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Utility Diversification: Munis Find Cable TV a Costly Business

Fortnightly Magazine - September 15 1998

to salvage part of the investment if marketing fails.

Moreover, the plan allows electric operations to subsidize the CATV business - providing use of bureau vehicles, facilities and data processing equipment at an artificially low or zero cost - and with the PUB's approval. "There will be some economies," Hansen says. "You don't have to keep everything separate. You can look at it as a subsidy, but on the other hand, you can look at it as a cost saving. I see it as proper use of resources."

"We are bringing competition to TCI in the best tradition of American business," Hansen says. "That is the best way to benefit the consuming public." The question is whether the consuming public will agree if costs rise to $15 million, AT&T Communications Services offers better service at lower costs, and subscribers refuse to switch, stranding the taxpayer's and ratepayers investment in the municipal cable system.

A Boston TCI Party

RCN Data Corp. recently teamed up with Boston Edison to provide broadband communications in the Boston area. BECo, the holding company for Edison, had received a 49-percent interest for a $300-million investment in RCN/Massachusetts, and had conveyed about 200 miles of fiber cabling and rights of way in Boston and 40 local communities to the joint venture, according to Mike Monahan, Boston Edison spokesman. The local CATV operator, Cablevision Services Corp. (25-percent owned by TCI), filed for intervenor status with the Massachusetts Department of Energy and Transportation and was turned down. However, Janet Besser, DTE chairman, told Public Utilities Fortnightly in late July that Cablevision Services Corp. indeed was a party to the case (DTE Docket No. 97-95). She explained that the case was opened on the commission's own motion, to investigate whether Boston Edison's investment in its RCN subsidiary might violate a prior commission order.

Previously, the DTE had agreed to allow BECo to invest as much as $45 million in energy-related, unregulated subsidiaries provided that BECo would return to the DTE for approval of specific activities. "Lo and behold, without going back to the DTE, they agreed to invest $150 million in RCN and provided cable and rights of way valued at $60 million to $80 million," says Lisa Rosenblum, Cablevision senior vice president. "The electric utility is moving assets built up over the years to the subsidiary without sufficient compensation to the ratepayers."

Monahan says the joint venture will lease space on BECo's rights of ways on the same terms as any other CATV company. The shareholders, not the ratepayers, paid for the fiber cable transferred to the joint venture, Monahan insists. But Rosenblum, who recently served on New York's Public Service Commission, counters that the joint venture provides a double risk to the ratepayers: Not only are they subsidizing BECo's entry into competition with Cablevision, she alleges, but BECo ratepayers will not share in whatever gains the joint venture may realize.

"Customers will have to pay the full stranded costs of Boston Edison," she says. "The utilities agreed to mitigate these costs when they involved ratepayer-funded assets, and the ratepayers are