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HomeMy WebLinkAboutAgenda - 01-21-1997 - 5a f l ORANGE COUNTY BOARD OF COMMISSIONERS Action Agenda Item No. 5_4_ ACTION AGENDA ITEM ABSTRACT Meeting Date: January 21, 1997 SUBJECT: Cable TV Rate Increase DEPARTMENT: Manager's Office PUBLIC HEARING: (Y/N) BUDGET AMENDMENT: (Y/N) ATTACHMENT(S): INFORMATION CONTACT: Order/Resolution Albert T. Kittrell, Assistant County Manager Report TELEPHONE NUMBERS: --ext. 2300 Hillsborough 732-8181 Chapel Hill 9684501 Durham 688-7331 Mebane 227-2031 PURPOSE: To consider adopting an order/resolution approving rate increases for Time Warner Cable. BACKGROUND: On September 30, 1996 Time Warner Cable submitted annual maximum permitted rate filing requests to the County. Since September the Triangle J Council of Governments Cable TV Consultants have reviewed the rate increases for the County and other local governments in the region. On January 8, 1997 the County Cable TV Advisory Committee reviewed the rate increase analysis report with the consultant to determine consistency with FCC regulations. The committee recommends the Board approve the following rates as reviewed by the consultants. The rates became effective January 1, 1997. System Old Rate New Rate Change W 1.'u.^•? . �.:�:is.. -:••.-.--...,:.. '. }:}{{4:4:•}}}i}}}}:•i}:4}}}}};4}}•}};y;}:?ti::•:v'::•} .x$fn.............:....n..........:...... KIX?4:^}}i:•}}}:4i:^}}:•}}}}}:4}}}:4}}}}}:•:r. .:/.:i}Y.:4 }FF��jj�� : . l Pill IN y3 '.' ::•: ,v::%`:::i?:::�:::::::.:. :t::::.:::::.:. r:::`i-::: ::: .> ::r:: ::::.•`::`#. 2::t�.:::,:':::.:.i :::::'::::y::'::::::.:'::5::::ii> %:::::2»?:::::: :: ::S::S:i::sk n• >::::;::>`:•}:?i•};;•;};.};.};}.:::;:?::}::{.;};:•:;::>;:?i}i•::>:};:i•<::;:i i::::iii:?::;i Carrboro $8.71 $8.81 $0.10 NC-0 :} �:::.:�::.: •. •}•;ter.. ... N•i}$i: :.ii'r'ri;•$.^•.::::: .:::w:::.4::, �:{iv$:;}ji:)i;<:: ,p.,� 4 :}}F.•u:x::.. t v}r:n:vvv:J.-}::i??n}:O}:4}:+.?4:i+i?4}i}:?4:�R?L}si$}$ii}$$$ii'i'?i}i}i':^}<}}'riii?Ti:Yiii: .}^ •"•Y�:ti t'•'?$: .::fi:$:C:$•::t.4. {C$::::::.'•:•i{:,v„x.:'::i::::::$}.?w.:v•: ..\::::.. }.. ::;X}:•:}m::•.}:4}:•}}:4:':v}}::n$::} :-:?�{.:i :'::ii}is::::�J:i} :�iiit:i::i:::iii}:i::::ii:%i:::iii Michael Patrick, Chair,of the Cable TV Advisory Committee will present the report. TJCOG Cable TV Consultants will be availabe to answer questions regarding the report. RECOMMENDATION(S): Manager recommends that the Board adopt the order/resolution approving Cable TV rate increases for Time Warner. 2 STATE OF NORTH CAROLINA ORANGE COUNTY BEFORE THE BOARD OF COMMISSIONERS OF ORANGE COUNTY IN THE MATTER OF: ) ORDER FINDING FCC 1240 Review of FCC 1240 Annual Basic ) BASIC SERVICE TIER Service Tier Rate Adjustment Request ) RATE ADJUSTMENT filed by Time Warner Cable/CVI/Alert ) REQUESTS TO BE for Orange County,NC-0276,and ) IN COMPLIANCE NC-0256 ) WITH FCC RATE MAKING RULES AND TO BE REASONABLE BY THE COMMISSIONERS OF ORANGE COUNTY: WHEREAS,on September 30, 1996,Time Warner Cable submitted three FCC 1240 Annual Maximum Permitted Rate filing requests for Regulated Cable Services with Orange County,two for NC-0276,the other for NC-0256. The two filings for NC-0276 cover external costs,inflation,and cable system upgrade costs for the projected period of January 1,-1997 through December 31, 1997,and costs for the true up period of January 1, 1996 through December 31, 1996 for NC-0276;the filing for NC-0256 covers the true up period of February 1, 1996 through December 31, 1996,and the projected period of January 1, 1997 through December 31, 1997; WHEREAS,Time Warner Cable is permitted,pursuant to the Social Contract and Thirteenth Order on Reconsideration,to estimate and recover inflation,external costs,and cable system upgrade costs for the period of January 1, 1997 through December 31, 1997; WHEREAS,on January 8, 1997,the County received a report stating that Time Wamer's FCC 1240 rate calculations are in compliance with Federal Communications Commission rate making rules, and that the requested maximum perrmitted Basic Service Tier rates of$7.88 and $10.43 for NC-0276,and $8.81 for NC-025*Am reasonable; WHERIUK FCC rules grant local franchise authorities an inithd 90-day review period,measured from the date of receipt of the FCC 1240 filing by the franchise authority,to review the cable operator's rate filings. If said 90-day review period expires before the rates go into effect,the franchise authority retains review and refund authority past the initial 90-day review period as long as all inquiries