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City Council Authorizes Sale of AP&T Telecom Business

Release: IMMEDIATE, November 19, 2008
Contact: M. T. Matt McCabe,

CITY COUNCIL AUTHORIZES SALE OF ALAMEDA P&T TELECOM BUSINESS

Alameda, Calif., November 19, 2008 – At its meeting Tuesday night, following a recommendation made by Alameda’s Public Utilities Board the previous evening, the City Council authorized the sale of Alameda Power & Telecom’s telecommunications business line to Comcast.

The actions, adopted unanimously by both bodies, allow the sale of telecommunications assets to Comcast to proceed. “The sale of the telecommunications system brings certainty and eliminates future financial risk to Alameda Power & Telecom and the City from continued operation of the telecommunications system,” said Public Utilities Board President Ann McCormick. “Selling now also enables us to focus on our core electric business.”

The sale is scheduled to close this Friday, November 21. General Manager Girish Balachandran emphasized, “We are doing our best to ensure a seamless transfer of customer accounts, and we will continue to keep the community informed as we work through the details of the final transaction.”

In 2004, the utility borrowed $33 million through bond anticipation notes secured by telecommunications system net revenues. Payment on the notes is due in June 2009. Over the past two years, the Public Utilities Board and utility staff have solicited extensive public input, evaluated and implemented operational efficiencies, and taken advantage of cost-cutting opportunities. These steps were taken to increase profitability and move the telecommunication system toward becoming self-sufficient and able to support its debt.

“At the time the decision was made to get into the telecom business, circumstances were very different than they are today,” McCormick continued. “The Naval Air Station was closing and electric deregulation was imminent. Alameda was underserved by the incumbent cable TV provider, and technology investments were widespread.”

“The landscape changed radically. There are now multiple providers of telecom products available to residents. National companies are competing locally; and there are higher expectations of service offerings,” she explained. “Besides growing competition, technology continues to change, and significant capital will be required to keep up. Our labor costs, relative to non-municipal providers is high, and programming costs continue to grow. All of which challenge our ability to generate profits from operation of the telecom system.”

A year ago, the Public Utilities Board authorized retention of an independent financial advisory team to examine these issues and the ability of the telecommunications business line to address existing debt. A range of options was explored, including refinancing the current system, adding voice services, or selling. The team’s findings conclude that both refinancing and expansion are infeasible.

After reviewing multiple bids, Alameda P&T pursued the best sales transaction possible, one that ensures the utility and its customers remain protected. “In today’s volatile economy,” noted Balachandran,” we have negotiated the best sale price available, and this decision prevents continued losses.” Comcast has agreed to purchase the telecommunications system for a base purchase price of $17 million.

“We realize that the community has had high hopes for the telecommunications business and that its development has been controversial,” said McCormick. “Staff has worked diligently to ensure its success. However, in the face of increased competition and changing technology requirements, a small public utility like Alameda simply cannot keep pace with advances in this area. Unfortunately, the telecommunications division cannot support itself on an ongoing basis.”

“The Public Utilities Board and Alameda P&T always have been committed to providing excellent utility services to customers and owners, in the most fiscally prudent manner possible,” McCormick summed. “This decision insulates the community and our core services from any ongoing or increased financial risk. Selling now is in the best interest of customers and the utility.”

Balachandran added, “This decision allows Alameda P&T to do what we’re best at. As ‘The Greenest Little Utility in America,’ this action allows us to focus on the core services our constituents want, need and value, clean, reliable, high-value, and cost-effective power services.”

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