published Sunday, July 22nd, 2012

The Smart Grid’s true cost

A hundred million here, a bond or two there, a federal handout — and a few million bucks from the city — somewhere else. After a while, it’s hard to keep track of the true cost of the Smart Grid, EPB’s recently completed electric system of the future.

EPB says the price tag for the Smart Grid came in at about $220 million. The Department of Energy puts the final cost of the system at $226 million. When all is said and done, however, the actual total dwarfs those estimates.

In order to begin construction of the Smart Grid system, as well as to implement the “Fiber to the Home” efforts that allowed the electric company to provide cable service and expand Internet and telephone offerings, EPB took out a $219.8 million bond.

That $219.8 million figure, however, doesn’t include the interest that will pile on top of the principal over the course of the loan’s 23-year payback period. That interest alone will cost EPB electric customers an additional $171.5 million, bringing the bond’s total price tag to $391.3 million, according to public records obtained from EPB.

EPB claims that just over 80 percent of the amount of the bond — roughly $318 million — went to construct the Smart Grid. However, since most of the remaining bond funds went to subsidize the EPB’s foray into the cable, Internet and telephone businesses — such as the purchase of cable boxes and other hardware — it’s fair to say that almost every penny of the bond ultimately went toward Smart Grid-related costs.

All of that $391.3 million bond will be paid by EPB’s electric customers … if things turn out well. If for some reason EPB isn’t able to cover the cost of paying back the bond debt, city taxpayers will likely have to fork over the difference, since the utility company is ultimately owned by, and the responsibility of, the City of Chattanooga.

But wait, there’s more …

Impressed by EPB’s Smart Grid plan, the federal Department of Energy awarded Chattanooga $111.6 million in taxpayer-funded stimulus dollars, courtesy of the American Recovery and Reinvestment Act.

But, of course, the federal government didn’t actually have the money to cover pricey stimulus handouts like the one given to EPB. So, instead, the government borrowed it.

The Congressional Budget Office estimates American taxpayers are on the hook for a total of nearly 42 cents in interest for every dollar spent on the stimulus. That means that the $111.6 million the federal government shelled out to EPB to subsidize the construction of the Smart Grid comes with an additional $46.6 million in interest. As a result, federal taxpayers will ultimately spend $158.2 million underwriting a large chunk of the cost of the Smart Grid.

And the spending didn’t stop there.

The City of Chattanooga chipped in another $2.5 million in tax money to EPB to help fund the Smart Grid — and that doesn’t even count the $2.5 million in tax breaks EPB will receive from the city if the fiber scheme fails to meet profitability projections.

So when you add up the $391.3 million in bonds, $158.2 million in stimulus dollars courtesy of federal taxpayers and another $2.5 million in funds from city taxpayers, the total price tag of the Smart Grid is a staggering $552 million. That comes out to $3,266 for each of the 169,000 people served by EPB power.

But that isn’t the Smart Grid’s only cost.

The Smart Grid was ostensibly built to prevent power outages and get power restored quicker when outages do occur, as well as save customers money by reducing waste and theft of electricity. Many EPB customers don’t realize some of the other — and more concerning — capabilities of the Smart Grid.

For example, the Smart Grid allows EPB to impose a TVA program that charges electric customers more for using electricity during peak hours. Once implemented, this means that you will pay more for running your air conditioner during a 100-degree summer day.

The Smart Grid also allows for interaction with controlled service appliances, which is another way of saying the government can control the amount of electricity reaching some appliances — such as water heaters and heating and air systems — in certain cases.

This new electric system also can monitor home electricity usage so closely that it is possible for EPB employees to determine when you wake up, when you go to sleep, when you’re home, when you’re away and even which appliances you’re using at a given moment. While that may not offend some people, many opponents of the Smart Grid raise valid concerns over privacy and government surveillance issues.

To make matters worse, EPB specifically choose its fiber Smart Grid system to be able to compete against cable, Internet and telephone companies in the free market. The fact that a government-owned utility company can force taxpayers and electric customers to pay for the cost associated with getting into the cable and telecom business is a slap to the tenets of capitalism and the free market.

After all, government ownership of companies is the very essence of socialism.

When the numbers are crunched, electric customers and taxpayers may shudder at the $552 million tab for the Smart Grid.

However, when you consider that the Smart Grid allows the government to control your appliances, tax you for using electricity at certain times, know when you’re in the shower or cooking your family dinner and compete against private businesses, the expense doesn’t end with dollars and cents.

The true cost of the Smart Grid is liberty.

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When you use electric power. EPB employees could already figure all of that out. So could the NSA and the CIA if try wanted, laws notwithstanding. But let's see, they can charge you more when electrical demand (and thus prices ) are highest? Aren't you aware that is part of your vaunted free-market? And "in certain cases" means when you choose to let it happen. Much like you can choose to take a later flight when the airline overbooked.

You're a bunch of fools if you think there is a problem with EPB's fiber service though. There was no free market there, just leeching monopolies grafted onto the existing electrical grid. Even the few cases where there is open access, it had to be government mandated on the providers.

