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Home My WebLink AboutAgenda - 08-22-1995 - V-C � 1 ORANGE COUNTY BOARD OF COMMISSIONERS Action Agenda Item No. V-L ACTION AGENDA ITEM ABSTRACT Meeting Date: August 22, 1995 SUBJECT: Resolution Adjusting Updating Permitted Cable Rates -------------------------------------------------------------------- DEPARTMENT: County Manager PUBLIC HEARING YES: NO: X -------------------------------------------------------------------- ATTACHMENT(S) : INFORMATION CONTACT: Albert Kittrell Report TELEPHONE NUMBER- Hillsborough -732-8181 Chapel Hill -968-4501 Mebane -227-2031 Durham -688-7331 -------------------------------------------------------------------- PURPOSE: To adopt a resolution/order approving adjustments in permitted rates for Cable TV service. BACKGROUND: In accordance with Federal Communication Commission regulations, cable operators are allowed to update rates for basic service based on external costs, such as copyright licenses, programming costs, inflation and retransmission fees. On May 25, 1995 Time Warner submitted appropriate FCC forms requesting an adjustment to basic rates based on inflationary costs. Time Warner used the Gross National Product Price Index as the basis for the inflationary adjustment. Triangle J Council of Governments Consultants have reviewed Time Warner' s documentation. The consultants findings are included in the attached report and the Resolution/Order Approving Adjustments in Basic Rates. The consultants recommend that the Board approve $.03 cents increase in basic rates for 5,718 subscribers in unincorporated Orange County served by the Chapel Hill Headend, and $.49 cents increase for 32 subscribers in unincorporated Orange County served by Cablevision of Durham. 2 RECOMMENDATION(S) : The Manager recommends adoption of Resolution/ Order Approving Adjustments in Basic Service Rates. 3 City Of 6Raleigh 5Vorth Carolina ORANGE COUNTY, NC-0276 Chanel Hill Headend Subscribers FCC-1210 REVIEW July 26, 1995 REPORT TO: Mr. Albert Kittrell, Assistant Manager, Orange C n FROM: Robert Sepe, Information Access Manager RE: Review of Updating Maximum Permitted Rates filing [FCC-1210], Time Warner Cable, Cablevision of Chapel Hill The consultants have reviewed Time Warner Cable's FCC-1210 filing, supporting documentation furnished by the company and have conducted fact-finding discussions with company representatives. The values stated in the filing are the responsibility of the company's management. Supplied data were reviewed to determine whether the company calculated "updated" rates consistent with the procedures prescribed by the Federal Communications Commission. Original computations were performed by the consultants and compared against those filed by Time Warner Cable. We believe that the data submitted by the company is free of material misstatements and that the accompanying report provides a reasonable basis for our recommendation. OFFICES•110 SOUTH McDOWELL STREET•POST OFFICE BOX 590•RALEIGH,NORTH CAROLINA 27602 Recycled Paper w 4 REPORT Time Warner Cable operates two service areas within Orange County. Orange County proper, with 5,718 subscribers, is served by the Chapel Hill Headend, Cablevision of Chapel Hill. A small segment of subscribers, 32, is served by the Durham Headend, or Cablevision of Durham. This report addresses the Chapel Hill Headend service area. Time Warner seeks to adjust its basic and expanded service tier rates based on external costs experienced in the provision of cable services from the Chapel Hill Headend. Cable operators are allowed to update maximum permitted rates on a quarterly basis for basic tier service, based on external costs, such as copyright licenses, programming costs, inflation and retransmission fees no more frequently than on a quarterly basis using the FCC-1210 form. FCC-1210 Inflationary Adjustments Time Warner and other cable operators were required to lower their rates at least twice since 1993, in accordance with FCC rate reduction rules: the first phase using the FCC-393 method, the second phase using the FCC-1200 Benchmark method. FCC Benchmark calculations at the time did not take into account inflation Transition Rate operators (such as Time Warner)may have incurred during 1993-1994. Thus, Time Warner, utilizing Transition Rate calculation methods, is now allowed to take the full inflation adjustment [5.21%], reduced by the adjustment it took on the FCC-393 form in 1993 combined with the actual rate reduction realized during the FCC-1200 process in 1994. Time Warner used an inflation adjustment figure of 1.0034 