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Utility Diversification: Munis Find Cable TV a Costly Business

Fortnightly Magazine - September 15 1998

$1.6 million. TVA's 1995 and 1996 audits forced the cable operations to repay electric operations nearly $200,000 each year for expenses shifted from cable to electric without justification. "I've never had a ratepayer complain," Ray says.

Despite the losses, Ray and Honeycutt point to the greater benefit to the community and overall savings as justification: $175,000 a year from the SCADA system (System Control and Data Acquisition), plus $1.2 million a year in cumulative savings to cable subscribers in CATV rates. "Our citizens have benefited," claims Honeycutt. After the city started providing service, "the quality of the other company improved immediately and their prices went down." The EPB's Web site ( www.glasgow-ky.com) includes Ray's philosophy on competition. "The GEPB used its existing poles, trucks, billing system and expertise to expand on the affirmative government philosophy which created it," he writes. "Using that philosophy, they have been able to also take broadband telecommunications out of the luxuries of life, only to be used by the wealthy, and place it within the reach of the humblest of citizens."

Given the results, TVA has no problems with Glasgow's CATV operation, according to Mark Medford, TVA executive vice president. "Billy Ray's local rates are quite reasonable, and the cable rates and reliability are also good," Medford says. He also acknowledges political reality: "I know about the importance of basketball in Kentucky."

Tacoma: A Ballooning Budget?

Tacoma Power provides a larger perspective with the same theme: Dissatisfaction with the cable operator influenced the decision to create municipal competition with private enterprise. Tacoma, Washington has a population of about 185,000. Tacoma Power is one of the 14 largest public utilities in the U.S. According to Steve Klein, superintendent of the utility, Tacoma Power first considered the obvious, least-cost route and approached the local exchange telephone carrier U S West? and the cable operator, Telecommunications Inc., about leasing bandwidth on their networks for SCADA. Neither the local telco nor TCI had sufficient capacity on their systems, nor were they interested in the proposal, Klein says.

Tacoma Power hired SRI International of Menlo Park, Calif., to prepare cost estimates for the SCADA system. SRI recommended that the city use the hybrid fiber-coaxial system to also provide CATV, data and telephone communications. The proposed system would cost $69.4 million, paid for out of profits the utility had made in the wholesale power business. "If we hadn't had a surplus from wholesale power sales, it would have been more difficult to do," Klein says. "We might have done only the SCADA."

The public utilities board hired a major accounting firm (which revised the cost estimate to $100 million) and gave its approval. "We felt it was a doable, sound plan and the risks were acceptable," says Ross Singleton, a professor of economics at the University of Puget Sound and then public utilities board president.

The plan went to the city council for approval in October 1997. But Leo J. Hindery Jr., TCI president, went to Tacoma to negotiate an alternative. He offered to build the network for the city for about