Not to mention the quality of service has been excellent. I much prefer a local company to a massive corporation which is who knows where. When the real results are examined, customers cheer at being free from those chains.

You really want to defend liberty though? Then consider the contrast between your conspiratorial rant here and your just declared support for denying people the right to vote. You're about as consistent as Steve King who wrote a law banning state ans local anti-cruelty to animals laws after previously declaring he hated national healthcare standards and thought states should set their own policies.

Nah, you probably think we should have three or four networks of utility poles running around. Anything to avoid your dreaded specter of socialism. You'll pay any price for that. Even selling out to a corporation which profiteers off you while providing you with even less.

July 22, 2012 at 1:34 a.m.
EaTn said...

Employers don't need these type utilities, or any other government support--they can provide jobs and goods or services just fine without paying a part of their hard earned profits in taxes to provide utilities like this.

July 22, 2012 at 6:14 a.m.
annisisbell said...

Well this is just an outrage.

Don't those who are responsible for all of this know that jews need that money so we can attack Iran next? Why should money be wasted on Americans here at home?

We've already cut out NASA so you'd think that Chattanoogans could learn to be a little more considerate. It costs a lot to build bombs and guns. It is selfish to want luxuries like this when that money could be used to kill Palestinians and other assorted Arabs and Iranians.

Furthermore, foreigners have already bankrupted California which used to be one of the biggest economies in the world. Outsourcing of jobs to Asia and bringing in hordes from the third world costs money. Yet selfish people in Chattanooga want to waste money and throw it down a black hole.

Some people, I guess it takes all kinds.

July 22, 2012 at 8:44 a.m.
aae1049 said...

What? you mean the dinner and a date tradition of, "what ever you say Darlin," is over with .gov, their agencies, and the TFP. I love it, truth and fact for a change.

There are masters of gloss marketing at Chamber of Commerce and .gov that chase federal dollars for funding, then fabricate need in the interest of contracts for friends.

The smart grid of EPB with Stimulus Grant funds, and the City of Chattanooga Mesh Network with Homeland Security funds used the same tactics. They followed the availability of money at www.grants.gov, then generated a need that did not exist.

It is a lucrative process for the Bubu cronies, that generate businesses in the process. First they find a grant or funding, market a need based upon the availability of funds, convince the public it is for your own good, get local match and give cronies heads up to expand business to this area.

There are what 12 customers for the extraordinary fast internet, what did that cost, $200 million? 1 gig marketing is all financial fluff for EPB.

July 22, 2012 at noon
mikebfromky said...

Drew,

I am already inundated with commercials for comcast on my TV. I also receive one piece of junk mail from comcast each week in my mail. There's no need for my paper's editorial staff to carry their water as well.

Also, you neglected to mention that when I pay my EPB bill my money goes to improving my community. When I sent money to comcast it went to buy Time Warner in NYC.

July 22, 2012 at 12:44 p.m.
aae1049 said...

mikebfromky, payments for the EPB bond issue payments are going directly to Wall Street. Bond issues come from banking institutions.

The bond payments of over $300 million do not return to the community.

July 22, 2012 at 1:04 p.m.

And that's a whole different set of problems. See for example, Birmingham and their experiences.

If you want to end the whole international banking fraud system, let's talk about it. Perhaps we should adopt the North Dakota system of a state bank?

I still prefer a local public-run company over an international corporation.

July 22, 2012 at 1:19 p.m.
mikebfromky said...

aae1049, and the money from the bond is used to build a smart grid - something useful for my community - Bond issues are how all cities improve their infrastructure.

July 22, 2012 at 1:22 p.m.
aae1049 said...

Well mikefromky, thank you for that explanation about Bond issues. I should not be concerned at all about bond issue mismanagement, yeah right.

In October 2010, the City of Chattanooga lost $15 million dollars in bond issue penalties, resulting from refinancing a very rogue Swaption Bond issue that had terms no one would have ever signed or approved with their own money. The refinance penalty was equal to the principal pay down, and the interest was not capped. Whoa, who signed that deal? Answer Your City Council.

$15 million in penalties walked right out of our community to Wall Street. There are pit vipers that write these bond issue contracts, mostly from the Tennessee Municipal League Bond Pool.

It is important to note the City’s 10 percent rule, debt cannot exceed 10 percent of total property assessment value. As property assessed values increase, the City’s ability to incur more bond debt increases proportionally. That is why they annex my friend, to raise bond debt to raise the 10 percent debt ceiling. They are currently approaching $450 million or so, lots of Pilot give aways.

Citizens should not blindly trust that the EPB and Chattanooga are ensuring that the public's interest is protected.

EPB has 12 customers for $200 million gig program, please make that capital investment amortize out. :-)

http://littlechicagowatch.com/wp-content/uploads/2011/09/Chattanooga-Debt-Service.pdf

July 22, 2012 at 5:37 p.m.
loveit said...

intersting clip to watch:

No taxpayers dollars?

July 22, 2012 at 7:45 p.m.
loveit said...

intersting clip to watch:

No taxpayers dollars? Thank you Drew for the real story.

