Northwest News

Shifting costs to Click justified, accounting firm says

A recent shift of costs from Tacoma Power to the city-owned cable system was largely justified, according to an accounting firm hired by Tacoma Public Utilities. But utility leaders still overstated Click Cable TV’s losses to the City Council earlier this year.

TPU, which oversees both Tacoma Power and Click Cable TV, had long used a 2003 study that showed Click should pay for 76 percent of maintenance costs of the city’s fiber and coaxial cable network. Two years ago, an in-house analysis increased that amount to 96 percent.

The accounting firm Moss Adams mostly concurred with how TPU assesses costs to the Click network.

“They suggested we do an update, which we did, and it changed our prior report slightly, which is fine,” TPU Director Bill Gaines said Thursday morning.

The update revised costs to Click slightly downward, from 96 percent to 94 percent of the costs of maintaining the fiber and cable network.

Under the updated analysis, Click is operating at a $7.6 million annual loss. That’s less than the $9.5 million loss TPU officials cited to the City Council in March, but still significantly more than the $700,000 loss that would be attributed to Click under the original 2003 cost analysis.

Utility board members asked staff at a meeting Wednesday why the figure given to the council in March was as high as it was. TPU executives say they estimated Click’s deficit for the council presentation by assuming it bore all of the costs of the fiber and cable network.

When board member Bryan Flint asked why they rounded up, budget staff balked at his question.

“The reality is, the outcome is the same,” said Chris Robinson, Tacoma Power superintendent. “We are having a lot of discussion about a relatively small amount of dollars.”

“We are going to fix it going forward,” Gaines said of Click’s financial picture in presentations.

The March presentation to council pitched a plan to lease Click’s infrastructure to Kirkland-based Wave, which would provide cable and Internet service to customers here. Since then, Tacoma-based Rainier Connect stepped forward to match Wave’s offer.

Click’s share of network operation costs isn’t the only reason it’s losing money. The cable system also is on the hook for debt payments of roughly $2 million a year to repay Tacoma Power’s initial investment in the network.

Tacoma Power paid cash to build the initial network, which cost about $86 million. Click is repaying the power utility for 27 percent of that cost, said Bill Berry, a rate planning and analysis manager for TPU.

The debt is structured as if it had a 5.5 percent interest rate over 20 years. Gaines said that’s reasonable because if TPU had not spent that money, it could be investing the money at a 3 to 4 percent rate of return. Tacoma Power initially built some of the network to communicate with smart meters, dams and substations. TPU will not continue installing the wired smart meters. Because the power utility is using less of the network, more of the ongoing costs should be borne by Click, the 2013 cost analysis states.

The new financial analysis, like the old one, assumes the Tacoma City Council will approve a 17.5 percent cable rate increase this year, and a 10 percent rate increase in 2016, Berry said. A Tacoma City Council subcommittee declined to move the 17.5 percent rate increase forward at a meeting last month. The analysis also assumes a 10 percent increase in the rate wholesale Internet providers pay, Gaines said.

TPU bosses have said that anything Click cannot pay will be borne by Tacoma Power customers, not all of whom can buy Click cable or Internet service. The subsidy represents about 2.5 percent to 3 percent of a power customer’s monthly bill, or about $3.20 to $3.84 on the $128 monthly bill of a typical residential customer with electric heat, Gaines has said.

As originally envisioned, Click was to be a self-supporting enterprise, according to Bob Mack, TPU deputy director for public affairs. Click never reached the 40,000-plus cable subscribers predicted when the system launched — today around 19,500 people buy cable service from Click.

Early supporters also did not foresee plummeting cable subscription numbers or the rise of the Internet’s popularity. Nor did they predict the meteoric rise of retransmission fees, which are paid by Click to broadcasters to retransmit signals from networks like ABC and FOX.