Empire Electric refuses to fund REAnet revival

Empire Electric refuses to fund REAnet revival

Sept 29, 2001

By Janelle Holden
Journal Staff Writer

No more money for REAnet, Empire Electric Association has decided.

At a Wednesday evening meeting, the board discussed whether Empire would join La Plata Electric Association in its renewed efforts to bring its now-bankrupt subsidiary, REAnet, back to life.

LPEA has said it is prepared to pour an additional $1.8 million into reviving REAnet’s assets. LPEA hopes to use the fiber-optic infrastructure REAnet built before its bankruptcy to provide wholesale broadband services in the Four Corners, beginning with Farmington.

But Empire says it is only prepared to hand over its share of REAnet’s assets to LPEA, and will not contribute any further funds than the $8.5 million it has already sunk into the venture.

"Since we’re secured creditors and we’re also an unsecured creditor, we’ll get a majority of REAnet’s assets between La Plata and Empire, and our contribution would be that. We’re not going to put any more cash into this thing whatsoever, and for that we would expect some payment over time for those assets," explained Neal Stephens, general manager of Empire.

Empire’s board authorized board President Bill Bauer and Stephens to begin discussing the new venture with La Plata, and how La Plata would repay Empire for its share of the assets if it agrees to donate them.

"I think our goal, and what we’re negotiating with La Plata, is in putting in those assets. We hope that over a period of time not only will we get our cash back, but through the agreement they will also provide broadband services to the Cortez community,"said Stephens.

Since the bankruptcy in April, Empire is now responsible for $7.5 million of REAnet’s credit line, $300,000 in interest on that loan, and $710,000 in startup costs. The two electric associations share 100 percent of REAnet’s secured assets, and 60 to 65 percent of its unsecured, according to Stephens.

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.

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 of fiber-optics it has constructed 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 have enough assets, I think, to get a minimal amount of additional investment so that they can begin to provide a certain amount of services in the Farmington area," said Stephens.

With the profits from Farmington, LPEA plans to connect and light fiber-optic strands from Farmington to Durango and Cortez.

REAnet was created by the subsidiaries in 1998 to bring telecommunications into the Four Corners and generate profits to help the rural electric co-ops survive electric deregulation.