Agendas and Minutes

Citizens' Budget Committee (View All)

Electric, Telecommunications, Computers, AFN

Minutes
Thursday, April 25, 2002

Agenda for the Budget Committee Meeting

 

Electric/Telecommunications/Computer/AFN

Agenda

April 25, 2002, 3:00pm

City Council Chambers, 1175 East Main Street

 

ROLL CALL

Present: Jim Moore, Alan DeBoer, Martin Levine, David Williams, Diana Goodwin-Shavey, Regina Stepahin, John Morrison, Cate Hartzell, Russ Silbiger, Don Laws, Raymond Olsen, Kate Jackson

Staff: Greg Scoles, Lee Tuneberg, Dick Wanderscheid, Richard Holbo, Mike Ainsworth, Scott Johnson, Joanie Baker, Kirsten Bakke

Others: Eric Johnson, Suzi Aufderheide, 321 North Mountain Sean Wolfe (Daily Tidings)

CALL TO ORDER

Levine called the meeting to order at 3:07pm.

PRESENTATIONS

Electric Page 3-79

Dick Wanderschied, Director, presented for the Electric Department, along with Scott Johnson, Operations Superintendent, Richard Holbo, Telecommunication Engineer and Mike Ainsworth, Cable Television Manager. Wanderschied began giving an overview of the Strategic Plan Goals they are proposing to accomplish in the budget year. Moore asked about the difference between the 2001-2002 Budget, which showed 27.5 full-time employees, and the 2002-2003 Proposed Budget showing 30.75 employees. Wanderschied said that Conservation (3.25 employees) moved to the Electric Department, adding two energy analysts and one water conservation analyst.

Computers Page 3-88

Richard Holbo presented for computers saying the most noteworthy change this year was the addition of personnel to assume management of the telephone system, which had been under Public Works and is now with Computer Services. He focused on the computer issues including licensing and software upgrades; a replacement, or spare box, will be in the City's finance system; and a back-up system, 119 gigabytes worth of data is now kept for the City, with twice that amount available. He said that next year's budget includes about $20,000 for a back-up system. He said the upgrades to Windows XP were expensive, adding to the cost next year, along with the cost associated with doing the upgrade itself, which is covered in overhead for the Department. Levine asked if the City was currently using XP. Holbo said no, it is next year's project. Goodwin-Shavey asked why it was necessary to go to XP. Holbo said it is necessary because they have found a number of applications that require an NT-class system to run on, including Eden software used in the Finance Department, so it's either go to Windows 2000 (which will not be a supported product) or XP. He said the City is currently using Windows 98. Moore asked if that was the difference between the Capital Outlay the baseline. Holbo said it doubled because of the back-up system and an additional $40,000 for the licensing. He said there is also money in there for a replacement or spare system for the Finance, which they presently don't have. Silbiger asked if the additional telecommunications computer technician was specifically for the phone system. Holbo said no, that there was a percentage for the phone system and the other percentage went to support the Police Department. He said the Police Department has many vertical applications, which in the past have been supported via mainframe applications either in Medford or Salem. Those have been moved to client server applications, which is client supported, rather than mainframe terminal-based support. He said they now have to support the system themselves. Silbiger asked if that portion would be charged to the Police Department directly. Wanderscheid clarified that Central Services would be charged, and that the position had already been filled this year with extra money from the Police Department. He said the person who had been hired had managed the University's phone system. The phone system with the City is not a full-time job, so there are other things this employee does for network and computer services that fit in with managing the phone system. Williams asked if we paid the State before for the service they had furnished. Holbo said yes. Goodwin-Shavey asked if there was a way to give it back to the State. Holbo said no, those systems are gone and there is no mainframe support. Laws pointed out that in the last couple of years the computer system has been operating smoothly and professionally.

Public Input

Levine asked for public input. There was none.

