HomeMy WebLinkAboutItem 10 - Paragon Cable ReviewTEM 0 110 -
MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: ROGER NELSON, CITY MANAGER
MEETING DATE: MARCH 28, 2000
SUBJECT: PARAGON CABLE RATE REVIEW
RECOMMENDATION:
City Council consider the approval of rate order ordinances to reject the Paragon Cable
rates proposed by Federal Communications Commission (FCC) Form 1235 and FCC
Form 1240 and to order new maximum permitted rates.
FUNDING SOURCE:
The rate order does not have a financial impact. The city will continue to collect revenue
according to our franchise agreement of 5% of gross receipts.
BACKGROUND:
The City of Grapevine retains regulatory authority only over the basic service tier rate
and equipment rental and installation charges. The City of Grapevine received notice
of Paragon Cable's FCC rate filing in September 1999. Since this is the first year that
Paragon Cable has filed a rate increase outside the auspice of the "Social Contract"
agreement, Staff felt a review of their proposal was appropriate. The Social Contract
was an agreement the FCC and Time Warner entered into in 1995; the agreement
allowed Time Warner to recover the costs associated with their nation-wide system
upgrade.
The charge for the basic service tier in 1999 was $9.06, which includes channels 0-22.
In their recent filing, Paragon proposed a rate increase under FCC Form 1240 of .40¢,
and proposed a rate increase under FCC Form 1235 of $1.45. Those proposed
increases have brought the basic service tier cost up to $10.91, an increase of $1.85.
The rate increases were implemented on January 1" in accordance with FCC rules.
However, the increases to the basic tier are not justified according to our consultant.
Connie Canady, C2 Consulting, Inc., was hired to provide an analysis of FCC Forms
1235 and 1240 related to Paragon's rates for the year 2000. Ms. Canady also reviewed
March 23, 2000 (9:47AM)
has been delayed until next month. The consultant's report on the 1235 and 1240 is
included for your review. The Staff recommends the following course of action based on
the report:
a) The City Council deny Paragon Cable the rate increase filed in FCC Form
1240.
(Paragon requested a .400 increase for total basic tier charge of $ 9.46)
b) The City Council reject the rate increase filed in FCC Form 1235 filing.1
(Paragon requested an additional $1.45 increase that would bring the
basic tier charge to $10.91)
c) Order a maximum permitted rate for basic service tier of $9.36 and order the
refund of overcharges to customers since January 1" as outlined in the
attached ordinances.
While working with C2 Consulting Services, Inc., the Staff also communicated with the
other cities which are serviced by Paragon Cable. Ms. Canady also reviewed the FCC
forms filed in Irving and Coppell. Staff representatives from the neighboring cities will be
forwarding similar recommendations to their respective boards and councils based on
the C2 Consulting Services, Inc.'s reports.
Staff recommends approval of both of the ordinances. The Utilities Committee and the
City Attorney have been briefed on the rate order and support the approval of the
ordinances.
1 Representatives from the Cities of Coppell, Grapevine, Irving and Lewisville asked Paragon Cable to
withdraw their filing of FCC Form 1235. The cities' argument is based on the fact that Time Warner has
already recovered the capital costs associated with the system wide upgrade under the Social Contract
provisions. Paragon Cable agreed to withdraw the Form; however will be applying the increase to the
unregulated standard service tier.
March 22, 2000 (9:51AM)
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L c'
March 7, 2000
Ms. Melissa Leal
Assistant to the City ?Manager
City of Grapevine
P.O. Box 9510.1
Grapevine, Texas 76099
Dear Melissa:
Per our recent discussions with the City of Grapevine regarding rates for Basic Cable in
the City of Grapevine, Paragon Cable agrees to the following:
1. Without prejudice to Time Warner's rights in other communities this year or in
future years, and in Grapevine in future years, we agree to withdraw FCC Form
1235 regarding Basic Rates for 2000.
2. We will institute Basic Rates in accordance with the city's proposed rate order
regarding FCC Form 1240 for 2000.
