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HomeMy WebLinkAboutORD 2005-003 ORDINANCE NO. 2005-03 � ' AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS ESTABLISHING THE EQUIPMENT AND INSTALLATION RATES CHARGED BY COMCAST CABLE COMMUNICATIONS, INC., PROVIDING A SEVERABILITY CLAUSE; DECLARING AN EMERGENCY AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City of Grapevine, Texas franchises cable television service for the benefit of its citizens; and WHEREAS, the City is the grantor of a franchise ordinance by and befinreen the City of Grapevine and Comcast Cable Communications, Inc. ("ComcasY'); and WHEREAS, in accordance with applicable provisions of the Telecommunications Act of 1996 (herein the "Telecom Act") and rules adopted by the Federat Communications Commission ("FCC") and all other applicable federal and state law and regulations, the City has undertaken all appropriate procedural steps to regulate the equipment and installation rates; and � � WHEREAS, in accordance with applicable FCC regulations, the City adopted an �..:.� ordinance providing for the regulation of rates charged by cable television operators within the City for the equipment and installation rates and related equipment and installation charges and providing for a reasonable opportunity for interested parties to express their views concerning basic cable regulations. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS: Section 1. That all of the above premises are found to be true and correct and are incorporated into the body of this ordinance as if copied in their entirety. Section 2. Findings: 1. On or about March 1, 2004, the City received Comcast's FCC form 1205 filing. 2. The City engaged the service of C2 Consulting Services, Inc. to provide assistance in the review of Comcast's FCC form 1205 to determine the reasonableness of the proposed equipment and installation rates. C2 , , Consulting's report is attached hereto as Exhibit "A", and incorporated herein in its entirety. v�,.a� 3. Based upon the information received from Comcast and information from C2 Consulting Services, Inc., the City concludes the rates proposed by Comcast are not reasonable and the rates in Section 3 are found reasonable. Section 3. Conclusions: The following rates are found reasonable: Hourly Service Charge $31.97 Install-Unwired Home (aerial within 125 feet) $47.47 Install-Prewired Home (Aerial within 125 feet) $28.54 Install Additional Outlet-connect outlet $15.59 Install Additional Outlet-connect separate $23.00 Other Install-relocate outlet $21.45 Upgrade/Downgrade $1.99 Other install-downgrade (non-addressable) $14.14 Other install-upgrade (non-addressable) $15.56 Connect VCR-connect initial $7.99 Connect VCR-connect separate $14.63 Customer Trouble Calls $21.15 Field Collection $0.00 Remote Control-all units $0.32 Converter Box (Basic Service Only) $1.20 Converter Box (all others excluding HD) $4.73 �Y. � Digital HDTV Converter $6.68 Section 4. Orders for Action: Based on the foregoing Findings and Conclusions, the City hereby enters the following orders: 1. �omcast is hereby ordered to implement the foregoing rates in Section 3 effective June 1, 2004. Section 5. The City understands that Comcast has requested the rates on a nationally aggregated basis. In the event that there are Form 1205 rates that are determined by other franchising authorities to be lower than ordered by the City of Grapevine, and such decisions are upheld by the FCC as being reasonable and justified, Comcast shall charge those same lower rate in Grapevine. Section 6. If any section, article, paragraph, sentence, clause, phrase, or word in this ordinance, or application thereto any person or circumstance is held invalid or unconstitutional by a court of competent jurisdiction, such holding shall not affect the ,�,.� validity of the remaining portions of this ordinance; and the City Council hereby declares it would have passed such remaining portions of the ordinance in spite of such invalidity, �,:� which remaining portions shall remain in full force and effect. ORD. NO. 2005-03 2 � Section 7. The fact that the present ordinances and regulations of the City of �� � Grapevine, Texas are inadequate to properly safeguard the health, safety, morals, peace and general welfare of the public creates an emergency which requires that this ordinance become effective from and after the date of its passage, and it is accordingly so ordained. PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS on this the 18th day of January, 2005. APPROVED: William D. Tate Mayor ATTEST: �., , ` Lin a Huff City Secretary APPROVED AS TO FORM: - .....