Lafayette (La.) Utilities System (LUS) must amend the mechanism to guarantee the $125 million in bonds that will fund its citywide municipal fiber-to-the-home project after the 3rd Circuit Court of Appeals ruled that the current plan violates the state's Local Government Fair Competition Act.
The ruling overturned a lower court decision in LUS' favor. BellSouth, which currently offers telephone and Internet service in Lafayette and has its eye on the video market, appealed the decision, successfully arguing that the payback plan amounted to a cross-subsidy barred by the Louisiana law. The law is designed to keep municipal utilities from using captive revenue from other operations to support a competitive commerical venture.
Under the original plan, LUS would have been able to use funds from its monopoly electric utility operation to prop up the telecom operation if telecom revenues alone could not cover costs.
The ruling is a setback for LUS, which said yesterday it will not appeal the decision. Instead it will have to turn to private capital markets, and most likely pay higher interest rates, than the original feasibility study had projected. The ruling could stall plans as lenders are much less prone to finance municipal FTTH systems when future revenues are the only guarantee. Crawfordsville, Ind., Truckee-Donner and San Jose, Calif., are among cities that have FTTH plans languishing because they cannot get attractive financing terms. Meanwhile, in states like Iowa, where municipalities are permitted to support telecom operations with funds from other operations, the cities of Cedar Falls, Muscatine, and Spencer all had to borrow money from affiliated utilities.
Nonetheless, LUS Director Terry Huval told the Louisiana Advocate Tuesday that the project is still on track financially. "With the continued favorable interest rate environment coupled with the decreases in the price of fiber technology, our feasibility plan remains on target," Huval said.