Transcript

Alex Marré: I'm Alex Marré, regional economist at the Baltimore branch at the Federal Reserve Bank of Richmond.

Today, I have the pleasure of speaking with Tim McGaha, vice president of technical services at Choptank Electric Cooperative. We'll talk about the company's expansion of broadband Internet access in the Eastern Shore of Maryland.

This episode will be the first in a series of conversations we'll have with business and community leaders in rural parts of the Fifth District about the economic challenges they face, as well as the creative, community-based solutions they devise to address them. I invite you to read the accompanying Rural Spotlights article on our website to learn more about Choptank's broadband project.

Thanks for talking with me today, Tim.

Timothy McGaha: Thank you, Alex. Good to be here.

Marré: Tim, can you tell us a bit about your background and your role at Choptank?

McGaha: Yeah, absolutely. I spent the bulk of my career in technical consulting, delivering technical solutions [and] solving technical problems for a host of industries: media, health, logistics, a range of industries.

I got involved in the utility industry in 2013, specifically with the co-op industry. The model was really attractive to me, in that it was more mission based than strictly profit based. Expenses were a concern because they're trying to deliver the best solutions to their members at a reasonable cost, but it was very service oriented.

More recently, I worked with our CEO Mike Malandro. He and I did work together in Virginia at an electric co-op, forming a broadband subsidiary there. I joined Mike as he took on a new challenge in Choptank Electric in the Eastern Shore of Maryland.

The responsibilities that I have here are, obviously, all of the utility responsibilities of grid, cyber, business, operations, all the technology involved in those areas. I like to think that all of those synergies from all those other areas kind of helped culminate into delivering a good solution for, not only the utility which is our day to day responsibility, but also this new business venture that we're kicking off with our broadband subsidiary, Choptank Fiber.

Marré: That's great. What led you guys to begin to look at providing broadband service?

McGaha: It was really a combination of things.

When we looked at this environment and started talking to people, [broadband] came up as an overarching concern from an economic development perspective, from a quality of life [perspective]. I mean, this was pre-pandemic. We married that with about 600-plus miles of existing fiber infrastructure that we use for backbone for our internal communications as well as grid technology. We weren't using all of that, so we had some spare capacity to be able to jumpstart this business venture. To quote our CEO, we had a moral obligation he felt to marry those two things together.

Marré: Do you think that's one of the reasons why an electric cooperative is the right solution for broadband service in the area? Presumably, there are lots of different ways to get broadband service delivered. But why are electric cooperatives the right solution for the rural area that you serve?

McGaha: The model of why the co-ops even exist mirrors this situation that we have with broadband today.

The reason that co-ops exist from an electric perspective was because no one wanted to go out in the rural areas and serve electricity. They said it was too expensive, not enough profits could be made from it. And so they formed co-ops to pool those resources together, garner some grant resources, and implement systems and technologies to deliver power.

The second thing is that we've already established that there's a tremendous amount of synergies between an electric cooperative delivering electricity and an electric cooperative forming a subsidiary that's delivering broadband. The hanging of the lines on the pole, it's just a different kind of wire. While there is certainly a learning curve, when you look at all the things that we do as a utility, this is just another item that marries very well. It's not a radically different service.

Marré: What steps has Choptank taken to get to where you are today with the broadband rollout? Where does it stand now? And then, what are the major milestones as you look to the future for rolling out broadband service on the Eastern Shore?

McGaha: The first step for us was really just going into some feasibility and just getting our arms around cost and scope and what timeframes. We wanted to get all of our underserved members.

We've performed the feasibility studies. Those give you some comfort level at a high level. But you don't have the ability in those to go to the depth that you would need to go to get firm numbers. You're only as good as the data that you're feeding them, right, so your experience in those individual areas will help feed those numbers.

For us, the ability to get fiber material itself as well as all of the other parts that are needed to deliver broadband, the timeframes are only getting longer – seven or eight months, a year on some items. We had to start putting together relationships and a process for how do we ensure that we're in the pipeline to have the materials when we need them. That was a huge piece to the puzzle, because anybody starting today is already a year out on some of these materials. So we had to start that early, start those conversations, and use those existing relationships to be able to stand up inventories and warehouses just based on our reputation and the relationships that we already have in place.

Then, continuing on as you move through the process, [you drill] in on the areas that you want to serve first, the resources that you have in place and starting that engineering process, and having those conversations with the localities with regards to any additional funding that they can help provide to help move that process forward a little faster.

We initially had given everybody an estimate of 10 years to serve our underserved member territory. No one's happy with that number. But that's a timeframe that we were comfortable with in serving that area and not having a significant financial impact to the electric cooperative.

Marré: Right. Right. So what are the most significant barriers you've faced so far? This is the early days, right, in the project?

McGaha: Yeah, that's right. There's so much that goes into the planning stage, that we kind of talked about before.

Obviously, there's a learning curve internally. This is a new technology. Even though we do utility construction, it's different, a little different. But that really hasn't been huge.

