HomeMy WebLinkAboutAgenda - 06-07-2005-5hhORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: June 7, 2005
Action Agenda
Item No. 5 - hl-,_
SUBJECT: Approve Modification in 2005 Rate Order Resolution for Cable Services to
Extend Time Period for Response on 1235
DEPARTMENT: PUBLIC HEARING: (Y/N) No
ATTACHMENT(S):
TWC Request
Bob Sepe Briefing Paper re: 1235 Filing
Revised Rate Order Resolution
(with strikeovers to reflect changes
made)
INFORMATION CONTACT:
Gwen Harvey, Assistant County
Manager, Ext 2307
TELEPHONE NUMBERS:
Hillsborough
Chapel Hill
Durham
Mebane
732-8181
968-4501
688-7331
336-227-2031
PURPOSE: To approve modification in the 200.5 rate order resolution adopted on May 3 to
provide additional time for Time Warner Cable to respond on the contested issue of Form 1235
filing.
BACKGROUND: On May 3, the BOCC adopted a resolution with the findings of fact presented
by Bob Sepe, Action Audits, LLC, that supported rate charges proposed by Time Warner Cable
for Basic Tier Service, but challenged the "add-on" rate for system upgrades in the Farm 1235
filing. The resolution provided that Time Warner Cable would have 30 days from the date of
adoption to respond with a revised 1235 form "that properly calculates the current add-on rate
using FCC cost of service Hiles",
Time Warner Cable has requested that the BOCG grant an additional 90 days in which to
prepare their respond to this concern, A copy of their request is attached, Also attached is a
report recently prepared by Bob Sepe and provided as an update to all TJCOG cable
consortium members who have also adopted resolutions denying the 1235 and requesting
further information from the cable company,
The attached resolution reflects the modification as requested by Time Warner Cable,
Staff has reviewed the request and modification with Bob Sepe and he indicated he had no
objection to the extension.
FINANCIAL IMPACT: There is no financial impact to the County in the approval of the
proposed modification to the original rate resolution.
RECOMMENDATION(S): The Manager recommends that the Board approve the extension of
time allowable for Time Warner Cable to respond to the requirements in the May 3, 2005 rate
order resolution regarding the 1235 rate filing from 30 days to a total of120 days.
Gwen Harvey -rate order request Page 1
From: "Phillips, Brad" <brad.phillips@twcable.com>
To: "Gwen Harvey" <gharvey@co,orange nc.us>
Date: 5/24/2005 4:51:41 PM
Subject: rate order request
Gwen, TWC is asking the County to extend the period to file an appeal of
the rate order dated May 3, 2005 for 90 days, The deadline for filing
an appeal is presently June 2. Doing so may save both the County and
TWC the expense of an appeal that already is being litigated through
appeals of identical orders that other NC communities adopted earlier in
the year. Hopefully, that litigation will be decided before an appeal
of the Orange county order is needed. Filing an appeal is time
sensitive for us and your prompt reply is appreciated.
