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Transcript: Community Broadband Bits Episode 230
This is the transcript for episode 230 of the Community Broadband Bits Podcast. Harold DePriest of Chattanooga, Tennessee, describes his role in building the fiber network in the city. This is an in-depth interview of over an hour in length. Listen to this episode here.
Harold DePriest: This fiber system will help our community have the kind of jobs that will let our children and grand children stay here and work if they want to. That is the biggest thing that has happened.
Lisa Gonzalez: This is episode 230 of the community broadband bits podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. Chattanooga, Tennessee has been profiled in dozens of media outlets. It's a community reborn from one of the dirtiest cities in America, to what is now an economic development powerhouse. The city's publicly owned fiber optic network provides high quality connectivity that attracts businesses and entrepreneurs, but getting to where they are today did not happen overnight. In this episode, Chris has an in depth conversation with Harold DePriest, one of the men behind bringing fiber optics to Chattanooga. He's retired now, but as president and CEO of the electric power board, he was involved from the beginning. Harold describes how the electric power board made changes both inside and out, and went from being just another electric utility, to one that's considered one of the best in customer service in the country. The interview is longer than our typical podcast, but we think it's worth is. Now here are Chris and Harold DePriest, former CEO and president of the electric power board in Chattanooga, Tennessee.
Christopher Mitchell: Welcome to a community broadband bits discussion. A long form discussion, a little bit different from what we normally do, with someone that I have a tremendous amount of respect for, Harold DePriest. Welcome to the show.
Harold DePriest: Thank you. It's good to be with you Chris.
Christopher Mitchell: Harold, you've been the CEO, and you've recently retired from being the CEO and president of the electric power board in Chattanooga, which runs that legendary municipal fiber network. You've been involved in many capacities in public power, and I know that you're respected as a thought leader in it, so I really wanted to pick your brain today and talk about some of the things that you and I have spoken about previously, and some of the things that led up to the fiber network, some of the motivation, because I still think there's a lot of people that don't really understand all of the thought that went into it. With all that being said, what I'd like to ask you first of all is a question which is pretty basic, and open, which is when you were working on this fiber network, which I think you did for maybe 15 years, as you were contemplating it, or longer, you probably had something in mind. Is what you have in Chattanooga today what you were envisioning?
Harold DePriest: Truthfully, it's quite a bit more than I had envisioned, but I wanted to do the fiber, not really expecting to have the level of success that we had. I was really looking for ways both to, one, make our organization a better organization, meaning improve the technical skills, the customer service, all of the various things that you do as an electric company. Number two, I was wanting to be of more value to the community that we serve. The fiber was one of the things that we could do that would help in both areas. Frankly, its success has been fairly spectacular for us.
Christopher Mitchell: Yes. I would fully agree with that. We're going to delve into some of the history shortly, but the other question I wanted to ask you in the lead off is if you would identify, from your perspective, some of the biggest benefits to the community that the electric power board has taken on this fiber project.
Harold DePriest: I think there are several, some soft and some very very hard, but all of which are very very important in our community. One is the impact it's had on EPB itself. We've become a much stronger, technically stronger, much better with customer service, we're just a totally better organization because of the fiber deployment. The second thing is we built a smart grid on the back of that fiber, and that has very literally cut the number of outages and the length of outages here in Chattanooga by 50 to 60%. That's very substantial. In fact, if you look at the algorithms that both EPRI and the Tennessee Valley Authority use to put a cost on outages, primarily to businesses and industry, that one thing is saving our community's businesses somewhere in the neighborhood of 50 to 60 million dollars a year. That's pretty substantial. The finally thing is, frankly, the revenues are now staying here in Chattanooga. We'll be, this year, about $150 million in revenues. That means there are additional monies for taxes. Our in lieu of tax payments are actually up about $8 million because of our smart grid, on an annual basis. Roughly half of that goes to the school system, so that's a pretty neat thing in my opinion. The other is it's supplied the money for EPB to invest in other things that are of value to our customers, a new control center, GPS in all of our trucks, the ability to respond quicker and more efficiently on a daily basis, and in large outages. All of those are pretty neat things. Probably the biggest thing, Chris, is that having that fiber system gave our community hope. We were a city that was basically an old industrial city, and we'd been seeing just anemic economic growth for decades. The fiber came in at a time when we were looking for something to feel good about, and it became that real cause for hope, that the community actually had a future and guess what, today we do.
Christopher Mitchell: Let's just sit on that for one second, because I've heard the exact same thing from Lafayette, Louisiana. They say similar things in terms of that locally, I think they take a lot of pride in their culture, and that Cajun culture is wonderful, but I don't think they wanted to be known for just food and music and football and those sorts of things. When they said that they started seeing articles around the world talking about their fiber network, it was something that they couldn't really put a value on it necessarily, but they knew that it had a value. What's the benefit to the community of having that sort of pride?
Harold DePriest: Well, let me give you the most, what I think is probably the most important one. When we were getting ready to do the fiber program, I went around and I picked out 23 community leaders and just went and spent a half hour to an hour with each one, telling them what I was thinking about doing. One of them said something to me that was probably the most impressive insight into the need for economic development in places like Chattanooga. He said, "Harold, you don't have to tell me about the fiber and the technology." He said, "I wouldn't really understand that anyway. What you've already told me is this fiber system will help our community have the kind of jobs that will let our children and grand children stay here and work if they want to." That is the biggest thing that has happened. Chattanooga has literally -- a few years ago, or a few decades ago, we were losing our young people. They grew up, they went off to college, and they went to other cities to find jobs. Today, if they want to, they can find good jobs right here in Chattanooga. Guess what, we have other people's kids and grand kids coming here to Chattanooga to live, so we've had a huge influx of young professional entrepreneurial folk. I think that has been the biggest shot in the arm for the community. Now, on top of that, we're having a tremendous amount of growth for us, economic growth, new hotels, new industries, new businesses, new restaurants, it's just become a beautiful and very neat little place to live.