Conservation Page 3-90

Water

Wanderschied said when he moved to the Electric Department from Administrative Services, he brought Conservation with him. He referred to Page 3-91 saying that conservation was included in two areas of their budget, funded out of the Water Fund and funded out of the Electric Fund. He said the Water budget was status quo, there is only one position in there, and she runs a number of programs. He said the one change from last year is rental repair and maintenance, up $8,000 because the employee is provided a vehicle. He said the remainder of the increase was accounted for in increased health care, benefits and cost-of-living increases. He said $22,000 has been budgeted in line item 610 to pay for water efficiency measures, and said the water plan in the City has emphasized water use efficiency and it is important to continue this trend. Hartzell asked if the position of Urban Forester would free up the Water Conservation specialist, and have any impact on this budget. Wanderscheid said McLaughlin thought that some of the Tree Commission requirements and some of the landscaping and code enforcement requirements currently done by Robin could migrate to the new position. He estimated that she spends 30% of her time doing non-water conservation work, with 5% of that being air quality, so 25% more of her time would be dedicated to water conservation programs. Hartzell asked if all her salary was coming out of Water Conservation. Wanderscheid said yes, and added that a lot of her work with the Tree Commission and landscaping is directly related to water usage issues. Silbiger asked about the increase in vehicle rental. Wanderschied said that was a catch-up, the vehicle was bought in the middle of last year and the mileage fee was reduced, but because the fund hadn't been paid into for a while, some sort of catch-up was involved. Discussion ensued concerning vehicle rental, repair and maintenance. Levine asked about mileage reimbursed. Wanderscheid said it was .365 cents per mile but that it changes every year and this year he reduced personal mileage from $1,000 to $150.

Public Input

Levine asked for public input. There was none.

Electric

Wanderscheid pointed out that one of the things that happened last summer as a result of Bonneville over-selling power is that they had asked all utilities to do a load reduction agreement, and the City Council agreed to do that. He said Bonneville started a new conservation program, called Conservation Augmentation. He said they took the package to the City Council last summer, which called for (1) voluntarily dropping the load by 10%, (2) getting an average of $350,000 in new conservation money for the City and (3) an additional person to operate the program. He said that the additional position was put in the budget, but was never filled. He said it is in the budget in line item 610 showing $200,000 last year, and increasing to $350,000 this year. This reflects $125,000 that will come from Bonneville to operate the program. There was more discussion about the budget and staffing. Wanderscheid talked about last year's concern regarding wholesale rate increases, with Bonneville predicting that the Cost Recovery Adjustment Clause (CRAC) could range from 100% to 250%. He said that last year we proposed a 10% rate increase subject to the Electric User's tax, and the BPA surcharge, also set at 10%, would go to cover the higher BPA wholesale costs, but wouldn't be subject to the Electric User's tax. He gave an overview of the process last year saying that Bonneville's actual cost recovery adjustment clause came in at 46% rather than 100% to 250%. He said because we had started the increase in July, we went back to the Council in October saying we thought we wouldn=t have to increase basic rates again, and that the CRAC in March did drop to about 40%. He said all these things allowed us to get through last year with a 20% rate increase. He noted that in October we would be subject to not only the load-based CRAC, but also the financial-based CRAC, estimated at between 46% to 50%. Therefore, he said, our situation this October will be the same as last October, so we are proposing an additional 6% increase in the electric rate and an additional 6% in the surcharge, and by October we may need another rate increase. He said now he thinks there is a good possibility it will be 46% to 60% and we may have to come back for an additional 3% to 5% in October. He stated the Proposed Budget includes a 6% rate increase and 6% surcharge, knowing that we may be back in October to ask for more money.

He went on to discuss one of the Parking Lot issues regarding staffing in the Electric Department. He talked about the Mapping Specialist position, which has been in the budget for a couple of years, but never filled because Ashland had many different mapping systems, and a year-and-a-half ago decided to migrate to the GIS system. He said they talked to Public Works and agreed to give that position up and it would go over to Public Works, and they would work on changing methodology to a GIS system. He said the position was filled and it is in Public Works budget. He said they had always hoped to get their own GIS specialist back in Electric to do their mapping, but it didn=t make sense to hire someone to enter data on a system that had to be changed. He clarified that what they are asking for now is to bring the position back and call it an Estimator/GIS specialist. This position would work with new developments to estimate where facilities go and what they cost, help in mapping new facilities as they are added to the City, and help do the locates, which become more and more burdensome as the City grows out. He noted that in order to accomplish all that they need to, including the inspection and correction program required under the new Oregon Public Utility Commission (PUC) program, they need this position. He said that because of the transition in management some vacant positions weren't filled until they had a permanent director, with both positions filled internally, thus creating more vacancies. DeBoer asked if the position is already addressed in the budget. Wanderscheid replied that it would be additional. He said the funding would come from electric rates. He said it might raise the 3% increase to be asked for in October, to 3.5% or 4%. He said Tuneberg would identify the financial impact and the funding source for all the parking lot issues. The Committee discussed rate increases.

