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HomeMy WebLinkAbout021870 RES - 02/15/1994A RESOLUTION ORDERING 90 -DAY EXTENSION AS PART OF CABLE RATE REGULATION REVIEW. WHEREAS, on January 18, 1994, TCI Cablevision of Texas, Inc. ("TCI") filed its Form 393 Nith the City of Corpus Christi (the "City"), as part of the basic service tier rate regulation process; and WHEREAS, the City is unable to determine from such filing whether the rates in issue are within the Federal Communications Commission ("FCC") standards; and WHEREAS, additional time beyond the initial thirty (30) day review period is needed by the City to obtain and analyze additional information from TCI; and WHEREAS, FCC regulations allow the City seek an to extension of ninety (90) additional days by the City's own "order," NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF CORPUS CHRISTI, TEXAS: SECTION 1. That for the reasons set forth above and in greater detail in the letter (attached to this resolution as Exhibit A) and report (attached to this resolution as Exhibit B) referenced in said letter, it is hereby ORDERED that the City does need and shall have a ninety (90) day extension period so as to complete its review of TCI's Form 393 filing. SECTION 2. That for those same reasons, the City Manager is hereby authorized and directed to seek additional information from TCI by signing the above-described letter and mailing it and and a copy of the report to TCI. SECTION 3. That the City Manager and the City Attorney are hereby further authorized to send any additional letters and take any reasonable action necessary to bring this regulation issue back to City Council so that the council's decision as to basic service cable rates can be made in a timely and appropriate manner. SECTION 4. This resolution shall constitute a Tolling Order under Section 55-191(D)(2) of the Corpus Christi Code (adopted via Ordinance No. 021802 which was approved by the City Council on November 16, 1993). ATTEST: City Secretary APPROVED: PQM DAY OF I'BArbtaty MAYOR THE 1994 F CORPUS CHRISTI JAMES R. BRAY JR., CITY ATTORNEY By foiLut Su MI WpilF41:' Assistant City Attorney M30236.001.skp February 16, 1994 VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED NO. P 188 823 369 Mr. Dennis Moore General Manager TCI Cablevision of Texas, Inc. 4060 South Padre Island Drive Corpus Christi, Texas 78466-6607 Re: Basic Cable Service Rate Regulation - Form 393 and Related Materials Dear Mr. Moore: This letter will acknowledge receipt of TCI Cablevision of Texas, Inc.'s Form 393 with the City of Corpus Christi, Texas ("City") in accordance with the new rate regulation procedures of the Federal Communications Commission ("FCC") as adopted by the FCC. As you know, the FCC's Report and Order on Rate Regulation establishes a requirement that the City take action on your filing within 30 days of receipt. In addition, these rules provide that the time period within which to review your filing may be continued for up to 90 days, if necessary. On page 79, paragraph 199, the FCC Report and Order sets out the following procedure regarding a franchising authority extending the period for reviewing a cable operator's Form 393: MS0238.002.pc Under the second step, if the franchising authority is unable to determine whether the proposed rates for the basic service tier and accompanying equipment are reasonable, based on the Resolaiitri C-4 Lt A (p. 1c(4) material before it, or if the cable operator has submitted a cost - of -service showing seeking to justify a rate above the reasonable level, the franchising authority may toll the effective date of the proposed rates for an additional period of time to make a final determination. Specifically, a franchising authority may toll the effective date of the proposed rates for 90 additional days if it needs additional time to ensure that a proposed rate is within the Commission's reasonableness standard. A franchising authority may, however, toll the effective date of the proposed rates for 150 days to evaluate a cost -of -service showing seeking to justify a basic service rate or rate increase above the presumptively reasonable level. To toll the effective date of the proposed rates, the franchising authority must issue a brief order, within the initial 30 -day period, explaining that the franchising authority needs additional time to review the proposed rates. During these 90 or 150 -day periods, the franchising authority can solicit additional information from the cable operator, if necessary, and consider the views of all interested parties. However, the franchising authority must take action on the proposed rate within these additional 90 or 150 days. If no action is taken within these time periods, the proposed rates will go into effect, subject to subsequent refund orders. Nevertheless, a franchising authority