� � a.�'Y�L' ..eN�� 6:'"a, t': �:..�„ 7�,/ �. � � John F. Boyle, Jr. . City Attorney ����� �-:,� ORD. NO. 2005-03 3 • a . , y 2 Ot�SULTING SER�IiCE�, INGEXHIBIT "A" TO ORD� NO. 2005-03 Page 1 of 8 7601 Pencross �972) 726-7216 DaJlas, Texas 752�iti (972) 726-021 Z (fax) May 20, 2004 Ms. Mirenda McQuagge-�Valden Ms. Patricia Royal Nicks Communications Manager Cable Services Manager City of Bedford City of Irvin� 2000 Forest Ridge Drive 233 South Rogers Road Bedford,Texas 76021 Irving,Texas 75060 Ms. Jennifer Fund Ms. Shelli Siemer Finance Director Assistant City Manager City of McKinney City of Allen 222 N.Tennessee 30� Century Plaza McKinney,Texas 75069 Allen,Texas 75013 Mr. Steve Williams Ms. Lynda Humble Director of Budget and Research Assistant City Manager Town of Flower Mound City of DeSoto 2121 Cross Timbers Road 211 E.Pleasant Run Road Flower Mound, Texas 75028 DeSoto,Texas 7�115 Ms.Jennifer Hibbs Nir.James Kunke Assistant to the City Manager City of Lewisville City of Grapevine 1197`V.Main Street ' PO Box 95104 PO Box 299002 Grapevine,Texas 76099 Le�visville,Texas 7�029 Ms. Dianne Mc`Vethy Assistant City Manager City of Colleyville 1001�1ain Street � � Colleytizlle,Texas 76034 Dear City Representatives: C2 Consulting Ser�-ices, Inc. ("C2") provides this preliminary repart conceming review of the FCC Fornl 1205 submitted to the Cities by their respecti�-e Comcast Cable aftiliate (collectively termed"Comcast"or the "Company") on or about March 1, 200=�. Contained herein is a summary of the findings and reconunendations. This stud}' does not constitute an cxamination of thc financial cundition of Comcast or its pnrent C011l�llly. Therefore, C2 cannot and does not express any pusitiun �vith rc�ard to thc accuracy or _ , �•;�lidity of the financial information provid�d by Comcast durin�the course of the analyses. ��.::� City Rcprescntalivcs � M��y 20, 2004 EXHIBIT "A" TO ORD. NO. 2005-03 pab� 2 Page 2 of 8 ovrRVi�w or Ttir ri�t�vc In its 2004 Form 1205 filing,Comcast proposes thc followinb major changcs: • Sibnificant increase in the I[ourly Scrvice Charge ("HSC") from the current char�e of$28.49 to a Marimum Permitted IZate of$35.17 • Resultinb si�;nificlnt increases in unwired and pre-wired installation of 19% and 12%,respectively • Additional outlet at initial time from installation to increase by approxin�ately 23°/a • Additional outlet at separate time from installation to increase by approximately 15% • Non-addressable downgrade of service to increase by approximately 41% • Connect VCR to increase by 24%to 46% • Customer trouble call charge to increase by approximately 37% • Added charge for Field Collection of$23.23 • Monthly Basic Only converter charge to decrease by approximately 35% • Monthly Non-Basic Only converter charge and remote charge to increase by only $0.03 • Separate HDTV converter charge of$833 per month The above increases are based on a comparison of Comcast's 2003 Operator Selected Rates ("OSR") and the Maximum Permitted Rates ("MPR")proposed in this filing.� Unlike the filing in 2003 which included only the former AT&T Broadband systems, Comcast has filed a combined Form 1205 for all of its owned and operated systems. The filing is based on the fiscal year 2003 data for the entire Company. 4 As with prior AT&T Broadband filings, the Company has used a statistical study to sample 20 � systems of various size to determine the following component of the Form 1205: • Annual customer equipment and installation costs excluding leased equipment • Annual hours devoted to equipment basket activities • Annual hours devoted to leased equipment storage,maintenance and repair • Time requirements for individual equipment basket activities Essentially the same procedures were followed in the instant filing as �vere used by AT&T Broadband in its prior filings with the exceptions noted belo�v. SiJNIMARY OF FINDINGS Based on a review of each of the sample "area" system Form 120� computations, the computations of equipment and installation