Public Input

Levine asked for public input. There was none.

Telecommunications Page 3-84

AFN Page 3-90

Wanderscheid began saying that last year at this time, they were criticized for not fully disclosing the true state of the Ashland Fiber Network (AFN), and as a result an advisory committee was formed that revised the plan, and that is the plan presently in use. He said that the revised plan paints a realistic picture and that some people don=t like that picture. He referred to the packet sent to the Committee including the last quarterly report, January through March. He stated that he thought they made three major mistakes with AFN: (1) they underestimated how much it would cost to build it, (2) they underestimated how long it would take to build it, and (3) they underestimated the competitive response of the incumbent cable company. He said that the $6 million would be actually be between $8 million and $8.5 million before the entire system is built. They now have about 95% of the City connected, about 500 to 600 homes left to be connected, and they are in the process of transitioning from using a contractor to build AFN to bringing it back in-house, doing the rest themselves. He said they are down to the areas of the City that are very difficult, expensive, and time-consuming to build. Wanderschied referred to the competition, saying that Charter rebuilt their system, brought out cable modem service sooner than AFN, and they cut rates considerably. He said the good news was that as of February 1, 2002 Charter raised their basic rate to $32.40 for their expanded basic product. He said AFN=s expanded basic product, even with the 6% rate increase proposed in the budget is $27.68, $4.72 below Charter. He said that in the past Charter had given away free Starz, Encore, and Movieplex, but they will no longer be able to do that as of May 6th. Therefore, he said that AFN=s product is now competitive with Charter's, as far as channels and is $4.72 less. As far as Internet is concerned, he pointed out that when Charter lost the At Home service, they went to their own service, Charter Pipeline, and AFN gained a lot of customers in that transition. He stated that published advertised download speeds for Charter Pipeline is 768KB per second; AFN now loads at speeds of at least 3 million bits per second, or about four times as fast. As far as pricing, he noted, Charter is now charging $39.95 for Charter Pipeline, if you have cable TV, $49.94 if you don=t; and AFN=s service, which is four times faster, is running right now with your internet service provider between $24.00 and $30.00 a month. He said this is superior service that costs less money on most residential accounts, so for the first time ever Ashland Fiber Network is at the point where they can say they are better, faster, and cheaper, and that wasn=t the case in the past. He talked about the revised business plan handout, directing attention to page 6 comparing the budgeted plan from last year to the revised plan. Goodwin-Shavey asked if they were doing any market tracking, and mentioned issues about inertia. Wanderscheid replied that they had been up against this from the beginning, that Charter already had the cable market, but 2,400 people in Ashland have already made the switch and he thinks that trend will continue. He stated that you could buy expanded basic from AFN with Starz and Encore for $34.48 a month, which is close to what Charter is charging just for their expanded basic. He thinks there will continue to be migration, and AFN can get 40% of the cable market and half of the ISP market because they have superior products. Levine asked about the market in Ashland. Wanderscheid recalled that there are roughly 9,000 electric hook-ups in Ashland. He said there are about 10,000 electric meters in Ashland, and 9,000 of them are residential meters, and to the best of their knowledge Charter says they have somewhere between 4,500 and 5,000 customers. Levine said that, if 100% of the families had cable television and internet services, there would be 9,000 maximum market, and national statistics indicate that is only 68% of the market, and if we say 70%, that is 6,300 maximum market. So if AFN had everything and Charter had nothing, there would be only 6,300 hook-ups, and his question was how many AFN has now. Wanderscheid said 2,400, and added that they don=t actually know how many Charter has. He said according to their published newspaper article last week, they lost 10% of their customers, so if they had 5,000 when AFN started, then they have 45% and we have 24%. Williams asked about the per customer franchise fee, which should tell how many customers Charter has. Scoles said that this is an audited number. There was continued discussion regarding wholesale customer base. Wanderscheid gave an overview of revenue and expenses and turned the presentation over to Ainsworth to talk about their marketing approach.