may issue a MS0238.002.pc r— written decision after the additional 90 or 150 days have lapsed and order refunds for any portion of the proposed rates that are found to be unreasonable and are not sufficiently justified. In such situations, a franchising authority must issue a brief written order at the end of the 90 or 150 day periods requesting the cable operator to keep accurate account of all amounts received by reason of the proposed rate and on whose behalf such amounts are paid. This letter will constitute notice to TCI Cablevision of Texas, Inc. that the time period for final action by the City will be extended for 90 days beyond the original 30 -day time period. Please refer to the attached Resolution of the Corpus Christi City Council (the "Resolution") for further clarification. We will appreciate your timely response to us. We also ask that you provide your full cooperation in this review to permit us to fully understand the nature of your rate schedules as well as the basis for the rates and charges. In that vein, we request that TCI Cablevision of Texas, Inc. review the enclosed report (attached as Exhibit B to the Resolution) regarding rate regulation of the basic cable service tier and related equipment. Section 8 of the report identifies additional information which we request you provide to complete your Form 393 submission so the City can take action on this matter. Please respond to Section 8 of the report within 30 days from receipt of this letter to facilitate our review before the expiration of the 90 -day extension. Additionally, in accordance with the requirements of Sections 55-196(A) and 55-191(B)(2) MS0238.002.pc (p 3 4 in of the Corpus Christi Code (adopted via Ordinance No. 021802 which was approved by the City Council on November 16, 1993), please deliver such additional information to the City Secretary with a copy of these materials delivered to the City Attorney at the same time. If you have any questions concerning our review, this letter or the time period for action as described in this letter, or if you would like to bring to our attention any other matters relating to the review, please contact Assistant City Attorney Michael L. Scanlon at 880-3380. Sincerely, Juan Garza City Manager cc: Bill Hennings, Deputy City Manager (w/o att.) Jimmy Bray, City Attorney (w/o att.) Adrian E. Herbst, Esq. (w/att.) Moss & Barnett 4800 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402-4129 Michael L. Scanlon, Assistant City Attorney (w/att.) MS0238.002.pc P 50kuten Gxkdbi11- A 4. Ll 4 L CITY OF CORPUS CHRISTI, TEXAS REPORT REGARDING REGULATION OF RATES CHARGED BY TCI CABLEVISION OF TEXAS, INC. FOR THE BASIC CABLE SERVICE TIER AND RELATED EQUIPMENT JANUARY 27, 1994 PREPARED BY: Adrian E. Herbst, Esq. Brian T. Grogan, Esq. Mary Kay Robertson, Legal Assistant Moss & Barnett, A Professional Association 4800 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 554024129 (612) 347-0300 Pesci ALL., Ex/7,41t E. (p. I TABLE OF CONTENTS TOPIC SECTION Executive Summary 1 Overview of FCC Rate Regulation 2 Overview of Report Preparation 3 Maximum Initial Permitted Rate Per Channel 4 Rates for Regulated Equipment and Installation 5 Process for Review by the City of Corpus Christi 6 Outline Regarding Future Adjustments to Rates • 7 Moss & Barnett Recommendations 8 CABLEIPRELBd.COR r SECTION 1 EXECUTIVE SUMMARY CABLEPRELIM.COR SECTION 1 EXECUTIVE SUMMARY The City of Corpus Christi, Texas has 30 days from the date of receipt of Form 393 from TCI Cablevision of Texas, Inc. ("TCI") to issue a decision regarding the rates proposed by TCI for the basic cable service tier and related equipment. However, the City may toll this 30 day period and extend the time for review and consideration of TCI's proposed rates for an additional 90 days should such additional time be needed. We recommend the City exercise its right to toll the initial 30 day period and extend the City's time for review and consideration of TCI's proposed rates and charges for an additional 90 days. Please see Section 8 regarding Moss & Barnett's recommendations for further detail. Based on our review of TCI's FCC Form 393 filing, we are unable to verify whether the rates and charges identified by TCI are appropriate under the benchmarks established by the FCC. Significant information has been omitted from TCI's Form 393 which is necessary to verify the accuracy of the numbers they have provided and to verify the reasonableness of the rates and charges they propose. We have identified a list of follow-up questions and information which TCI should respond to to complete their Form 393. These requests for additional information include verification of channel line-up and satellite delivered channels, verification of the rates charged in both September of 1992 and October of 1993, explanation for the time necessary