charges incurred at the system and corporate levels, and Comcast responses to requests for information, C2 h�s identified the follo��-ing issues: • Inappropriate inclusion of costs not previously unbundled durin; the Form 1200 process for the Citics - Property Taxes � In the past,AT�CT Broadband has filed Operator Selected Rates�vith its filin�. Comcast has not inctuded any OSRs and has stated tliat it will not do so until 30 days prior to rate implemcntation. Thcrefore the , „ con�parisons can only be under the assumption that Comcast will impleme�it th�MSR fi•om this filin�. Cily Rcprescntativcs EXHIBIT "A" TO ORD. NO. 2005-03 � May 20, 2004 j,�b� 3 Page 3 of 8 - [nsurancc - Utilities • Inappropriate inclusion of commissions that are not clearly received only for the sale or scrvicc of basic service • lnappropriate computation of converter repair hours for one of thc 20 samplc systems • Inappropriate computation of basic only converter rates • Inappropriate inclusion of excessive inventory for HDTV converters • Inappropriate inclusion of a Field Collection Charge • Potentia] inappropriate rate for"Additional Digital Outlets." 1. Inclusion of Costs Not Previously Unbundled C2 noted that there are three categories of costs included on Schedule B in the instant filing that have never been included in any of the Form 1205s filed with the Cities: Utilities, Property Taxes, and Insurance. This issue becomes important in that if costs were not included during the "unbundling"process with the Form 1200,then it�vould be inappropriate to include such costs in subsequent Form 1205 filings. Based of the methodology used for unbundling, placing costs in the equipment basket necessarily lowered the costs that were in the calculation of the monthly service charge for basic service. Without prior unbundling from the computation of the monthly service rates, inclusion in the computation of the equipment basket rates �vould now provide Comcast with a "double recovery" of the costs; once from the monthly service charge, and again from the installation and equipment rates. The issue is further compounded by the fact that Comcast provided information that demonstrated that it had included these costs in prior Form 1 ZOS filings with Comcast only systems. However, it did not provide information that it had actually "unbundled" these costs in the Form 1200 process, nor did it provide information that would override the fact that, in the case of the Cities, these costs have never been "unbundled."'` Therefore, even if Comcast could show that its • Comcast-only systems did not have such costs included in the monthly service rates, there would - still be a double recovery in the case of the Cities, �vhere "unbundling" did not occur by the former system operator. The FCC was clear on this issue in its 1999 Ntema-andun� Opitcion a�cd Order in DA 99-2227. In that decision the Conunissions found: . . . Nothing in the statutes or the Commission's rules, however, suggests that cost ag�egation is permitted so that operators can recorer the same costs through both pro�rammin; and equipment rates. . .We reco�nize, as TCI argues, that the mix of systems �vhose costs are aggregated in making equipmznt rates at the company level may ''Cunuast respond�d to a request for infornlation concernin,this issue with the follo�vin�statcmcnt: "Tlte Form 1205 rates as proposed do not include any costs already included in pro�rammin�;ratcs," It is C2's opinion that diis statement is inaccurate given that Comcast c:►nnut sho�v tl�at these costs were unbundled in thc casc of the Cities. Cily Itcrrescnlalivcs ' M<<y 20, 2004 EXHIBIT "A" TO ORD. NO. 2005-03 Pabc 4 Page 4 of 8 includc systcros that did unbundlc thc costs disputcd hcrc as wcll as systcros that did not. 