Bankrupt REAnet may rise from the dead

Bankrupt REAnet may rise from the dead

Sept. 22, 2001

By Janelle Holden
journal staff writer

A La Plata Electric Association plan to create a new company from the assets of their now-bankrupt subsidiary, REAnet, has met with some skepticism from LPEA’s partner, Cortez-based Empire Electric Association.

Empire Electric board members said on Friday that they may not join LPEA in investing another $1.8 million on a plan to funnel REAnet’s assets into a new company that would provide wholesale Internet services to the Four Corners.

"We haven’t decided exactly what we will do yet," said Raymond Doyel, a member of Empire’s board of directors. "It’s just kind of up in the air. It may be that they (LPEA) will take over and run the thing. We would keep the shares but let them go ahead and make the decisions."

Empire’s board is planning to meet on the evening of Sept. 26 to make a decision on the proposed project. The board met yesterday for its monthly meeting, but made no decisions.

David Waller, a spokesman for LPEA, said the cooperative is waiting on Empire’s decision, since the two jointly guaranteed a $15 million credit line and have provided nearly $1.5 million in cash for REAnet’s startup costs in 1998.

If Empire says no, Waller said LPEA is "probably prepared to go it alone."

Both LPEA and Empire have spent at least $8.5 million on REAnet since its inception — $7.5 million to repay REAnet’s credit line, $300,000 in interest on that loan, and $710,000 in startup costs.

The two electric associations created the subsidiary to bring telecommunications into the Four Corners and generate profits to help the rural electric co-ops survive possible electrical deregulation.

REAnet declared Chapter 11 bankruptcy in April after spending its $16 million in investment capital.

Its remaining assets include part of the dark-fiber backbone from Albuquerque to Grand Junction built by the electric cooperatives and now-bankrupt Pathnet, and unconnected, nearly complete fiber loops in Durango, Farmington, and Cortez.

Because of Pathnet’s bankruptcy this summer, the fiber remains dark except for the space Qwest owns, which it plans to light and sell fiber-optics services from.

LPEA said Qwest will not be a competitor because only REAnet will have the fiber loop in Farmington. REAnet also has fiber loops in Durango and Cortez, but Qwest doesn’t.

REAnet has about $650,000 left from the sale of its Internet companies in June, and could use that money to complete the fiber loop in Farmington and light the fiber on the larger backbone. But it will eventually need more investment capital from current or new investors to light a finished network from Farmington to Cortez.

Because of the lack of interested buyers in REAnet’s remaining network, LPEA spent $30,000 to hire a consulting firm from Boise, Idaho, to see if REAnet could finish connecting the pieces and activate the fiber on its own.

According to the consulting firm, if the new plan works, LPEA could get $8.5 million back in 10 to 20 years.

"We can recoup our investment," explained Waller. "This consulting group seems really convinced and they have our board convinced that there is money to be made in wholesaling broadband services.

"As long as we put the money into it, and there are assets, underground and in the air, it could bring some money for us," said Waller.

If the plan goes through, Waller said Farmington would be lit first, and once cash flow is adequate, the company would light fiber loops in Durango and Cortez.

First, REAnet’s creditors and the court must approve a new business plan for the remaining assets.