to complete various installations as well as necessary backup information to verify equipment and service charges. Based on the foregoing, we recommend that the City extend the time period for review of TCI's Form 393 for an additional 90 days and seek response from TCI on the questions identified in Section 8 of this report. TCI should be provided 30 days for response, leaving the City of Corpus Christi ample opportunity to review the modified Form 393 and reach conclusions regarding the reasonableness of the rates proposed by TCI for the basic cable service tier and related equipment. CABLE',PRELQN.COR r SECTION 2 OVERVIEW OF FCC RATE REGULATIONS CABLE\PRELAI.COR scP SECTION 2 OVERVIEW OF FCC RATE REGULATIONS On April 1, 1993, the FCC adopted regulations to implement the 1992 Cable Act's rate regulation provisions, and also ordered a rate freeze, effective April 5, 1993. On May 3, 1993, the FCC released its Report and Order on rate regulation, and on May 21, 1993, published a summary of the rate regulation Report and Order and the full text of its rate regulations in the Federal Register. The rate regulation rules were to take effect June 21, 1993. However, due to budgetary and staffing constraints, the FCC delayed the effective date until September 1, 1993. Additionally, the FCC also extended the rate freeze, which was to last for 120 days or until August 3, 1993, until October 15, 1993. On November 10, 1993, the FCC again extended the rate freeze which is now due to expire on February 15, 1994. In implementing its rate regulations as required by the 1992 Cable Act, the FCC adopted a uniform rate scheme that is applicable to both the rates for basic cable service and cable programming service tiers. The 1992 Cable Act permits franchising authorities to regulate the rates charged for basic cable service in areas where there is no effective competition. The FCC has sole authority to regulate the rates for cable programming service tiers of cable systems not subject to effective competition. The FCC rate regulations establish a formula by which cable operators determine their rates for the basic cable service and cable programming service tier, and then compare them against a "benchmark" rate (derived from basic and cable programming service rates in competitive cable environments). Generally, rates in effect on September 30, 1992 that are above the benchmark must be reduced by 10% or to the benchmark, which ever is less or show that the higher rates are justified based on a cost -of -service showing. The nucleus of the FCC's rate regulations are the competitive benchmark rates that were derived from data from cable systems with effective competition. Under the FCC's regulations, basic cable service tier rates that are equal to or below the benchmark are "reasonable," and cable programming service rates that are equal to or below the benchmark are not "unreasonable." In addition to program service rate regulation requirements, the 1992 Cable Act and FCC regulations impose requirements on how related services and equipment can be offered and charged. Remote control units, converter boxes, installations and additional television outlets must be offered separately from programming service and separately from each other and priced based on the cost to the cable operator (plus a reasonable profit). Change of service fees, such as for upgrades or downgrades in a subscriber's level of service, must be cost based as well, unless the service charge can be made by coded entry on a computer terminal, in which case the fee must be a nominal amount not exceeding actual cost. All equipment charges must be priced "on the basis of actual cost." In addition to the capital costs for a particular piece of equipment, the operator may apply a related "hourly service charge." That charge is arrived by developing an "equipment basket" of non capital costs for service installation, additional outlets, leasing and repairing all equipment; an allocation of joint and common costs that service equipment, leasing, and equipment repair costs shared with other system activities (excluding general system overhead); and a "reasonable profit" set at 11.25%. The aggregate figure is divided by annual service hours so that each equipment charge may be developed through an hourly charge. The FCC will also allow franchise fees to be added to equipment prices CABLEIPRELN4.COR 1p. , 4 lel T SECTION 3 OVERVIEW OF REPORT PREPARATION CABLE\PRELIM.COR SECTION 3 OVERVIEW OF REPORT PREPARATION On January 18 1994, the City of Corpus Christi, Texas, received TCI's original FCC Form 393—Determination of Maximum Initial Permitted Rates for Regulated Cable Programming Services and Equipment. Form 393 has been approved by the FCC and the United States Office of Management and Budget for use by cable operators to provide rate information to