Best regards,
Brad Phillips
Vice President
Government and Public Affairs
Time Warner Cable-Raleigh Division
101 Innovation Ave. Ste. 100
Morrisville,NC 27560
919-573-7040
919-573-7049 fax
Brad Phillips
Vice President
Government and Public Affairs
Time Warner Cable-Raleigh Division
101 Innovation Ave. Ste. 100
Morrisville,NC 27560
919-573-7040
I Gwen Harvey -The 1235 story... I was asked to summarize my findings _ _ Page 1
t__._ __-___ _.. _ _
~ './
From: "Robert F. Sepe" <rsepe@narccom>
To: Charlie Horne <charlie horne@ncmail,net>, Lowell Siler <Isiler@co.durham,nc,us>,
Chuck Kitchen <ckitchen@co.durham.naus>, Joe Durham <joe durham@co.wake.nc.us>, Tommy
Marrow <tmarrow@oxfordnc.org>, Tanya Weary <tanyas@oxfordnc.org>, Corinthia Barber
<cbarber@co.orange.naus>, Gwen Harvey <gharvey@co.orange nc.us>, Alice Freeman
<afreeman@wilsonnc org>, Grant Goings <ggoings@wilsonnc.org>, Mike Wilson
<mike.wilson@apexna,org>, Steven Stewart <sstewart@townofcarrboro org>, Richard White
<nvhite@townofcarrboro.org>, Steve Biggs <stevebiggs@townofclaytonnc.org>, Andy Hedrick
<ahedrick@fuquay-varina.org>, Mary Lou Todd <mltodd@ci.garner.naus>, Eric Peterson
<eric peterson@hillsboroughnc.org>, Carl Dean <Carl.dean@hollyspringsne.us>, Gary McConkey
<gary.mcconkey@ci knightdale.nc us>, John Whitson <jwhitson@ci.morrisville.nc,us>, Bo Singleton
<rps@ci morrisville naus>, David Hughes <dhughes@nc,rr.com>, Pete Connet <ptconnet@aol com>,
Mark Williams <mark.williams@ci wake-forest.nc.us>, Tim Burgess <tburgess@townofwendell.com>,
Richard Hardin <rhardin@ci.zebulon.naus>, Renee Boyette <rboyette@tjcog.org>, David Permar
<dhpermar@hatchlittlebunn com>, Lisa Markland <Imarkland@ci.zebulon.nc.us>, John Bjurman
<john.bjurman@durhamnc gov>, Ted Voorhees <Theodore.Voorhees@durhamnc.gov>, Kevin
Whiteheart <kwhiteheart@ci.lumberton.nc.us>, "jody.moore" <jody.moore@ncmail net>, Marilyn Collins
<marilyn Collins@ncmail net>
Date: 5/25/2005 5:49:06 PM
Subject: The 1235 story.. I was asked to summarize my findings
I was asked to summarize my findings for the National Association of
Telecommunication officers and Advisors. This is what I wrote..
May 20, 2005
About 18 months ago, I suspected there were previously undetected
accounting irregularities in the way cable operators filed the FCC form
1245.
My issues were... and still are ,.. that the form 1235 is NOT a one time
filing and must be updated periodically.
The cost-of-service rules prohibit the subsidization of unregulated
services by the regulated rate payers. With this in mind, I evaluated
the 'allocated portion' of the total upgrade cost to the regulated
service tier when the form was first filed against the current
allocation. Surprise, surprise. Back in 1999-2000 the allocation was
based on 750 MHz systems, So, if 20 BST channels at 6 MHz each occupy
t 20 MHz of total spectrum or 16% of the system bandwidth, then 16% of
the total cost is attributable and directly recoverable from the
regulated BST service, Fast forward to today„ that same upgraded
system is currently operating at 860 MHz or 1000 MHz which means that
13% or 12% of the upgrade cost is recoverable from the regulated service
customer. From a price regulation perspective, the 1235 network upgrade
recovery fee should be adjusted to reflect the new reality or the
difference constitutes a subsidy. To ignore this reality is in direct
contravention with the cost-of-service rules.
Next, I began to probe the underlying financial assumptions behind the
form 1235 network upgrade recovery fee calculation with various cable
operators and you would have though I turned over a bee hive.
I pressed Time Warner for a public accounting of the Social Contract
upgrade revenues and the form 1235 network upgrade recovery revenues..
Gwen Harvey -The 1235 story... I was asked to summarize my findings Page 2
After TW opined that they were under NO obligation to supply this
information, 20+ NC communities issued a Rate Order which denied TW's
ability to collect the 1235 upgrade fee and ordered the production of
the financial accounting related to the network upgrade.
Meanwhile, I began performing some calculations of my own and determined
that TW had over recovered (2x, 3x and 4x times) their original upgrade
investment. TW continued to say that they were following the rate rules.
