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Telecomm Policy Committee 1997/02/05 RECEIVED TELECOMMUNICATIONS POLICY ADVISORY COMMITTEE MINUTES MLR 2 3 4 3 M ' 9 1 oFF,CE Q# riT? OF t,lHEN FEBRUARY 5, 1997 CITY � �. The agenda having been posted on Friday, January 31, 1997, the meeting of the Telecommunications Policy Advisory Committee (Committee) was called to order by Chairperson Paul McMillan at 4:13 p.m., on Wednesday, February 5, 1997, in the Gordon Hoyt Conference Center, 201 S. Anaheim Blvd., Anaheim, California. Committee Members Present: Chairperson P. McMillan, T. Daly, D. Stanton, F. Feldhaus, J. Mayer, P. Boydstun. Committee Members Absent: W. Wiseman, B. Whorton. Guests Present: Listed below. Chairperson McMillan asked all present to introduce themselves. The Committee members present introduced themselves and staff and audience introduced themselves as Rebecca Howell - Utilities Executive Secretary, Vishwa Tiwari - Utilities Principal Telecommunications Engineer. John Spalding - Utilities Consultant, Edward Aghjayan - Public Utilities General Manager, Michael Bell - Utilities Assistant General Manager, Lucina Moses - Assistant City Attorney, Alan Watts - Utilities Outside Counsel, Dale Tarkington - Utilities Assistant General Manager for Electric Services, Kris Thalman - Anaheim City Manager's Office, John Hills - Utilities Environmental Services Manager, Karen Freeman - City of Anaheim Planning Dept., Carie Barnhart - Utilities Telecommunications Secretary, Shana Epstein - Utilities Telecommunications Division, Paul Grimes - Utilities Regulatory and Programs Specialist, Georgetta Anghel - Utilities SCADA Specialist, Alan Slutsky - Odetics, Dennis Desnoo - Consultant to SNI, Allison Goddard - SNI, John Woodhead - Assistant City Attorney, Richard Bruckner - City Redevelopment /Economic Development Manager, Joe Dale - Formula Consultants. 1. PUBLIC COMMENTS None. 2. APPROVAL OF MINUTES OF AUGUST 15, 1996 D. Stanton moved to approve the minutes of August 15, 1996. T. Daly seconded the motion. MOTION CARRIED 5 -0. P. BOYDSTUN ABSTAINED. 2 ABSENT. 70 3. CITY OF ANAHEIM /SPECTRANET INTERNATIONAL TELECOMMUNICATIONS PARTNERSHIP AGREEMENTS E. Aghjayan gave a presentation on the results of the last several months of negotiations with SpectraNet International (SNI). A comparison was made of the current recommendations versus the Business Understanding that was approved by City Council in August, 1996. City staff has been negotiating with SNI since January 9, 1996, to develop the necessary agreements to partner in the development of a privately financed /private Universal Telecommunications System for the City of Anaheim. Staff's evaluation is that the UTS Project Agreements presented to the TPAC for approval meet the City's Telecommunications Guiding Principles (adopted by City Council on July 19, 1994), negotiating goals, and the Memorandum of Understanding's deal points. The UTS will be constructed in two separately- financed phases. Phase IA will start March, 1997 with an estimated investment of $5.5 million. It will include priority connection for five City facilities and will service approximately 20 commercial and industrial customers and users. Phase IB will be completed December 1998 with an estimated investment of $75 million. It will service government, commercial and industrial customers and users within the UTS Phase I Service Areas. Government facilities outside the UTS Phase I Service Areas will be connected through off - network configuration. The decision to proceed with Phase II will be based upon Feasibility Study results conducted in January 2000. If SNA declines to build Phase II, the City can proceed with Phase II without SNA's involvement. Phase II could be constructed December 2002 - December 2004 with an estimated investment of $175 million. Phase II would service the remainder of the City, including residential and remaining government users. The terms of the agreements with SNI will be 30 years. After 15 years, the parties may negotiate and agree to an additional 15 years, to a total of 45 years. The following outlines what the City will receive in the partnership with SNI: • $6 million amortized over 30 year term at 6.65% interest rate to City Utilities Electric and Water Funds for use of Utilities existing fiber cable. • Payments of $115,754.57 will be made quarterly starting April 1, 1997 or the date of issuance of City building permits for the UTS Phase IA, whichever is later. • Payments will be placed into an escrow account until City obtains all the permits and licenses necessary to allow the City's backbone to be leased to SNA. • 5% of Gross Revenues for the City's General Fund until June 30, 1999. • Thereafter, 5% of Gross Revenues or $1 million per year, whichever is greater. • $20,000 per year (plus adjustments for cost of living), starting July 1, 1997 to support the City's presence on the Internet World Wide Web, an interactive Community Bulletin Board, and interactive Community Access Stations. • Annual reimbursement of costs incurred for up to two full -time equivalent City Staff, not to exceed $175,000 per year for Phase I and when Phase II is commenced, the number of full -time employees may increase to four. • Up to $500,000 reimbursement will be paid to the City on July 1, 1997 for out -of- pocket City costs for evaluation and negotiations process with SNI /SNA and preparation of documents for TPAC review and City Council approval. 