franchising authorities which have been certified by the FCC to regulate basic cable service rates and related equipment. Form 393 contains numerous worksheets and schedules which require cable operators to identify costs associated with the basic cable service tier as well as equipment and installation costs so that franchising authorities such as the City ofCorpus Christi can establish a rate for the basic cable service tier as well as related equipment. In reviewing TCI's Form 393 on behalf of the City of Corpus Christi, Moss & Barnett has undertaken a "desk audit" of the information provided. This desk audit includes mathematical verification of all steps necessary to complete the worksheets and accompanying schedules of FCC Form 393. Upon verification that the numbers have been accurately calculated by TCI, Moss & Barnett has verified that appropriate rate information was used to calculate the maximum initial permitted rate for the basic cable service tier based on rates which were in effect on either September 30, 1992 or September 1, 1993. To assimilate this information in an easy to read yet comprehensive manner, Moss & Barnett has prepared several statistical outlines which provide representatives of the City of Corpus Christi with a snapshot of the salient information which can be gleaned from review of TCI's FCC Form 393 filing. The information contained in these outlines has been compared against FCC benchmark information and is an accurate reflection of the permitted rates which may be charged by TCI for the programming and services outlined. Please note, however, that Moss & Barnett has not undertaken an "on-site audit" of TCI's book and records to determine whether the information included in the Form 393 worksheets or the accompanying schedules has been accurately identified. Such an on-site audit would require physical presence by employees of Moss & Barnett, or a qualified accounting subcontractor, at the premises of TCI to review the books and records and ensure entries have been accurately recorded and assumptions properly calculated. In completing the worksheets and schedules of FCC Form 393, cable operators are required to make certain assumptions and report information to the best of their ability. In some cases, it may be appropriate for franchising authorities to verify the accuracy of the information reported by a cable operator by conducting an on-site audit of the operator's books and records. At the present time, we do not believe such an on-site audit is necessary, based on the information we have reviewed in TCI's FCC Form 393 and the other relevant information we have been have reviewed. However, we must note that we make no representation with respect to the accuracy of the information reported by TCI on its FCC Form 393 but simply base our conclusions and analysis on the information TCI has provided. CABLETRELIM.COR SECTION 4 MAXIMUM INITIAL PERMITTED RATE PER CHANNEL CABLE\PRELIM.COR CP.9 4 (0 SECTION 4 MAXIMUM INITIAL PERMITTED RATE PER CHANNEL (all numbers are rounded to whole numbers) I. Basic Cable Rate September 1. 1993 - Number of basic cable channels - Rate per channel (weighted) - FCC benchmark per channel rate 17 $.63 $.64 II. Basic Cable Rate September 30. 1992 - Number of basic cable channels N/A - Rate per channel (weighted) N/A - FCC benchmark per channel rate N/A - Rate per channel (weighted) less 10% N/A III. Separation of Equipment and Installation Costs - Cost per subscriber per channel $.03 - Adjusted rate per channel $-63 - $.0,3 = $.60 IV. Inflation Adjustment - Adjusted rate per channel N/A V. Adjustment for Changes in Basic Service Lineup - Adjusted rate per channel N/A MAXIMUM INITIAL PERMITTED RATE PER CHANNEL 160 MAXIMUM PERMITTED BASIC TIER RATE (w/out franchise fees) $10.23 CABLEIPRELIM.COR (P. ,o 4to SECTION 5 RATES FOR REGULATED EQUIPMENT AND INSTALLATION CABLE\PRELIM.COR (v.ti 4 io SECTION 5 RATES FOR REGULATED EQUIPMENT AND INSTALLATION I. Hourly Service Charge A. Annual capital costs expenses incurred $484,596 B. Annual hours spent on maintenance and installation 21,467 C. Hourly service charge (HSC) = A - B $484.596 = 21.467 = $22.57 II. Installation Charges HSC ($22.57) x number of hours to complete install = cost of install Average Hours Total Cost A. Unwired home install 1.50 x HSC $33.86 B. Prewired home install .75 x HSC $16.93 C. Additional connect at initial install .25 x HSC $5.64 D. Additional connect separate install .75 x HSC $16.93 E. Other • Upgrade/Downgrade .50 x HSC $11.29 • Relocate Add/Outlet .75 x HSC $16.93 • Connect VCR Initial .25 x HSC $5.64 • Connect VCR Separate .50 x HSC $11.29 • Connect FM Initial .25 x HSC $5.64 • Connect FM Separate .50 x HSC $11.29 • Install NB Initial .17 x HSC $3.84 • Install A/B Separate .50 x HSC $11.29 • Install DMX Initial .25 x HSC $5.64 • Install DMX Separate .50 x HSC $11.29 III. Leased Remote Charge Rate per month IV. Leased Converter Box Charge A. Addressable • Rate per month B. Non addressable • Rate per month V. Charge for Changing Tiers or Equipment A. Nominal charge B. Average rate for changing tiers CABLE\PRELIM.COR $0.00/$0.19 $1.73 $1.10 N/A $22.57 Cp a4ft/ SECTION 6 PROCESS FOR REVIEW BY THE CITY OF CORPUS CHRISTI CABLEWRELIM.COR 4p.13 4 «) SECTION 6 PROCESS FOR REVIEW BY THE CITY OF CORPUS CHRISTI The FCC has adopted a two-step approach regarding review of FCC Form 393 by franchising authorities. Under the first step, if a franchising authority is able to determine that a cable operator's current rates for the basic cable service tier and accompanying equipment are reasonable under the FCC's rate standards, the rates will go into effect 30 days after they are submitted. Similarly, if the franching authority finds that a proposed increase in these rates is reasonable under the FCC's rules, the increase will go into effect 30 days after filing with the franchising authority. Under the second step, if the franchising authority is unable to determine whether the proposed rates for the basic cable service tier and accompanying equipment are reasonable, based on the material before it, or if the cable operator has submitted a cost -of -service showing seeking seeking to justify a rate above the reasonable level, the franchising authority may toll the effective date of the proposed rates for an additional period of time to make the final determination. Specifically, a franchising authority may toll the effective date of the proposed rates for 90 days if it needs additional time to insure that a proposed rate is within the FCC's reasonableness standard. A franchising authority may, however, toll the effective date of the proposed rates 150 days to evaluate a cost -of -service showing seeking to justify a basic cable service rate or rate increase above the presumptively reasonable level. To toll the effective date of the proposed rates, the franchising authority must issue a brief order, within the initial 30 day period, explaining that the franchising authority needs additional time to review the proposed rates. During these 90 or 150 day periods, the franchising authority can solicit additional information from the cable operator, if necessary, and consider the views of all interested parties. However, the franchising authority must take action on the proposed rate within these additional 90 or 150 day periods. If no action is taken in these time periods, the proposed rates will go into effect, subject to subsequent refund orders. If after reviewing this report the City of Corpus Christi determines that additional information is necessary or additional time is needed to review TCI's FCC Form 393, Corpus Christi should adopt a resolution notifying TCI that an additional 90 days will be necessary to review Form 393. This resolution should clearly indicate the reasons for the extension of time and a copy of the resolution should be provided to the cable operator as soon as possible. This report attempts to outline the initial permitted rates for basic cable service and equipment and installation to facilitate an expeditious review of these rates by the City of Corpus Christi. However, please refer to Moss & Barnett's recommendations found at Section 8 regarding the course of action we recommend the City of Corpus Christi pursue at this time. CABLE\PRELIM.COR SECTION 7 OUTLINE REGARDING FUTURE ADJUSTMENTS TO RATES CABLE\PRELIM.COR (p is 4Is) SECTION 7 OUTLINE REGARDING FUTURE ADJUSTMENT TO RATES The FCC has determined that rates for regulated cable service will be governed by a price cap mechanism once initial regulated rates are determined either through the benchmark or cost -of -service approaches. Capped rates may be adjusted annually for inflation. In addition, cable operators may pass through to subscribers increases in certain categories of extemal costs to the extent such increases exceed inflation: cost of retransmission consent fees incurred after October 6, 1994, other programming cost increases, taxes, and the costs of franchise requirements including PEG access channels. Franchise fees are also accorded external treatment. Under FCC rules, regulated cable operators may adjust the capped base per channel rate for the basic cable service tier annually by the GNP Fixed Weight Price Index (GNP -PI). This index measures the effects of price changes in the whole economy and provides a broader measure of overall inflation than does the consumer price index for all items, or the producer price index for finished goods, two other commonly used measures of inflation. The price cap applies to all regulated systems, including those systems with rates that are below the benchmark on the date that regulation commences. Cable operators may adjust the capped