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story.lead_photo.caption Thomas Howard, left, CEO/GM of Callaway Electric Cooperative, and Assistant Manager Clint Smith see Callabyte as providing a necessary service to rural Callawegians. But some CEC customers still have questions. Photo by Helen Wilbers / News Tribune.

Local broadband company Callabyte just received $2.17 million from the Federal Communications Commission to continue bringing faster internet to rural areas.

But some Callaway Electric Cooperative members have questions about how Callabyte is funded — and how the venture is affecting their own bills.

"Over time, we're seeing more and more projects and rate hikes," concerned customer Eddie Baise said.

Expansion

On Monday, the FCC authorized some $24.1 million in funding to several Missouri broadband providers, as part of the Connect America Fund Phase II. Providers will begin receiving funding this month. Callabyte is slated to receive $2.17 million during the course of 10 years.

The FCC is requiring Callabyte to use that money to expand to 1,485 additional businesses and homes. Callabyte's articles of organization were filed in 2014; the pilot program launched in 2015.

It currently serves 3,500 homes and businesses, Callaway Electric Cooperative assistant manager Clint Smith said. Callabyte's available within an uneven blob of territory, skirting Fulton and reaching south and east to the county line, along I-70 to the western county border in the north, and to New Bloomfield and parts of Holts Summit in the southwest (callabyte.com/#Zones).

"Providers must build out to 40 percent of the assigned homes and businesses in the areas won in a state within three years," FCC media contact Chelsea Fallon said. "Buildout must increase by 20 percent in each subsequent year, until complete buildout is reached at the end of the sixth year."

Callabyte is a wholly-owned, second-tier subsidiary of Callaway Electric Cooperative, CEC CEO/General Manager Thomas W. Howard said.

Howard said the funding will help Callabyte expand to new residences and businesses where it's already present and push into new territories — beyond the reach of CEC, which covers only Callaway County and part of southern Montgomery County.

"Our goal is to provide broadband service to unserved and underserved areas," he said Tuesday. "We have plans to be in Hermann and Jonesburg as well."

He said the company has good reason for reaching outside Callaway County, including into areas that might already have internet service providers.

"As we've grown and matured, what we've seen is that the financial opportunity is greatest in areas that are densely populated," Howard said. "If anyone could just go out and build broadband in rural areas, it would've already been done. Building into Hermann and Jonesburg is what'll allow us to reach rural customers in our service area."

Smith explained while it might cost about the same to expand internet service a mile into the countryside or a mile into a town, the payoff is lower for the former because there are fewer potential customers per mile.

"The key for electric cooperatives providing broadband is that we have the infrastructure already," he added. "We have the poles to put them on."

Smith said providing broadband is almost a moral duty for the company.

"To make life better (for Callawegians), you need to get broadband to rural communities, just like we did with electricity," Smith said.

Concerns

Some CEC customers fear that mission is coming at too great a cost — to the company and themselves.

On June 9, Baise paid to run an open letter in the Fulton Sun, signed by more than 50 cooperative members. (According to its website, CEC currently services about 13,000 electrical meters.) The letter highlighted the growing amount of money the company owes: $87.1 million in 2018, up from $45.4 million in 2013 and $33.7 million in 2008.

It also focuses on the lack of information available to CEC members about Callabyte finances.

"They spend all this money on projects, and members never really know what was spent," Baise said in a June 8 interview.

Baise claimed he met with Howard earlier this year and requested to see financial information on Callabyte, like feasibility studies, investments to date and projected completion costs.

"He said he wouldn't show them to me, said, 'Well, it's a private company,'" Baise recounted. "I said, it appears CEC is funding that project."

Each year, during the annual meeting of cooperative members on the first Saturday of February, the company's executives share a financial report. The report is consolidated, meaning it combines the balance sheets of CEC and Callabyte. But while the report breaks out a few CEC-specific items, like the total electric energy sold, it doesn't show separate information for Callabyte.

That means there's no way for a member to know how much revenue Callabyte brings in — or how much CEC owes on the venture.

When asked if CEC would ever be willing to share Callabyte's figures separately to members, Howard gave a firm no.

"I think that would be more confusing to people," he said.

He also questioned the motivations of those raising objections.

"Most of those people, we've been unable to accommodate in the past due to special requests they had. You don't need to write that down," Howard said.

Baise has been a CEC member for "at least 43, 44 years," he said, and has generally felt confidence in the leadership. To his knowledge, only a few of the letter's signers have actually had disputes with the cooperative. The lack of transparency around Callabyte reminds him of a previous CEC venture, he said.

In 1998, CEC became a 50 percent owner of Callaway Propane. Baise said members were not given the chance to vote on that decision, a claim supported by the minutes of the 1997 and 1998 annual meetings.

"None of this was ever approved by any members, and none of the members really know (what it cost)," he said.

CEC sold its 50 percent interest in Callaway Propane to MFA Oil Company in January 2018 after "our partner said they didn't want to be partners anymore," Howard said.

Howard also compared Callaway Propane and Callabyte, but with a positive spin.

"The first two or three years (of investing in Callaway Propane) we lost money, but once it matured, it became a nice revenue stream," he said.

Revenue from Callaway Propane helped stabilize rates for CEC members by offsetting things like weather-related repair expenses, Howard said. He said he hopes Callabyte can be a similarly stabilizing influence some day. According to the 2019 annual meeting notice, a recent feasibility study on Callabyte predicted a consolidated (CEC and Callabyte) net even income by 2020.

In the meantime, Howard admitted CEC's investment in Callabyte has affected members' rates. Post-2014, rates increased in 2016, 2017 and 2019, though annual meeting announcements cited increased wholesale power cost as the reason.

"Callabyte has affected them in the short term, but in five, 10 or 15 years, I hope Callabyte will affect it in a positive manner," Smith added.

Smith and Howard also disputed that CEC's growing debt is a sign of trouble. Howard said it is a way to distribute the expenses of capital-intensive projects over time.

"Any utility is going to borrow a lot of money," Howard said.

That may be the case, but Baise and his co-signers still want more transparency.

"To be blunt, members have no idea (what's happening)," he said. "In my opinion, it's ripe for abuse. I'm not saying there's anything going on but when you trust people with a lot of money, you hope they're doing the right thing."

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