for subscribers served by the Chapel Hill Headend. The operator must recover this inflation before August 31, 1995. Increase in Rates Time Warner is seeking several rate adjustments attributed to inflation and programming costs: a. Basic Rates: S.03 cent increase in basic rates due to inflation incurred during 1993- 1994, to $10.15 for basic service. b. Tier H: S.25 cent increase in Tier Two rates; S.24 cents attributable to programming. Time Warner incurred an increase in programming costs from the USA Network, of over S.20 cents,which may be passed on to the subscriber as an external cost, penny-for- penny. Time Warner also realized a small rate decrease from CNBC of about $.001, which was factored into the rate base as well; S.01 was due to inflation incurred during 1993-1994. 1 r 5 c. Tier III: $.03 cent increase in Tier Three rates; $.01 cents attributable to programming, and $.02 cents to inflation. Though it falls outside the County's jurisdiction, it is recommended that the County acknowledge the proposed rate increases to the expanded tier. Regulation of the second tier is accomplished through a complaint-driven process with the FCC, using form FCC-329. A chronology of Time Warner rate filings, along with a rate history for the County, are listed in the tables below. Table A Chronology of Rate Filings Orange County 2.... tr. ... ..I! tr.. ............. .. 0 ..:: 4:::<:..................F .. ............;>:<::::::;:::: .` ............... .. ...` "x.-:ax aeter ::<:: :::: :.:.: :::: . : .:.... . ::::: :: ....... FCC rate freeze 393 filed 1200 filed 1st 1210 filed 2d 1210 filed 3d 1210 filed Table B Comparison of Rates Orange County Basic rates do not include the FCC$.04[cent]regulatory pass through «<:>:.....T e`........... Belc� <`>:>:::>:::>: C ;` d< <«: ........:...:::............. ..................... > .. . . . ::.:.:::.. : >.......... .€ .::::::.>>`>:><........... . .::::.:.::::::::.::.::::::::::::::::.:::::::......:::::.::.::::::::.::.:::::.:::,:::.::::::.:::::::::..::::::.::: ::::::::.:.....:.:::.::::.:::::::: :::.::::::::::::. Basic $12.25 $7.51 $7.86 $7.93 $7.96 Tier Two $3.25 $3.76 $4.03 $4.01 $4.26 Tier Three $4.45 $7.51 $7.88 $8.21 $8.24 The graph on the following page provides a history of rate adjustments for Orange County. 2 6 Cable Rate History Cablevision Chapel Hill - Orange County 14 12- ........... .................. ........ . .......... ....... .......... 6 Legend 4-Z Irler ill 2-Z rJer 11 Basic Ter 0 sep '92 Dec.'93 AuB.'94 Mrch'96 may'95 RIrV Dates with County 7 Subscribers The operator reported 5,718 current subscribers to the basic tier, 5,322 of those also subscribing to Tier][[; and 5,244 subscribed to the Third Tier. The graph below outlines the subscriber count over a three-year period, including the period of time prior to rate regulation. Subscriber Count History Cablevision Chapel Hill-Orange County soon ................ Legend 4000- Ej Tier III Tier 11 3000- Basic Tier 20W- 1000-Z 0- Oct.W Mwch'94 Feb.W may V5 Franchise Related Costs The operator reported no franchise related costs. Such costs typically include Public, Education and Government access programming expenses. 4 8 U.S. Congress Telecommunications Reform In June, the U.S. Senate approved passage of the Pressler telecommunications bill, S.652, which would allow cable and telephone companies to compete with one another. The bill also promises to dismantle cable rate regulation for the upper tiers of cable service and remove regulations for small cable systems - among other measures. But local government regulation of basic cable rates and services is maintained. The House of Representatives' counterpart telecommunications bill, H.R. 1555, also proposes to deregulate upper tiers of cable service. However, it would keep intact basic cable rate and service regulation by local governments. If H.R. 1555 is passed by the House in July, it will go to a conference committee, where it will be combined with the Pressler Bill. Some changes in both bills are expected to take place in this committee before a final bill emerges and is sent onward to the White House for signature. But The President has threatened to veto any telecommunications bill that does not adequately protect cable subscribers. Currently, local regulation of basic rates and services by communities is not threatened by either the Pressler Bill or H.R. 1555. 