Only seven years after EPB launched its telecom services, the city-owned utility expects to sign up its 78,000th customer this week.

More than half all households that get EPB electricity are now also getting Internet, cable TV or telephone service from EPB in Chattanooga. The municipal power utility, which boasts the fastest Internet service in the United States, has grown larger than America's biggest cable giant, Comcast, within its 600-square-mile area.

EPB is eager to grow even more by extending its telecommunications services outside of its power service territory. But the attempt this year by the electricity provider to offer telecom services outside of Chattanooga has sparked a powerful battle over the proper role of state and federal governments. The Federal Communications Commission and proponents of municipal broadband are backing municipal utilities to expand broadband service, but the Tennessee attorney general and backers of private cable and phone companies claim the FCC is trampling on the right of the state to set boundaries on where and how municipalities may compete with private businesses.

Herbert Slatery

This image provided by CBS News shows Rep. Marsha Blackburn, R-Tenn., speaking with Bob Schieffer on "Face the Nation" Sunday, Sept. 29, 2013, in Washington.

FILE - In this Nov. 5, 2014 file photo, then-U.S. Sen.-elect Thom Tillis, R-N.C., speaks in Charlotte, N.C. Nearly $5 million in advertising to help elect Tillis in last year’s midterm elections came from a group that does not have to disclose its donors. That’s according to tax filings made public on Tuesday by Crossroads GPS. That group was co-founded by Karl Rove, a strategist for former President George W. Bush. (AP Photo/Chuck Burton, File)

Harold DePriest

State Sen. Todd Gardenhire speaks to the Hamilton County Pachyderm Club during a luncheon on Feb. 23.

Tennessee law now prevents EPB and the handful of other municipal power utilities in Tennessee that offer telecom services from extending Internet, video or phone services beyond their power territories set by the Tennessee Valley Authority.

But the FCC voted 3-2 in March to overrule those restrictions. The federal agency ruled that EPB and another municipal utility in Wilson, N.C., could expand their service territories to meet the congressional mandate to expand broadband service.

Tennessee Attorney General Herbert Slatery III appealed the FCC decision to a federal appellate court, and EPB says it won't move ahead on any expansion until the court has clearly ruled it is permissible or state law is changed.

Slatery, who has hired a Washington, D.C., law firm to fight the FCC ruling, claims in final arguments made to the court this week that the federal agency is trying to improperly interfere with the authority of state governments to regulate telecommunication providers. Tennessee's attorney general asserts the FCC is violating the 10th amendment restrictions on what the federal government can direct states to do.

"By rewriting Tennessee and North Carolina state laws to expand municipal powers, the FCC infringes upon an inviolable aspect of state sovereignty, exceeds the agency's statutory authority and contradicts Supreme Court precedent," Washington, D.C., attorney Joshua Turner wrote in a 57-page argument filed on behalf of Tennessee's attorney general. "The [FCC] order is an affront to state sovereignty, and it cannot stand."

U.S. Rep. Marsha Blackburn, R-Tenn., and U.S. Sen. Thom Tillis, R-N.C., introduced legislation in Congress earlier this year to block the FCC order allowing EPB and the city of Wilson from expanding their broadband services. Blackburn called the FCC ruling "a troubling power grab from unelected Washington bureaucrats."

Chattanooga's EPB and the city of Wilson, N.C., filed petitions with the FCC in July 2014 seeking to expand their authority to offer broadband outside of their power service territories. The municipalities asserted, and the FCC ultimately agreed, that state limits on where they could offer broadband service constituted a barrier to broadband deployment contrary to what Congress wanted and empowered the FCC to avoid.

In court filings, EPB attorney Rick Hitchcock also noted that, as a municipal utility in a home rule city, EPB is not regulated by the state in its service territory and previous attorneys general in Tennessee have affirmed the authority of EPB to offer telecom services throughout the state.

EPB President Harold DePriest said the utility isn't looking to expand to make more money, but it is responding to requests from some rural residents who live close to EPB's existing service region but have no access to broadband connections.

"I think the real benefit is having the whole region wired up for broadband, which we think will help with economic development," he said.

Last month, residents in North Hamilton County and Marion County appealed to lawmakers to allow EPB to bring broadband service to their homes and businesses.

But critics of municipal broadband expansions complain the city utilities have an unfair advantage compared with private businesses that pay income taxes and must generate wealth for shareholders. They also worry that taxpayers or ratepayers could be forced to absorb losses from failed municipal telecom ventures, as ratepayers at Memphis Light Gas and Power did when they had to absorb $28 million of ratepayer funds lost in a failed telecom venture called Memphis Networx a decade ago.

When there is sufficient market demand for high-speed services, private companies like Comcast, AT&T and Google have added ultra-fast Internet connections, including a limited 2-gig service in Chattanooga and a limited 10-gig service in Nashville.

EPB insists it will serve more people faster than private companies will, and that its fiber-optic network has more than paid for itself. EPB Fiber customers are actually helping to keep electric rates lower than they otherwise would be without EPB Fiber.

The appellate court is reviewing final arguments made this week by proponents and opponents of municipal broadband. The court could ask for oral arguments but is expected next year to issue its ruling, which could then be appealed to the U.S. Supreme Court.

In the meantime, DePriest said EPB is encouraging the Tennessee Legislature to lift its territorial limits on municipal broadband to allow those that want the service to get it. Changing the state law in the legislative session that starts in January could be quicker than waiting on a final decision from the court, DePriest said.

In the General Assembly, such legislation has picked up the support of area Republican lawmakers, including state Sens. Janice Bowling, R-Tullahoma, and Todd Gardenhire, R-Chattanooga, and state Reps. Kevin Brooks, R-Cleveland, and Mike Carter, R-Ooltewah.

"It's going to be an uphill battle next year to get this passed, but the people waiting on broadband service outside of EPB's area want and need it," Gardenhire said.

Contact staff writer Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.