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July 5, 2001 By Janelle Holden REAnet’s partially built fiber network from Farmington to Cortez has yet to attract a buyer, but it may have found an investor to finish and light it. According to Neal Stephens, the general manager of Empire Electric Association, the secured creditors of the newly bankrupt REAnet have been meeting this week with an unnamed potential investor interested in building out REAnet’s planned fiber network, which would connect Farmington to Durango and Cortez. "We’re hoping to get another interested partner in helping to finish developing what’s left of REAnet and we don’t have anything yet," said Stephens. "I think things are progressing well. I would say we’re hopeful," said Davin Montoya, president of the La Plata Electric Association board. Empire and LPEA are desperately seeking ways to recoup their lost investment in REAnet, a for-profit subsidiary created in 1998 to bring telecommunications into the Four Corners and generate profits to help the rural electric co-ops survive possible electrical deregulation. The two guaranteed REAnet a $15 million credit line and have provided nearly $1.5 million cash for REAnet’s startup costs. REAnet declared Chapter 11 bankruptcy in April and has been trying to sell off its remaining assets to pay the $20.6 million it owes its creditors. According to Stephens, a non-disclosure agreement has been signed between the potential fiber investor and the co-ops, so the investor’s name or names will not be revealed. "Most likely it will be more than one entity involved in putting this thing together," said Montoya. No letter of intent or memorandum of understanding has been signed by the investor, but negotiations will continue this week. Stephens and Montoya both say finding an investor could help the co-ops actually realize their initial goal of bringing fiber-optics into the rural communities of the Four Corners as well as providing some income from telecommunications services sold from the fiber. "Our original plan was to bring broadband to our communities, and that’s still our goal. We think it’s important for our communities," said Montoya. In May, REAnet sold its Internet companies and customers to Fone.net from Cortez for $750,000. REAnet has since asked the electric co-ops if they could hold on to part of the money to cover payroll and administrative costs to keep them open. The company’s remaining assets include real estate, lease agreements, and the partially-built fiber network that would connect businesses in Cortez and Durango to the Pathnet fiber backbone linking Albuquerque to Grand Junction. No one knows how much the remaining pieces of REAnet are worth. REAnet was valued at $24 million in 1999, and at one point had a $30 million offer from TCOM Ventures, but the deal fell through. Electric rates, by law, can’t be raised to pay for lost investments of for-profit subsidiaries. The money must come from the unrestricted cash reserves of the co-op, and no rebates will likely be issued until the debt is paid. Empire has had to take out a loan to cover the cost of the credit line. Critics of the diversification filed a lawsuit in 1999 claiming that co-ops should not be allowed to create for-profit businesses that could compete with member businesses. On June 27, however, La Plata County District Court Judge David Dickinson ruled that the co-op has the legal right to create for-profit subsidiaries. La Plata Electric Association is still negotiating to recover $2 million that REAnet – its bankrupt telecommunications company – allegedly spent partly through fraud and wrongdoing before it declared bankruptcy. |
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