California Commission, Consumer Advocate at Odds over Grant

The $19 million grant, awarded conditionally, is for the Digital 395 Middle Mile Project, proposed by the California Broadband Cooperative. For sponsors to get the state money, they must be funded by the federal broadband stimulus.

The advocate’s office said it supports access to broadband throughout the state. But it asked that the commissioners require the cooperative to explain how it will spend ratepayer subsidies. The co-op also should have to offer the public a chance to review and comment on its proposal, the office said.

A 4-1 commission decision, with Commissioner John Bohn opposing, would allow the cooperative to receive a state subsidy of 19 percent rather than the 10 percent set by California rules. If the project receives federal funding for 80 percent of its costs, the subsidy “reaches almost 100 percent of its total costs, requiring virtually no investment by CBC,” the advocate said.

For projects to succeed as economically as possible, companies applying for subsidies must have some “appreciable level” of financial commitment, the advocate said, seconding a remark that Bohn had made before the vote. “DRA supports the economic and social benefits of broadband expansion,” said Dana Appling, the director of the advocate’s office. “However, the CPUC is charged to responsibly deploy ratepayer funds and provide appropriate oversight. Today’s decision fails on both counts: the subsidy is too great, and the oversight too minimal.”

The commission said in its decision that the co-op’s nonprofit structure will ensure that broadband service it provides will be affordable. “But there is nothing in the decision to prevent CBC from charging exorbitant rates to consumers once the project has been completed,” the advocate’s office said. Earlier, the advocate demanded that connection or activation fees be waived for consumers served by projects built using ratepayer subsidies.

The Digital 395 project would consist of a 448-mile, 10 gigabit high-capacity fiber middle mile/backhaul route along U.S. Highway 395 from Barstow to Topaz Lake, the commission said. Buildout would bring broadband to underserved communities and anchor institutions in Mono, Inyo, eastern Kern and northwest San Bernardino counties.

That Eastern Sierra region is described in the project application as “a high cost, rural area” spurned by carriers “because of high construction cost and small market size when compared to larger urban areas,” the commission said. Besides thwarting development, the scarcity of broadband there has residents paying “some of the highest prices in the state,” the commission said. “Broadband is critical to consumers in rural areas where people are more isolated,” said Commissioner Rachelle Chong. “With one fell swoop, the Digital 395 project will connect entire regions of California that were limited to slow or no broadband connectivity.”

The project would create local points of wholesale interconnection for broadband providers in a market that could amount to more than 28,000 households, the commission said. The market includes more than 2,500 businesses and more than 200 anchor institutions, including 74 educational and 12 health-care facilities, 11 libraries, 26 public safety entities, municipal utilities, two military bases, courthouses and regional federal offices for the Bureau of Land Management and the U.S. Forest Service, the commission said. “The project will also help increase the number and proportion of broadband users in the eastern Sierra region of the state, which has a low penetration rate.”

The commission expects the project to create more than 1,100 jobs -- 706 direct and indirect jobs and 397 induced jobs as calculated under federal stimulus law guidelines. “The scope and scale of this project present a once in a lifetime opportunity to connect an entire region of the state to the digital ‘information superhighway’,” the commission said. The member-owned co-op was created from a community consensus led by elected leaders of the Eastern Sierra Counties to build a telecom alternative for the area, the commission said. The fiscal agent for the project is Inyo Networks, a co-op member.

“Public policy is always going to involve differences of opinion, and DRA has a different philosophy toward this program and how it wants to see public policy enacted,” co-op spokesman Robert Volker told us. “We filed this proposal and followed up on it. Other parties had opportunities to submit competing proposals. Ours was thoroughly vetted by the commission staff, which spent the better part of a month reviewing it. We assume they did the same for competing proposals. And they put ours forward as the one they want to get funded. We're excited about that.”

Volker said the advocate’s office has raised similar challenges to other proposals. He noted that its news release pointed to 32 other projects that it says lack adequate supervision. “We disagree with the DRA release,” Volker said. “There is a tone, or an inference, that we don’t really intend to build this project. Nothing could be farther from the truth. We've worked on this for a year, collaborating with county supervisors and ratepayers. CBC is going to get a certificate of public convenience and need for this project, and that means it will come under the Public Utilities Commission. That’s a good-sized regulatory hammer.”

The cooperative has “a lot of skin in this game,” Volker said. “We have the financial wherewithal and the public- private partnerships. We've spent years working with counties, and we previously had a proposal in eastern Inyo County. We're not newcomers. When ARRA was announced, we saw that we could do this with CASF, which would make a project of this scope and scale possible. We've worked very hard to make sure that it’s shovel-ready, so that as soon as we get the word we can push on it, even more than we're doing already.”