RD20 - Broadband Feasibility Study as Required by the Virginia Grid Transformation and Security Act of 2018 – December 1, 2018

Executive Summary:

“Broadband networks are the first enabling technology since electricity to fundamentally impact society to such a great extent that it is now viewed in economic development circles as critical infrastructure. Access to broadband provides communities with the foundation necessary for economic growth and a sustainable quality of life."1 The opportunities afforded by such access are limited or non-existent in many regions of Virginia, especially rural areas with low densities of population. Expanding broadband access to under and unserved areas will require a portfolio of solutions and resources.2 Electric utilities are uniquely positioned to play a key part in this expansion, if efforts to deploy broadband infrastructure, in particular, the middle-mile fiber backbone needed by last-mile installers and service providers, can be coordinated and accomplished in parallel with electric grid modernization programs. Recognizing that electric utilities may have an important role in supporting broadband expansion, the General Assembly passed the Grid Transformation and Security Act (“Act") in 2018, which required Appalachian Power Company (“APCo") to “investigate the feasibility of providing broadband Internet services using utility distribution and transmission infrastructure."

APCo defined working assumptions as a foundation for potential strategies to support broadband expansion, including the following:

• APCo will focus solely on the development and ownership of middle-mile fiber and will not develop last-mile infrastructure.
• APCo will not compete with broadband providers to directly serve customers.
• Any strategy must align with APCo grid modernization projects that include fiber.
• APCo must reserve a portion of any new middle-mile fiber for internal use.
• APCo must be able to recover costs from its electric service customers, including but not limited to operations and maintenance costs and a reasonable return on and of investments associated with middle-mile assets through a rate adjustment clause. All lease revenue would, in turn, be credited to electric service customers.
• APCo will not seek grants or government funding for middle-mile development.

Potential APCo strategies to support broadband development involve increasing the capacity of fiber that APCo would install to support its grid modernization programs for the collateral benefit of middle-mile expansion. For currently planned projects, the strategy would increase the amount of individual fiber strands installed so that the added capacity could be leased as a middle-mile asset. Prospective projects in the future could be designed specifically to install fiber optic cable for the dual purpose of grid modernization and middle-mile development.

The Act requires these potential strategies to be evaluated with respect to their technical, execution, financial, and regulatory feasibility. Results of the evaluation were used to develop the following responses to the inquiries requested by the Act:

Is it feasible to provide broadband services using distribution and transmission infrastructure?

Possibly, but real barriers were identified. It is technically feasible to provide broadband infrastructure using electric utility assets. It is also feasible for electric utilities to execute a strategy that can bring middle-mile infrastructure to underserved and unserved regions by the efficient utilization of current and prospective grid modernization programs. Execution of these strategies through the electric utility installing fiber within the power zone of poles provides for increased efficiencies in terms of the timing and cost of deployment. Proper due diligence during the planning and design phase could add cost and time to projects if new easements must be obtained. Financially, it is cost effective to add capacity to existing fiber deployments that are part of grid modernization programs. Plus, the co-benefits of broadband can make it more cost effective to extend the reach of fiber optic cable supporting grid modernization programs. Regulatory feasibility is discussed below.

If feasible, is it in the interest of the public?

Yes. It is in the public interest to identify, evaluate, and pursue any opportunity to accelerate the expansion of access to affordable broadband services given the widely recognized the social and economic benefits of such access. A potential cost effective middle-mile development strategy represents one opportunity, especially considering the collateral benefits of grid modernization programs that improve the delivery of electric services and that support digital automation technologies for customers.

If feasible, is it in the interest of the electric utility?

Yes. It is in the interest of the electric utility to support the installation of middle-mile fiber assets. Such development supports improved social, economic development, business retention and other goals for the customers and communities served by the utilities. It is also in the interest of the utility to promote broadband development to further optimize the operation of electric delivery systems, reduce outage frequency and duration, and to enhance customer programs.

If regulatory barriers exist, how can they be addressed?

Regulatory barriers exist, but the following recommendations are designed to support the development of regulatory, legal, and policy strategies that would facilitate electric utility support for broadband expansion to underserved and unserved areas:

1. Establish that electric utilities can recover costs, including but not limited to a reasonable return on and of investments, associated with middle-mile assets through a rate adjustment clause. Reasonable costs include any necessary permitting, amendments to or litigation around easements, material and labor.

2. Require that all revenue from the leasing of electric utility middle mile would, in turn, be credited to electric service customers.

3. Consider entering into contracts with providers who agree to lease the middle mile before the electric utility installs it.

4. State Corporation Commission (SCC) approval would be a prerequisite for any electric utility strategy to invest in middle-mile assets.

5. Electric utilities would maintain control over development and leasing of middle-mile fiber assets with oversight by the SCC, and possibly in collaboration with an agreed upon third party stakeholder organization that helps identify opportunities and market middle-mile assets.

6. Ideally, the terms and conditions for leasing middle-mile assets will be determined by the SCC in a rule-making, with guidance from the General Assembly, which will provide objectivity and transparency, and the pricing will be determined in an equally objective and transparent way.

7. Within the framework of approved grid modernization projects, electric utilities will have exclusive control for the scope, scheduling, and execution of projects to install, maintain, and repair fiber assets, including fiber route selection and build/splice schedules.

8. Electric utilities have control of the method of attachment and connection to transmission, distribution and fiber assets.

9. Electric utilities will manage and document the entities that lease fibers in order to manage operations, including outage notification and management.

10. Establish financial incentives for last-mile developers, municipal broadband authorities, and service providers to lease government or utility middle-mile assets.
(*1) Virginia Office of Telework Promotion and Broadband Assistance. http://www.wired.virginia.gov/content/basics

(*2) For purposes of this study, “broadband" refers to the current FCC definition of 25 Mbps upload and 3 Mbps download. http://www.fcc.gov/reports-research/reports/broadband-progress-reports/2018-broadband-deployment-report