3. We will institute Equipment Rates in accordance with FCC Form 1205 for 2000.
Specifically, non -addressable converters are 64 cents per month, and addressable
converters are S3.=I4 per month. In the event the City issues a rate order in conflict
with this decision, we will appeal such rate order to the FCC.
What this means for Grapevine customers of Paragon Cable:
1999 rate Original 2000 rate Amended 2000 rate
Basic Cable 9.06 10.91 9.36
Expanded Basic 21.61 21.91 23.46
Total 30.67 32.82 32.82
As you know, our initial rate proposal was designed to achieve a uniform rate in the four
Paragon systems in the Dallas Metro area, and it was designed to more accurately reflect
the cost of providing Basic -only service so that Expanded Basic customers don't, in
effect, subsidize Basic customers. However, in the interest of expediency and positive
2951 Kinwest Parkway, Irving, Texas 75063-3498
972,`501-7000 Fax 972/501-7070
A Time Warner Com. env
relations with the cities, Nve agree to the above. For all but approximately 816 Basic -only
customers in Grapevine, there is no change in the total rate. Those Basic -only customers
will see a rate reduction of S 1.55 over the originally announced rate. Monies collected for
January through the implementation of this change will be "trued up" next year.
If we can provide additional information, please call on me at 972-501-7144. Thank you.
Sincerely,
Patten ---
Vice President of Government and Public Affairs
Time Warner Cable, Southwest Division
CC: Dennis Moore, General Manager
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF GRAPEVINE REJECTING FCC FORM 1235 FILED BY
PARAGON CABLE AND ACCEPTING ITS WITHDRAWAL;
DECLARING AN EMERGENCY AND PROVIDING AN
EFFECTIVE DATE
WHEREAS, the City of Grapevine, Texas (the "City") franchises cable television
service for the benefits of its citizens; and
WHEREAS, the City is the Grantor of a Franchise Ordinance by and between the
City and Paragon Cable ("Paragon"); and
WHEREAS, in accordance with applicable provisions of the Telecommunications
Act of 1996 (herein the "Telecom Act") and rules adopted by the Federal
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; and
WHEREAS, Paragon has filed FCC Form 1235 regarding basic service rates;
Im
WHEREAS, the City has requested, and Paragon has agreed to, the withdrawal
of Form 1235, based on the City's belief that the rate increase proposed on Form 1235
included inappropriate charges Paragon had previously recovered under the Social
Contract.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS:
Section 1. Findings:
1 That all matters stated in the preamble are found to be true and
correct and are incorporated herein as if copied in their entirety.
2. That on or about October 1, 1999, the City received Paragon's FCC
Form 1235 filing.
3. That Paragon instituted a rate adjustment based on its Form 1235
filing effective January 1, 2000.
4. That on March 7, 2000, Paragon issued a letter to the City
committing to withdraw FCC Form 1235.
Section 2. Conclusions and Order for Action:
The City has an obligation to timely act upon the pending rate application
consistent with current FCC rules and regulations. The City rejects Form 1235.
Therefore, Paragon's withdrawal of the FCC Form 1235 received on or about October 1,
1999, is hereby accepted based on the reason that the proposed rate is not reasonable.
Paragon cable is hereby required to refund to its current customers any amounts
charged to them based on the Form 1235 rate adjustment.
Section 3. 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 required 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 28th day of March, 2000.
....• 0
ATTEST:
ORD. NO. 2
FA
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS ESTABLISHING THE MAXIMUM
PERMITTED BASIC SERVICE TIER RATES CHARGED BY
PARAGON CABLE, 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 between the
City of Grapevine and Paragon Cable ("Paragon"); and
WHEREAS, in accordance with applicable provisions of the Telecommunications
Act of 1996 (herein the "Telecom Act") and rules adopted by the Federal
Communications Commission ("FCC") and all other applicable federal and state laws
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. Findings -
1. That on or about October 1, 1999, the City of Grapevine received
Paragon's FCC form 1240 filing.
