Electric Co-ops Eye Broadband as Policymakers Review State Restrictions

"A 50,000-member cooperative has the potential for economic benefits of $10 million to $16.6 million today and $15.1 million to $25.2 million by 2027,” NRECA said last week, “driven by the improved resiliency and reliability of the grid.” Co-ops are well positioned to offer consumer broadband “because they already have much of the needed infrastructure and have existing relationships with their member-consumers,” the paper said. Selling internet or triple-play services “potentially opens a large, new revenue stream for cooperatives,” it said.

After Tennessee lawmakers last year lifted restrictions, the Public Utility Commission got broadband proposals from co-ops seeking to serve “large swaths” of rural land with faster service, said John Hutton, a telecom consultant in the PUC Utility Division. The agency has a petition pending in docket 18-0020 from electric co-op SVEConnect, seeking a competitive video and cable certificate to do businesses in seven cities and unincorporated parts of Marion and Franklin counties. Last August, the PUC granted a CLEC certificate to Tri-County Fiber Communications to provide fiber broadband and VoIP to four counties; the company also has territory in neighboring Kentucky. It’s only a few co-ops so far and not all will follow, Hutton said, but it’s “really going to make a difference.”

The law spurred “tremendous interest” by co-ops, with seven of the state’s 22 “actively building a project right now,” said Tennessee Electric Cooperative Association Vice President-Government Affairs Mike Knotts. “Expect that number to grow.” Owned by the people receiving service, these entities responded to increasing demand in recent years for broadband service, Knotts said. He said residents told co-ops, “It’s you or nobody.”

Gibson Connect plans to provide retail broadband in its 2,800-square-mile service footprint in northwestern Tennessee and western Kentucky, serving 39,000 electric meters including 31,500 residential locations, said Vice President-Operations Charles Phillips. Gibson will provide residents up to 1 Gbps over a gigabit-capable passive optical network (GPON), he emailed: “About 42% of our customers had no access to broadband (less than 10/1Mbps) and the majority of the remaining had access to speeds of 25/3Mbps, but with no competition.” Gibson is now providing service to limited areas, with main construction on the project’s first phase starting this month, Phillips said. The first phase will pass 9,000 meters, he said.

States are looking at electric co-op broadband due to “growing recognition that we’ve got to do something different to make sure we are providing an opportunity for rural Americans to have access to high-quality broadband,” Matheson said. More co-ops are getting involved as consumer demand surges, said the NRECA head. It’s not only unserved areas that want fast broadband but also underserved rural areas where speeds “don’t match the needs,” he said. Investing in fiber backbone is part of being a utility today, he said. “That creates a potential asset that can be leveraged in terms of retail service.”

Tennessee's law requires a co-op selling broadband to serve all its electric customers, said Knotts: “No cherry-picking.” All current Tennessee co-op projects are fiber to the premise, he said. They “build fiber for the benefit of the electric system first,” with real-time grid monitoring requiring low latency, Knotts said. “The ability to sell broadband is a secondary benefit.” Traditional phone companies don’t have the same long-term, “mission-critical” motivation to invest in fiber, he said. Co-ops can build quickly because they already own poles and easements for building networks, with a 2018 state law clarifying they can use that infrastructure for broadband, Knotts said. Co-ops may not use electric revenue to subsidize the broadband network, he said.

Tennessee kept a state law restricting expansion beyond service territory for co-ops and municipal broadband projects. Legislative efforts to allow expansion have been unsuccessful after the law was upheld by the 6th U.S. Circuit Court of Appeals (see 1803130051). Lifting restrictions on expansion outside service territories is a “political” issue with much resistance, Hutton said. Big ISPs’ attitude has been, “We don't want them to serve but we're not going to serve them, either,” he said. AT&T and CenturyLink declined comment.

Policymakers shouldn’t stop co-ops from getting into broadband but should limit deployment to unserved areas, said Free State Foundation President Randolph May. “When electric co-ops get in the broadband business, there are necessarily concerns regarding unfair competition vis-a-vis private sector providers,” May said. “Typically, the electric co-ops receive various forms of federal and state aid and below-market loans in connection with their provision of electricity service.” An NRECA spokesperson replied, "As with many other utilities and companies, federal financing and loan guarantee programs are an essential component in our business model and make it possible for electric cooperatives to bring reliable electric service and, increasingly, high-speed internet access to areas that are rural, remote and expensive to serve."

“The economics make sense because of the shared network infrastructure,” but some state laws and regulations make it tough for co-ops to sell broadband, said Blair Levin of the Brookings Institution and New Street. Much federal attention is paid to local broadband barriers, but less has been paid to state constraints, he said. There may be some legitimate concerns with allowing co-ops to expand, but “most policy is about tradeoffs,” Levin said. “The concerns are way overblown and the upside for rural residents … is huge.”