base per channel rate for the basic service tier annually after the final GNP -PI is published by the Department of Commerce for the preceding year. For all categories of external costs other than franchise fees, changes in external costs will be measured from the date on which the system becomes subject to regulation, or 180 days from September 1, 1993, the effective date of the FCC's regulations, whichever occurs first. Cost changes made prior to the effective date will not be considered external. The FCC excludes franchise fees from the above date limitation because those fees are not included in the competitive benchmark levels derived from benchmark formula and survey data. Therefore, cable operators can treat the total amount of franchise fees externally at the time the system becomes subject to regulation, rather than only the amount of additional franchise fees incurred after the date. In addition, the FCC concluded that the cost of system improvements would not be treated externally because these expenditures tend to be significant and could increase rates substantially. All of the external costs, excluding franchise and retransmission consent fees will be accorded external treatment only to the extent they exceed inflation as measured by the GNP -PI. The total amount of increases in franchise fees will be treated externally because the benchmark formula is adjusted for inflation exclusive of franchise fees. In addition, so that the adjustments in external costs will equal the actual decrease or increase in external costs, only increases for external costs up to the inflation rate will be permitted if those costs have actually increased by the rate of inflation. Furthermore, the FCC will require that the per channel rate be adjusted downward from the rate that would result if based on a full inflation adjustment to the extent one or more external cost increases less than inflation. CABLE\PRELIM.COR SECTION 8 MOSS & BARNETT RECOMMENDATIONS CABLE\PRELIM.COR I SECTION 8 MOSS & BARNETT RECOMMENDATIONS TCI has failed to provide necessary information within its FCC Form 393 filing with the City of Corpus Christi, Texas. Until we have had an opportunity to review a complete Form 393 with supporting documentation, we are unable to provide the City recommendations on which to base a decision regarding the rates proposed by TCI for the basic cable service tier and related equipment. We have identified below the additional information which we recommend the City request from TCI to clarify their Form 393 submission. Information Reauested Basis of Reauest 1. Please provide detailed channel listing for the channel line-up in the Corpus Christi franchise area on 9/93. This listing should include a designation regarding channels distributed via satellite. Basic computation information validation. 2. Please provide a copy of 10/93 customer billing supporting tier charge of $10.23 and $10.23. Verification of tier charges used in calculating Worksheets 1 and 2. 3. Please provide a breakdown of equipment revenue for 1993 as per instructions for completing Worksheet 1, line 104. Form 393 instructions require supporting documentation. 4. Please explain how average times for installation were arrived at in Schedule D. Per Form 393 instructions. 5. Please explain how 22% was arrived at in line 2 of Step A, Part III. Per Form 393 instructions. 6. Please provide an explanation for the method of allocation utilized in completing Step G. Per Form 393 instructions. Moss & Barnett is unable to provide specific recommendations on the rates and charges identified in TCI's Form 393 until the above listed information is provided. Therefore, we recommend the City take immediate action to adopt a resolution authorizing an appropriate City representative to toll the initial 30 - day period for review of TCI's Form 393 and extend the time period for an additional 90 days. The basis for this extension is to provide sufficient time for TCI's response to our follow-up questions and for the City's review and action on a completed Form 393. Correspondence relating the City's action to of review for an additional 90 days should be received by TCI on or before February 17, 1994. This correspondence can include a copy of this report which provides a listing of the necessary additional information TCI should provide. We recommend the City allow TCI an additional 30 days within which to respond to this information, which should allow ample opportunity for review and action by the City prior to the expiration of the 90 day extension. CABLE\PRELIM.COR 5.01,6a- 1J ( . l � cf �� Corpus Christi, Texas (5 day of kbrALini The above resolution was passed by the following vote: Mary Rhodes Dr. Jack Best Melody Cooper Cezar Galindo Betty Jean Longoria Edward A. Martin Dr. David McNichols David Noyola Clif Moss \forms\066 01,0 1 8 1 V