at all and that tell us, particularly in the case of fiber, what are the key unique advantages of municipal ownership that are going to give us at least a half leg up over the little startups as well as the big billion dollar telecoms who might also be angling to provide broadband connectivity here. Similar that major efforts that are needed to strengthen our competitive positions. Follow the bullet structure that you have in the strategic plan and pick those that apply particularly to fiber and just knock them out. If you use that same structure, which you’ve presumably just sold to Council, in the first half of the November 13 session, than the fiber plan fits in, as an example. If the Council bought the high level strategic plan than you’ve got a ready made argument for fiber and it may be just an information item to go forward to Council at that point but at least we’ve started the show that we are going to start recasting all of these new utility behaviors whether its electric or fiber. We’re recasting them in terms of a larger strategy and I think if you do that instead of working at cross-purposes and maybe endangering the decision a couple of weeks later on fiber-to-the-home trial contract, it might give it a little more momentum. We start to get a shared analytical framework for thinking about all the new changes in the utility business. I’m convinced that the City Manager means what he says when he said the Utility Department is a place that looks good to try a whole bunch of innovation whether its administration or business or better administer staff rewards or whatever it might be, I think he means it. It’s a great place to start and our job to help him succeed at that is to help make sure that we get strategy right in each proposal under that strategy following that same framework. So, .with that structural change I could get behind this as an information item for the 13th. My preference if we can’t get that structural change, would be even to hold a special UAC meeting, mid month, get a better version out there and get it to Council along with or in time for fiber-to-the-home contract approval decision. I’d like it to be a best foot forward event rather than something we’re kind of explaining away and apologizing for because its not quite fully made. Do you need us to pass something formally here? Ulrich: Well, I think all of you had excellent comments. We can clearly make improvements. I’m just debating here and probably not the right form but I feel compelled and the back of my neck says we need to keep moving on this and not delay it and I know how the process works because there’s only a limited amount of time between now and the end of the year and the first of next year to have thing go in front of the Council for approval. As an information item, I don’t know if that takes the same impact than what we are trying to accomplish with having the fiber plan reviewed and okayed by the Council. The other side of it is I think it would be foolish to take it forward and give them something that have holes in it or problems with it so that is what I am sitting here and stating back at you trying to figure out how to do both and keep this moving along. Ferguson: Well, let me try to get us through the action item because its late here and we’ve got a couple of tiny little agenda items and we can finish up before 11 and call it quits. Let me move that the UAC approve the content of this fiber business plan as an information item for Council on the 13th provided that it be restructured to parallel the key features in this strategic plan and let me leave it at that that be the UAC decision tonight. Rosenbaum: Is that a motion? Ferguson: It’s a motion. Rosenbaum: Second. Ferguson: Any other discussion? Is there consciousness at work here? Rosenbaum: I guess I am not prepared to support that. I don’t think there is a service to the City Council in presenting this to them and telling them now we are not interested in the fiber utility now. I think the staff is interested in something very specific and that is what ought to really go to the Council and we can have a whole list of things but thi’s is what we are going to be proposing but we right now are interested in further augmenting the staff to better use of our dark fiber. That sort of thing I can support, I just don’t know what to make of this entire slide presentation so I would not support that motion. Ferguson: Any other comments to the motion? Dawes: I agree with Mr. Rosenbaum. Ferguson: Okay, the motion is not gding to pass. I will withdraw it. Does anyone here wants to offer another motion that gets this item closed? Dawes: One comment. From what I’ve heard from the’discussion, it seems to me that we need to augment this business that is starting to run now and if we don’t add critical skills, we are not going to satisfy our customers. We are going to take a hike and go some place else so if this is a request for additional headcount, I think certainly I would subscribe to that because I think we need, I mean we’ve labored for two years to get this thing profitable. It is, the number of requests for engineering support is sky rocketing and we are sitting with the same headcount as we had before. I mean lets support this thing. We’ve got two million bucks and its going to languish and now its rolling and suddenly we’re pulling back and saying we’re not going to do anything. I don’t understand it. If this is a support or request for hiring people, I don’t know how you want to make a motion for that or what, but I think we ought to get on with it. Rosenbaum: I will try a motion. The UAC recommends to Council that steps be taken as necessary to augment the, well, that is not the right word. Steps be taken to further the use of the dark fiber that we already have. Dawes: I don’t know what that means. Rosenbaum: Well, let’s try some other wording. I think you are right, Dexter Dawes: We are ready for hiring the people that they’ve asked for, how about that? Rosenbaum: That language is fine but I think the intent here is to say the UAC supports the necessary steps to advance the utilization of the dark fiber as recommended by staff. Let’s try that. I would move that the UAC recommends to Council those steps recommended by staff to further the utilization of our dark fiber backbone. Dawes: Would you specifically refer to what we need to do page and the presentation? Rosenbaum: Well, I would like to do that but the main bullet is establish a fiber utility. I think staff can run with that motion. So that is my motion. Carlson: I’ll second on that one. Ferguson: Okay, I’ll support that but it needs to be abundantly clear that we are already on track for the fiber-to-the-home trial build out decision by supporting this, the UAC supports the decision there as well. Ulrich: I think if you’d be willing to add what you just said to Mr. Rosenbaum’s motion, it makes it clearer to me and I hope to the Council that you’re .supporting the fiber backbone to bring as much revenue and to maximize that asset one of the things that we would expand to do would be to do the fiber-to-the-home trial. Ferguson: That is what I don’t’want to get lost here. If Commissioner Rosenbaum would permit that amendment, that would be terrific. Rosenbaum: Give me some words for that amendment. My assumption is that the