Comcast Sues EPB In Hamilton County On Eve Of Bond Issue

EPB Goes Ahead With $219.8 Million Bond Issue

Tuesday, April 22, 2008

Just hours before the EPB board was set to consider a major bond issues as part of a plan to go into the cable TV business, Comcast filed a lawsuit seeking to block it in Chancery Court in Hamilton County.

However, EPB officials voted to move ahead on a $219,830,000 bond issue. Later in the afternoon, the City Council approved the bond issue.

President Harold DePriest said the bonds will be used for a SmartGrid that he said will benefit EPB in a number of ways - including automatic meter reading and outage management as well as helping set up the cable TV venture.

He said EPB officials plan to come back - perhaps as soon as next month - on an inter-divisional loan that would allow moving on the cable TV venture.

Officials said the rate increase on the bonds was 4.64 percent. Mr. DePriest said he was "very pleased with the interest rate."

The bonds are for 25 years.

A Nashville chancellor recently dismissed a similar suit, saying she did not have jurisdiction and the proper plaintiff had not brought the suit. That suit was brought by the state cable association, of which Comcast is a member.

The new lawsuit substitutes Comcast for the cable association as the plaintiff.

EPB officials said they planned to have cable TV available locally by the end of the year.

The 22-page suit says the EPB venture is an illegal cross subsidy of ratepayer funds.

It was filed by Nashville attorney Jamie Hollin, Chattanooga attorney Jennifer Lawrence and Nashville attorney Travis Parham.

Mr. DePriest called it "a frivolous lawsuit designed to slow us down."

The full cost of the bond issue was $227,815,243.26.

Valerie Gillespie, vice president and general manager of Comcast of Chattanooga, said, “Comcast of the South today filed a lawsuit in the Hamilton County Chancery Court challenging plans by the Chattanooga Electric Power Board to finance a proposed cable TV and Internet venture with bonds backed by electric system revenue. The company believes this constitutes a cross subsidy which is prohibited by Tennessee state law.

"Our intention is to ensure that EPB complies with the Tennessee Cable Act and that Comcast be allowed to compete in a fair environment. Due to this pending litigation, we cannot comment further.”

Stacey Briggs, executive director of the Tennessee Cable Telecommunications Association, said, “Today one of our member organizations, Comcast, filed suit in Hamilton County Chancery Court to ask the court to stop the Electric Power Board of Chattanooga from proceeding with a fiber-to-the-home business plan that our industry believes to be in violation of Tennessee state law.
"A Davidson County court last week dismissed a suit on this matter by TCTA holding that the court did not have jurisdiction, that venue was improper in Davidson County and indicating that a TCTA member, rather than TCTA, was the proper party to pursue the action. Although TCTA continues to pursue its suit in Davidson County, it is beyond reasonable debate that Comcast, as a franchisee, has standing to challenge EPB in court in Hamilton County.   
"For reasons set forth in Comcast's complaint, TCTA firmly believes that EPB’s FTTH plan, while appealing on the surface, violates Tennessee state law.  EPB’s plan relies heavily on cross-subsidy support of the venture by ratepayer dollars – a violation of Tennessee Code Annotated 7-52-603.-*** Comcast, by filing this action, seeks to remove doubt relative to the court's procedural concerns and to have the legality of EPB's plan decided on the merits.  TCTA supports Comcast in their effort.   
"Illegality is only one of the major concerns Chattanoogans should have with this plan.  EPB’s course, based on a highly flawed business plan, puts public, taxpayers’ and ratepayers’ dollars at great risk.

"It’s also an example of the inappropriate position of government competing with the private sector.  TCTA again urges EPB to call time out to re-evaluate and remedy the illegal cross-subsidy issues in its business plan.”

She said in reference to TCA 7-52-603, the Comcast suit states, in part: “The prohibition on cross-subsidization and the requirement of cost allocation promote fair competition and also protect electric rate-paying customers.  Cross-subsidization and improper cost allocation have at least two negative impacts.  First, on the basis of special advantages including the utility’s access to low-cost capital arising from its monopoly services, tax exemptions and potential ability to use utility personnel and other assets, the electric utility could gain an unfair competitive advantage in selling services such as cable/Internet below the real costs incurred in providing the services. . . Second, electric customers, who are forced participants in a captive market, may be required to pay higher rates to support the cable/Internet division even though the electric customers may note use the cable/Internet services.”

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