One NC community engaged their Congressman and his office convened a
meeting between TW, the city and myself. It was during this meeting,
pursuant to direct questioning, and in a complete moment of candor, that
a TW spokes person admitted that TW simply kept the Social Contract
upgrade revenues, and did not apply the revenue against the cost of the
total upgrade, but instead treated the Social Contract upgrade revenues
as 'profit.' The room became silent and the Congressman asked, given
this information, what course of action did the City wish to pursue?
The City replied that it wanted TW to apply the Social Contract revenues
to the total network upgrade cost and recalculate the 1235 recovery
fee.. TW's chief spokes person, Gary Matz, declined to perform any such
adjustment,
The misapplication of the Social Contract revenues by TW represents an
unjust enrichment to the Company of -$1.4 billion.
So now the questions
1 Is this the source of the money TW is using to purchase
Adelphia? or pay dividends to shareholders?
2 Assuming the TW/Adelphia transaction is completed and a new
company is formed (as planned), what responsibility will the new entity
have for returning the Social Contract revenues to its customers? (I
believe NONE is the correct response,)
3 With knowledge of the AOL accounting 'irregularities' and the
network upgrade accounting 'irregularities,' what LFA could in good
conscience would transfer an Adelphia franchise to TW knowing that TW
knowingly misapplied revenues and has hoodwinked its customers into
paying 2x, 3x or 4x times for the 'network upgrade'.
Where do we go from here? Certainly, the magnitude of this indiscretion
constitutes awake-up' call to Congress, which must become involved in
re-regulating the cable industry. Alternatively, the Justice Department
can break up the cable companies into separate signal transportation and
content providers, much like AT&T was dissolved into regional local
companies and a single long distance company 25 years ago,
bob
PS. I do not believe this phenomenon is isolated to Time Warner Cable
alone.
Robert F.Sepe
Action Audits, LLC
Gwen Harvey -The 1235 story.. I was asked to summarize my findings Page 3
~/
101 Pocono Lane
Cary, NC 27513
919-467-5392 v
919-460-6868 fax
919-417-5019 mobile
This message, together with any attachments, is intended only for the
addressee. It may contain information that is privileged, confidential
and exempt from disclosure. If you are not the intended recipient, you
are hereby notified that any disclosure, copying, distribution, use, or
any action or reliance on this communication is strictly prohibited. If
you have received this a-mail in error, please notify Robert Sepe
immediately by telephone (919-467-5392) or by e-mail and delete this
message and any attachments.
ORANGE COUNTY NORTFI CAROLINA
Note: This docmnent was scanned from the original hard cony in order to show the modification
beins made.
Accepting the Rates Contained in the FCC Form 1240 and Form 1205 Filed by Time Warner Cable for
2005 and Rejecting the Form 1235 Rate Requested by Time Warner Cable Because the Form FCC1235
"Add-on" Rate No Longer Complies with the FCC's Cost of Service Rate Rules and Ordering That a
Revised Form 1235 and Financial Upgrade Cost Recovery Summary Statement Be Presented to Orange
County within 30-days from the Date of This Rate Order. Further, Orange County Adopts the Report
Prepared by Action Audits, LLC., as its Awn.
WHEREAS, Orange County, Narth Carolina ("County") has initiated the regulation of rates and charges
for the provision of basic service, equipment and installation of cable televisien pursuant to the Cable Television
Consumer Protection and Competition Act of 1992;
WHEREAS, the County is certified by the FCC to regulate basic service tier rates and permitted to
regulate rates for basic cable service, equipment and installation;
WHEREAS, Time Warner Cable is a duly franchised cable operator for the County and whose rates for
basic service, equipment and installation are regulated by the County;
WHEREAS, on September 30,2004 the County received the following forms: 1240, 1235; and 1205 from
Time Warner Cable;
WHEREAS, the County has received and carefully considered a report from Action Audits, LLC
(hereinafter referred to as "Report") which reviewed the forms 1240, 1235, and 1205;
WHEREAS, the Report states that the form 1240 sets the regulated rate for the Basic Service Tier;
WHEREAS, the Report states that the form 1240 rate calculations properly calculate inflation,
programming, copyright fees;
WHEREAS, the form 1235 sets the regulated rate for the Monthly Network Upgrade Add-on charge;
WHEREAS, the Report states that continued reliance on the initial form 1235 rate calculation to properly
recover upgrade costs is no longer valid;
WHEREAS, the Report states that the form 1205 properly sets the regulated rate for Installation and
Equipment rates;
WHEREAS, after appropriate public notice, a public hearing was held for the purpose of allowing the
public and interested parties to comment on the rates;
WHEREAS, Time Warner Cable was given the opportunity to provide written and oral comments to the
County with respect to the rates and the draft form of this Rate Order; and
WHEREAS, the County has carefully considered the materials, forms and statements submitted by Time
Warner Cable.