71 The UTS Project Agreements revenue sharing will split SNA /City net revenues 15% for Reserve Account, 5% for Telecommunications Public Access and Utilization Fund, 25 % for Telecommunications Fund, 5% for Telecommunications Economic Development Fund, and 50% for SNI. A Development Fee will be paid to Anaheim for each additional city or local agency where SNI develops, owns and /or operates a broadband telecommunications system. $300,000 will be paid the first year, $200,000 the second year, $100,000 the third through fifth year, and then nothing after the fifth year. UTS services will be provided at no charge for point -to -point communications between current and future City facilities located within the UTS service areas. UTS services will be provided to the City at the rate SNA is charged by alternate carriers for point -to -point communications among current and future City facilities located outside the UTS service areas. UTS services will be provided to the City and Public Schools located within the service areas at a Governmental Rate for communications between current and future City facilities located within the service areas and third parties. UTS services will be provided to the City at a Governmental Rate, plus access charges, for communications between current and future City facilities located outside service areas and third parties. UTS access will be provided to the City at no charge for the Public Utilities Department applications. Technological advances will be monitored and necessary upgrades will be made subject to Administrative Committee's review and approval. SNA will establish an office in the downtown area of Anaheim by June, 1998 and develop a UTS demonstration Center in downtown Anaheim prior to June, 1998. SNI /SNA will also participate in the City's Economic Development activities. SNI will lease 60 out of 96 strands of the City's existing fiber optic cable. The City will utilize SNA as its telecommunications service provider for its telecommunications needs as long as the services are similar to the type and levels of services that are offered by SNA to its five largest telecommunications customers in Anaheim. The City's share of net revenues will be offset by street deterioration fees or other similar fees if imposed by the City to mitigate the degradation of City streets and other fees or charges (that duplicate revenues paid by SNA) imposed by the City to mitigate effects created by telecommunications providers operating within the City. The City will obtain all the reasonable and necessary permits and licenses modifications to allow the City's backbone to be leased to SNA. Committees comprised of representatives from the City and from SNA will be established. An Administrative Committee would require at least one City vote for changes or draws from minimum reserve account, goods and services procured from SNA affiliates, disputes among the parties, and proceeding with Phase II. An Audit Committee will also be established. The City will have the right to purchase SNA's interest in the UTS anytime following the 15th anniversary of Phase IB initial funding date, if SNA does not complete Phase I in accordance with the timelines for 44% and 90% completion dates, or within 15 days if SNA defaults to its lenders. 72 With the TPAC recommendation, staff will present the final agreements for approval by the City Council on February 25, 1997. COMMENTS P. Boydstun asked about the appearance of the distribution enclosures that would be installed in the City. Renney Senn of SNI replied that the Planning Department has provided SNI with its requirements on the appearance of distribution enclosures. It is SNI's objective to make the enclosures as unobtrusive as possible. A large number of the enclosures will be housed in structures that already exist in the City. Most of the equipment is planned for underground and will be less visible than what the local cable and telephone companies have now. E. Aghjayan gave a copy to the Committee and staff of five questions he had for Renney Senn. Renney Senn responded to the first and second questions "When will SNA have the first customer on- line ?" and "When will City facilities be hooked up ?" He said the first customers are expected to be on -line around July 1, 1997 and would include at least one of the City offices. The central office is being constructed now on South Lewis Street. The third question asked of Renney Senn was, "Is SNI still committed to the UTS concept for Anaheim; to all homes and businesses, in the same way as presented to the TPAC by SNI in its original presentation ?" He replied that SNI is firmly committed to this concept and that it is the core of SNI's entire business plan. This is what will differentiate SNI from all other telecommunications providers. The fourth question asked of Renney Senn was, "What have you learned from your feasibility studies and from your several months of marketing ?" He stated that SNI feels very encouraged from the results of the studies that SNI's vision of the UTS is accurate. Also, he said that the studies show that no one else knows as much about this new venture as SNI because it is unprecedented. Renney Senn answered the fifth question "The original Phase I build -out reportedly made service available to 6,000 -7,000 business customers; how many will the new plan serve ?" with an explanation of the seminal areas from which SNI will expand as rapidly as they can. He said there is a tremendous front -load cost and the cost will not be borne by Phase IA, but by expanding the networks as rapidly as possible to all of the adjacent business areas. At that point there will be a balance between what SNI's costs are of creating a network and what the revenue stream supports. E. Aghjayan pointed out that the California Public Utilities Commission (CPUC) has approved permits for commercial /industrial service only at this point, and SNI would have to apply for residential permits once it was ready to expand into residential service. The original Phase I plan called for most of the major customers to be serviced in Phase I and now the plan does not include all of the commercial /industrial in Phase I. Renney Senn said that the reason SNI did not receive permits for residential from the CPUC now was because there is a requirement that accompanies residential permits to provide service to anyone within 300 feet of any of SNI's network lines. Within the commercial /industrial areas there are numerous residential customers within 300 feet of SNI's lines and this could 73 create a financial problem in the early stages of the network implementation when it needs to be generating a revenue stream. Renney Senn suggested that there will be overlapping of residential and commercial /industrial service instead of a pause between the two. He said that the debt can be repaid and costs to operate the