5 9 RECOMMENDATION The consultants recommend that the County approve the basic service rate adjustments based on external costs presented by Time Warner Cable. PROCEEDING The FCC regulatory rules require the franchise authority to issue an order, based upon a finding of fact, regarding the approval or denial of the cable operator's FCC-1210 submittal. The rules require that the franchise authority adopt this report and the public be granted an opportunity to comment. It is suggested that the public comment period coincide with a regular public meeting. CHRONOLOGY 1) Public Notice: The County will advertise, in local media, the date, time, and location of the public comment period on Time Warner Cable's rate adjustment filing. 2) Written Report: The report must be submitted to the County during a regularly scheduled County Commissioners meeting. 3) Public Comment: The County Commissioners must allow the public an opportunity to comment after the report has been presented by staff. 4) Consider & Adopt Report: The County will be asked to consider and adopt the consultant's report as its own, as stated in FCC rules. 5) Execute Order: After adopting the report, the County should issue an order in three original copies, approving or denying, based upon a finding of fact, Time Warner's FCC-1210 rate filing request. 6) Distribute Order: Provide original executed copies to Time Warner (via Certified U.S. Mail), the consultants, and place an original in the County 's permanent file. Though the public comment period is intended to allow interested parties the opportunity to comment on the cable operator's rate filing, it is not constrained by formal advertising rules which are often associated with municipal zoning issues. 6 10 STATE OF NORTH CAROLINA ORANGE COUNTY BEFORE ORANGE COUNTY IN THE MATTER OF: ) ORDER APPROVING Review of Basic Cable Service Rates ) ADJUSTMENTS IN BASIC FCC-1210 Updating Maximum ) SERVICE RATES BASED Permitted Rates filed by Time Warner ) ON EXTERNAL COSTS Cable, Cablevision of Chapel Hill, for ) FCC-1210 Orange County,NC-0276 ) BY ORANGE COUNTY: WHEREAS, on May 25, 1995, Time Warner Cable, d/b/a Cablevision of Chapel Hill, filed an FCC-1210 Updating Maximum Permitted Rates form for Regulated Cable Services with Orange County. Time Warner's filing covers the first quarter of 1995, but also takes into account inflationary costs incurred during the period of October 1993 through June 1994; WHEREAS, cable operators are allowed to recover inflationary costs during October 1, 1994 through August 31, 1995, based on inflation incurred during October 1, 1993 through June 30, 1994; WHEREAS, on July 26, 1995 the County received a report from its consultants indicating that Time Warner's said filing was in compliance with Federal Communications Commission procedures, allowing for the adjustment of basic cable service rates based on external cost factors; and, WHEREAS, Orange County has authority to regulate basic service rates assessed by Time Warner Cable, Cablevision of Chapel Hill, serving franchise NC-0276, Orange County. IT IS A FINDING: That Time Warner Cable has justified the adjustment of its basic tier service rates based on external cost factors. 11 IT IS THEREFORE ORDERED: That the basic rate assessed subscribers within Orange County, served by Time Warner Cable, Chapel Hill Headend, is approved as follows: Basic Service $7.96 ISSUED BY ORDER OF ORANGE COUNTY This the day of - 1995. ATTEST: CHAIRMAN' Clerk seal Deliver via Certified U.S. Mail to: Time Warner Cable Extra copy to: City of Raleigh 12 City Of Raleigh 5Vorth (3arohna ORANGE COUNTY, NC-0276 Durham Headend Subscribers FCC-1210 REVIEW July 26, 1995 REPORT TO: Mr. Albert Kittrell, Assistant Manager, Orange Cou FROM: Robert Sepe, Information Access Manager RE: Review of Updating Maximum Permitted Rates filing [FCC-1210], Time Warner Cable, Cablevision of Durham The consultants have reviewed Time Warner Cable's FCC-1210 filing, supporting documentation furnished by the company and have conducted fact-finding discussions with company representatives. The values stated in the filing are the responsibility of the company's management. Supplied data were reviewed to determine whether the company calculated "updated" rates consistent with the procedures prescribed by the Federal Communications Commission. Original computations were performed by the consultants and compared against those filed by Time Warner Cable. We believe that the data submitted by the company is free of material misstatements and that the accompanying report provides a reasonable basis for our recommendation. OFFICES•110 SOUTH McDOWELL STREET•POST OFFICE BOX 590•RALEIGH,NORTH CAROLINA 27602 Recycled Paper 13 REPORT Time Warner Cable has two separate service areas within Orange County. Orange County proper, with 5,718 subscribers, is served