Council tells utility to get out of Internet business

By Rod Rose/The Lebanon Reporter

Lebanon — It is time for Lebanon Utilities to stop hemorrhaging money and get out of the Internet business, the City Council recommended Monday.

By a 3-2 vote, with Mayor John Lasley breaking a tie, the council recommended the Utility Service Board stop accepting new Internet customers, and discontinue Internet services, by the middle of July.

The vote is not binding on the USB, which meets on June 4 to consider adding a telecommunications division to its electric, water and sewer departments.

“It’s time to stop the bleeding,” Councilman Jeremy Lamar said when he moved for the plug-pulling recommendation after a 90-minute work session between the council and the USB.

Utility Board President Alan Milburn asked Lamar, “why would you want to say no more connections?” The utility has enough equipment to add new customers, which would be “the helpmate we need ... during this period.”

Lamar and Councilwoman Anne Hendrix voted for the recommendation. Councilmen Keith Campbell and Mike Kincaid voted no. Councilmen Steve Large, who is employed by Lebanon Utilities, and John Copeland abstained.

Councilman Dick Robertson was at the meeting, but out of the room when the first vote was taken. Robertson had not returned a phone call asking for comment in time for inclusion in this story.

State law requires a tie vote, by any government agency, be broken.

Lebanon Utilities will lose $400,000 on Internet service this year, according to a Feb. 28 report from the financial services firm H.J. Umbaugh & Associates.

Umbaugh also projected the telecommunications division would lose more than $1.27 million through 2010, before showing an estimated $198,277 profit in 2011.

That report, and a $1.5 million loan the utility made to itself and repaid through an “internal finance arrangement” to pay off a bank loan in March, were factors in Lamar’s decision, he said.

Milburn, Utility General Manager Mike Martin and technology director Randy Parsons urged the council to accept the restructuring.

They proposed an alternative bookkeeping method, called “marginal cost methodology,” which showed the telecommunication division would show a profit.

In marginal cost accounting, expenses are divided into variable and fixed accounts, said Chris Rittig, chief financial officer of the Indiana Municipal Power Association. Lebanon Utilities is a member of IMPA, from which it buys electricity.

The Indiana State Board of Accounts, however, does not allow municipalities to use the marginal cost method, Clerk Treasurer Debbie Ottinger advised the council.

“We are reevaluating, looking at where we want to go and how we are going to get there,” Milburn said.

“The key is that we have to make this so it covers its costs,” he said.

The USB will decide whether to continue the telecommunications division, or drop it, at its June 4 meeting.

If the division is eliminated, the $1.5 million debt would be spread over the utility’s electric, water and sewer departments.

Martin said none of those rates would be increased to pay off the debt.

The utility service board is split on whether to continue the telecommunications division. Board members Dan Lamar and Jim Urban both want to drop Internet service because it is losing money.

“I don’t think the numbers are going to be there,” Urban said. “I don’t think the customers are going to be there.”

Dan Lamar said construction of new substations, upgrades to power lines and replacement of broken utility trucks might have to be postponed if the utility’s telecommunications division continues to flounder.

None of the electric, water or sewer divisions have budgeted for the $500,000 hit they would take if the $1.6 million internal loan cannot be paid off with increased wireless revenue.

“It’s our responsibility to be sure the lights are turned on,” Dan Lamar said. “I do not want to ignore the people we service today, but I do not want to service them at the expense of every utility user in Lebanon.”

Ottinger said no other city department would be allowed to lose $1.5 million — or to “even come close.”

Because of uncertainties on how a state property tax reform bill will impact local governments, the city may have to ask the utility for a loan, Ottinger said.

“You are our safety net,” she said. “With the tax issues we have now, we may need to come to you.”

Umbaugh charged Lebanon Utilities $44,200 for the telecommunications division revenue estimates.

“The technology did not perform to the level I expected,” Martin said.

In May 2007, the utility announced the launch of “iLines,” offering either BPL or wireless Net access, at different speeds and prices, to residential and commercial customers.

The BPL service has been discontinued, Martin said. The utility had 363 customers as of Monday, Milburn said.

But the utility has lost 18 wireless customers so far this year, Ottinger said.

Lebanon Utilities had offered broadband-over-powerline, or BPL, Internet access, in 2005. It has discontinued that service, Martin said, although it could add no more than 20 BPL customers because it has only that much equipment on hand.

The utility bought too much wireless equipment for the number of customers, he said. Projects estimated that if it added an average of four new residential customers a week, the utility would show a profit in about 15 months, Martin said.

Those new customers are how the utility would pay back the $1.5 million internal loan, he said.

Without them, “the payback option is eliminated,” he said.

Lebanon Utilities bought Midwest Broadband in 2005 for $230,438, acquiring 87 residential and commercial customers and what Martin called a wireless “backbone” on which to expand.

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