from the cable operator regarding said review are responded to in writing within 15 days of said inquiry; WHEREAS,Time Warner's rate filings include cost estimates for the calendar year of 1997,and said estimates may require adjustment(true up)in the cable operator's subsequent FCC 1240 rate filings; and, 3 WHEREAS,Orange County is certified with the FCC to regulate basic service tier rates, equipment and installation services provided by Time Warner Cable in franchises NC-0276,and NC-0256. IT IS A FINDING: THAT Time Warner Cable has substantiated the adjustment of its Basic Service Tier rates of $7.88 (Chapel Hill system)and $10.43(Durham system)for NC-0276,and$8.81 (Carrboro system)for NC- 0256, based on past and future external cost elements; THAT, Time Warner has selected to charge the Basic Service Tier rate of$7.70(Chapel Hill system)and$10.40(Durham system)for franchise NC-0276, and$8.65(Carrboro system)for franchise NC-0256, during the 1997 calendar year in unincorporated Orange County;and, THAT Time Warner has complied with FCC BST rate making rules,and its requested maximum permitted BST rates are reasonable. IT IS THEREFORE ORDERED: THAT Time Warner Cable's maximum permitted rates for the Basic Service Tier during 1997 shall be $7.88(Chapel Hill system,NC-0276),$10.43(Durham system,NC-0276)and$8.65(Carrboro system,NC-0256),subject to modifications in subsequent findings by the franchise authority; THAT the County retains its authority to issue refunds or rate roll backs after the initial 90-day review period with respect to the rates set out in the FCC 1240 filings and approved herewith,subject to subsequent findings by the fraaohise authority;and, THAT Time Wanner must keep a full and accurate account of all revenues and costs associated with the aforementioned cable rate adjustments. ISSUED BY ORDER OF THE BOARD OF COMMISSIONERS This the 2 lot day of January, 1997. ATTEST: CHAIRMAN: Deliver Report and Order via Certified U.S. Mail to: Time Warner Cable Copy to: City of Raleigh/TJCOG 4 ORANGE COUNTY, NC-02769 NC-0256 REVIEW OF TIME WARNER CABLE FCC 1240 RATE FILINGS January 9, 1997 REPORT TO: Albert Kittrell, Assistant Manager, Orange County 4 FROM: Robert Sepe, Information Access Manager,(TJCOG Consultant/City of Raleigh) RE: Review of Annual Updating Maximum Permitted Rates filing[FCC 12401, Time Warner Cable(NC-0276,NC-0256) Consultants for Orange County have reviewed Time Wanner Cable's FCC 1240 filing and supporting documentation furnished by the cable operator,and have conducted fact-fmding discussions with the- cable operator and Federal Communications Commission representatives. The values stated in the filing are the responsibility of the cable operator's managemerit. Supplied data were reviewed to determine whether the operator calculated"updated"rates consistent with the procedures prescribed by the FCC in accordance with the 13th Order on Reconsideration,the Time Warner Social ConhvcYt, and the Teleconnumications Act of 1996. Original computations were performed by consultants and compared with infornsation provided by Time Warner Cable. The consultants believe that the data submitted by the cable operator is free of material misstatements,and the accompanying report provides a reasonable basis for the consultant's recommendation. e 5 REPORT Background In September 1995, the FCC adopted the 13th Report and Order, which, among other things, allowed cable operators to adjust their rates on an annual basis using the FCC 1240, taking into consideration past and anticipated future external costs. In November 1995, the FCC adopted the Time Warner Social Contract, which resolved hundreds c{cable complaints against Time Warner Cable. Provisions of the Social Contract permit Time".Narner to aggregate its leased subscriber equipment costs on a regional basis (using regional FCC 1205 filings) and charge uniform equipment rates based on these data. Also, Time Warner is allowed to include in its annual programming service rate filing (FCC 1240) past and future (estimated) costs, along with future costs attributable to cable system upgrades. The 13th Order requires Time Warner and other cable operators to submit their FCC 1240 filings 90 days before the date of rate implementation. During this period, the City may review the reasonableness of the basic service tier rates and issue an order to either approve or deny the rates. After 90 days, the City retains review and refund authority as long as 4 responds within 15 days to any inquiries from the