Christopher Mitchell: Well, yes, and the only thing, I think -- well, not the only thing, but one of the things you didn't mention is that it's long been a darling of the outdoors folks. I've been an avid reader of Outside Magazine, which has terrific journalism as well as very interesting, eclectic articles, and they've long ranked you always in the top five, I think, but often the number one place. I think there's a lot of communities that have that kind of appeal that want to have that local economy working as well. I want to step back, before we spend too much time in the present, and go back to probably the mid '90s, I'm thinking. You had been at EPB for a long time, you're now the president and CEO of it, I believe, and Mayor Jon Kinsey gets elected. Tell me what happened around that time that's important for understanding EPB today.
Harold DePriest: Jon was a new mayor, I was the new CEO. I took over in '96. Jon called and asked if I'd come over to City Hall and talk to him, so I went over and sat down. We talked for a few minutes, and Jon looked at me and he said, "Harold, just what does EPB do for Chattanooga?" Strangely enough, that really angered me. It angered me because I took it as a slight on what we did. "Everybody knows what we do, we provide electricity." I left that meeting with Jon muttering to myself, literally. "If he's going to try to get into our money, or if he's going to try to push EPB around, I'll just resign." I came back and I sat down and I thought about it, and I realized there was much more to Jon's question than I had first realized. When I thought about it, what I realized was there were many things we could be doing for Chattanooga that we just weren't. We sold electricity, and that was pretty well it. We were difficult to get along with, both for the city and for new industries and businesses. Back in those days, urban renewal was a term meaning the city would take over run down parts of town and try to rebuild it. We were just a pain to deal with. We were difficult in so many ways. When I thought about that, I realized, "Wait a minute, we're a big company, we act like a little company. There are so many things that we could do that would benefit our community if we just got our minds around it." That was one of the things that sparked my thoughts about changing the culture, changing the direction of the company, and making it, literally, a very community centered organization working to bring about economic development. If you think about it, back in the 30s, when we were created, that's what we did. We were created, literally, we were -- The idea for EPB started with the downtown Civitan, not Civitan, Kiwanis club, as a club project. They thought we needed our own little electric system, and we were created to take advantage of low cost TVA power to bring industry to town. Basically, Jon's challenge to me led me to think that we really needed to go back to our roots. We needed to go back and think in terms of improving the quality of life, including developing the economy, for the people we serve here in Chattanooga. It was a catalytic moment.
Christopher Mitchell: You knew the culture really well because you had had over 20 years of working at EPB in multiple positions, right? It's not like you came in from a different system and weren't that familiar. We're talking about a business of 500 some people, aren't we?
Harold DePriest: Yeah. I came here in 1971. In '96, I'd been here 25 years. I knew that I didn't like the culture, but frankly, it was the same culture I saw in every utility I visited. It was a pretty standard utility culture. One of my former bosses once explained it to me quite well. He said, "A lot of our employees think this would really be a great job if it wasn't for those damned customers."
Christopher Mitchell: Unfortunately, I think that's true of many businesses, particularly ones in areas where they don't face a lot of competition.
Harold DePriest: Yes, I think it is. You get this strange thing where people are not really happy even though the employees are running the company rather than management. People were grumpy. The culture was a little mean, a little vicious, gossipy, back biting, work groups didn't like each other, didn't work with each other well. We were a very siloed, segmented organization. I really wanted to quote Rodney King from out in Los Angeles, "Can't we all just learn to get along."
Christopher Mitchell: Right.
Harold DePriest: I wanted to work together.
Christopher Mitchell: You had a quote that you gave me for an interview we did, the case study that I'd written on Chattanooga. In it you said, "It's tough, it's painful, and it's absolutely good for you. It's a little bit like any of us when we get out of shape and we have to start running, we don't like it, but in the end, we feel better."
Harold DePriest: Yes. Actually, I thought a lot about it. Back at that time there was a lot of talk about deregulation of the utility industry. I spent a lot of time thinking about, "Okay, how do I get EPB ready for deregulation?" Then it occurred to me, "Well, it should be like literally getting a prize fighter ready for a fight." If you get yourself slim down, trim down, strong and muscular, lithe, and able to move, nothing's wrong with that if you never fight. That was the type of thing we could do that would get us ready for deregulation, and yet if deregulation didn't come, it would still be entirely good for the whole organization.
Christopher Mitchell: One of the things that I was surprised at was you said you significantly reduced your staff over a period of years. I'd like to talk a little bit about how you went through this culture change, but I think it's worth previewing that you ended up with fewer staff, significantly fewer staff, and pretty much productivity measure improved.
Harold DePriest: That's correct. Back at that time, we just had the electric company. We didn't have anything else. We had 472 employees when I took over the company, which was rather interesting because I'd already reduced 32 employees from my division, so we'd been at over 500. We were 472. In three early outs, over a period of a few years, we reduced another 122 people. We took it down to 350 employees. Every measure of productivity and performance got better and better. We answered the telephones quicker. We installed lines quicker. We were nicer to our customers. Part of it, Chris, was simply -- One of the worst things that can happen for any organization, I think, is to have too many people because you don't have enough good work when you have that many people. If you think about any of the bureaucracies you know, one of the things that defines a bureaucracy is byzantine processes. You have those complex byzantine processes because they've got too many people and not enough work, and they're trying to figure out a way to let everybody touch a little piece of work every day. When you take that away, when you slim down the workforce, all of a sudden your processes straighten out, they become very simple and very easy to understand and to manage, and you start providing better service, people start being happier because they've got a full day's work, and they can feel proud about what they're doing. People do wind up working better as a team because they literally have to. You don't have extra people to take up the slack. I'm a firm believer in a very slimmed down workforce. I think it's good for everybody.