July 22, 2012 at 7:47 p.m.
FrankC said...

There is so much wrong about this editorial I don't know where to start. In fact, I don't have the time or inclination to go through the writer's rantings to argue each inane point. I, for one, support what EPB is doing 100% - we should be thankful that the power board took the bull by the horns and did something for this city that nobody else was going to do. You think Chattanooga would get noticed by the VW's and the Alstom's and the Amazons of the world if we'd left our communications infrastructure to Comcast? And would Drew Johnson have EPB forgo the stimulus grant because it may or may not have been a loan to the feds? The money was going to get spent somewhere - refusing to take it would have been cutting off our nose to spite our face. I'm glad that EPB saw the opportunity to bring it here. Drew Johnson's ignorance is alarming.

July 22, 2012 at 8:29 p.m.
ITguy said...

Does anyone think that Amazon would have located here without high speed Internet service? It is called infrastructure. It attracts businesses that create jobs

July 22, 2012 at 9:31 p.m.
aae1049 said...

Absolutely, $30 million in Pilot exemptions for Amazon, and $500 million for VW. Of course, these corporations are not here for internet speed or for blue rhinos.

Bottom line is all it is about.

July 22, 2012 at 10:17 p.m.

aae1049, are you so obtuse that you think the Gigabit customers are the only ones served by that whole investment? Do you actually think that the cost of provision to them is any significant portion of the investment?

I know this side of the paper made that misrepresentation not so long ago, but you shouldn't swallow it.

It's a fraud. The extra costs of the Gigabit provision are covered by the subscription. The fiber itself? It'd cost the same to run regardless.

FrankC, ignorance can be cured. This is much worse.

ITguy, not to mention highways and raillines.

July 22, 2012 at 10:24 p.m.

Yep, if you think that the infrastructure investment for those Gigabit customers was any substantial part of the whole bill, you are being obtuse. Offering a gigabit...or less, they'd still have paid the same bill for putting up the bill. If you understood anything about running fiber you'd realize why.

If you really want to make a good argument, you won't rely on such misrepresentations as they only discredit you.

The only people really objecting to the service are the companies that have been profiteering off their captive markets for years but now they're facing a threat of actual effective service from somebody who will listen to the people.

That has them running scared.

That's why they front lying comments and reports like the one you cited. Or the one involving a cornfield, which charges all of the inputs to the ethanol part when most of the production went elsewhere.

July 23, 2012 at 1:05 a.m.
328Kwebsite said...

Don't worry. You paid for it by electing a mayor who wrecked everything else.

July 23, 2012 at 6:34 a.m.
cooljb said...

I liked Mr. Johnsons article. Very informative.

July 23, 2012 at 8:01 a.m.
aanr said...

Great a 3rd monopoly that's hell bent on running locally owned and operated businesses out of business.

EPB's network is publicly funded no matter how you look at it. EPB's fiber network should be treated just like the roads, if anyone is willing to pay the tax then they should be able to jump on that road as it is. At this time there are a select number of small, locally owned, technology companies that EPB refuses to do business with because these small companies also offer competing services to EPB.

EPB has not only set their sights on eliminating these companies but they are moving their cross hairs on other businesses. Companies that offer phone systems, Companies that offer PC repair, Companies that offer home automation, and even rumors of companies that offer alarm systems will also face competition from their local government.

Isn't the "free market" grand? What's next? EPB will open a chain of supermakets? Maybe some drug stores and gas stations too.

July 23, 2012 at 11:38 a.m.

aanr, if you want that form of network access, you can certainly argue for it. Nationwide. Good luck, it's been argued for the past 30 years, and hasn't happened with any real impact.

July 23, 2012 at 3:08 p.m.
Leaf said...

Well, all I know is that Comcast periodically raped me. So far EPB customer service has been excellent with faster speeds.

July 23, 2012 at 4:14 p.m.
mikebfromky said...

aae109, Forgive me for replying in such succinct terms but it seem appropriate because you seemed clueless or had an agenda.

continuing with yesterday's lesson... municipalities then go to Wall Street to raise those funds. And because I know you have been paying attention for the past 4 years, a Wall Street Bank gave Chatt/EPB the best deal they were willing to give them or ripped them off which are the terms you would use because you know that on Wall Street banks refer to clients as "muppets" (see link)and routinely rip them off. That's the system we have made and you feel is better than government.

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=all

July 24, 2012 at 7:29 a.m.
mikebfromky said...

aae1049, Forgive me for replying in such succinct terms but it seemed appropriate because you seemed clueless or had an agenda.

continuing with yesterday's lesson... municipalities then go to Wall Street to raise those funds. A Wall Street Bank gave Chatt/EPB the best deal they were willing to give them. I know you have been paying attention for the past 4 years so,you have good reason to believe they may have received a bad deal because Wall Street typically behaves unethically toward its clients and refers to them as "muppets" (see link). That's the system we have made and you feel is better than government. So whats the libertarian alternative? loan sharks?

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=all

July 24, 2012 at 7:41 a.m.
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