Proposed Agreement - BTV and Dept. of Public Service
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Transcript of Proposed Agreement - BTV and Dept. of Public Service
STATE OF VERMONTPUBLIC SERVICE BOARD
Exh. Joint-1
Petition of City of Burlingtond/blaBurlington )Telecom, for a certificate of public good to )operate a cable television system in the City of )Burlington, Vermont )
Docket No. 7044
ASS CE, OF'DISCO
Pursuant to 30 V.S.A. $ 509(c), the Department of Public Service (the "Department" or
"DPS") and the City of Burlington (the "City" or "Burlington") d/b/a Burlington Telecom
(collectively "the Parties"), enter into this Assurance of Discontinuance, and stipulate and agree
as follows:
Background
1. Burlington Telecom ("Burlington Telecom" or "BT") is an enterprise fund of the
City and is currently operating as a telecommunication system that serves residents and
businesses in the City (the "BT system").
2. On September 13,2005, the Board granted the City d/b/a Burlington Telecom a
Certificate of Public Good ("CPG") pursuant to 30 V.S.A. $$ 231 and 503, to own and operate a
cable television system within Burlington.
3. On August g, 2007, Burlington entered into a Master State and Municipal
Lease/Purchase Agreement with Municipal Leasing Consultants to finance $33.5 million of
equipment to build out Burlington Telecom's system. The lease was subsequently assigned to
CitiCapital Municipal Finance, now Citibank, N.A. (the "Citibank Lease").
4. Through October 1,2009, Burlington Telecom used approximately $16.9 million
from the City's general fund to invest in equipment for the build-out of the BT system, and such
amounts have not been repaid.
5. The obligation of the City under the Citibank Lease to make "rental payments"
was subject to annual appropriation by the Burlington City Council. The City was obligated to
only make payments as may lawfully be made from funds budgeted and appropriated. The
Burlington City Council did not make an appropriation of monies in its budget for the 2010-2011
fiscal year. Accordingly, under the terms of the Lease, the Lease terminated. The Citibank Lease
provides that, upon the termination of the Citibank Lease for a non-appropriation of lease
payments, (a) title to the leased equipment immediately vests in Citibank and (b) Burlington is to
peaceábly return the leased equipment to Citibank at Burlington's cost and expense.
6. On September 2,2011, Citibank frled a lawsuit in United States District Court
for the District of Vermont against Burlington and McNeil, Leddy & Sheehan, P.C.; seeking
$33.5 million þlus costs and punitive damages) and/or equitable relief with respect to the
Citibank Lease (the "Citibank Action"). The requested equitable relief demanded that
Burlington de-install and return the leased equipment and all subsequent additions and
attachments to that equipment.
Burlinston T m Violations of Certificate of Public Good
7. On October 8,2010, the Vermont Public Service Board found the City had
violated Conditions Nos. 2, 17, 56, and 60 of its CPG, in that the City had:
o not conducted its operations consistent with Conditions Nos. 17, 56 and 60 of the
CPG as required by Condition No. 2,
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a
o
not completed the build-out of its network by September 13, 2008, with respect to
1,942 sewice addresses along public rights-of-way, as required by Condition No.
17, and
used funds from the City's general fund and had not reimbursed such amounts
($16.9 million) to the City general fund within two months of the withdrawals as
required by Conditions Nos. 56 and 60.
CPG Condition No. 17 provides:8
Burlington shall build its network to serve every residence,
building, and institution in the City of Burlinglon within 36 months
of the date of this CPG. Until such time as BT's network meets
this requirement, the Company shall file a line extension report
with the Department by April 15 of each year that provides the
following information relative to line extensions completed duringthe preceding calendar year:
a. Location of line segment, including location of line segment byreference to nearest road(s);
b. Length of strand, in feet or miles;
c. Number of dwellings and multiple-unit business establishmentspassed, without discounting season dwellings or dwellings with a
satellite dish;
d. Date on which line was placed in service;
e. A street map and description of the streets and areas of the Cityto which BT does not yet provide service. BT shall, at that time,
also file with the Department a projected completion date for lineextensions to any areas of the City to which BT does not yet
provide service and an explanation ofthe reasons for delay, ifany,relative to the build-out plan described by BT in its petition for a
CPG.