Christopher Mitchell: Now, one of the things that I've learned about the public power world is in Texas you have this very powerful strong, and I suspect well run, Austin Public Power Utility.
Harold DePriest: They're an impressive organization.
Christopher Mitchell: You have the state legislatures desperately trying to deregulate them to force them to compete. I think if they heard this, they would think, "Well, yes. This is exactly what we want to force Austin to do." In some ways, I think the lesson that you offer is that one can actually do this with proper management without necessarily opening up a municipal electric provider to competing, which can actually, in some ways I think, result in a worse off environment for local businesses.
Harold DePriest: Yeah. I'm a little bit familiar with Austin. We monitor it because it's a good place to see some really good competitive activities going on. Yeah, in my opinion, it's much better to do it from within because part of the issue was we were a small enough organization, I could know all the people, I could know all the work groups, and I could understand where we were heavy and where we were light, and we could target the reductions in force and do them very surgically. I think we had three early outs. We enhanced people's retirement. If they weren't old enough to retire, which was only a few cases, we gave them nice severance packages. We didn't want to be cruel to these folks. We wanted to help them get on with life too. It really worked. We were able to target exactly where we were heavy. We were able to reduce, basically, work groups where the work had gone away. It always frightens people, frankly, when you do something like that, so you have to go a little bit slow, but at the same time that you're frightening people, giving them a full day of meaningful work is very exhilarating. As a matter of fact, I can tell you that my people today thrive on that. They work incredibly hard because they like what they're doing. They're good at it. They know they're good at it. They know that the community values it. And they take great pride in doing it well.
Christopher Mitchell: I think they must because I think there's, particularly today with the fiber product, I think you have many people who could go off and start very powerful consulting businesses, but they clearly see that they want to stay with EPB.
Harold DePriest: Yeah. At one time I was thinking about my retirement, and I thought, "You know, I'm one guy. When I leave, one guy gets to move up, and yet, I've got such a depth of expertise here," and I thought, "I'm going to lose a lot of these people. But the great thing is, they're going to go out and they're going to change the industry." Then I got to thinking about it a little bit more, and I realized, no, I was actually wrong on that because what I have is a tremendous number of talented people, but they're doing meaningful work, meaning work that they find to be significant in their lives, and they might not find that in other places. People, a lot of people sadly, work their whole lives without finding that fit, that perfect fit, between their talents and the work that they're doing. A lot of my folks have found that fit, and I was right. They've stayed because they love what they're doing.
Christopher Mitchell: I think there's an interesting fit between municipal electric utilities and the fiber network. Let's talk a little bit about why you think, and why you thought back then, that fiber would be something you'd want to expand into, because this is -- You've made yourself ready to compete in a market place, but then you start getting prepared to voluntarily go out and go into a new market place of telecommunications. Why did you think the electric utility should do that?
Harold DePriest: Well, we started, literally, by looking at the electric system itself. In the early days, we were a typical electric utility, meaning we had a lot of aging plant. We had a lot of problems. We had wires that were old and annealed, and that broke easily. We had poles that were old and rotten and fell over easily, and we fixed a lot of that. We put together maintenance programs, doing all of the things that a good electric company would do to maintain its plant, and yet, because we were an old industrial city, it just didn't seem to me and to my people that we were going to be able to provide the level of reliability that people were going to want out of their electric company in the future. We started looking for ways of, "Okay, how do we make the electric system more reliable? How do we provide better service to our customers?" After awhile it became pretty obvious, we needed a communications system. The deal was, back in those days, the electric business was undergoing a transition. We were transitioning from electromechanical devices, relays and controls, to digital. We had a lot of, or at least were beginning to get, quite a bit of digital equipment. This digital equipment would come in and it had tremendous capabilities. You'd get all kinds of protective cords and things like that in your relays. Yet, the truth was, we could barely use those capabilities because it was too difficult to communicate with those devices. In those days, if you wanted to communicate with a digital relay, you sent a young engineer with what today we would call a PC, in those days we called it a microprocessor. You physically wired up to that one relay, and you sat there and punched buttons to change the coding, meaning, you might take an hour on a single relay. Well, we have 1000 relays. You can't do that.
Christopher Mitchell: Does not scale well.
Harold DePriest: Doesn't scale well, and frankly, as we thought about it, and as time passed, we went through the same thing in our office areas, meaning we put in PCs. I don't know if you can remember the first PC, but I can tell you the first PCs we got here in Chattanooga were pretty good adding machines, and pretty decent typewriters, and that was about it. That was the real reason for wanting a PC, because you could do just a little bit more than you could with a hand held calculator. Then, over time, the industry developed common software platforms, and the ability to network those machines together, and they suddenly became massively powerful machines for productivity. We reasoned that if you can do that with PCs on the desktop, you can do that with all of these digital devices out on the electric system if we can just come up with a communication system that is ubiquitous enough to touch all of them. Okay, we need communications. Then we started thinking, "Okay, how do you future proof a decision like this?" If you're going to buy into the new technology, how do you make a decision today that won't seem like a stupid decision in 10 years?
Christopher Mitchell: Right, just to set the time frame, this is the late '80s, early '90s-ish? Or is it mid '90s around --
Harold DePriest: Yeah, this is in the mid '90s. As we thought that through, what we decided was, "Well, you do that by speed." We put in the fasted communication system we can. Speed will allow you to do many more things. Speed led us to fiber. That's the fastest you're going to get. According to Albert Einstein, God doesn't make anything faster than the speed of light. Okay, so now we're looking at fiber. As we looked at fiber, we looked at other communities smaller than us that had put in a little fiber, and we realized we just may have ourselves an eloquent solution here to all of our problems, meaning an eloquent solution is one solution that solves many problems. The fiber, one, could allow us to improve the electric system. That was our original line. Number two, the city was an old industrial city with very anemic economic growth, and yet a little bit around the country, these systems that put in a little bit of fiber were seeing enhanced growth. They were getting business. So okay, maybe the fiber fixed the electric system, and it improves the local economy. Then finally, my God, if you're going to be putting in fiber, you're going to be putting in advanced communications, just maybe we can sell those advanced communication services for enough money to pay for this thing, or at least help to pay for it. We thought, when we went into the business, that the revenues from the fiber would pay for about half of the system, and that the benefits from the electric system would pay the other half. We were wrong. The fiber communication system is paying for the whole system, about 50% over, and we still have the benefits from the electric system.