fiber- to-the-home trial has already been approved. We are not being asked for that but you are worried, John that an action of the sort my motion suggested might lead to the Council thinking we did not support the fiber-to-the-home trial. Ulrich: Well, I am trying to get as much as I can this evening, but that is my objective. Rosenbaum: Furthermore, the UAC continues to endorse the fiber-to-the-home trial. would add that to my motion. Ferguson: Great, that will do the job. Carlson: I’ll second. Ferguson: Okay the motion has been amended. those in favor say aye. Thank you. That’s 4-0. Is there any more discussion, if not, all Ulrich: Well, the latter is more correct for this evening. I’m not sure I can ask you to embrace us being a fiber utility at this point but that is our intent. That’s the direction we’ve been moving in and we’ll be back to ask for that more specifically at a later date. Rosenbaum: I guess I’d be happier if there were a request for a fiber utility and this business were to be set off by itself and were to have to produce a profit and a transfer to the General Fund and if there were some arrangement to pay back the electric utility their two million dollars. I think it would really focus us. You’ve got a request in here to hire some number of people, I don’t want to get into that that’s your business, but I’m a little concerned about doing that as part of the electric utility. Ulrich: I think we’ve taken this a step. As you notice there is no request in here to go to the Council and ask for increased funding or additional budget or additional resources. I Can’t hire anybody and expand the organization without approval of the City Council. So my intent was to finish putting this together and then come back with a specific number of people. But in the meantime begin the expansion by filling in the fiber system as we currently have. In other words, make more revenue off of what’s existing there now through the marketing effort and expand what Leo and his team are doing. And also to come back as our commitment if you recall we went out with a second RFP in August and we evaluated those, received them back, and we are close to. making the recommendation which .we would fold into this fiber to home trial and come back to the Council with a recommendation for expansion and building that out. Ferguson: Is that something that you want to have complete by the Council meeting on the 13th? Ulrich: I’m not sure I’ll be able to do that. We are acti’vely negotiating discussion with the parties that responded to the RFP. I’m not sure we will have that completed. Ferguson: So help me understand as a corollary to Mr. Rosenbaum’s comments and questions. What about this fiber plan do you want to present next to Council? If we said, this looks good to us tonight, what would you do with it next with Council? Ulrich: I would take this and have it on the agenda for the 13th of November at the Council. Ferguson: Is it fair to say that our acting on this simply approves a more detailed expansion of the fiber utility bullet in the larger Strategic Plan? Ulrich: Yes. Ferguson: So, another way of saying it is on the 13th of November you’d like to be able to go to Council and say, here is the Strategic Plan as the UAC finally got comfortable with it. What do you think of it in general? And then in specifics, as a for example, here is one of the innovative new things we’d like to explore more fully with your advise and approval as one component of the Strategic Plan. Ulrich: I think the answer is yes. As you recall, these two areas, the Strategic Plan and the Fiber Plan have been going along in parallel. In the Fiber Plan several people mentioned that they didn’t see it in there but it is in my mind in the Strategic Plan as an additional service that we would get into as additional revenue to the City as the change in the electric or the gas business would reduce the amount of return that we could get from that business. This seems to me to be a very appropriate type of adjunct in addition to our other infrastructure and our other business by moving into the fiber business. So I see it clearly as part of the Strategic Plan as an addition to what we are currently doing. Great business, we ought to be moving forward with it. But we have not at this point, as alluded to by a number of the speakers tonight, we have not found a way to finance the significant amount of cost it will be to totally build out a total fiber system to the community. The problem is the same as everyone.else has; they have not found the need that can be supported by revenue to build out immediately fiber to everybody in the community. There are clearly people that would benefit from it, that .would want to pay for it, and would be a great value. So I think that’s the goal that we should have to move towards and get that done. That’s why the Fiber Plan is written the way it is. We can expand what we currently know how to do and do well, start building additional revenue, but as pointed out by Leo and a couple of the speakers you are going to have a dynamic and bold move to find a way to finance it and have a risk model that you/the City are comfortable with and how it will be l~aid back. I have no doubt in my mind that this is an opportunity for us and we should be moving ahead on it. What we are trying to do is go through a planning process like this to make sure that everybody in the community is interested in it. And our role in doing that is bringing it to you and then on to the Council. Ferguson: So given the timing that you’ve just outlined is it fair to say the decision to sign a contract with one of the fiber to the home bidders, that decision is going to come to Council in the November or first of December? Ulrich: Yes, I’d very much like to be able to do that. It is only a matter of getting it all together and coming forward. Frankly, we have a recommendation that we’re trying to put together and then be able to present it. Ferguson: So one of the useful things all of us could do here is :,~ make sure that the larger utilities strategy is understood and agreed to by Council and under that strategy we have our first draft strategy for defining and bailding a fiber utility business whenever it gets divorced officially in the accounting system. But that all sets the backdrop come November 13th. It sets the backdrop for the Council’s decision to finally sign a contract to build out the fiber to home trial. Is that correct? Ulrich: Yes. Maybe in one sense we are moving too fast. I’ve heard tonight that maybe we are not getting enough public support and comment. I believe contrary to that we will have plenty of opportunity to design and build and appropriate fiber system that will meet the needs of people and they are willing to pay for it. I think it would be categorically a bad decision to just go and build something without having customers support it and want to have it. The community itself must be part of that decision. Ferguson: Okay. That’s al! for context. I really hope that this Strategic Planning and the Fiber Planning here don’t inadvertently get in the way of driving home the decision to sign a contract for the build out. Thank you Commissioner Rosenbaum for the trial. The RFP that’s out now is for a contractor to build out for the trial. So do you see a risk of that?