cable operator regarding the City's FCC 1240 review. County's Role in Rate Regulation It is the County's responsibility to verify that the cable operator correctly applies Federal Communications Commission rate making rules in determining Basic Service Tier(BST) cable rates. If the County determines that the operator has misapplied FCC rules, it may order a BST refund, rate roll back, or other appropriate action. Though the County has direct regulatory control over the operators BST rate making process, it plays an indirect role in the regulation of the CPST,' or upper cable tiers of service (i.e., Tier, and Standard--Service). Should the County determine that the cable operator incorrectly applied FCC rate making rules in determining upper tier cable rates, it may file a formal rate cwt-Ah the FCC, which will conduct an investigation into the cable operators process. A complaint(from the County) may be filed with the FCC only after the County has received °more than one" complaint from subscribers regarding upper cable tier service rates. 'CPST,or Cable Programming Service Tier,is a term used by the FCC to identify those upper tiers of cable service that are regulated by the FCC,but outside the regulatory control of the fianchise authority. 2 6 Regulation of the CPST is scheduled to sunset in 1999, though regulation of the BST by local franchise authorities (counties, cities.,.etc.) is not scheduled to expire. On November 8, 1996, Time Warner Cable notified Orange County that the company will adjust its cable service rates and equipment and installation service rates on January 1, 1997. The County administers two franchises: a. NC-0276 represents two different Time Warner systems, one group of subscribers are served from the Chapel Hill headend, the other from the Durham headend. b. NC-0256 represents the forme CVI/Alert system, whose subscribers are served from Carrboro headend. Discrepancies The consultants performed original spreadsheet computations using the data for all three rate filings submitted by Time Warner to the County. While performing earlier rate reviews in other TJCOG CATV consortium communities, the consultants identified several calculation errors in Time Warner's rate filings. The company subsequently rectified these errors, and performed similar recalculations in FCC 1240 rate filings for other TJCOG communities, including Orange County. Discussions with Time Warner representatives and further calculations involving the FCC 1240 spreadsheets resolved these concerns: a. NC-0276 (Chapel Hill system): the operator was required to reduce its 1997 MPR by$.06, from $7.94 to$7.88. The operator elected to reduce its planned selected rate by$.24, from $7.94 to$7.70. These recalculations can be attributed to errors in the operator's H3 and H4 cells in the original FCC 1240 form. b. NC-0276(Durham system): the operator was required to increase its 1997 MPR by $.01, from $10.45 to$10.46. However,the operator elected to reduce its planned selected rate by$.05, from$10.45 to$10.40. These recalculations can be attributed to errors in the operator's H3 and H4 cells in the original FCC 1240 form. c. NCB(Carrboro system): the operator was not required to change its 1997 MPR; it elected to decrease its selected rate by$.15, from $8.80 to$8.65. These recam"Wo can be attributed to errors in the operator's inflation adjustment figures. RATE ADJUSTMENT Chapel Hill Systern,Original Tines Warner System, NC-0276 Subscribers receiving the Basic Service Tier(BST)will see no change in their monthly BST rate. The rate will remain the same, $7.70. However, the maximum permitted rates (MPRs) will increase by$.06, from $7.82 to$7.88. Time Warner has chosen to charge a rate below 3 7 the MPR. Tier Service subscribers will see their monthly Tier Service rate increase by $1.60, from $6.35 to$7.96, though the maximum permitted rates (MPRs)will increase by$1.85, from $6.54 to $8.39. Time Warner has chosen to charge a rate below the MPR. Current Standard Service tier subscribers will see their Standard Service tier rate increase by $.90, from $8.45 to $9.35 a month, though the maximum permitted rates (MPRs)will increase by$.61, from $8.96 to $9.57. Time Warner has chosen to charge a rate below the MPR. A subscriber's total cable bill amount is inclusive of all tier rates below it. For example, a Standard Service tier subscriber's total monthly rate will include rates for the BST and Tier Service (BST $7.70 + Tier$7.95 + Standard $9.35 = $25.00 Total). The total cable bill amount