Christopher Mitchell: If you're going to be wrong, that's the direction to do it in.
Harold DePriest: It's a good way to be wrong in, but it provides revenues and it gave us a challenge that really fired up my people, that got them -- gave us a good heading on the new type of culture we wanted. We became a technology company rather than just a sleepy little electric system.
Christopher Mitchell: Now, you're -- In the public power world, you have about 2000 public power utilities. You're one of the larger ones. Most of them serve on the order of, I think, 7500 meters or something like that, so towns of around 10,000 to 15,000 people, maybe 20,000 people. Yet, most of those communities that have municipal power, the power company probably has some fiber, but they've not elected to go as far as you. Presumable they didn't see as natural a connection for it. Can you just -- what do you think that difference is?
Harold DePriest: I was actually on a panel discussion with APPA earlier this week.
Christopher Mitchell: That's the American Public Power Association.
Harold DePriest: That's correct. I was -- Actually, somebody asked that very question. They asked, "Well, you're a big system, what about the little systems?" The interesting thing is here in the Tennessee valley, we are one of seven communities that have put in fiber-to-the-home. We're the biggest. The next biggest one is one-third our size. Then there are two that are roughly one-sixth our size, and then there are a couple that are about one-twentieth of our size. Some very small systems, they actually put in the fiber first. I looked at them when I was thinking about putting in the fiber, and said, "Well gee, if those guys can do it, surely we can figure out how to do it." I'm talking about systems with less than 10,000 customers who have put in fiber here. It is doable for small systems. One of the great things about the current time that we live in is that there are so many software packages, or PCs, there are so many digital products out there that allow a fairly small system to have some fairly robust communications and command and control capabilities. I don't think the size of the utility matters a whole lot. It is more, "Are you willing to step out and do this?" Because it will change your organization. It will make you a different company.
Christopher Mitchell: So given that we have, I would say roughly 10% of municipal electric utilities doing some kind of fiber project that makes connectivity available for private sector entities, which would include maybe some that are only serving businesses and those that are doing fiber-to-the-home, it seems like the majority of public power companies are reticent to get involved in doing telecommunication service for the public.
Harold DePriest: Yes, and I think it's for a pretty simple reason, Chris. We have a tendency, we humans, to think that if somebody knows something we don't know, they must be incredibly smart to know it.
Christopher Mitchell: Yes.
Harold DePriest: The reality is, they just know something you don't know. You can learn it just like they did. One of the things that we discovered when we started getting in this business is, "Yeah, a communications company is complex." In my opinion, not nearly as complex as an electric system. I have many many many electric system employees who through the years have learned the communications business, and know it as well as anybody. It is very doable, but it is scary. It is scary because we tend to not be totally self confident in our abilities, so that doing the unknown is a little bit frightening.
Christopher Mitchell: It's funny you mention that, because I'm going to bring that up in a second, some of those employees that have become very savvy. I want to start marching through time a little bit, and I think something that most people really don't appreciate about Chattanooga is that you didn't just say in 2006 or 2007, "Hey, let's think about this fiber thing. Let's jump into it." You prepared multiple business plans over the years, waiting for the right time. Do you remember the first time you considered a city wide type project?
Harold DePriest: Yeah, we actually started out looking at getting in to the communications business. We had to get state law changed. Tennessee is one of those states where the constitution is prohibitive, meaning if you're not specifically given the powers to do something, you can't do it. We had to get the laws changed. We started out trying to change the laws to allow us to do video, internet, and telephone. Didn't have a clue what we were doing. First time we'd every really worked with the legislature, but as it turned out, we were able to get a bill passed that let us get in the telephone business. We started there. That's the stupidest place to start. Really is much harder than internet or video. Telephone's tough. But, we had to start somewhere, we started with that. We hired one communications engineer. A guy who's brilliant. He's still here with me. One of the best engineers like that in the country. We started learning. I can remember buying a little book that was telephony 101. It was just a list of the acronyms and defining what the acronyms were. One of the things that I discovered was, number one, they have more acronyms than we do in the electric business, which is amazing. God knows we've got plenty of acronyms. Number two, that acronyms are not quite as sexy as they sound. One of the first acronyms I learned was POTS lines, P-O-T-S, POTS lines. Sounds slightly foreboding. You know what it stands for? Plain old telephone service.
Christopher Mitchell: Right. I like that. It's clever. There's actually a consultant who I think has worked time to time with you guys, Doug Dawson, who runs a good telecom blog called Pots and Pans.
Harold DePriest: Mm-hmm (affirmative). Yes. Yeah. Doug was one of the first groups that helped us. They helped us write a business plan for the telephone business. We did something -- we did it very differently the next time around when it got into fiber home, but we didn't know enough to know how to even write a business plan. Doug and one of his partners helped us to write that first business plan. Then we, somewhere along the way, we hired another consultant to help us write a plan to get in the cable business. After awhile I discovered that that was not the smartest move in the world because things would happen that would obviously drive up the cost of the plan, and the guy writing our plan would go back and do a little magic and the plan would make more money. I called him in, I said, "How can this be? Things are happening that are making our cost worse, and you come up with us making more money?" He said, "Well, this is just something you need to borrow the money." I fired the guy, and we started doing our own business plans, which was the smartest thing we ever did. It really helped that we put together a team and built our own plan for fiber-to-the-home.
Christopher Mitchell: This is something I really wanted to touch on because when I was in Chattanooga for maybe the first or second time, I met Larry Hind, I think his name is. Is it Larry Hind?