by the Chapel Hill Headend, Cablevision of Chapel Hill. A small segment of subscribers, 32, is served by the Durham Headend, or Cablevision of Durham. This report addresses the Durham Headend service area. Time Warner seeks to adjust its basic and expanded service tier rates based on external costs experienced in the provision of cable services from the Durham Headend. Cable operators are allowed to update maximum permitted rates on a quarterly basis for basic tier service, based on external costs, such as copyright licenses, programming costs, inflation and retransmission fees no more frequently than on a quarterly basis using the FCC-1210 form. FCC-1210 Inflationary Adjustments Time Warner and other cable operators were required to lower their rates at least twice since 1993, in accordance with FCC rate reduction rules: the first phase using the FCC-393 method, the second phase using the FCC-1200 Benchmark method. FCC Benchmark calculations at the time did not take into account inflation Transition Rate operators (such as Time Warner) may have incurred during 1993-1994. Thus, Time Warner, utilizing Transition Rate calculation methods, is now allowed to take the full inflation adjustment [5.21%], reduced by the adjustment it took on the FCC-393 form in 1993 combined with the actual rate reduction realized during the FCC-1200 process in 1994. Time Warner used an inflation adjustment figure of 1.0521 for subscribers served by the Durham Headend. The operator must recover this inflation before August 31, 1995. Increase in Rates Time Warner is seeking several rate adjustments attributed to inflation and programming costs: a. Basic Rates: S.49 cent increase in basic rates due to inflation incurred during 1993- 1994, to $10.15 for basic service. b. Tier H: S.67 cent increase in Tier Two rates; S.25 attributable to programming. Time Warner incurred an increase in programming costs from the USA Network, of over$.20 cents,which may be passed on to the subscriber as an external cost, penny-for-penny. Time Warner also realized a small rate decrease from CNBC of about S.001,which was factored into the rate base as well; S.42 was due to inflation incurred during 1993-1994. 1 14 Though it falls outside the County's jurisdiction, it is recommended that the County acknowledge the proposed rate increases to the expanded tier. Regulation of the second tier is accomplished through a complaint-driven process with the FCC, using form FCC-329. A chronology of Time Warner rate filings, along with a rate history for the County, are listed in the tables below. Table A Chronology of Rate Filings Orange County ......... ............................. ............. .................. ......... ................. .............................. ...... ....... ..... 194 ....... ..... . ....... 'W V . ....... ...... .. . ... . ... ..... . . . .. .......X ......... =Wc .......... ............. 393 1200 filed 1st 1210 filed Red 3d 1210 filed ..... ......... E FCC rate freeze filed 2d 1210 f Table B- Comparison of Rates Orange County Basic rates do not include the FCC$.04[cent]regulatory pass through ........ ........................................ ...... ... ................... .................. ............ 9............ to ...... ........... . .. ....... Wawa: ................... ................ . ... . ..... ..... ....... .......... . :.......::y: 1.... ...... .......... ........ ... ............ ........... .............................. Basic $12.50 $10.39 $9.64 $9.66 $10.15 Tier Two $7.45 i $11.49 i $10.65 i $11.15 $11.82 The graph on the following page provides a history of rate adjustments for Orange County. 2 i 15 Cable Rate History Cablevision of Durham - Orange County 14 12- 10 L 8 6 4 2 Tier II y Basic Tier 0 Sept.'92 Dec.'93 Aug.'94 Mrch'95 May V5 Fling Dates with County 3 16 Subscribers The operator reported 32 current subscribers to the basic tier, and all 32 of subscribing to Tier II as well. The graph below outlines the subscriber count over a three-year period, including the period of time prior to rate regulation. Subscriber Count History Cablevision of Durham-Orange County IZ ................. .................. .................. .................. .. .............. 35 30 25 Legend Tier if Basic Tier 15 10 5 0 ssp V2 March S4 Feb'W May'95 Franchise Related Costs The operator reported no franchise related costs. Such costs typically include Public, Education and Government access programming expenses. 