for a Tier Service subscriber will include the rate for the BST. See Table A for rate comparisons. Table A Rate Comparisons 1996 and 1997 Cable Rates Chapel HI MI System, IC-0276 Service 1996 1997 - I Type SST .8Z $'7.88 SM0.6 BST $7.70 $7.70 $0.00 SELECTED ....._ ......... _ __ Tie r.Sesrvice $6.34 Tier Service $6.35 $7.95 $1.60 SELECTED ._- _ _ . Standard $8.91+�t x:37 $Q.bl MAX Standard $8.45 $9.35 $0.90 SELECTED Subscribers As of September 30, 1996,there was a total of approximately 5,872 Time Warner subscribers served from the Chape"M headend: approximately 424 Basic only subscribers; 150 Tier Service subscribers;aa041 rt Inmately 5,298 Standard Service subscribers. Time Warner estimates that these figures will cht in 1997: Basic only,425; Tier Service, 150; and Standard Service, 5,325. 4 8 RATE ADJUSTMENT Durham System,Original Time Warner System, NC-0276 Unlike the Chapel Hill system,the Durham system has only two cable tiers of service. Subscribers receiving the Basic Service Tier(BST)will see their monthly BST rate increase by$.74,from$9.66 to $10.40,though the maximum permitted rates(MPRs)will increase by$.43,from$10.00 to $10.43. Time Warner is charging a rate below the MPR. Current Standard Service tier subscribers will see their rates increase by$1.61,from$14.84 to $16.45 a month,though the maximum permitted rates(MPRs)will increase by$1.49, from$15.01 to $16.50. Time Warner is charging a rate below the MPR. Table B Rate Comparison 1996 and 1997 Cable Rates Durham System,NC-0276 Service 19% 1997 Change Type BST sio eme $1fl.43: 43: Mme' BST $9.66 $10.40 $0.74 SELECTED Stndard ! $15fl1 I 16.5B:: . . 1*1.49 'MAX Standard $14.84 516.45 $1.61 SELECTED Subscribers As of September 30, 1996,there was a total of approximately 34 Time Warner subscribers served from the Durham headend: approximately 1 Basic only subscriber,and 33 Standard Service subscribers. Time Warner estimates that these figures will change in 1997: Basic only, 1; Standard Service,34. RATE ADJUSTMENT Carrboro System,CVI/Alert,NC-0256 There are only*wcable tiers on the CVI cable system,unlike the Time Warner/Chapel Hill system that has three tiers of service.CVI cable system subscribers receiving only the Basic Service Tier (BST)will see their monthly BST rate increase by$.11,f om$8.54 to$8.65. The maximum permitted rates(MPRs)will increase by$.10,from$8.71 to$8.81. Time Warner is charging a rate below the MPR. Current Standard Service tier subscribers will see their Standard Service tier rate increase by$2.31, from$16.64 to$18.95 a month 'Though the maximum permitted rates(MPRs)will increase by 5 1 9 $2.22, from $17.01 to $19.23. Time Warner is charging a rate below the MPR. Table C Rate Comparison 1996 and 1997 Cable Rates Carrboro System,NC-0256 Service 1996 1997 Change Type BST $8.71 $8:81 $0.14 MAX BST $8.54 $8.65 $0.11 SELECTED Standard $17.01 $19.23 $2.22 MAX Standard $16.64 $18.95 $2.31 SELECTED Subscribers As of September 30, 1996,there was a total of approximately 958 Time Wainer subscribers served from the Carrboro(CVI)headend. Approximately 920 were Standard Service subscribers,and 38 subscribers received only the Basic Service tier. Time Warner estimates that these figures will change in 1997: Standard Service, 930; Basic Service only,40. It is important to note that the former, 1996 CVI/Alert cable rates included a portion of the County's franchise fee. In 1997 cable statemmi%Time Warner will itemize the County's franchise fee as a separate item-similar to how original Time Warner systems have itemized franchise fees on cable statements. Analysis of Cable Service Rate Increases External Costs The cable service rate adjustments reflect multiple external cost elements. An external cost is an expense a cable operator incurs during the normal course of business and may be included in rate calculations. External cost categarla dude:costs of complying with franchise requirements, including costs of providing publii-o";ational,and goveaunerntal access channels;retransmission consent fees and copyright feea>' ed far the carriage of broadcast signals; other programming costs;FCC regulatory fees;and costs Osooiated,with channel additions and deletions. Time Warner's FCC 1240 rate adjustments reflect the following external cost elements: 1)External costs for true up period; 2)External costs for projected period; 3)Projected cable system upgrade costs(applied to upper cable tier only)-per Social Contract; 4)Inflation from true up period; 5)Inflation for projected period; 6 10 True