Harold DePriest: Larry Hines.
Christopher Mitchell: Hines.
Harold DePriest: H-i-n-e-s.
Christopher Mitchell: -- who I believe is retired now. I've tried to track him down. I've asked to see if he'd do an interview with me because he gets this stuff. He's the kind of person that, it seems to me, really is essential for a utility to do this well, someone who's willing to dig in, spend all of his free time it seems like, learning it, becoming obsessed with it, and really knowing it inside and out.
Harold DePriest: Mm-hmm (affirmative). Yeah, Larry was a cartographer, meaning he had a degree in making computerized maps. We hired him when we decided to create a computerized mapping system, and he was the guy, when we started looking at the technology that was available. When we decided we wanted to go with fiber, the issue was the electronics had not been developed. They were being developed. There were five or six companies around the country working day and night to be the first one to develop the technology that would provide triple play over one little electronic box. We found a company. We thought this is the one we want. They seemed to be ahead of the curve. They seems to know what they're doing, and Larry and I and a couple of others went to Minneapolis, as a matter of fact, to look at the technology.
Christopher Mitchell: Optical Solutions, I'm guessing.
Harold DePriest: Mm-hmm (affirmative). Mm-hmm (affirmative). I thought, "Okay, we're ready to go." Then, at some point in time, I realized, "Wait a minute. This is technology that is working in the laboratory." At the time, they didn't even have the all weather boxes to put the stuff outside. I realized, "Nobody really knows how to install this in large quantities." There'd only been some fairly small installations at that time. Nobody really knows how to operate a huge system. We were talking at that time 150,000 homes. That's big. You need to know how to manage the network, you need to know how to maintain the system, and nobody did. It just hadn't been around long enough.
Christopher Mitchell: Right. There's no Verizon fios. At this point, you had the smaller communities like Bristol and Kutztown and Chelan and Grant counties in Washington. There was not a lot of people doing this.
Harold DePriest: Yeah, that is correct.
Christopher Mitchell: I shouldn't leave out Dalton, right? I think Dalton was the one that you were watching as well.
Harold DePriest: That's right. Larry Hines was the guy that I called in, and I told Larry, I told my board, "Look, it's premature. I'm going to shut down the business right now," or the business plan that we were working on. But I told Larry, "I want you to watch this and come back and tell me when this technology is ready." He watched it for seven years. Seven years later, Larry walked in my office one day and said, "Harold, it's ready now. The technology is about half the price that it was, it is working out in the field, there actually is a contractor who knows how to install it, so we can go now." When he told me that, I went out and brought in a few other people, put together a team of five people I think, to work on a business plan. Larry was one of those people. I told them, "You're first job is to convince me that there is a business plan. Convince me that this thing will pay for itself." After awhile they came in and said, "It will. We can show you the numbers." They gave me a proforma and all the assumptions. I spent several weeks going through it until I understood it. I decided they were right. We got with our board. We began a lengthy educational process. My board was wonderful on that. We would have two or three hour meetings where we were educating them on one part of another part of a fiber system, what it would do, and how we would go about building one for Chattanooga. Larry was absolutely one of the key people. When we started installing the fiber, Larry was the guy who laid out the physical design of the fiber plant. We started out with it was going to be about 6000 miles of fiber. I think today we're closer to 10,000 miles of fiber.
Christopher Mitchell: One of the things that I've long wondered is whether you have to be at a certain scale to be able to hire a person like Larry before you know that you're going out to bond and to generate, or to borrow, some capital to pay all of these startup costs.
Harold DePriest: No, Larry was home grown. Larry was already here. He was doing a much lower level job, but Larry is one of those people, and I've got a bunch of them, who just absorb technology. They just soak it up and understand it. Larry become one of my leaders in that, but I've got at least a dozen people I can think of who have the same characteristic.
Christopher Mitchell: If you have a dozen people, though, wouldn't that mean that you might have only one, no people, at a smaller one of these places that's one-twentieth your size?
Harold DePriest: Well, the really smaller systems, in most cases, hired one or two people, usually a young engineer who -- To begin with, digital technology to people my age, I'm 67, okay, that's pretty weird stuff. To a young person who's just getting out of college, hey, they have used computers and iPhones and iPads their whole lives. No, it's not going to be that hard to find people who understand the technology. It may be hard to create the kind of culture that gives them the freedom to learn it and to exploit the technology. I think that's more of the issue. You have to give people their freedom. You have to give them an opportunity to understand how important their own contribution is. You can't tell them what to do, you give them the opportunity and when you're lucky, you find the Larry Hineses of the world and they just do an incredible job.
Christopher Mitchell: You mentioned that you had to educate your board on it. I just want to run through this because I think it's important for people to have a sense of -- it's not a matter of, "Well, Harold DePriest thinks this is a good idea so let's just go and get the money and do it." Your board had to approve a plan. It went to the Tennessee controller, who had to approve it. Then the controller made comments and the EPB board had to re-approve it. Then you had to have a period of public comments, publishing comments, notices in the news paper, you had to vote a third time on the plan as a board. Let me just, for people who aren't aware, then the city council, which is above your board, had to approve it with a super majority. Then you had to develop the financing plan, which your board developed and approved, and then the city council approved it. Then TVA, which oversees everything, had to approve it. Then you had to issue a bond, which the board had to approve, and then city council had to approve, and then you had to negotiate with your own city for a franchise. This is a multi-step process that took more than a year to go through all of those steps.
Harold DePriest: Yes, and not just with our own city. We serve outside the city of Chattanooga. We actually serve 12 municipalities. We had to negotiate with 12 municipalities, and six counties.
Christopher Mitchell: Yes.
