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Home My WebLink AboutIR 7880 fi INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7880 cN"aT�q�o 4� rw To the Mayor and Members of the City Council December 6, 1994 rEXts Subject: Sammoms of Fort Worth Cable Rate Study Results _ 1879 Background: The City of Fort Worth awarded Sammons of Fort Worth a non-exclusive cable franchise in 1981 after an extensive process in which requests for proposals were solicited. Several small cable services serving limited areas of the city have been granted franchises since. Under 1981 rules, the city had regulatory oversight of the cable franchise, including rate regulation. The Cable Act of 1984 passed by the U.S. Congress took away cities'rights to regulate cable rates. Because of complaints from around the nation about increasing cable rates, Congress in 1992 passed new legislation that gave cities and the Federal Communications Commissions (FCC) limited cable rate regulations powers. In effect, Congress said cities could elect to regulate the rates of the most basic cable service and equipment rental charges. The FCC would regulate expanded cable service, but not premium offering such as HBO. Following the 1992 Congressional action, the FCC spent months devising rules to implement the new rate regulation process. The thrust of the FCC rules is: Individual cities would be required to choose in 1993 whether or not to regulate basic cable rates. To elect to regulate meant a city had regulatory powers into the future, even though current local cable rates may be acceptable. Cities which elected not to regulate local basic cable rates, relinquished regulation rights. The City of Fort Worth in September 1993 elected to seek FCC certification to regulate basic cable rates to insure that Fort Worth residents were paying cable rates within the allowable FCC rate formula. DISCUSSION: Upon certification by the FCC as local regulator in October 1993, the City notified Sammons Cable Services of its certification and passage of an ordinance encompassing the FCC guidelines. Once the City was certified, FCC regulations gave both the City and Sammons specific deadlines for submitting information. The City requested that Sammons file FCC Form 393--a form that provides the City with the appropriate financial data to evaluate rates--within 30 days in order for Council to set maximum initial cable rates in Fort Worth. In the meantime, Sammons re-tired and set cable rates effective September 1, 1993, as allowed by the FCC. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS NO. 7880 ep,RTEp December 6, 1994 To the Mayor and Members of the City Council Page 2 of 5 ex Subject: Sammoms of Fort Worth Cable Rate Study Results The rates set by Sammons in September 1993 and which were in effect through July 15, 1994 were as follows: Basic Service $10.74 *Tier Service 8.42 Remote Control .50 Addressable Converter 2.50 Hourly Service Charge 75.00 Changing Tiers-No Service Call 2.00 *The Tier Service rates are regulated by the FCC. The rate show is based on the same rate per channel as basic service. All rates a subject to the City program fee and state and city sales tax. Satellite services are unregulated and cable operators may "pass" through charges mandated by the FCC. The City, in a consortium of 11 other cities served by Sammons in Tarrant County, contracted with the R.W. Beck and Associates, rate consultant experts with extensive background in cable rate matters, to review the necessary financial documents from Sammons to determine if the basic cable rates were reasonable. Beck has simultaneously conducted rate reviews in the other 10 cities. (See Beck Report that is attached.) The 1992 Cable Act set a formula to determine "benchmark cable rates." The FCC said benchmark rates reflected the amount of money a cable company could charge for a service in a local system, based on a FCC formula. Beck and Associates used the FCC formula to determine the benchmark and to compare Sammons rates at the time. On June 6, 1994, the City was notified by Sammons that the company elected to utilize a 60-day deferral in submitting the necessary documents and to use the bench mark rates procedure rather than the more complicated cost of service method of setting rates. A new Form 1200 and accompanying new process was introduced by the FCC that took effect in July 1994. It requires the City to study the cable rates since July 1994 under guidelines set out in the Form 1200 process. Study of Sammons rates under the new rules is not complete. In August 1994, final rate documentation for Form 393 and the Form 1200 information was received and the City's consultant began the review process to recommend the maximum initial cable rates to the City Council. ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS ...................... INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7880 ]December 6, 1994 To the Mayor and Members of the City Council Page 3 of 5 41 XA Subject: Sauamoms of Fort Worth Cable Rate Study Results 7873 Under FCC rules and deadlines, the City of Fort Worth must decide no later than December 13, 1994 whether the rates charged by Sammons during the period September 1993 to July 1994 were reasonable and, if not, the city must set the maximum initial rates that are allowable under the formula. After review of all necessary information provided by Sammons and applying the benchmark rate formula set by the FCC, Beck found that the maximum initial permitted Sammons rates, including the 5 percent franchise fee, are: Basic Service $10.86 *Tier Service 8.24 Remote Control .36 Addressable Converter 1.46 Hourly Service Charge 22.74 Changing Tiers-No Service Call 2.09 Based on Beck's finding Sammons'monthly rates for basic service and equipment should be, as computed using the FCC formula as follows: *Basic month,;rate of$10.70 is low by 11 cents. *Equipment rates for remote control units is too high by 14 cents per month. *Converter rates are-too high by $1.04 per month. *The hourly service charge rates are too high by $48.51 an hour. *And charging for changing which,tier of service a customer wants without a service call is too low by 9 cents. The tier rate--cable service beyond the basic level--is in excess by 18 cents. Rates for this tier service is regulated by the FCC, not the City. As a total, the consultants findings are the monthly bill to Sammons customers exceeds the maximum allowable, when applying the FCC's benchmark rate formula. While the City cannot accurately compute the refund for each individual customer, staff estimates that the 59,459 Sammons subscribers made overpayments of approximately $955,788 for basic service and equipment charges over the 10 1/2 month period from September 1993 to July 1994. These are services and rates regulated by the City. Based on Beck's analysis, the overpayment by Fort Worth subscribers for cable service beyond basic service--the FCC regulated service--is $112,377. The City will take appropriate steps to notify the FCC of its finding regarding rates charged for higher service level and it will urge the FCC to order a refund to subscribers. ISSUED BY THE CITY MANAGER- FORT WORTH,TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7880 GNpPTER,O December 6, 1994 r7? To the Mayor and Members of the City Council Pa e 4 of 5 ' *ba .b. f�xa6 Subject: Sammoms of Fort Worth Cable Rate Study Results ra» Based on the Beck analysis, the estimated total overpayment by subscribers for the 10 1/2 month period is $1,068,165. To comply with the FCC rules, the City must take two actions no later than December 13: 1. Set the maximum allowable initial rates. 2. Notify Sammons that a refund to cable subscribers must be made because the maximum initial rates adopted by the City are lower than those charged by Sammons between September 1993 through July 1994. City staff has met with Sammons and reviewed the Beck findings. Sammons officials have indicated they disagree with the findings. If the City sets the maximum initial rates as recommended by Beck, Sammons indicates it will exercised its appeals rights to the FCC. In the event Sammons appeals, the maximum initial rates ordered by the City and any refund will be delayed until a ruling is made by FCC. Currently, appeals of rate settings by other cities are under FCC consideration for six months before a ruling is made. To insure cable subscribers who are on the system currently receive a refund in the event a appeal is undertake, the FCC has created a mechanism known as an "accounting order." The accounting order requires Sammons to keep track of subscribers so that an appropriate refund can be issued, if an appeal is resolved in the subscribers' favor. If a rollback of rates is ordered, FCC rules prescribe a method by which Sammons must notify subscribers 30 days prior to the refund and it allows the cable company to determine how it will make the refund. Any rate rollback also will result in overpayment by Sammons to the City of its franchise payment for the September 1993 through July 1994 period. Based on staff estimates, the Sammons overpayment to the City for the 10 1/2 month period is $53,408.25. The City's preference for repayment is to credit the overpayment toward future franchise fee payments by Sammons. By establishing maximum initial cable rates, as permitted in the Cable Act of 1992, the City Council also is establishing its right to review and approve any future Sammons increases in basic cable rates for service and equipment. ISSUED BY THE CITY MANAGER - FORT WORTH, TEXAS i x t INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7880 Aaaeq� of coq, To the Mayor and Members of the City Council l)ec�ember�+ 1884 Page 5 of 5 uS s r X Subject: Sammoms of Fort Worth Cable Rate Study Results CONCLUSION Based on the R.W Beck and Associates analysis of Sammons cable rates for September 1993 through July 1994 and compared to the allowable FCC benchmark rates, staff"will present City Council an M&C on December 13, 1994 recommending new maximum allowable cable rates as outline above, authorizing the City Manger to notify Sammons that a refund must be made because the maximum initial rates are lower than Sammons rates for that period and a resolution putting in place an accounting order that requires Sammons to track customers who are entitled to a refund, should Sammons appeal to. the FCC and delay refunds. Bob Terrell City Manager Attachments ISSUED BY THE CITY MANAGER — FORT WORTH,TEXAS— --