9. The City previously petitioned for relief from Condition No. 17, but on October 8,
20L0, the Board declined to approve the amendment on the grounds that it was premature. At
that time, there was not yet a full understanding of the circumstances facing Burlington Telecom
aJ
and as such there remained "unresolved factual, legal and policy issues surrounding the violation
of Conditioî17."r
10. To date, the City acknowledges that BT has not yet built out to 1,913 service
addresses along public rights-of-ways in the City of Burlington in violation of Condition No. l7
I 1. CPG Condition No. 60 provides:
60. The City shall make payments on behalf of Phase III onlywhen and to the extent that Phase III has cash reserves, revenues
receivable, or other payments receivable that, collectively, equal orexceed the sum of the payments to be made by the City plus the
balance of any other current payments owed to the City. BT may
participate in the City's pooled cash management system provided,
however, that BT shall reimburse the City within two months ofthe City's expenditure for any expenses incurred or payments made
by the City in support of services that BT provides to non-Cityentities. The City shall obtain Board approval prior to
appropriating any funds other than as described above in the
support of BT's Phase III activities.
12. CPG Condition No. 56 provides:
In no event shall any losses or costs, in the event the enterprise is
abandoned or curtailed, incurred by BT be borne by the City ofBurlington taxpayers, the City of Burlington Electric Department("BED") ratepayers or the state of Vermont, nor shall the City ofBurlington expend any funds received from the State of Vermontto cover any losses or costs, in the event the enterprise isabandoned or curtailed, incurred by BT, as provided in 24 V.S.A.App.$ 3-a38(cX1).
13. The City acknowledges that it used funds from the City's general fund for
Burlington Telecom and has not reimbursed such amounts ($16.9 million) to the City general
fund within two months of the withdrawals in violation of Conditions Nos. 56 and 60.
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I Docket No. 7044, Order of l0/8/10 at 8-9
The Citv's Stens to Violations of its Certifrcate of Public and Resolve the
Citibank Action
14. The requirement in Condition No. 17 that Burlington complete the build-out of
the City is no longer commercially practicable or beneficial to the City and its taxpayers.
15. On March 28,2014, the City petitioned the Board to modiff Condition No. 17 to
read as follows:
Burlington shall frle a line extension report with the Department byApril 15 of each year that provides the following informationrelative to line extensions completed during the preceding calendaryeaf:
a. Location of line segment, including location of line segment byreference to nearest road(s);
b. Length of strand, in feet or miles;
c. Number of dwellings and multiple-unit business establishmentspassed, without discounting season dwellings or dwellings with a
satellite dish;
d. Date on which line was placed in service;
e. A street map and description of the streets and areas of the Cityto which BT does not yet provide service;
16. The proposed modification of Condition No. 17 is consistent with Board Rule
8.313(I), which states "[n]o cable company shall be required to overbuild another company, or
provide cable service to locations where another cable company has already constructed facilities
or to which another cable company is required by rule or order of the Board to construct
facilities, or to locations where another cable company has made a binding commitment to
construct facilities within the next eighteen (18) months."
17. The proposed modification of Condition No. 17 will prevent further f,rnancial
harm to BT, ensure that BT can continue to provide service to BT's current customers, and
ensure that BT is no longer in violation of Condition No. 17.
5
18. The City has taken steps to resolve the violations of Conditions Nos. 56 and 60.
lg. Beginning in October, 2010, the City incorporated accounting protocols to
manage the BT system for a positive cash flow, after all costs and capital expenditures, with
sufficient net cash remaining to make payments for debt service or lease payments for an
enterprise of BT's size and customer base. This included among other changés:
o retaining expert financial advisor, Dorman & Fawcett, to stabilize BT's finances,
develop short and long-term strategies for bringing about a financial partner, and
oversee day-to-day management of BT.
o managing BT to a positive cash flow since late fall 2010.