4 17 U.S. Congress Telecommunications Reform In June, the U.S. Senate approved passage of the Pressler telecommunications bill, S.652, which would allow cable and telephone companies to compete with one another. The bill also promises to dismantle cable rate regulation for the upper tiers of cable service and remove regulations for small cable systems - among other measures. But local government regulation of bask cable rates and services is maintained. The House of Representatives' counterpart telecommunications bill, H.R. 1555, also proposes to deregulate upper tiers of cable service. However, it would keep intact basic cable rate and service regulation by local governments. If H.R. 1555 is passed by the House in July, it will go to a conference committee, where it will be combined with the Pressler Bill. Some changes in both bills are expected to take place in this committee before a final bill emerges and is sent onward to the White House for signature. But The President has threatened to veto any telecommunications bill that does not adequately protect cable subscribers. Currently, local regulation of basic rates and services by communities is not threatened by either the Pressler Bill or H.R. 1555. 5 t 18 RECOMMENDATION The consultants recommend that the County approve the basic service rate adjustments based on external costs presented by Time Warner Cable. PROCEEDING The FCC regulatory rules require the franchise authority to issue an order, based upon a finding of fact, regarding the approval or denial of the cable operator's FCC-1210 submittal. The rules require that the franchise authority adopt this report and the public be granted an opportunity to comment. It is suggested that the public comment period coincide with a regular public meeting. CHRONOLOGY 1) Public Notice: The County will advertise, in local media, the date, time, and location of the public comment period on Time Warner Cable's rate adjustment filing. 2) Written Report: The report must be submitted to the County during a regularly scheduled County Commissioners meeting. 3) Public Comment: The County Commissioners must allow the public an opportunity to comment after the report has been presented by staff. 4) Consider & Adopt Report: The County will be asked to consider and adopt the consultant's report as its own, as stated in FCC rules. 5) Execute Order: After adopting the report, the County should issue an order in three original copies, approving or denying, based upon a finding of fact, Time Warner's FCC-1210 rate filing request. 6) Distribute Order: Provide original executed copies to Time Warner (via Certified U.S. Mail), the consultants, and place an original in the County 's permanent file. Though the public comment period is intended to allow interested parties the opportunity to comment on the cable operator's rate filing, it is not constrained by formal advertising rules which are often associated with municipal zoning issues. 6 Y 19 STATE OF NORTH CAROLINA ORANGE COUNTY BEFORE ORANGE COUNTY IN THE MATTER OF: ) ORDER APPROVING Review of Basic Cable Service Rates ) ADJUSTMENTS IN BASIC FCC-1210 Updating Maximum ) SERVICE RATES BASED Permitted Rates filed by Time Warner ) ON EXTERNAL COSTS Cable, Cablevision of Durham, for ) FCC-1210 Orange County,NC-0276 ) BY ORANGE COUNTY: WHEREAS, on May 25, 1995, Time Warner Cable, d/b/a Cablevision of Durham, filed an FCC-1210 Updating Maximum Permitted Rates form for Regulated Cable Services with Orange County. Time Warner's filing covers the first quarter of 1995, but also takes into account inflationary costs incurred during the period of October 1993 through June 1994; WHEREAS, cable operators are allowed to recover inflationary costs during October 1, 1994 through August 31, 1995, based on inflation incurred during October 1, 1993 through June 30, 1994; WHEREAS, on July 26, 1995 the County received a report from its consultants indicating that Time Warner's said filing was in compliance with Federal Communications Commission procedures, allowing for the adjustment of basic cable service rates based on external cost factors; and, WHEREAS, Orange County has authority to regulate basic service rates assessed by Time Warner Cable, Cablevision of Durham, serving franchise NC-0276, Orange County. IT IS A FINDING: That Time Warner Cable has justified the adjustment of its basic tier service rates based on external cost factors. 20 j IT IS THEREFORE ORDERED: That the basic rate assessed subscribers within Orange County, served by Time Warner Cable, Durham Headend, is approved as follows.: Basic Service $10.15 ISSUED BY ORDER OF ORANGE COUNTY This the day of , 1995. ATTEST: CHAIRMAN: Clerk seal Deliver via Certified U.S. Mail to: Time Warner Cable Extra copy to: City of Raleigh