Up and Projected Periods The FCC 1240 Form must be filed with the local franchise authority 90 days before the rates are scheduled to take effect; it can be filed no more frequently than annually. The FCC 1240 form represents a departure from the quarterly(FCC 12 10)option of updating cable rates, and allows cable operators to adjust their rates but once a year,minimizing the impact on subscribers. The FCC 1240 permits operators to estimate their future costs over a 12-month period: this is referred to as the projected period.' The FCC 1240 also allows operators to recover costs that have already occurred during a specified period of time,referred to as the true up period. If a cable operator incorrectly estimates its costs for a projected period, it must correct those estimates by using the true up segrr,,nt of the next FCC 1240 rate filing. Time Warner's projected period for NC-0276 covers the 12 months of 1997,from January 1 to December 31. The operator's true up period covers the 12 months of 1996,from January 1 to December 31. Time Warner's projected period for NC-0256(CVI/Alert)covers the 12 months of 1997,from January 1 to December 31. The operator's true up period covers 11 months of 1996,from February 1 to December 31. Programming Costs Chapel Hill System;NC-0276 Programming costs for the BST during 1997 are projected to be approximately$.1474 monthly,per subscriber. This compares to$1454 monthly,per subscriber,during 1996. Time Warner representatives state that program service providers customarily increase service fees annually. Time Warner attributes the bulk of its BST programming costs to copyright fees paid to the Copyright Royalty Tribunal,and fees for carriage of WGN. The company did not claim any retransmission consent costs for either period Programming costs for the Tier Service during 1997 are projected to be approximately$3.7964 monthly,per subscriber. This compares to$2.6944 monthly,per subscriber,during 1996. Included in this cost is the cable system upgrade cost,which amounts to $2.00 per subscriber,per month, in 1997. Time Wunar is allowed to pass through this cost prior to the rebuild of the cable system, pursuant to th Social Contract between the company and the FCC. Programming costs for the Standard Service during 1997 are projected to be approximately$1.9828 monthly,per subscriber. This compares to$1.8974 monthly,per subscriber,during 1996. In addition to these programming costs. 'FCC 1210 Forms allow for the recovery of past costs, only,not future costs. Future costs are recoverable through the use of the FCC 1240 Form,only. 7 11 Programming Costs Durham.System, NC-0276 Programming costs for the BST during 1997 are projected to be approximately$.3976 monthly,per subscriber. This compares to$3891 monthly, per subscriber,during 1996. Time Warner representatives state that program service providers customarily increase service fees annually. Time Warner attributes the bulk of its BST programming costs to copyright fees paid to the Copyright Royalty Tribunal, and fees for carriage of WGN, BET, Sneak Prevue, and Prevue Guide. The company did not claim any retransmission consent costs for either period. Programming costs for the Standard Service during 1997 are projected to be approximately$6.1195 monthly,per subscriber. This compares to$4.8473 monthly,per subscriber, during 1996. Included in this cost is the cable system upgrade cost,which amounts to$2.00 per subscriber,per month, in 1997. Time Warner is allowed to pass through this cost prior to the rebuild of the cable system, pursuant to the Social Contract between the company and the FCC. Programming Costs Carrboro System,NC-0256 Programming costs for the BST during 1997 are projected to be approximately$1606 monthly,per subscriber. This compares to 5.1626 monthly,per subscriber,during 1996. Time Warner attributes the bulk of its BST programming costs to copyright fees paid to the Copyright Royalty Tribunal,and fees for carriage of WGN. The company did not claim arty reh smission consent costs for either pro Programming costs for the Standard Service during 1997 are projected to be approximately$5.9857 monthly,per subscriber. This compares to$4.9203 monthly,per subsM iber,during 1996. Included in this cost is the cable system upgrade cost,which amounts to$2.00 per subscriber,per month,in 1997. Time Warner is allowed to pass through this cost prior to the rebuild of the cable system, pursuant to the Social Contract between the company and the FCC. The following tables itemize external cost elements included in Time Warner's January 1997 cable service rate inoess. Though the cable operator is permitted to charge the maximum permitted rate, it elected to lesser amounts. 