Ainsworth noted that as a municipally owned business, AFN's marketing approach is different. He said AFN targets homes and businesses that they know they can hook up immediately, but they only do that a few times a year because they don=t want to use a hard sell marketing approach. He pointed out that in the newspapers, the cinema, the high school, and on the golf course they have daily top-of-mind awareness of Ashland Fiber Network. He said that from their inception, the brand names and products were well marketed, and when he took over he continued with that approach. He noted that at this point they spend 25% of marketing money on print advertising, which includes daily and weekly presence in the Tidings, Tribune, and Sneak Preview. They spend 10% of advertising funds on electronic advertising, using radio and TV as well as the Ashland Cinema, which is about 5% of AFN=s efforts. He said in the past year they have spent on (economic growth advertising), 15% of their funds in yellow page ads in the QuestDex Directory, the Ashland Chamber Directory, the Medford Directory, and this year=s Britt Program. Ainsworth cited community sponsorships, such as the Ashland High School scoreboard, theatrical programs at the high school and middle school, etc.

Wanderscheid continued the presentation saying they hope to bring ideas to the Council in the next few months resolving the internal borrowing problem. In closing, Wanderschied said that AFN had a rocky start, made some miscalculations, and made some mistakes, but AFN is a state-of-the-art network. Built and operated by a dedicated group of talented individuals, AFN's competitive situation, rates and product will make it work. He said they have 95% of the network built, the capital costs are almost all expensed, they have a challenge to get to the last 500-600 customers, and even with all the mistakes, the revised business plan still shows that over 15 years they will make $1.4 million. He believes they will be able to meet those numbers, and that those telecom dollars will remain in the community for many years. He said that even if AFN did not make $1.4 million, it is unlikely they will have to be bailed out with taxpayer dollars. He believes it will not only pay for itself but will make money. He pointed out that Medford was selected as one of the four e-commerce zones by the State, which will also help AFN=s wholesale efforts in Medford. He added that the business plan is a work in progress that will continue to evolve, but he is still confident that they can meet their goals and make AFN a good community asset.

Levine questioned commission sales employees being excluded from benefits. Tuneberg explained that they set their own schedule, target their own customers and are commission based, which makes them exempt. There was more discussion about exemption.

Olson referred to page 3-85, line 801 and 802, and asked if the Debt Service interest was on the way down. Wanderscheid said it was the baseline. Tuneberg replied that, as the payment goes down, in the first two years no principal payments were made, and the interest calculated on the internal borrowing is based on what happens in the pool interest; so they calculated a lower rate to be paid on that.

Williams questioned the necessity of AFN's rates being $4.72 below Charter=s, and suggested an increase in rates. Wanderscheid said the ISP wholesale rate was raised last year by two dollars. He said the Advisory Committee had recommended that in December, and the rates were raised from $15 plus franchise to $17 plus franchise. He said they project a 6% increase in the coming year for cable television, and pointed out that there is resistance to change, and a person won=t change for a few dollars but might for three or four. He said the plan does have escalation in both rates every other year, but there is a delicate balance.

Morrison raised a concern about the level of penetration AFN has and wondered what in the marketing plan would turn that around. Ainsworth responded that in the past nine months of the fiscal year, they have averaged 155 cable TV connects per month against a playing field that is tilted downhill, which is changing as of May 6th. He said that they have 2,440 cable TV customers as of yesterday, they have a 42% penetration of the homes they can connect with one truck roll. He said they only target with sales, mailers, and direct means the homes they know they can hook up with one truck roll. He said they have an internet site just brought in-house, so that they can have up-to-date information as well as customer and prospective customer feedback. He said mass media advertising is necessary, and they occasionally will do special promotion offers, though they don=t want to do that because as a municipality they want to charge consistent, fair rates to everyone. He said that, in the industry, typically in a monopoly cable system there would be a dozen different rates, but in Ashland everyone pays the same rate. He said they are 30% below the national average for their current monthly rate. There was more discussion about marketing.