Now, Therefore, Orange Connty, North Carolina Makes the Following Findings of Fact and Conc usions
of Law with Respect to the Proposed Rate to be Charged Time Warner Cable Customers:
The County incorporates by reference all of the preamble set forth above;
The County has reviewed the Report and incorporates by reference the Report, which is attached
hereto;
The County finds that Time Warner Cable's Maximum Permitted Rate for Basic Tier Service ($10.26 for
NC-0276a, $13.61 for NC-0276b, and$11.30 for NC-0256) as set forth in the form 1240 does comply with the
FCC's rate regulations;
The County finds that the initial "Add-on" Rate for Basic Tier Service contained in the form1235 does not
comply with the FCC's Abbreviated Cost-of-Service Rules for system upgrades. Said rules require the on "rate of
$1.81 forNC-0276a, $2.11 far NC-0276b, and $1.45 forNC-0256. Going forward, the FCC's Cost of Service rules
require the operator to ensure that regulated service subscribers do not pay for unregulated service costs, and
that the Company does not over recover the cast of its upgrade, by periodically recalculating its "Add-on" rate to
accommodate such changes as the proportion of regulated bandwidth, the current customer count and capital
cost recovery reductions attributed to accumulated depreciation;
The continued reliance on the form 1235 rate approved 5-years earlier does not comply with the FCC's
Abbreviated Cost of Service Rules for system upgrades capital investment recovery; and
The County finds that the Installation and Equipment rates set forth in the form 1205 comply with the
FCC's rate regulations.
Now, Therefore, Be it Ordered by Orange County, North Carolina, That:
Time Warner Cable's Maximum Permitted Rate for Basic Tier Service rate contained in the form
FCC1240 does comply with the FCC's rate regulations and is hereby accepted;
Time Warner Cable is permitted to implement its form 1240 ($10.26 for NC-0276a, $13.61 for NC- 0276b,
and $11,30 for NC-0256) rate beginning January 1, 2005;
Time Warner Cable's form 1235 $1.81 for NC-0276a, $2.11 far NC-0276b, and $1.45 for NC-0256 "Add-
on" rate no longer complies with the FCC's Cost of Service rules and is rejected;
Time Warner Cable is not permitted nor authorized to recover its form1235 $1..81 forNC-0276a, $2.11 for
NC-0276b, and $1.45 for NC-0256 "Add-on" rate beginning January 1, 2005;
The County adapts the Report as its own;
Time Warner Cable's Installation and Equipment rates contained in the form 1205 comply with the FCC's
rate regulations and are accepted;
The County reserves its rights to review and consider any new information and issue a revised Rate
Order based on that evidence;
This Rate Order will be effective immediately and provided to Time Warner Cable via US Certified Mail;
and
A copy of this Rate Order shall be released to the public.
Read, Adopted and Approved by Orange County this the Day of _
via Certified U.S. Mail to: Paul Baccellieri, VP Finance@TimeWarnerCable 101 hmovation A V„ Suite 100,
MolTisville, NC
27560.
File copy to: Robert F.. Sepe, Action Audits, LLC @ 101 Pocono Lane, Carr, NC 27513