'I'Cf arbucs that addressing thc unbundlinb issuc now woulcl bc administratively burdcnsomc. Chanbing accounting practiccs whcn changing lo company-wide cost � a�;grc�;ation neccssarily involvcs somc burdcn, but this docs not rclicvc an operator of cithcr thc rcquircmcnt in thc statutc and thc Commission's rulcs that ratcs b� bascd on the company's actual cost expericncc. . . MACC was nc�t unrcascmabfc; in concluding that costs thc operator previously chose to leave embeddcd in pro�;rammin�; servi�c rates in the communities bcfore us and continues to recover in those rates should not ve recovered at the same time through equipmcnt rates in those communities.3 To avoid such a double recovery, C2 recommends that these costs be excluded in the 20 system computations in order to determine the Annual Customer Maintenance and Installation Costs found on Step A, Line 5. The impact of excluding these costs reduces Comcast's proposed Hourly Service Charge by approximately$2.00 per hour. 2. Inclusion of Commissions for Technical ,Installation,Dispatch, and Common Staff Upon inspection of the supporting documentation provided by Comcast with respect to labor costs, C2 noted that the amount of labor expense allocated to the equipment basket includes commissions for technical, installation, dispatch, and warehouse staff. Based on the FCC instructions, cable operators should identify the total labor expense and then allocate a portion of such expense based on installation and repair activities related to receiving the basic service. C2 requested that the Company provide a commission structure for each of the selected staff categories. Comcast provided the following response: • The commission structure for different types of employees varies by system. However, an employee would receive commissions on basic, digital and premium products. The general types of commissions for dispatchers and CSRs are, but are not limited to, new sales, upgrades, special products and sales of basic, digital and premium products. The general types of commissions for technicians and installers are, but are not limited to, new sales,upb ades, special products and sales of basic, digital and premium products 4 First, the Company did not provide any information that �vould allow for allocating to the equipment basket only those commissions related to basic service. Secondly, the Company ' confirmed that included �vithin the commissions etipense are costs that clearly should not be � allocated to the equipment basket. In C2's opinion, these commissions should not be included in that they are given as a result of staff being able to "sell" other levels of service in addition to basic service. The equipment basket is only to be related to the basic service and not other tiers or individual probrammin�. The impact of excluding these costs is to reduce Comcast's proposed Hourly Service Charge by approaimately $1.00 per hour 3 TCI Cablcvisiait of Oregott, I�tc. hlentv�'rurdu��i Opirrivn aiicl Orcl�r. D:\99-2227, r�lcasccl October 21, 1999. Paragraphs 7-S. , ° l:esponsc to Rl�t l2Ui-57 (1=armcrs I3ranch, rccci�'rd on or abuut.�\pril 3,200-1. Ci�y Itcprescntativcs EXHIBIT "A" TO ORD. NO. 2005-03 � May 20, 2004 r�abc 5 Page 5 of 8 ° 3. Convcrtcr Rcpair Itours , C2 has noted in prior filings that AT&T Broadband dcvclopcd its contract I�►bor hours by dividins thc tc�tal contract labor costs for rcpair and maintcnancc by thc avcrabc llourly ratc to rcpair such cquipmcnt. Bascd on this mcthodoloby, if thcrc existcd no hourly ratc for ccrtain typcs of cquipmcnt in thc systcm includcd in the avera�inb calculation, the hours may not bc correcYly computcd. 5 Comcast has continued with the samc methodology. However, the only sioniticant error produced by this methodology is in the New England East sample system. Comcast's proposed hours based on the expense would indicate an hourly contractor rate of approximntely $124.00. This is well in excess of any other system. C2 recommends that at a minimum, the hours be doubled for this system for purposes of determining contract labor hours. Additionally, as stated in prior reports, the Company should only compute the hours based on the equipment that is actually repaired by contractors and not based on a ratio of equipment never requiring outside assistance. The impact of this adjustment is de minimus in this case. 4. Calculation of Basic Only Converter Rates There are several issues with respect to Comcast's proposed�1.30 monthly charge for Basic Only converters. To begin with, in the instant filing, Comcast has computed its Basic Only converter rate by allocating approximately 6% of what it has purported to be standard(non-addressable) converter costs. The 6% is based on the number of standard converter boxes as a percentage of total standard and addressable converter boxes. This is a major change from the methodology used by