HomeMy WebLinkAboutAGENDA REPORT 1993 0908 CC SPC ITEM 08KIT EM �, .
Agenda Report
City of Moorpark MOORPAW. CALIFCRNIA
City Council Meetng Q
of 7 - S 199 3
TO: Honorable City Council ACTION:
FROM: Richard Hare, Deputy City Manager -' >/
DATE: August 24, 1993 (CC. Mtg. 9/8/9Sj By U
SUBJECT: Consider Resolution No. 93 -, to Authoriz C' y
Regulation of the Rates Charged for the Basic Tier of
Cable Television Service.
Background
The City has granted two franchises. The first with Ventura
County Cablevision and the second with Mountain Meadows Cable
Television, ( "cable operators ") to provide cable television
service to subscribers within the City.
On and after September 1, 1993, pursuant to recent regulations of
the Federal Communication Commission ( "FCC ") and the federal
Cable Television Consumer Protection and Competition Act of 1992,
the City has the legal authority to regulate rates the cable
operator charges for basic tier cable television service. Basic
tier rate regulation by the City is optional and is not required.
If the City elects to regulate, upon certification by the FCC,
the City may review the cable operators' schedules of rates
charged to subscribers for the basic tier of cable television
service. If such rates are higher than the FCC's benchmark rate,
the City may order a rate reduction to the FCC benchmark rate, or
10 percent whichever results in a smaller reduction in rates.
The attached June 11, 1993 letter from the City Attorney's office
provides more detail on this process. The dates included in the
letter have been amended twice since its writing. The definition
of "basic tier" remains the same. The basic tier includes all of
the broadcast signals (other than the satellite "super
stations "), that the cable operator distributes, as well as any
public, educational and government access channels that are
required by the City's franchise with the cable operator.
Fiscal Impact
There is a fiscal impact to initiating and administering rate
regulation. The City may incur administrative expenses in
becoming certified by the FCC and in conducting the review of the
cable operators' basic tier cable television rates. The amount
of administrative expense incurred by the City will vary
depending on the extent with which the cable operator challenges
the City's regulation of its rates.
Honorable City Council
August 24, 1993
Page 2
The administrative expense will be funded through the franchise
fee collected annually from the cable operators' (5 percent and 3
percent of the cable operators' gross revenues respectively).
Recommendation
Staff recommends that the
(1) Approve Resolution No
of the rates charged for t
service; and (2) Authorize
initiate rate regulation,
FCC certification.
Attachments:
City Council approve the following:
. 93-17(0'K, to authorize City regulation
he basic tier of cable television
staff to do all that is necessary to
including without limitation, obtaining
Letter dated June 11, 1993 from Burke, Williams & Sorensen
explaining the City's authority to regulate basic tier cable
television rates and the proposed Resolution regarding the same.
Resolution No. 93"17",.
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LAW OFFICES
BunKE, WILLIAMS & SORENSFN
3200 BRISTOL STREET
VENTURA COUNTY OFFICE SUIIE t 40
2310 PONDEROSA 'DRIVE COSTA MESA. CALIFORNIA 92626
SUITE I
CAMARILLO, CALIFORNIA 93010 71a1 >4 � 5SFi9
(8 05) 987 -3468 FACSIMILF 1714) r55
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IFLECOPIER (805) 482-9834
June 11, 1993
Richard Hare, Deputy City Manager
CITY OF MOORPARK
799 Moorpark Avenue
Moorpark, CA 93021
L f} V
RECEIVED
i u � 15 03
City Uf MOO( Pi.
LOS ANGELES OFFICE
611 WEST SIXTH STREET. SUITE 2500
LOS ANGELES. CALIFORNIA 90017
(2131 236 -0600
TFLECOPIER (213) ?362700
Re: Certification Process to Enable City Regulation of
Basic Tier Cable Television Rates
Dear Richard:
Last October 5, 1992, pursuant to a veto override, Congress
approved the Cable Television Consumer Protection and Competition
Act of 1992 (the 111992 Cable Act "). We have previously provided
you with a general overview of the 1992 Cable Act.
Perhaps the most significant aspect of the 1992 Cable Act
from both a municipal and consumer perspective is that it
directed the Federal Communications Commission ( "FCC ") to adopt
regulations for cities to regulate cable rates. On May 21, 1993,
the FCC published its Report and Order adopting rules for rate
regulation ( "Report and Order "). These rules are codified at 47
CFR Part 76.
Pursuant to this Report and Order, if the City wishes to
regulate basic tier cable rates,-/ the first step is obtaining
FCC certification. To obtain certification , on or after June
21, 1993, the City may deliver the enclosed FCC Form 328 (Exhibit
1) to its cable operator and the FCC.