8 12 Table D 1997 Basic Service Rate Chapel Hill System,NC-0276 Pereeatage Per Item 1 of Inge Subscriber Location Acts --- $7.4739 "Base Rate" of BST (G9) Includes Inflation From True up period D8+F5 44% $0.1786 Inflation for 1997 15 36% $0.1474 Programming Costs for 1997 17 20% $0.0811 Undercharges from 1996 I8 True Up Period 100% $7: 10 I=Il xiat un Perth lI $7.7000 Time Warner Selected Rate I10 Table E 1997 Tier Service Rate Chapel Hill System,NC-0276 Yeseea � �` I� Imo.. --- $4.0360 "Base Rate" of CPST (G9)D8+F5 Includes Inflation From True up period 2% $0.0965 Inflation for 1997 15 41% $1.7964 Programming Costs for 1997 I'I 460* $2.0000 Cable System Upgrade for 1997 SC r: $0.4648 Umlercharges front 1996 I8 True Up Period $7.9500 Time Warner Selected Rate 110 9 13 Table F 1997 Standard Service Rate Chapel Hill System, NC-0276 Percentage Per Item 1240 of Increase Subscriber' Lecaden tAm --- $6.9051 "Base hate" of CPST (G9)D8+F5 Includes Inflation From True up Period 6% $0.1650 Inflation for 1997 15 75% $1.9828 Programming Costs for 1997 17 19% $0.5132 Undercharges from 1996 True Up Period 100% $ CPST ill . $9.3500 Time Warner Selected Rate I10 A""*%0 V 1997 Basic Service Rate Durham System,NC-0276 Pf! : Ate:. --- $9.4550 "Base Rate"of BST (G9) Includes Inflation From True up period D8+F5 23% $0.2260 Inflation for 1997 15 41% $03976 Programming Costs for 1997 I7 36% $0.3530 Undercharges from 1996 18 True Up Period $10.4000 Thne Warner Selected Rate I10 10 14 Table H 1997 Standard Service Rate Durham System,NC-0276 Pece Per Item 12 of Increase Subscriber Location, Amts --- $9.9734 "Base Rate" of CPST (G9)D8+F5 Includes Inflation From True up period 3% $0.2384 Inflation for 1997 15 63% $4.1195 Programming Costa for 1997 17 31% $2.0000 Cable System Upgrade for 1997 SC 3%. $0.1699 Undercharges from 1996 I8 True Up Period 100% I S I2 CPST V,a-U�wtaE C�RW � $16.4500 Time Warner Selected Rate 110 Table I 1997 Banc Service Rate Carrboro System,NC-0236 z Perc�rt of --- $8,.2909 "Base Rate" of BST (G9) Includes Inflation From True up period D8+F5 38°x. $0.1982 Inflation for 1997 I5 31%; $0.1606 Programming Costa for 1997 17 31% $0.1642 Undercharges from 19% I8 True Up Period 100%; Sfl. I9.. l llI $8.6500 Time Warner Selected Rate 110 11 15 Table J 1997 Standard Service Rate CwThoro System,NC-0256 Percentage Per item 1240 of Increase Subscribes Location Amounts. --- $12.2106 "Base Rate" of CPST (G9)D8+F5 Includes Inflation From True up period 4% $0.2918 Inflation for 1997 15 570/9 $3.9857 Programming Costa for 1997 17 29% $2.0000 Cable System Upgrade for 1997 SC 10% ! $0.7397 Undercharges from 1996 True Up Period 100% S19.2278, 1 CFS'P Mir rr! etn lZ ' $18.9500 Time Warner Selected Rate 110 Inflation Time Warner included inflation adjustments in its true up and projected period segments of its Amended 1997 FCC 1240 rate filing for both franchises. The operator used the correct FCC Current Inflation Factor figure of 2.39%,in Line C I of the FCC 1240 for both filings. This figure is incorporated into the 1997 rates,and is subject to correction in the true up period segment of operator's subsequent FCC 1240 rate filing,anticipated in September 1997. . But the operator incorrectly used 2.39%for the true up inflation segment of the cummt filing for the CVI/Alert system;this figure should have been 2.19%,accounting for only I 1 months in the true up period,instead of 12. The'opuvtor corrected this oversight in an amended 1997 filing provided to the consultants. 111uis oomection is reflected in the 1997 MPR for those subscribers in the affected franchise. Also,in its original 1996 rate filing for both franchises,the operator incorrectly used the true up inflation figure of 2.%% in Line C 1. The operator revised this figure and submitted an amended FCC 1240 for 1996,changing the 296% in the Chapel Hill and Durham systems to 4.10%; and 4.31%for the Carrboro system. The methods used by the operator to derive these figures were reviewed by the consultants and were found to be in compliance with FCC rules. 12 15 Table K FCC 1240.Inflation Adjustments Chapel Hill and Durham Systems,NC-0276 Amender!1996 FCC 1240 Filing; Amemded 1997 FCC 1240 Filing 1240 Segment True Up Projected True Up Projected Inflation Rate 4.10% 2.96% 2.39% 2.39% Inflation Periods 7/1194-6130/95 111/96-12/31/96 1/l/96-12/31/96 1/l/97-12/31/97 Claimed + 7/1/95-12/31/95 Table L FCC 1240 Inflation Adjustments Carrboro System,NC-0256 Amm11996 FGC 124 Fib: x.1997 FCC 12411-Firg 1240 Segment True Up Projected True Up Projected Inflation Rate 4.31% 2.96% 2.1901. 