Board asks membership to support broadband rollout and grid improvements with $36.5 million low-interest loan

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by WEC’s Board of Directors

WEC’s Board of Directors asks for our members’ support to take out a low-interest $36.5 million federal loan from the USDA’s Rural Utility Service (RUS) program, our primary lender, to build a fiber communication network throughout our service territory. The purpose of this project is to expedite access to high speed broadband service for WEC members, to improve our electric service, and to prepare our grid for the future.

To achieve this vision, these updates must happen, either now or in a few years. This window of opportunity, negotiated with our partners, is certain to be the least expensive for our members and for broadband subscribers.

The opportunity before us today is much like that presented by the Rural Electrification Act in the 1930s that led to the founding of our Co-op. The availability of a low-interest federal loan, plus our partnerships with Communications Union Districts (CUDs) with access to grant funding, gives us a once-in-a-generation chance to invest in our grid and to help connect the 72 percent of our members who lack high speed internet with affordable broadband providers.

The opportunity before us today is much like that presented by the Rural Electrification Act in the 1930s that led to the founding of our Co-op. [This is] a once-in-a-generation chance to invest in our grid and to connect the 72 percent of our members who lack high speed internet with affordable broadband providers.

We ask for your support, and we also ask that you inform yourself before pledging your support in the vote or poll to come. The topic is complex. If you have further questions after reading, please contact any member of WEC’s Board of Directors: click for names and contact information.

Why is WEC asking for this?

As a co-op, WEC is attentive to our members’ quality of life. High speed internet is now an essential service; yet most of our membership has inadequate service, or none at all. A 2019 study commissioned by Vermont’s Department of Public Service found that 72 percent of WEC’s members are unserved or underserved by modern broadband standards. That is the highest proportion of any electric utility service area in the state, and the ongoing COVID pandemic has only exacerbated the need. 

The reason for this poor service is the same reason our forebears lacked access to electricity and founded our Co-op: our region’s low population density. For-profit internet service providers have little profit motive to serve rural areas like ours, and nonprofits have found it historically difficult to roll out affordable broadband without significant grant funding.

Furthermore, WEC needs to modernize our grid within the next decade to improve resiliency to increasing weather-related outages. Per state mandate, our collective energy use must move away from fossil fuels. WEC must adapt with rates and electives that incentivize and reward the shift to our 100 percent renewable electricity.

A WEC-owned fiber network would address both needs for WEC members: first, by providing the fiber communication backbone for affordable high-speed internet service managed by not-for-profit public entities; second, by providing for fast communication among equipment along WEC’s 1,300 miles of line. Better tech communication is likely to improve reliability and reduce outage durations, and potentially reduce costs. In addition, fiber communication could enable customized rate incentives: for example, time of day rates or electric vehicle rates.

Our partnership with CUDs

Over the past three years, WEC leadership negotiated a partnership with three Communication Union Districts (CUDs): not-for-profit organizations set up by Vermont statute for the purpose of providing broadband service at communication speeds of 100 megabits per second or greater for downloading and uploading. Our partner CUDs are EC Fiber, CV Fiber, and NEK Broadband, whose service areas include the 41 towns that WEC serves.

CUDs are eligible for state grants to construct broadband infrastructure (WEC is not). Currently, state funding via federal infrastructure grants is projected to cover about half of the needs to supply universal rural broadband in Vermont. The success of the partnership lies in the CUDs’ access to state grants and WEC’s access to a low-interest federal loan that allows us to more affordably build out a fiber communication network that supports the people we jointly serve.

The business details

The basic model of the partnership is that CUDs will lease WEC’s fiber network at cost. The portion of the loan specifically targeted to constructing WEC’s fiber network is $35.5 million; CUD lease rates will be set to cover WEC’s debt payments on this loan with the intent to hold electric ratepayers harmless. The additional million dollars is allocated to a pilot project for smart grid applications, to be followed up with full implementation.

WEC is presently developing a joint business and engineering plan with our partners. WEC’s Board of Directors has not committed to spending money for construction at this time. To date, the Board of Directors has supported this model.

It is expected that the cost of repaying and servicing the loan will be covered by revenues from the CUDs. There is of course some risk inherent to taking on any loan. WEC’s staff and Board are working to put assurances to mitigate that risk. It is important to keep in mind that WEC will continue to assess this risk before the loan will be undertaken by WEC on behalf of its members. 

On the other hand, were the membership to reject the Co-op’s bid to borrow $36.5 million, the likely scenario is that CUDs would source more expensive private loans at higher interest rates to build out fiber on their own. This would increase the cost of broadband for subscribers, and WEC would then have the expense of leasing fiber from CUDs in order to improve our grid communication. We would also need to determine how to connect our members’ meters to fiber we do not own. The overall and ongoing cost to broadband subscribers and to the Co-op would likely to be greater.

The Board now asks our members to consider and approve this plan to borrow $36.5 million for fiber build-out and initial smart grid improvements, with the understanding that contractual issues remain to be resolved, and assurance of WEC’s loan payment must be identified prior to final approval by the Board.