The biggest barrier is we can't move fast enough. Once we said we're doing this and formed our subsidiary and said we're doing it, you can't move fast enough. There [are] thousands of stories out there of why people need this service now. There simply isn't any real magic solution to this. It's a utility construction project, and construction takes time and money. And we can only be in so many places at one time.

Marré: It sounds like additional funding at the local, state and federal levels can help, to a degree, move things long. Is that right? But then there's also this engineering problem of how do you deploy this infrastructure out as quickly as possible.

McGaha: All of that is really solved with additional funds. If we need to move, add X number of miles per week that is significantly more than what we've got the internal capacity to do, then … it's just an exponential level. At some point, it does actually get quite a bit more expensive the larger the projects become, where you need more resources to manage those versus what you're able to manage internally.

Marré: What lessons have you learned along the way? Are there things that other communities or electric cooperatives could learn?

McGaha: Do it right. [Pause] Do it right.

That pressure that I mentioned before with regards to everybody wants it now. Patience is wearing thin. The pandemic has certainly, as we all know, has brought a lot of those pain points to the forefront. It's really turned up the heat. And so there is a tendency to try to do things quicker, and maybe not to the scale that you would want to do them. Stick to your guns and do it right. Make sure you've got the processes in place to allow you to scale to the level that you need to be able to scale to do these kind of utility construction projects.

And, use the right products. Too many localities have spent money, had promises made and, at the end of the day, the solution that was delivered in the community didn't come through with the needs that people needed. Spend the money now. It's never going to get any cheaper. I think it's apparent if a lot of these areas … would have started 10 years ago, it would be done now and it would be done a lot cheaper and everybody would be happier and be able to pivot off those assets for greater things in their community,

Don't try to make up for lost time with some magic solution, because it doesn't really exist. Fiber technology, good project management, right-sizing of the funding to the project and efficient use of the dollars.

I would say that the biggest thing is just don't let the pressure push you outside of what you know is right, with regards to building up this asset that needs to be a 30-year asset, not a five-year asset, just like the electric facilities that we have in place. Those have been in for a while and are going to be in for a while. Those are long term assets, delivering the needs of the community for a long time to come. We need to do the same thing with broadband and just do it right.

Marré: I think I'm going to remember your answer, "Do it right." I want to remember that.

Your answer there, I think, was very helpful because we've done a fair bit of talking to providers and potential providers and that's come up, this issue of, "Well, we've done a couple of feasibility studies, and they've just been, you know, eye popping." As you pointed out, if you're already in the utility business, you can kind of gut check those numbers that are behind the consultant's report and get a sense about how accurate they are and what you're capable of.

McGaha: That's exactly right. We pulled our invoices. These are things we already do. So when we line all of those things up, we were able to put our real numbers into the project. As we have conversations with counties and they've gotten different proposals from folks to help solve this problem, we have a great comfort level in those numbers. We know what it's going to take to get the construction work done and this is what we pay to get this work done.

Marré: What would you say to an electric cooperative or another potential broadband service provider that is considering getting into the space but is put off by the potential cost of the project? Maybe they they've had a feasibility study from some consultants and they just think, "This price tag is too high."

McGaha: It can be a daunting number. There's no doubt about that. But do your due diligence, get a comfort level with the numbers, for sure, and really dive into those numbers and understand them.

Those feasibility studies are great, but the organizations that do them have to generalize a lot of times, right, and based on a whole country's area's worth of data. But your area is going to be a little bit different. And everybody's situation is going to be a little bit different with regards to regulatory hurdles in their particular state or the way the business models might need to work out.

So do your due diligence, look at the numbers. They will tell the story. Make sure that you're comfortable with the data and what it's going to take to actually pull off that project.

We believe it's worth it. There certainly is a value that you can't really measure. But I think that we are all getting that this is something that's like electricity, back in the day. Good quality broadband is a given. Those are services that are needed in these rural communities.

Marré: Tim, there's a significant amount of money coming down the line at the federal level from the American Rescue Plan and potentially other infrastructure packages. What do you think is the best way to spend that money and the best way to make sure that it actually delivers the broadband service that people need?

McGaha: Yeah, I think there's two pieces to that.

One is the technology in making sure that we are putting the dollars towards the best use of those dollars for the long haul. All the co-ops are doing fiber to the home because that is a technology and infrastructure that's going to last. That's a relatively simple thing to change out the electronics on either ends of that fiber optic cable, but that fiber optic is going to be able to provide for the needs of that community for decades.

The second piece, I would say, is learn from what we did in the most recent RDOF [Rural Digital Opportunity Fund] auction, for example. [There were] some unreasonable bids by people that you really have concerns about being able to deliver those kinds of utility projects in the communities. You want people with good balance sheets, with a good track record of doing those kinds of projects and being able to manage those kinds of projects. That they have good balance sheets, they have good resources, they got good processes, and they're stable entities that's going to be around for a while.

Marré: Thank you so much, Tim. This has been really helpful.

McGaha: No, this was a great conversation.