AT&T Broadband and Comcast in last year's filing�vith the Cities. In those prior cases, the standard converter percentage was based on the number of basic only subscribers as a percentage of the total number of standard converters.6 Second, the Company has included a category of costs that the data does not clearly support as standard converters. The supporting documentation pro�-ided by the Company includes approximately $26.5 million of"Non-Addressable Converters" and approximately $32.7 million of"Converter Other." However, there are only 335,153 standard boxes reported. If these are the total number of boxes that relate to both of these accounts, then the average purchase price of a standard box is $177.00. Clearly this is not the case. In a follo�v up request for information, the Company reported that, in fact, the "Converter Other" costs ���ere capitalized labor costs for initializing digital converters.�Therefore, it is clear from the e�zdence that the `'Converter Other" should not be included in the Basic Only catego 'ry,but rather should be included in the Non-Basic Only converter category. ` See Form 120� analysis and report dated 2001. °For example,in the 2003 Ponn 120i t`ilinb, thc percentage of standsrd com•erter costs allocated to basic only was �6.G"o. The assumption is that all basic only subscribers ha��e a standard com��rter(lowest level ' . of tcchnolo;,�)'and cost)and any ren�aining standard convcrtcrs costs are to hc rccovcrcd by non-basic only subscribers. ,�,�,,� �P.espunse to RFI 4-2, rcceivcd on or about May 18, 200�1 City Itcrrescntativcs EXHIBIT "A" TO ORD. NO. 2005-03 i May 2O, 2O04 [�abc G Page 6 of 8 Givcn thc various issucs as dcscribcd, it is CZ's opinion that thc Basic Only convcrtcr charbc be computcd usinb only thc "Non-Addressablc Convcrtcrs" allocatcd on thc basis of total Uasic only � , subscribcrs to total non-addressablc convcrter boxes in service. Thc impact of this adjustment, alon� with thc recommcnded adjustmcnts to thc Ilourly Scrvice C:harge is to decreasc the E3asic Only converter rate From $1.3U to $t.20 and redurc the Non- Basic Only converter rate from$4.83 to $4.73. 5. HDTV Convcrtcr Invcntory With respect to all of the equipment included on Schedule C of the Form 1205, the Company was asked to provide supporting documentation from this books demonstrating the gross book and accumulated depreciation balances for each account.8 Within the documentation, all other accounts were reported based on the line item termed "Comcast Cable Operations." The HDT'V converter account includes "Comcast Cable Operations" and "Cable Division Headquarters." The additional $32.7 million Cermed as"Cable Division Headquarters" raises several issues. First, based on Comcast's response to RFI 1205-33, the additional $32.7 million is all inventory that had not been shipped out to system operations. This response suggests not only that there are no in-service units connected with these costs,but also that Comcast response to RFI 1205-52, in which the Company states that there are no common assets included in this filing, is inaccurate. The issue surrounding the appropriateness of including the additional $32.7 million in HDTV converter inventory is whether by doing so, the Company will over-recovery its original cost of these assets. It is C2's understanding that the purchase of these assets was at the end of the fiscal year 2003. The HDTV service �vas launched by the Company at about the same time period. Therefore, one would assume that with the onset of the service availability, there �vould be a demand for the converters. That being the possibility, the end of year inventory could well be in service as of the writing of this report. If the Cities allow the costs of the "inventory" and do not reflect the likely subsequent in-service of the converters, Comcast�vill over-recovery its costs. Comcast pro��ided follow-up information concernin� this and other HDTV inventory.9 The total reported HDTV inventory as of 12/31/04 �vas at a minimum 150,=�37. Based on the reported in service number of 293,125, this inventory equates to 34%. In C2's opinion, such an inventory is excessive and should not be allowed in setting the HDTV con��erter rates. The impact of this adjustment reduces Comcast's proposed HDTV converter rate from$8.33 to $6.68. 