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Utility Diversification: Munis Find Cable TV a Costly Business

Fortnightly Magazine - September 15 1998

council's attention, which asked the bureau for a business plan in 1996.

The appointed public utility board hired consultants to develop a plan to appease the city council. Unlike Tacoma, Alameda did not investigate alternatives first. Ken Hansen, president of the PUB, says the bureau did not consider alternatives such as leasing bandwidth from Pacific Bell or TCI due to past reliability problems with a network leased from the telco. "Also, our citizens are very disappointed with TCI," Hansen says. Working with sample business plans in the American Public Power Association's Utilities Telecommunications Guidebook, the consultants produced a 10-year, $8-million operational plan. The city council approved the plan in August 1997.

Bill McCall Sr., a former mayor and member of the PUB, brought the city charter prohibition to the attention of the city council. City Attorney Carole Korade issued a ruling that the Telecommunications Act of 1996 preempts all local prohibitions of entry into telecommunications for any entity - the APPA holds the same position - and gave the bureau the green light to continue installing cable. The issue awaits a hearing in the Alameda Superior Court next year.

Nevertheless in 1997, the Federal Communications Commission refused to strike down a Texas statute that bars local governments from providing telecommunications services. "The Texas prohibition is an exercise of the Texas legislature's power to define the contours of the authority delegated to the state's political subdivision," the FCC ruled. (FCC 97-346, released Oct. 1, 1997. An appeal was pending at press time, however, with oral argument set for Nov. 2. See, City of Abilene v. FCC, D.C. Cir. Nos. 97-1633, 97-1634.)

In Alameda, the city electric bureau is also taking a political tack. A charter amendment allowing it to enter into this and other ventures unrelated to electric service goes before the voters in November. Meanwhile, the bureau continues to lay fiber cable and sign telecommunications leases.

Unlike Tacoma, no independent party has been hired to review the business plan. What the plan says, and what the bureau doesn't mention to city council or voters, is that the $8-million capital investment only covers start-up costs for the first three years of CATV operation for 7,500 customers. The plan projects a system serving more than 10,000 CATV customers by year 10 - but doesn't provide cost estimates above the initial 7,500. The $8 million won't cover the utility's own SCADA system, nor the investment necessary for technology for data communications or telephony. All told, the bureau promises a system with costs that could run from $15 million to $20 million, according to Carol Mann, director of cable and satellite operations at The Strategis Group, a Washington, D.C., telecommunications consulting firm.

Hansen claims that the question of total required capital investment is presumptuous - that it's proper for the utility to diversify into other fields. "I believe it is right and proper for the PUB to examine and make recommendations to go forward when the window of opportunity is open," he says. The plan offers no contingency for dramatic cost overruns, with no back door