Harold DePriest: Lots of work on the franchises. The issue was, though, our board is a very -- We've got a great board. They're industrialists, they're people who are very successful themselves, and who donate time to oversee the operations of EPB. Educating them, talking with both my city and county mayor, and then I mentioned earlier, we selected, I selected somewhat randomly, 23 community leaders, business leaders, civic leaders, and I went and talked with each one of them. What was so interesting about it, not a single one said no. I actually started with a fellow I thought would be most apt to oppose what I was going to do. I went and spent about 45 minutes talking with him. I got up to leave his office, and as I walked over to the door, he said, "Harold," I turned around, he said, "You don't have to worry about me. Those people need some competition." That’s pretty well what I heard from everybody.
Christopher Mitchell: In fact, this is one of the things, a lot of communities that are considering this kind of investment, they're very afraid of what AT&T, Comcast, the competitors that you face, or very similar competitors that they might face, will do. You faced 2600 ads, in a short period of time, that were trying to convince everyone that EPB was going to bankrupt the town, that it was going to be the worst disaster ever, and from what I understand, it actually resulted in more people favoring the project than opposing it.
Harold DePriest: It did. I will tell you it scared the bajebers out of me. I've never had commercials aimed at me, telling people that what I was trying to do was stupid. It was a little unsettling. But the interesting thing is all those 2600 commercials were run in a six weeks period, and they were telling people, "Call city hall and stop EPB." 39 people called city hall. I was talking with the mayor on a routine basis every week. 39 people called city hall, and 19 of them supported us. Then somebody wrote a letter to the editor. One simple letter to the editor, and it said, "Look, they want us to call city hall to stop this. Why don't we call city hall and say we support it?" In two weeks, they had 600 calls.
Christopher Mitchell: Wow.
Harold DePriest: That absolutely solidified the city council in their support of it. They already liked the idea, but then they knew that it had the support of the people. The local news paper and a couple of other organizations ran some surveys, our support, the lowest level of support was 80%. That was in a survey put out by our competitor. They shut the survey down at 80%.
Christopher Mitchell: Right.
Harold DePriest: But we were 80 to 88% support in every survey.
Christopher Mitchell: I think some of the people that propose these kinds of projects and move forward, people that might be in a similar position to you in other communities, are a little bit fearful of going to the public, but the impression I always got from you was that you generally wanted community feedback. You wanted to know if people thought it was a bad idea because then you didn't want to do it if that was the case.
Harold DePriest: Yes. Absolutely. One reporter asked me, he said, "Harold," he said, "What are you going to do if these surveys come back and people don't want you to do this?" I said, "Well, I'm going to say 'thank you, we need to know that. We have better things to do.'" Why would anybody want to build a system the community didn't want? Yeah, I thought it was a great idea to just ask the community, "Is this what you want?" It turns out, yes it was, and frankly, it built a lot of potential demand for us. When we started building the fiber, we had people calling us regularly, saying, "Are you in my neighborhood yet? Are you there yet? Can I hook on yet?" For the first two years, we did very little marketing. Matter of fact, we didn't do anything except put up yard signs when we hooked up a new customer because we had more customers then we could handle. We had people calling us saying, "Are you in my neighborhood yet?" That's a nice problem.
Christopher Mitchell: It is, although I do want to throw out there for other people, that this is a somewhat anomalous experience. It is not the average municipal fiber project that has this level of community support, or even knowledge about it, frankly. And I think that a lot of the things you were doing in the community to raise awareness and to get feedback really helped to drive that.
Harold DePriest: I think it did. I think even the efforts of our competitors to shut us down, all those commercials, all it really did was make sure everybody in town knew, "Hey look, somebody else is thinking about putting in fiber." I think that helped us tremendously.
Christopher Mitchell: One of the things that you've been attacked for since, and I think there's a little bit of a super natural element to this, because in 2007 you were trying to figure out how to build this network and finance it and everything else, and people who are critical of you will claim that you only did it because you got a stimulus grant from the government. I'm curious how it was in 2007, you knew that two years later there would be a department of energy grant available that you could then get?
Harold DePriest: Yeah, I wish I had that level of ability to foresee the future, but I didn't. What the grant did, when we actually got in business, we borrowed the money, and we had the money to build a fiber inside the city of Chattanooga and in three surrounding municipalities, each of which are 10 to 15,000 citizens. We had the money to do that. Then our thought was we would build to the city limits, and then we would stop and take a breather and hook up customers and get some money flowing, and then go back to the markets and borrow more money. Two things happened that kept us from having to do that. One was we found quite a few ways to reduce the cost. This was one project that was built ahead of schedule, way below budget, and with sales that were eventually about twice what we had estimated in the business plan. The money came along and because we had already saved so much money on the installation, the additional money came in, and it was a smart grid grant, so it didn't pay for anything like the head in, the electronics, the computers that run the telephone system or the internet system. It paid for a little bit of fiber, actually quite a bit of fiber, and it paid for smart meters. It paid for intelligent electric switches, which none of those have anything to do with communications. But what it did do was allow me to just step on the gas pedal and keep on going when it hit the city limits. We were able to roll on out into the county and the other small municipals around us, and we got there quicker. We got there much quicker, but that was in 2010. That was three years later. No, we didn't have a clue that was coming. It was serendipity. I can tell you that I'm not one of those people who's ashamed of it. I thought it was wonderful.
Christopher Mitchell: Well, and let's talk about the results because would you have put 1100, is that how many it was, the intelligent switching devices, I believe the intellirupter, would you have built that level out without the department of energy grant?
Harold DePriest: No. We would have eventually, but I told the department of energy I think it would have taken us about 10 years, and we installed 1200. That would have been 120 a year for 10 years to get there. That would have been about the speed we would have moved at. What grant did, it let us build it out quicker and bigger, and that allowed us to see the results. If we dribbled it out over 10 years, you would have never really understood what the benefits were. Building it all, we put in those 1200 switches in one year.