network paid for by just supplying telephone service and data service at the penetration rates used in the feasibility study (which were deliberately low). F. Feldhaus asked if SNI would be concurrently installing some residential equipment while installing the commercial /industrial equipment in preparation for the future Phase II that includes residential. Renney Senn replied that the timing of Phase II will be based on SNI's ability to convince the financial markets that the market is there to support it. F. Feldhaus asked if the residential customers will go to other providers while waiting for SNI to provide service to residential areas and will the CPUC grant residential permits to SNI at some point in the future. Renney Senn said that in numerous meetings with the CPUC, the commissioners realized that what SNI is proposing to do is in response to the CPUC's core objective to open competition in telecommunications services in the local exchange. Pacific Bell and other providers will be able to use SNI's network without having to pay to build one. This will be beneficial to customers and the service providers in containing costs. E. Aghjayan added that once the network is up and running, it will have a profound effect on the marketability to the rest of the commercial /industrial customers, and thus, changing the economics very quickly so there can be a rapid expansion into the other areas. The expansion into Phase II will be more problematic because of the need to receive the CPUC permits for residential service. T. Daly asked how much overhead cable will be strung in the City. Renney Senn replied that the majority of cable will not exceed what is presently visible in the City and that most of the cable will be underground where feasible. Some of the existing overhead cable is included in the future undergrounding plan for the City. Renney Senn said that the marketing feasibility results are difficult to communicate to the Committee because one of the requirements of the CPUC permits is that SNI cannot quote any prices or specific services until the finalization of the CPUC permit approval that was just received in January. In its surveys, SNI asked commercial /industrial customers what they would like about having the ability to access a variety of services (currently 75 different services can be offered) in a very economic manner, and the responses to this were very positive. E. Aghjayan stated that once this super information highway exists in Anaheim, other telecommunications providers will want to use SNI's network and one of the reasons this is good for Anaheim is because the City does not want different service providers coming into Anaheim and tearing up its streets to build their own networks. Renney Senn said that SNI had already signed an interconnection agreement with Pacific Bell and by March 30, 1997, AT &T, MCI and Sprint will be contracted on SNI's network. P. Boydstun asked if the City will be in a position to require other providers to use SNI's network instead of tearing up our streets. E. Aghjayan replied that the City cannot legally 74 require this, but there really is no economic incentive for other providers to spend the money to build another network when they can use an existing network for a lot less. P. McMillan asked if SNI could use some of the City's electric vaults. D. Tarkington replied that if the City allowed SNI to use its electric vaults it might be a concern because of safety reasons and security reasons. P. McMillan also asked if the City has been involved in the determination of SNI's material specifications and what warranties there will be on the equipment. Renney Senn replied that the City has to some extent, but there is a limitation to the City staff's expertise in telephony equipment, which is a very specialized area. He said an important feature of this system is the turnkey operational guarantee that is supplied by Nortel. Nortel is backing up SNI's design and implementation with a guarantee that they will do whatever is necessary to ensure the system works. Nortel will also be supervising the installation of the equipment in the network. Renney Senn added that the City's Public Works Department reviews of SNI's specifications are also required. E. Aghjayan commended the City staff and consultants John Spalding and Alan Watts for their efforts in the negotiations with SNI to finalize the agreements. E. Aghjayan also advised the Committee that the service area maps and master plan map needed to be kept confidential per SNI's request. D. Stanton moved to approve the recommendation to City Council as follows: 1. By Motion, approve the Mitigated Negative Declaration dated July 1, 1996 and Associated Mitigation Monitoring Plan No. 90 for the City of Anaheim UTS Project, and 2. By Motion, approve the UTS Participation Agreement and the Development Fee Agreement in substantially final form, together with such changes as the Public Utilities General Manager approves and are in substantial conformance with the Agreements, and authorize the Public Utilities General Manager, on behalf of the City, to execute the agreements. T. Daly seconded the motion. MOTION CARRIED 6 - 2 ABSENT. 4. OPEN QUESTIONS AND DISCUSSION There was no further discussion. 5. AGENDA ITEMS FOR NEXT MEETING E. Aghjayan stated that with its recommendation to City Council to approve the agreements, the TPAC had completed its task assigned by the City Council and asked the Committee if it felt any need to meet further. T. Daly advised the Committee that the City Council would make the determination to terminate the TPAC. E. Aghjayan stated that there would probably be a need to establish an oversight committee at a future time. 75 6. ITEMS BY SECRETARY None 7. ITEMS BY COMMITTEE MEMBERS T. Daly thanked all the Committee members for their participation in this time consuming task. He also thanked staff for all their efforts in the negotiations. P. McMillan stated that he enjoyed chairing the TPAC and thanked the committee members and staff for their efforts. 8. ADJOURNMENT The meeting was adjourned at 5:40 p.m. Respectfully submitted, Edward K. A. (ayan Public Utilitie General Manager 76