2.39% Inflation Periods 7/1/94-6130195 1/31/96-12/31/96 1131/96-12131196 111/97-12/31/97 Claimed + 7/1/95-12131/95 10% Reduction on BST The Social Contract required Time Warner to reduce its BST by 10%during the first year(1996)of the five-year Social Contract with the FCC. But the operator was allowed to recover this lost revenue by increasing its CPSV rates a proportional amount. Time Warner was required to reduce its BST rates by 10°10 only during the first year of the Social Contract,not for any subsequent years. Franchise Related Costs Time Warner M n©t nwhude any franchise related costs in its rate base for either the true up periods or projected periods. Franchise related costs are those expenses the operator incurs in the course of 3CPST(Cable Progrrmming Service Tier)is the FCC term for FCC regulated cable tiers above the BST(Basic Service Tier),which is regulated by franchise authorities. "Tier Service"and "Standard Service"are brand names used by Time Wang Cable,however,both are upper tiers of cable services regulated by the FCC. 13 17 fulfilling requirements of the franchise agreement. Such requirements may include, but are not limited to, Public, Educadon and Government(PEG)access television programming, Local origination(LO) programming,and Institutional Network expenses. Cable System Upgrade Costs Pursuant to the Social Contract,Time Warner is allowed to assess each CPST subscriber in 1997 $2.00 monthly to recover estimated costs associated with a cable system upgrade. This assessment is levied only on the CPST tier and will increase by$1.00 for each of the five years of the Social Contract. Thus, in the second year of the Contract,the operator will collect$2.00 per subscriber each month, $3.00 per subscriber,each month in the third year,etc. By the end of the Social Contract on December 31, 2000, it is estimated that Time Warner will have collected approximately$1,190,276.76 to fund its rebuild of both cable system within Orange County(see the table below for individual annual breakdown). Table M Cable System Upgrade Revenue Collection Projected Precapitalization of System Upgrade 5 Year Social Contract (All three systems included in calculations) Year of Contract Total Subscribers Monthly Chap per Amount To Be Collected with Subscriber 1%Growth Rate 1st year• 1996 6,439 $1.00 $77,268.00 2d year• 1997 6,503 $2.00 $156,081.36 3d year- 1998 6,568 $3.00' $236,463.26 4th year• 1999 6,634 $4.00 $318,437.19 5th year-2000 6,700 $5.00 5402,026.95 5 year UM $1,190,276.76 b&oollected for, Social Contract: Upgrade=W Capital Counnibmuts According to Section 25 of the Time Warner Social Contract,Time Warner is obligated to provide "...an average of 15 new analog channels to benefit CPST subscribers and the initiation of digital distribution technology,which will expand the capacity of Titric Warner to add programming and improve picture quality." Time Warner agrees that at least"-.60%of all capital expended in connection with the upgrade commitment described in the Social Contract will be applied for the 14 18 benefit of BST and CPST subscribers." Also, Time Warner agrees that"...each cable system will have a minimum bandwidth capacity of 550 MHZ,and at least 50%of Time Warner's subscribers will have access to a minimum bandwidth capacity of 750 MHZ. In the 750 MHZ systems,at least 200 MHZ is expected to be used for digital distribution." Section 10 of the Social Contract states that Time Warner must provide each franchise affected by the Social Contract with a"...progress report outlining the amount of capital investments made,the number of subscribers affected by those investments, improvements in system reliability and service, and projected expenditure and upgrades for the following year..."within 90 days following the end of the calendar year during which the Social Contract is in effect. Thus,the County can expect a report prior to March 31, 1997,from Time Warner stating exactly what the company has accomplished during the past year regarding the system upgrade. RATE ADJUSTMENTS FOR EQUIPMENT AND INSTALLATION SERVICES Regional FCC-1205 Form In addition to the rate increases for cable services,Time Warner will also adjust its rates for leased customer equipment and installation services. Pursuant to the Social Contract,Time