Christopher Mitchell: I think it's important for people to understand, this -- I don't think most of us don't have a sense of how many switches one might normally find in a network, but the entire state of Texas had fewer switches than your, what, 700, 800 square miles.
Harold DePriest: That's correct. 600 square miles.
Christopher Mitchell: 600 square miles.
Harold DePriest: Yeah, we have the largest concentration of those switches. This was a massive deployment. We worked with S & C Electric, a very good company in Chicago, Illinois, that built the switches for us. I think we pretty well kept one of their factories going for close to a year. On a good day, we were installing 10 switches a day. They have had a massive effect upon the reliability of the electric system. Literally, we have seen the outage time cut in half for our customers. They see it. They understand it. They understand the value of it.
Christopher Mitchell: I just saw a presentation from Danna Bailey in which she showed some of the results of this so people can understand what they do. Unfortunately my voice won't convey the power of the visual presentation, but it shows when you had a storm an interruption, and it's something like 15,000 people lost power, and in 30 seconds later, half of them get it back. Then a minute later, another half of the people that are still out have it back, and all of this stuff. Eventually you have it isolated to just a few locations. It's remarkable. That's what you were talking about at the beginning of this show with all the money you're saving the community because when a household loses power, that's inconvenient, but when a business loses power, that's really damaging to them.
Harold DePriest: Yes, it's lose productivity, and in a lot of cases, lost product. As an electric company, you get some strange calls during storms. I can remember getting a call from a company that makes ice cream. They had a million dollars of ice cream that needed to be frozen.
Christopher Mitchell: I wish they'd called me, I would have helped get rid of it.
Harold DePriest: We've had calls from steel foundries saying, "Look, we have got a crucible full of hot molten steel, and in two hours that's going to solidify and we'll have to cut that stuff out with jack hammers. Can you get the power back on?" These switches do a remarkable job in helping us reduce the footprint of the outage, and they basically give Chattanooga businesses the equivalent of a dual feed, which is sort of what everybody would like to have from the electric company.
Christopher Mitchell: There's a couple more things I want to cover before we wrap up. I want to hit this home one more time because I often hear from people who I think are paid by the cable and telephone company, but you can't always prove it, and they seem to think that you getting money for the smart grid side delegitimizes you in a way that of course AT&T is never delegitimized despite all the money they take from the federal government all the time, but I'm just curious, when you say that the network, some of the grant went to these smart devices, and some of it went to the fiber, do you have a sense of how much of the fiber actually was involved in terms of the $111 million?
Harold DePriest: Yeah, probably -- Well, it was a $111 million matching grant, meaning we had to put $111 million to go with it. It was a $222 million build. Well less than a third of that was fiber. The smart meters, the intelligent switches, the new SCADA system, all of those were big ticket items, and even the fiber, only that part of it that could be used for the electric system for the smart grid. We weren't -- we weren't subsidized like they like to claim. I've heard people saying that it subsidized the whole system. We'd been happy to have taken that, but no, the money wasn't there. We'd already borrowed the money. We were just fortunate, serendipity frankly, that when the TARP money was made available, we still had $100 million left to spend. I could have finished the fiber system with that 100 million, but because we got that smart grid grant, we were able to build our smart grid at the same time we were finishing the fiber.
Christopher Mitchell: Right, and I just want to -- just a slight correction, I'm pretty sure it was ARRA, the reinvestment act, not the TARP, do you know for sure?
Harold DePriest: I think it was TARP, but no, I don't really.
Christopher Mitchell: Yeah.
Harold DePriest: Tell the truth, that was the first grant we ever applied for. I told my vice president, who wrote the grant, when we learned he'd gotten it, I told him, "Life is going to be downhill from now on for you. When you start out with a $111 million grant on your first application, it's not going to get better."
Christopher Mitchell: Right. Just one last word then on the money that you borrowed before hand, because I thought this was really fascinating. A lot of times when a community is considering building this network, the opponents to it will suggest that the amount of money that the community is borrowing is unimaginable, in that if you make the slightest mistake it's going to bankrupt the community, and we don't know of a single community that has been bankrupted by a failed municipal investment. You had a particular way of describing the financial risk to people if the network did not work out, and again, this is before the grant, so this is entirely when it's all your money paying for it, can you tell us what that was?
Harold DePriest: Yeah. Well, we thought about it, and we thought, "Look, let's be honest with the community, and let's tell them the worst that could happen." The worst that would happen would be that we'd built part of the system and never made a sale, never had a penny coming in to defer the cost. When we looked at that and worked through the calculations, we found out it would add about $2 a month to the electric bill, actually a little bit less than $2 a month. We told people that. "Look this is the most that it could cost you." When you start talking -- we borrowed $229 million. That's a huge amount of money, but not for a company our size, not for a community our size. The question is, can you invest it wisely in a way that it gives you a quick payback. Yeah, we have actually had a university economist do, I think, three studies now looking at the benefits of the fiber that we put in, and frankly, it looks like that we are making roughly about $100 million a year, clear.
Christopher Mitchell: And in direct benefits, largely, heavily.
Harold DePriest: Both in direct benefits and indirect benefits. It's about half and half. For instance, last year, the fiber system paid the electric system $30 million in cash. That's $30 million that flowed to the electric system to hold down rates and pay for improvements to the electric system. We had another $8 million that went to the city and the county in payments in lieu of taxes. That's $38 million hard cash. We had about $60 million worth of reduced cost to our businesses and industry by reducing their outages with that smart grid. Smart grid and fiber make a wonderful combination.
Christopher Mitchell: I think the -- Is it professor Lobo at the University of Tennessee, at Chattanooga?
Harold DePriest: That's correct. Mm-hmm (affirmative).
Christopher Mitchell: Just so people can look up that study if they would like to.
Harold DePriest: He has worked for the world bank, he's a very well respected economist. It's interesting, every time he does the study, the benefits are higher and higher. They keep going up.