1% The basic tier includes all of the broadcast signals (other than
satellite "super- stations ") that the cable operator distributes, as well as
any public, educational and governmental access channels that are required by
the City's franchise with the cable operator. The operator may include
additional channels within its basic tier, at its sole discretion. Equipment
used in part or in whole for the provision of basic tier service (i.e.,
converter boxes) is also subject to local regulation. The FCC has regulatory
authority over all other tiers of cable programming services, excluding pay -
per -view or pay - per - channel services (discussed further on page 6 herein).
59409.3
June 11, 1993
Page 2
There is no deadline after June 21, 1993 within which the
City must request FCC certification. If the City does not want
to regulate basic tier rates, and does not request FCC
certification, such rates will not be regulated independent of
the City by the FCC.
According to the 1992 Cable Act, and the Report and Order,
in order for the City to file a Form 328:
1. The City must adopt regulations consistent with the
basic tier regulations prescribed by the FCC;
2. The City must certify that it has the legal authority
to adopt and the personnel to administer the
regulations; and
3. The City regulations must provide a reasonable
opportunity for consideration of the views of
interested parties.
To this end, we have prepared the attached Resolution
(Exhibit 2) and Agenda Report (Exhibit 3). It demonstrates that
the City will comply with the above requirements of the 1992
Cable Act and the Report and Order and directs the City Clerk to
file the Form 328 with the FCC and the cable operator.
Form 328 must be submitted to the FCC and the cable operator
and we recommend delivering it by Registered Mail, Return Receipt
Requested.
The certification will become effective 30 days after the
date stamped on the postal return receipt unless otherwise
notified by the FCC by that date. The cable operator may
challenge certification within the above 30 day time period. If
such challenge is based on an argument that the cable operator is
subject to "effective competition" within the city's franchise
area, the FCC must grant the cable operator an automatic stay of
rate regulation until the challenge is resolved. Otherwise, the
operator challenge will not stay City certification. Note that
the city may presume that the cable system is not subject to
effective competition for purposes of completing FCC Form 328,
unless it has actual knowledge to the contrary. -Z/
V With respect to this certification component, a City has the authority
to regulate rates for any cable system not operating subject to effective
(continued...)
52408.3
June 11, 1993
Page 3
METHOD FOR BASIC TIER RATE REGULATION
As you may know, the FCC instituted a rate freeze on April
5, 1993 which expires on or about August 3, 1993. Some cable
operators are "re- tiering" in an effort to comply with the new
rate regulations. Such re- tiering is acceptable and does not
violate the rate freeze if the average subscriber charge for all
tiers does not increase.
The City may initiate basic tier rate regulation at any time
after it is certified. To initiate regulation, the City sends
written notice of its FCC certification to the cable operator and
requests the cable operator to provide the City with its schedule
of rates for the basic service tier. The cable operator must
submit such a schedule within 30 days of the City's request, most
likely using FCC Form 3933/. A sample letter providing such
notice is attached hereto as Exhibit 4. The operator should
supply the City with the necessary rate information to enable the
City to determine the reasonableness of the cable operator's
existing rates in comparison with the FCC's benchmark rates.
The City has 30 days from the date of the cable operator's
submission of its schedule of basic tier rates to determine the
reasonableness of such rates. This deadline may be extended by
90 days if additional information is required of the cable
operator or comments are needed from interested parties and may
be extended by 150 days if the cable operator has submitted
"cost -of- service" evidence to justify its rates.
? /(...continued)
competition. "Effective competition" means:
(a) Fewer than 308 of the households in the franchise area
subscribe to the cable service of a cable system; or
(b) The franchise area is --
(i) served by at least two unaffiliated cable operators or
video programmers each of which offers comparable
video programming to at least 508 of the households in
the franchise area; and
(ii) the number of households subscribing to programming
services offered by the smaller cable operator or
video programmer exceeds 158 of the households in the
franchise area; or
(c) A city -owned cable system serves at least 508 of the
households in that franchise area.
3/ As of the date of this letter, FCC Form 393 has not been approved for
circulation to the public.
59408.3
June 11, 1993
Page 4
The cable operator has the burden of proof that its existing
rates for basic service are within the FCC's benchmark rates.
The cable operator may submit additional "cost -of- service"
evidence to justify its rates.!/
WHEN SHOULD THE CITY INITITATE RATE REGULATION?