o creating a BT segregated depository account in which all BT revenues are directly
deposited. On a monthly basis, the City makes whole the General Fund Main
Operating Account (the "General Fund") by transferring from the segregated
depository account the money paid on BT's behalf from the General Fund. Since
2010, this process has ensured that all expenses incurred by BT and paid by the
General Fund are reimbursed within 60 days or less in compliance with Condition
No. 60 of the CPG.
o performing an internal monthly closing of its books within 15 days of the end of
the prior month. BT's General Manager and Controller then update its fulI year
forecast based on the latest available figures and take corrective action to ensure
that BT's pre-debt service cash flow forecast remains on or above budget.
o forming the BT Advisory Board ("BTAB") (in place of the BT Advisory
Committee and Blue Ribbon Committee) to provide guidance and advice to BT
management, the Mayor, and the City Council on operational matters, potential
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partners, pending litigation, and to report to the City Council on any matter
concerning BT for which action is required.
20. Beginning in October 2010, Dorman & Fawcett introduced additional internal
reorganization to: lower BT's costs of operation, including its staffing costs; create an effective
internal control environment; identiff, define and implement operational best practice; match
staff,rng levels to the size and needs of the business; ensure that BT staff possessed the skill sets,
experiences and qualifications necessary to support the effective and efficient operation of the
business.
21. The City has made all required payments, from net cash flow of BT, under the
Interim Stipulation and Order entered March 21,2012 in the Citibank Action.
22. The City has not repaid the approximately $16.9 million invested in the BT
System.
23. There have been no further violations of Condition No. 60 since at least October,
2010.
24. On January 29. 2014, the City, MLS, and Citibank entered into a Mediated
Settlement Agreement (the "Citibank Settlement") to resolve all claims in the Citibank Action.
25. The City's share of the settlement amount under the Citibank Settlement is
$9,031,085.
26. On March 26,20l4,the City Council unanimously authorized the City to obtain a
$6 million bridge lease financing (the "Bridge Lease Financing") in the form of a sale-leaseback
transaction with a special purpose entity formed and owned by Raymond C. Pecor, III ("Lessor")
to fund $6 million of the $9,031,085 payment due from the City to Citibank under the Citibank
Settlement
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27. The Citibank Settlement requires the City to obtain Board approval of the terms
of the Citibank Settlement and the Bridge Lease Financing.
28. The Bridge Lease Financing is the only viable option to funding the $6 million
payment to Citibank under Section 4.1(Ð of the Citibank Settlement.
29. The Citibank Settlement and the Bridge Lease Financing are necessary to
implement the settlement of all claims in the Citibank Action and are the best means to minimize
fuither losses to the Taxpayers from BT.
30. Implementation of the Citibank Settlement and the Bridge Lease financing
provides an assurance that there will be no further violations of Conditions Nos. 56 and 60.
31. Under the terms of the Bridge Lease Financing, the City has agreed to sell the BT
system within four years of the closing of the financing.
32. Board resolution of all outstanding CPG violations is necessary to implement the
terms of the Citibank Settlement, implementation of the Bridge Lease Financing, and to
minimize losses to the taxpayers from BT.
AGREEMENT
Based on the foregoing, the parties agree as follows:
A. The Citibank Settlement and the Bridge Lease Financing represent the best
alternative available to maximize the potential for a future recovery for the City's taxpayers and
minimize losses they may otherwise bear as a result of the City's past violations of the CPG.
B. The City shall continue to retain its financial advisor, Dorman & Fawcett, to
stabilize BT's finances, develop short and long-term strategies for bringing about a financial
partner, and oversee day-to-day management of BT.
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C. The City shall maintain the BT Advisory Board ("BTAB") to provide ongoing
oversight of BT until a sale of the BT system is completed.
D. Upon closing, the City shall institute the additional financial/accounting protocols
required by the Bridge Lease Financing including the following:
i. All revenues from the use and operation of Burlington Telecom will be
directly deposited to a trust account established by the City at Merchants
Bank.
ii. The City shall establish a new segregated operating account for BT at
Merchants Bank.
iii. The City shall submit BT's prior period income statement to the Lessor
and Merchants Bank to allow for the transfer of funds from the trust
account to the operating account from which BT's operating expenses and
capital expenditures incurred in the ordinary course of business will be
paid.