Goodwin-Shavey expressed reservations about the 15-year length of debt, she pointed out the rapidity of technological change and is worried that no one can project out 15 years. She added that she would like to see some effort into shortening the debt period to avoid ending up in debt with an antiquated, hard-wired system. She added that many people are not motivated by better, faster, cheaper, and it would be cost-effective to have focus group research with people who are Charter customers asking what AFN has to do to get them to switch. Holbo addressed the future of the system, saying the technology portion of AFN=s costs are extremely low. The Committee discussed networking with other communities who had built networks.

Williams asked Tuneberg about the way interfund loans are handled. Tuneberg suggested a discussion at a separate meeting. Olsen wondered if there was a market in Medford, Talent, and Phoenix. Wanderscheid said he believed there was a market there. He said Hunter Communication, the contractor who built the system in the City, agreed to build the line to Medford in exchange for the material. So they put up a 48-count fiber and in exchange Hunter owns half the fiber and AFN owns half the fiber. Hunter has since gotten a number of contracts, one with Medford School District, to build a network around Medford, so he=s using that network to sell data services in Medford that goes through our head end, and we sell services to him wholesale, and he has four customers now. He has 15% of his network built and intends to have it all done by the end of the summer, so there will be more opportunities in Medford. He said it is not AFN=s intent to offer retail services outside the City of Ashland, but they are happy to sell wholesale services on the Internet, the data side, or the cable TV. He said one neighborhood Hunter is working with is a group of residential customers who are in a rural part of Ashland that has no cable service; Hunter has an agreement with them where they are going to pay for the infrastructure to build the network. There was more discussion about the AFN budget.

Silbiger congratulated Wanderscheid on the past year. Wanderscheid acknowledged Silbiger=s input to the Department and said they had implemented many of his ideas, saying he was glad they worked together. He said he knew there were other revenue sources out there that weren't presently in the plan, and potentially might make up for any shortfall in high-speed data. He said they hope to have more relationships than just with Hunter, and said the relationship with him is not exclusive. Wanderschied is encouraged with the progress that has been made and commended the staff.

Public Input

Suzi Aufderheide / 321 North Mountain Avenue / Aufderheide raised a question about the pornography channels offered by pay-per-view, saying there were now six pornography channels. She said that Ashland is largely a city of women, and she would not buy anything that has pornography on it. Levine pointed out that the Programming Committee handles programming issues. Silbiger, who is on the Programming Committee for AFN said that there was discussion about channel selection and they voted a year-and-a-half ago to have them, based on revenue concerns. Levine asked whether a customer had a choice about those stations. Wanderscheid said the stations are pay-per-view. Holbo said parental controls could be used on the box. Aufderheide pointed out that children could be better than adults at accessing these things. Wanderscheid said that as a municipality, they had no say in programming, that an autonomous board made these decisions. He said this discussion had to happen at the Programming Committee, which was meeting at 6:30pm in the Electric Department. Morrison asked what percentage of the revenue stream included pornography. Ainsworth said the adult titles are roughly one-third of the monthly pay-per-view purchases, but conversely, since they cost more than a regular title, pay-per-views are 50% of the monthly revenue stream. He clarified that all adult channels are pay-per-view and they had to be ordered with a credit card. Aufderheide said that as a municipality we have no business buying and selling this kind of information. Wanderscheid reiterated that this was up to the Programming Committee. Scoles explained that was the reason they have an independent committee, so the City is not in the position of censoring. Holbo said the same issue is pertinent to the Internet site, where the City does not manage any content because they can't be in a position of censorship. Olsen suggested that Aufderheide get involved with the programming board. There was continued discussion.

APPROVAL OF DEPARTMENTAL BUDGET

Moore/Williams m/s to forward budget as presented for approval. Voice Vote: all AYES. Motion passed

ADJOURNMENT

Meeting was adjourned at 5:30pm.

Respectfully submitted by Kirsten Bakke, Administrative Assistant

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