Christopher Mitchell: Once you built the network, then it was interesting because there was some skepticism in the bond community. You were quoted, I just want to quote you because I think it's really important. They downgraded your credit rating from investor grade, to investor grade, but it's slightly lower quality investor grade, I think, so it's not like you were really dinged, but you said, "It seems counter intuitive, but this is the result of something positive, our conscious decision to expand our business into communications for the good of the community. We're not the typical utility company so it makes sense that we wouldn't be rated like one." I'm just curious, you want to talk about that just briefly?
Harold DePriest: Yeah. What they did, Chris, was really a little bit weird. They increased our rating, then they came back in about a year and reduced the rating because they said, "Look, you're in a competitive business. You could actually lose on this. You're not a monopoly." Since then, they've come back and restored our rating. We are double A+, which is about as good as it gets for a municipal utility. Only a handful in the country have that rating. We have a double A+ bond rating, which is a plus more than it was when we started the business. Yeah, the funny thing was, at one time they told us that the fiber was a risk because it was competitive. Then they came back a little bit later and said, "Well, actually maybe the electric system is going to be too dependent on the fiber. You're putting all this money into electric system." Then finally it occurred to them, "Hey, this is a good thing," and they came back and gave us that double A+ rating.
Christopher Mitchell: Yeah, it sounds like the rating agencies that I've come to know and love in studying about the great economic recession and their role in it.
Harold DePriest: The deal was nobody had done this before. Bond markets are very conservative, as they should be. They're looking out for the money of the people who buy the bonds. Basically, what we've proven to them is that this was a great investment for the community and for EPB. We've got the highest bond rating now that we've ever had, and we've had it for, I guess, two years now. All is well that ends well, and it is ending very well for us.
Christopher Mitchell: Well, I hope that you have not spent as much time digging through some of your critics' claims as I've had to, but you might find it amusing that one of the papers that's commonly cited from the New York School of Law, I think it is, which is a group that put out a paper that is riddled with mistakes. One of the things they said was they're very clear pointing out in multiple spots in the two or three pages they dedicated to you, that your bond rating had been downgraded. They never mentioned that it had been restored, but oddly enough, one of their footnotes was to an article that stated it had been restored. They just didn't see fit to let anyone know that that was the case.
Harold DePriest: Yeah, and when it was downgraded, it was only downgraded at -- they ticked it up and then kicked it back down. We were exactly the same rating when we started, and then they came back later and kicked it up again, and it stuck. Yeah, don't look for our critics to be particularly honest and open with their criticism. What it really comes down to, it's all about money. In America, we have these large companies, the AT&Ts, the Comcasts, the folks like that, who are making money on sunk costs. They've got these old copper systems out there that are fairly crappy systems, but they're making a ton of money on it, and they don't want anything to reduce that cash flow, or force them to spend money on an upgrade until they're ready. So anything a little organization like we do is looked on as being a horrible horrible thing, but when we were getting in the fiber business, one of our calculations was, "My gosh, we are a tier three city. It's going to be decades before these folks bring fiber to Chattanooga." As a matter of fact, my mayor went to them and asked them, "Will you bring fiber to the city?" No. They laughed at him. They're capable of putting this fiber in, they should be putting it in. It should not be just a few little places like Chattanooga who have this communications, this should be all over the country. Frankly, they choose to compete primarily in the state legislatures. They do better with lawyers and legislators then they do with their own customers.
Christopher Mitchell: Well, I think we've covered a lot of the details I thought a lot of people weren't familiar with. It's worth noting that we'll continue to see work in the legislature that I hope will be successful to roll back the barriers, to allow you to share your network with your neighbors, something that I think is wonderful. I just can't ever make this point loud enough. I feel like Chattanooga is spending money to try and change laws and at the FCC and at the state legislature so that you can give away your competitive advantage to your neighbors. I think that's the kind of country that I want to live in.
Harold DePriest: Well, we're doing that for a very simple reason, Chris. We're part of a region. We want our whole region to do well. If the region does well, we're going to do well. That just makes sense. If we help our neighbors, our neighbors will help us. We'll all have a better life.
Christopher Mitchell: That's a great place to end. Let me give you a chance, if there's anything else you want to tell us --
Harold DePriest: Well, I would tell you this, number one, once you get into it, it stops being scary and it starts being very very exciting. If you talk to any of my employees who lived through those years when we were building the system, I think for all of us, that's been the high part of our careers. We learned more. We grew. It's a wonderful thing to get an entire organization working on something that is difficult and complex, and that has a great benefit for the entire community. It's a neat thing to be a part of.
Christopher Mitchell: Well, thank you so much for taking all this time today, and all your time in the past. You've always been someone who, even when you were very busy, was open to hearing from people around the country that had thoughts or concerns. I just think that's a wonderful trait. Thank you very much.
Harold DePriest: Thank you Chris. It's been good talking with you.
Lisa Gonzalez: That was Chris talking with Harold DePriest, retired CEO and president of the EPB in Chattanooga, Tennessee. They were talking about the community's fiber optic network and how it's benefited Chattanooga. For more on the network, be sure to check out Chris' 2012 report, Broadband at the Speed of Light: How Three Communities Built Next Generation Networks. We also have dozens of stories on Chattanooga at MuniNetworks.org. Remember, we have transcripts for this and other community broadband bits podcasts available at MuniNetworks.org/broadbandbits. Email us at firstname.lastname@example.org with your ideas for the show. You can follow Chris on Twitter. His handle is @CommunityNets. You can also follow muninetworks.org stories on Twitter where the handle is @MuniNetworks. Subscribe to this podcast and all of the podcasts in the ILSR podcast family on iTunes, Stitcher, or where ever else you get your podcasts. Never miss out on our original research by subscribing to our monthly newsletter at ILSR.org. Thanks to the group mojo monkeys for their song Bodacious, license to Creative Commons, and thanks for listening to episode 230 of the Community Broadband Bits Podcast. (music)