Warner is allowed to aggregate equipment and installation costs on a regional basis. Time Warner submitted a regional FCC 1205 rate filing directly to the FCC for approval of equipment and installation service rates applicable to multiple franchises across North Carolina(Carrboro included). Though the FCC 1205 filing is not submitted directly to relevant f whise authorities,federal rules explicitly state that it is the franchise authority's responsibility to review the rates to ensure their compliance with FCC rule&°The County's consultants have requested a copy of the FCC 1205 filing submitted to the FCC by Time Warner Cable. See Tables N and O for equipment and installation service adjustments scheduled for January 1997. '"The local franchising authorities will be responsible for reviewing the rates(equipment and installation services)charged to ensure compliance with the rates approved by the Commission. If Time Warner charges rates in excess ofthose permitted by the Commission,the local franchising authority may order a refiind."Para. 37. Time Warner Cable Social Contract. Memorandum Opinion and Order. DA FCC 95-478. Released:November 30, 1995. 15 19 r„ Table N FCC 1205 Equipment and Installation Rate Adjustments- Effective January 1, 1997 Chapel Hill and Durham Systems,NC-0276 Equipment Old Rate New Rate Rate Change Addressable Converter $1.96 $2.10 $0.14 Remote Control $0.24 $0.25 $0.01 Installation-new drop $2I.90 $2228 $0.38 Reconnect existing drop $17.90 $18.10 $0.20 Additional Outlet-initial install $12.53 $12.77 $0.24 Additional Outlet-separate trip $16.27 $16.48 $0.21 Relocate Outlet-separate trip $18.30 $16.48 ($1.82) VCR Hook Up $1 5.70 $13.69. ($2.01) A/B Switch Installation $15.70 $13.69 ($2.O1) Upgrade-truck trip $12.13 $13.69 $1.56 Aerial to Underground $45.76 $46.42 $0.66 Hourly Service Charge $22.28 $23.21 $0.93 16 20 , Table O FCC 1105 Equipment and Installation Rate Adjustments•Effective January 1, 1997 Carrboro System,NC-0256,C Vl/Alert Equipment Old Rate New Rate Rate Change Converter $1.55 51.10 (50.45) Remote Control $0.25 50.25 50.00 Installation-new (Underground) 559.95 522.2$ (537.67) Installation-new (Aerial) 550.00 522.28 (527.72) Reconnect existing drop 520.00 518.10 (51.90) Additional Outlet-initial install $10.00 512.77 52.77 Additional Outlet-separate trip 520.00 516.48 (53.52) Relocate Outlet-separate trip $20.00 $16.48 (53.53) VCR Hook Up $15.70 513.69 (31.01) A/B Switch Installation 515.70 513.69 (52.01) Upgrade-truck trip(Trip Charge) -520.00 $13.69 (5631) Change of Service(front counter) ;16.00 $2.00 (53.00) Hourly Service Charge unavailable $23.21 Na RECOMMENDATION The consultants recoinmend that the maximutn permitted BST rates of$7.88 for Chapel Hill System subscribers, $10.43 for Durban System subscribers,and$8.81 for Carrboro system subscribers,be found reaso mbie,and that the Board find that Time Warner Cable correctly applied FCC rate making rules and procedures in calculating the maximum permitted Basic Service Tier rates. _ Proceeding The franchise and wity(County)must either approve or deny the operator`s BST FCC 1240 rate request,finding the rate to be either reasonable,or not reasonable. This determination must be based upon a finding of fact. The franchise authority should adopt the consultant's report as its own and give the public an opportunity to offer comment on the matter. It is suggested that the public comment period coincide with a regularly scheduled meeting. A rate order is attached To be valid,the order must be executed following the conclusion of 17 21 a. a public meeting where the council/commission/board gives interested parties an opportunity to comment; b. council/commission/board's official receipt of the report; and, C. adoption by the council/commission/board of the report as its own-required by FCC rules(a motion to adopt is necessary). d. upon execution and adoption of the order and report,the County must provide the cable operator with a copy of the rate report and an original,executed rate order. It is appropriate for public comment to be heard,related to the rate request by the cable operator at the time the council/commission/board meets to deliberate upon this matter. A special session is not required It is necessary to call public comment during a regularly scheduled public meeting. The comment period should be publicized by issuing a press release to the print and electronic media, included in the meeting's publicized agenda,and otherwise publicly announced in other ways. 18