E. After the closing, the City shall pay all operating expenses of BT directly from the
BT operating account.
F. The City shall pay all lease payments on the Bridge Lease Financing solely from
BT revenues and will not use any general fund monies or tax revenues to make any such
payments.
G. The City shall perforrn an internal monthly closing of its books within 15 days of
the end of the prior month.
H. The Cþ shall establish a separate general ledger for Burlington Telecom.
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I. The City shall meet with representatives of the DPS on a quarterly basis to discuss
progress related to the BT's operations, finances, and pending sale of the system.
J. The City shall operate Burlington Telecom on as close to a stand-alone basis as is
commercially and legally practicable.
K. The City shall submit a three (3) year business case plan ("Business Plan") within
six months of issuance of a Board order in this proceeding. The Business Plan shall include
capital spending, financing and marketing/sales plans, and forecasted income statement, balance
sheet and cash flow statement for a three year period starting on the date of a Board order. The
Business Plan shall be submitted under confidential seal. Every six months the City shall report
to the Department on the progress under the Business Plan.
L. The City shall continue to file monthly reports with the Board and DPS detailing
the status of BT's ongoing operations and financial status, as well as its activities and progress in
finding a private buyer for an ultimate sale of BT, in accordance with the Board's Order in this
proceeding dated October 8, 2010, as amended by Paragraphs 3 and 4 of the Board's Order dated
November 23,2071.
M. The monthly reports shall be hled within 15 days after the end of each calendar
month.
N. The City shall submit quarterly reports that include an income statement, balance
sheet, and cash flow statement, as well as financial information for and as of the end of the
previous calendar month which shall continue to include sources and use of cash and profit and
loss statements. The quarterly reports shall be produced under confidential seal.
l0
O. The quarterly reports shall include an accounting of any expenses related to
Burlington Telecom that are made from the City's general fund and are not charged to
Burlington Telecom along with an explanation and description of each such expense.
P. The City shall also submit monthly an unreconciled cash flow statement for the
operations of BT.
a. The City's ongoing rnonthly reporting requirement shall be in lieu of CPG
revocation or civil penalties which would only increase the City's losses from BT.
R. The parties agree that Condition No. 17 of the CPG should be amended as
requested by the City in its Petition and Supporting Memorandum of Law and that such
amendment shall resolve all ongoing violations of Condition No. 17.
S. The parties agree that the Board should find the City has resolved all ongoing
violations of Condition Nos. 56 and 60 by implementing comprehensive BT accounting protocol
changes for at least three years and continuing to manage BT in that way today.
T. The parties agree that the Board should neither condition in advance the terms of
a future sale transaction nor preclude the City from retaining a minority participation interest in
Burlington Telecom upon a sale as apart of this proceeding.
U. Pursuant to 30 V.S.A. $ 109 and the CPG, the City shall petition the Board for
approval of any future sale of Burlington Telecom.
V. Upon the sale of BT, the City shall reimburse BT's General Fund deficit from its
share of any cash net proceeds to which it is entitled under the Bridge Lease Financing and the
Citibank Settlement.
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V/. The signatories to this agreement reserve the right to augment or otherwise
modify the Assurance of Discontinuance during the pendency of this proceeding, but prior to a
Board order approving the same.
X. The parties agree that the Citibank Settlement and the Bridge Lease Financing
will promote the general good and should be approved by this Board'
Y. The parties agree that afinal order of the Board approving this Assurance of
Discontinuance will fully resolve all existing and ongoing violations of Conditions Nos. 2,17,
56, and 60 of the CPG and ask that the Board approve this Assurance of Discontinuance and
issue a final order to that effect.
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Dated et Burlington, Vermontthis 3'd day of July,2Ol4,
THE CITY OF D IB I A BURLINGTON TELECOM
By:Esq.
l3
Dated at Montpelier, Vermont this 3'd day of July, 2014
VERMONT DEPARTMENT OF PUBLIC SERVICE
Aaron KisickiSpecial Counsel
By:
t4