Due Diligence, Planning Lead to Successful Broadband Project

In a milestone achievement, Orange County Fiber, the broadband subsidiary of south-central Indiana distribution cooperative Orange County Rural Electric Membership Corporation, recently surpassed 10,000 customers. 

Orange County Fiber is now not only delivering an improved quality of life for broadband subscribers, but also generating a positive margin, which is being used to offset costs for electric cooperative members and boost the cooperative’s financial health.

Orange County REMC’s decision to expand into telecom was multifaceted.

“Certainly, a primary driver was the lack of high-speed internet for our members and the feeling that they were being left behind,” Orange County REMC General Manager and CEO Matt Deaton said. “Another driver was how to handle increasing costs. As we looked at historical trends, both membership and energy sales were flat, at best, in some years but were declining generally. Anticipating increased wholesale power costs being spread over a smaller, nearly 100% residential membership, we wanted to find a way to avoid raising rates.”

The final aspect of the decision was the cooperative’s vision. 

“We believed that broadband internet access was as important to our members as electricity was back in the 1930s when many cooperatives were started,” Deaton said. “When we talked about that idea outside of the board room in 2016 and 2017, we received some funny looks. Now, I read articles all the time about how internet access is just as fundamental to America today as electricity was back then.”

Two Years of Due Diligence and Planning

The decision to launch Orange County Fiber was made after two years of due diligence and planning.

“We first hired a consultant to perform a financial feasibility study,” Deaton explained. “The study indicated that a fiber-to-the-home (FTTH) project for our membership had a good chance of success at a 48% take rate.”

The cooperative then conducted a statistically valid survey of its membership to assist in determining if a 48% take rate was realistic. That study indicated the take rate likely would exceed 65%.

“We then began discussing with an engineering firm various deployment options,” Deaton said. “A formal business plan was put together detailing the execution and deployment of an FTTH project, including the expected financial performance. That plan was presented to our board of directors and also to CFC for consideration.” 

To minimize risk, the project would be executed in phases, and each phase had to pass a series of go/no-go tests before moving on to the next phase. The board also consulted with a neighboring electric cooperative about how they made the decision to embark on a similar project. On May 31, 2018, after considering all the data, the Orange County REMC board decided to move ahead with the project.

Grants Support Network Construction

Part of the cooperative’s strategy included applying for government grants to help finance network construction. So far, the cooperative has been awarded $22.8 million in grants, including federal, state and local funding. This includes $2 million from neighboring Dubois County as a result of a partnership with Dubois Rural Electric Cooperative.

“Dubois REC was instrumental in helping us get the $2 million of make-ready money in Dubois County,” Deaton said. “Dubois REC agreed to expedite the required funds to facilitate the rapid deployment of FTTH services. We now serve more than 3,000 Dubois REC members with plans to serve another 2,500 or so in the upcoming year.”

Orange County Fiber will continue to seek out and participate in all grant funding opportunities in the future that make sense to its members and customers. 

“Access to 100% grant funding will play a significant role, but any project will be analyzed with the same business case analysis as all of the past projects,” Deaton said. “There has to be a true need, it has to make sense geographically and it has to make financial sense in order for it be worth the risk it places on our members.”

The $70 million project is expected to be complete in the fourth quarter of 2026. So far, Orange County Fiber has built 2,410 miles of fiber, and anticipates adding another 750–1,000 miles to fulfill its current obligations. The fiber build-out for Orange County REMC members is finished.

“We completed our member build in 2.5 years, much faster than the 4.5-year build time projected in the feasibility study,” Deaton said. “Once our members were served, we immediately began deploying to nonmembers.”

Today, Orange County Fiber has 10,142 subscribers (including fiber, fixed wireless and VOIP customers) and expects to connect an additional 6,000 subscribers when construction is complete. The member take rate is an enviable 78%, with the overall take rate 69.5%.

Fiber Business Helps Offset Co-op Costs

In addition to delivering high-quality broadband service to Orange County REMC members, another benefit of the growth of Orange County Fiber is the positive margin that the for-profit subsidiary is generating, which is helping to offset some costs for REMC members. 

“To date, Orange County Fiber has contributed a total of $10.2 million to the electric side for additional incurred interest on long-term debt and other expenses,” Deaton said.

In 2022, the cooperative conducted a cost-of-service study. Without considering fiber contributions, it was suggested that Orange County REMC increase its rates 4.1% in 2023 and 6.1% in 2024 to meet the recommended rates of return. But once fiber contributions were considered, the study indicated no need to increase electric rates. The cooperative continues to monitor its margins very closely. Up to this point, the overall effect has been positive.

Another benefit to Orange County REMC is its ability to use a portion of the fiber network to enhance system-related communications and other smart grid services.

“All of our substations are connected currently,” Deaton said. “We also have strategic plans that include the deployment of fiber-based SCADA systems that will allow for distribution system self-healing. We have just begun the rollout of some of this equipment.”

The expanded broadband service also may be generating some electric system growth from new customers, although that’s harder to determine.

“We have seen membership growth, although slight, since we have deployed fiber throughout our service territory,” Deaton said. “Any system growth is a benefit.” 

And members love the service. Based on the 78% take rate in its service territory, FTTH has been very well received. 

“Folks love it and they are happy to tell us, which is nice,” Deaton said. “They know, too, how much Orange County Fiber has contributed in the past year or so in offsetting electric expenses and have prevented the need for rate increases. This, too, they really like.”

CFC Finances Project 

Orange County REMC is a 100% CFC borrower, and CFC has funded a large portion of the fiber network, including $17.5 million.

“The manner in which CFC has worked with us on this project has been instrumental to its success,” Deaton said. “CFC has always remained engaged in our project, reviewing quarterly updates and ensuring we are performing. It has been a great relationship. Going with CFC has been one of the bedrock decisions that has made this project a success so far.”

For other electric cooperatives that are considering getting into telecom, Deaton cautions against underestimating the amount of work involved

“Ensure your members want and need this service, and understand the competitive landscape before deciding to do this,” Deaton said. “Every cooperative is different. You also have to be comfortable with the core of your team and believe they will be capable of handling the pressures of change. The pains of learning a new business are real, so partner with a good engineering/design firm. You must be able to trust their experience and advice.”

Deaton added, “Taking this on has been transformational for our cooperative. The amount of effort required to tackle this is enormous, but it is worth it.”