6. Proposed "Field Collection Charge" In the instant tiling, Comcast is proposing to use the HSC to char�e for activities related to "Field Collection." This isstie was reviewed by cities served by TGI in the 1997 filings and it �vas concluded that such a charge was inappropriate. And it�vas considered inappropriate on the same basis as the unbundlin� issue discussed abore ���ith respect to certain Schedule B costs. Therefore, estaUlishing a separate rate for these acti�•ities now �vould result in a double recovery. C2 also notes that this char�;e has not been included in any of the prior r�te schtdules adoptcd by the x Sce response tu FPI Form 120�-20A, recci��ed on or about April�, ?OU-1. `'The in��e�iror��provided�vitli respect to the indi��idual systents is tuldecstated as Coiilcast clid not have U1tOf11l:lI1011 011 Rlai�y of its systcm. I Iowever, die im�entory�hat«�a�reportrd for [[DT\'convcrtcrs�vas fx,, ,,, SU,9i7. City Rcprescntativcs EXHIBIT "A" TO ORD: NO. 2005-03 � May 20, 2004 �,ab� � Page 7 of 8 - Citics. C2 rccommcnds that the Cities consider disallowinb a scparatc chargc for "field collcction." � 7. Aclditional Di�;ital Outict Ctiargc In October 2003, the Company proposcd an "Additional Di�ital Outict" charbc of $5.95 per month. C2 requested that the Company justify this charbe. Comcast took the position that the charge was unregulated, and therefore, no justification was required. C2 recommended that the charge be $0.0 for additional digital outlets, and the Cities adopted this position. The issue is on appeal with the FCC, but no stay of the Cities' rate ordinances has been issues. Therefore, at this time, the only rate that can be charged for "Additional Digital Outlets" is $0.00 In the event that Comcast proposes an "Additional Digital Outlet" charge for the new rate period, C2 recommends that the Cities disallow such charge without justification from Comcast. ' SUNIMARY OF RECOMMEDATIONS Based on the above findings and conclusions, the Cities should consider taking the following actions: 1. Establish an Hourly Service Charge of$31.97 to be used in the development of the installation and equipment rates for the period June 2004 through May 2005. 2. Adopt maximum permitted installation and equipment rates as shown on . Attachment A. 3. Develop a rate ordinance for review by the City Council only after the Company provides the OSR in accordance with any effective tolling order and set the effective date accordingly.10 4. C2 appreciates having this opportunity to �vork with the Cities in review of the Form 1205 rates. . If you have any questions regarding this report or need clarifications as to the recommendations, please contact N1s. Connie Cannady at(972) 726-7216. Very truly yours, C2 Consultin�Services, Inc. 10 For the Cities of DeSoto,Bedford, Colleyville,Grape��ine,McICinney,and Flo�ver 1�[uund: To the extent that the OSR inform�tion is received subsequent to No��embcr 1, 200-1, dic et�tecti�•r datz should be '"""" ch�nged from Deeember 1, 200-t to allow for a tl�icty(30) day period from dt�timc the OSR is received (dn�s satisfyin,die tollinb ordcr)and thc effective date of thc rates.Tl�c Cities of Lewis��illc, Allen,und rt���, In'ins will ha�•e a►t effective date af June l,2Q0�4. � S � Litiil�it A 2004 FORM 1205 FILING EQUIPMENT AND INSTALLATION MAXIMUM PERMITTED RATES Proposed Time Comcast Comcast C2 Estimated C2 Estimated lnstallation Activities Req. in Hours HSC Proposed MPR HSC MPR Houcly Service Charge $35.17 $31.97 Unwired installation 1.4849 $52.23 $47.47 P�ewired tnstallation 0.8926 $31.40 $28.54 ' Additional Connection at Time of Installation 0.4876 $17.15 $15.59 Additional Connection Requiring Separate Trip 0.7195 $25.31 $23.00 Move Outlet 0.6711 $23.60 $21.45 Upgrade/dow�grade N/A $1.99 $1.99 Do�mgrade-non-addressable 0.4422 $15.55 $14.14 Upgrade-non-addressable 0.4867 $17.12 $15.56 Connect VCR at Time of Installation 0.2498 $8.79 $7.99 Connect VCR Requiring Separate Trip 0.4577 $16.10 $14.63 Customer Trouble Calls 0.6615 $23.27 $21.15 Field CoHection Charge 0.6615 $23.27 $0.00 Equipment Lease Rates m X Remotes � $0.33 $0.33 = Basic-Only Converters $1.30 $1.20 � � Non-Basic Only Converters $4.83 $4.73 D HDN Converters $8.33 $6.68 - Additiona!Digital Outlet Does not Consider Regulated $0.00 � O O � � Z � O � . � N � O 0o O O � �' O ° 00 W