CHATTANOOGA, Tenn. (March 9, 2012) – This week’s downgrade of EPB’s bond rating by Fitch from AA+ (Stable Outlook) to AA (Stable Outlook) isn’t surprising to EPB leadership, who consider it an acknowledgement of the organization’s innovative business model.
"It seems counterintuitive, but this is a result of something positive: our conscious decision to expand our business into communications for the good of the community," President and CEO Harold DePriest said. "We're not the typical utility company, so it makes sense that we wouldn’t be rated like one."
A $200 million bond issue in 2008 financed EPB's construction of a fiber-optic network in Chattanooga. The primary goal was to build a Smart Grid, the foundation of a next generation electric system designed to increase system stability, enable faster power outage response and restore electricity more quickly, among other benefits. "For a relatively small investment, the network also allowed us to enter the competitive marketplace with video, voice and data services," DePriest said. "When we stepped into a competitive business environment, it naturally changed our financial profile." The fiber-optic network launched Chattanooga into the national spotlight as the only city in the western hemisphere with widely available Internet speeds up to a Gigabit per second. The Internet capabilities have been cited as a key to attracting top talent in the technology sector and encouraging businesses to locate in Chattanooga. EPB financed the fiber optics business startup through an interdivisional loan from its electric system. Fitch cites EPB's entrance into the communications business and resulting multisystem operation as considerations for the rating change.
"This year alone, the fiber optics division will pay the electric system about $7.6 million for its use of the fiber-optic network," EPB Executive Vice President and CFO Greg Eaves said. "That’s a powerful return in itself. But when you add the benefits of the Smart Grid, it's an easy business decision." The AA rating retains EPB's high investment grade category and has no financial impact to the organization or to its customers. "Yes, we've taken on a slightly higher financial risk, but that's a typical byproduct of innovative business," DePriest said. "When you balance it with the rewards to our customers and to Chattanooga, it’s a small price to pay."