To obtain maximum advantage of the City's new regulatory
authority, the City should obtain FCC certification and notify
the cable operator of such certification on or before the rate
freeze expires (on or about August 3, 1993). Thus, the City
should request FCC certification no later than Friday July 2,
1993 and send written notice of such certification on or before
Tuesday August 3, 1993
The reason for the above timetable is to prevent a cable
operator notifying subscribers of a rate increase after the rate
freeze expires but before the City initiates rate regulation.
APPLICATION OF FCC BENCHMARK
RATE COMPARISON
The FCC has established a method for calculating a single,
per - channel benchmark that will apply to all tiers of programming
service the operator offers in the franchise area. Pay -per-
channel and pay - per -view services, however, are exempt from all
regulatory oversight. The benchmark is based on a nationwide
survey of cable television rates as of September 30, 1992. The
benchmark is intended to represent the rate that an operator
would charge in a competitive environment.
The Report and Order includes a series of worksheets to
determine if rates need to be reduced, and by how much. First,
the operator determines whether its current rates, adjusted
forward for inflation from the September 30, 1992 benchmark date,
exceed the benchmark. If not, the rate is presumed to be
reasonable and the permitted rates shall be set as the amount of
the operator's current rates.5/
4/ The FCC will set standards for cost -of- service evidence in a future
regulation. We will apprise you when this regulation is announced. If rate
regulation commences, and a cost -of- service showing is presented by the cable
operator, before the FCC announces this regulation, please let us know.
5/ The "current" rates are the rates charged by the cable operator to
subscribers on the date the City sends written notice of its FCC certification
to the operator.
58408.3
June 11, 1993
Page 5
If the operator's current rates are above the September 30,
1992 benchmark rate, as adjusted forward for inflation, then the
City looks to the rates charged by the operator on September 30,
1992. If the operator's September 30 rates are below the
benchmark, the maximum rate the operator can charge is the
benchmark rate. If the September 30 rates are above the
benchmark, rates will be reduced by an additional 10 percent,
down to (but not below) the benchmark.
While the initial benchmarks used for purposes of comparison
include charges for equipment and installation, the actual rates
an operator charges for programming services on its bill often do
not include such charges. The FCC includes worksheets for
determining costs of equipment and backing those out of the
benchmark rates. Equipment and installation charges must be
unbundled and offered individually on the basis of cost,
including a reasonable profit. The FCC will allow (at least
initially) an 11.25 percent profit on equipment. Operators may
make a cost -of- service showing to justify higher rates.
After the initial rate determination has been made, any rate
increases will be limited to the GNP Price Index.
An operator may automatically "pass through" certain cost
increases that exceed inflation and add them to the maximum rate
the operator may charge. Franchise fees, public, educational and
governmental access channel requirements, taxes imposed on the
provision of cable service, retransmission consent fees (after
October 6, 1994), and other programming costs are all treated as
external costs that an operator may pass through. These pass -
throughs are authorized after the City is certified or 180 days
after the FCC rules take effect (on or about December 20, 1993),
whichever occurs first. These pass - throughs may materially
impact rates.
The FCC will hear all appeals of City rate determination.
Even if litigation is commenced against the City arising out of
the City's rate regulation, the City is immune from damages under
the 1992 Cable Act.
OTHER TIERS OF CABLE PROGRAMMING SERVICE
Any subscriber or the City may submit the enclosed Form 329
(Exhibit 5) to the FCC in order to challenge rates charged
subscribers for tiers of cable programming service other than the
basic tier (i.e., satellite superstations) excluding pay - per -view
59408 3
June 11, 1993
Page 6
and pay -per- channel services. Local regulation of these rates is
prohibited, but the City may initiate a complaint with the FCC.
With respect to rates existing as of June 21, 1993, the Form must
be submitted to the FCC by December 20, 1993.
If a rate increase occurs after the expiration of the rate
freeze (on or about August 3, 1993), the cabld operator must
provide subscribers with 30 days notice of such increase.
Thereafter, a subscriber or the City has 45 days from the date of
receipt of such notice by a subscriber to challenge a rate
increase. In effect, a subscriber or the City has 75 days from
the point of notification of a rate increase within which to file
a complaint with the FCC.
To regulate these rates, the FCC will rely on the cable
operator's Form 393 which it submitted to the City pursuant to
basic tier rate regulation_
The FCC indicates that rate increases by the cable operator
may be performed only once per year.
CONCLUSION
If you have any questions on the foregoing, or the enclosed
forms and suggested resolution, please feel free to contact me at
the above telephone number or Paul Anderson in our Los Angeles
office at (213) 236 -2736.
cc: Cheryl J. Kane, City Attorney
Paul C. Anderson, Esq.
-59408 3
sincerely,
SCOTT F. FIELD
Of BURKE, WILLIAMS & SORENSEN