Lawsuits over failed telecom may be resolved

Lawsuits over failed telecom may be resolved

Michele Ellson
Alameda Municipal Power

The city has scored what officials hope is a final legal victory in a trio of bondholder lawsuits that followed the sale of Alameda Municipal Power’s telecommunications business in 2008.

The suits, which accused the city of cheating the original architect of its cable and internet system of payments that were due and fudging disclosure documents to make the planned telecom enterprise appear more profitable than it was expected to be, could have cost the city a much as $25 million.

On April 1, U.S. District Court Judge Susan Illston offered a judgment voiding Vectren Communications Services’ final claim against the city, though the judgment is subject to appeal.

In 2010, a jury voided most of the Indiana-based firm’s $10.3 million case against Alameda but granted a $1.95 million judgment on one claim – that the city failed to properly account for revenues from the sale of an earlier bond series the company held. The city appealed the judgment.

The city bought out Vectren’s right to build and operate what was then Alameda Power & Telecom’s telecommunications system in 2002 for $6.3 million plus interest, which was to be paid exclusively from revenues generated by the telecom. But AP&T’s telecommunications efforts floundered, producing less than $200,000 to pay the company.

Vectren argued unsuccessfully that the utility didn’t take the steps it needed to take – including raising rates and adding telephone service – and that it wasted money on marketing expenses and its website.

The city also prevailed in lawsuits brought by two major bondholders – Nuveen Investments and the Bernard Osher Trust. A federal court judge agreed to end the cases in 2011, and the bondholders’ appeal was dismissed in September.

The utility sold its telecom business to Comcast for $17 million in 2008 after incurring tens of millions of dollars in losses, including $43.6 million in transfers the city made to support its construction and operation. That amount doesn’t include legal fees for the six years the city has been in court with bondholders.

If the $1.95 million judgment against the city had not been voided, the money was to be paid from the electric company’s reserves.