2. That the City engaged the services of C2 Consulting Services, Inc.
to provide assistance in the review of Paragon's FCC form 1240 to
determine the reasonableness of the proposed basic service tier
rates, attached hereto as Exhibit "A".
3. That Paragon instituted a rate adjustment based on its Form 1240
filing effective January 1, 2000.
4. That based upon the information received from Paragon and
recommendations from C2 Consulting Services, Inc., the City
concludes that the rate proposed by Paragon for maximum
permitted service rate is not reasonable.
Section 2. Conclusions:
The City has an obligation to timely act upon the pending rate application
consistent with current FCC rules and regulations. Paragon's submittal of the FCC form
1240 received on or about October 1, 1999, is hereby rejected, for the reason that the
proposed rate is not reasonable.
Section 3. Orders for Action:
Based on the foregoing Findings and Conclusions, the City hereby enters the
following orders:
1. Paragon's request for maximum permitted basic service rate of $9.46
included in its Form 1240 filing is hereby denied.
2. Based on the information received from Paragon and recommendations
from C2 Consulting Services, Inc. which is attached hereto as Exhibit "A"
and included herein for all purposes, the maximum permitted rate for the
basic service tier is established at $9,36 effective March 28, 2000.
3. Paragon cable is hereby required to refund to its current customers any
amounts charged to them based on the Form 1240 rate adjustment, which
were in excess of the rates approved herein.
Section 4, 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 28th day of March, 2000.
ORD. NO, 2
m
ATTEST:
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Rmaxome
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MONSULTING SE
7801 Pencross
Dallas, Texas 75248
Januar-y' 28. 2000
yis. ;NIelisa Leal
Assistant to the City Manager
City of Grapevine
PO Box 95104
Grapevine. Texas 76099
Dear .Ms. Leal:
(972) 726-7216
(972) 726-0212. (fax)
C2 Consulting, Services. Inc. ("C2-) has completed its review of the FCC Form 1240 and the
FCC Form 1235 submitted to the City of Grapevine, Texas (the "City") by Paragon Cable
('-Paragon" or the "Comp, -mV') on or about September 30, 1999. Paragon is proposing to
combine the results of these two filings to justify its proposed basic service rates. The following
report provides a brief discussion of the issues noted during the review and C2's
recommendations retgarding potential City Council actions in response to Paragon's proposed
basic service rates.
This study does not constitute ail examination of the financial condition of Paragon or its parent
company) Therefore, C2 cannot and does not express any position with regard to the accuracy or
validity of the financial information provided by Paragon during, the course of the analyses.
OVERNIEW OF THE FILING
According to the information provided b-,- Paragon. the basic service tier includes twenty-two (22)
channeis. Prior to the Januar-, -,`' implementation of the tiled rate, ' Paragon ti -vas charving 59.06
for basic service prog amminu based on its Form 1240 computation for the 1999 rate year.
However, this year, the Company has filed a FCC Form 1235 in an effort to collect costs related
to the cable system upgrade. Pursuant to FCC regulation, the results of a Form 1235 computation
can be added to the Form 1240 computation to develop the total basic service charge. Based on
Paragon's proposed Form 1240 filing of $9.46 and proposed Form 1235 filing of $1.45, the
Company has increased the basic service rate by S 1.85 to a proposed rate of S10.91. The rate
year is January 1, 2000 throm h December 31, 2000,
There are three major factors that explain Paragon's proposed increase in the basic service rate:
1 Based on paragraph 92 of the ihirteenth Order on REconsicleralion, FCC 95-397, released September 22,
1995, a cable operator may implement a proposed rate ninety (90) days after it has filed for the rate change
with the franchising authority. However, the franchising authority has one year from the date of the filin,
in which to render a final decision. Such decision is retroactive to the besinning date on which the L
proposed rate was charged. Because the Form 1235 rate is added as a component to the benchmarkForm
1240 rate, the City has the same period of review for the Form 1235 as it does the Form 1.2.10. For either
form, a decision is retroactive to the date of rate implementation.
\Is. tilelisa Leal
January 28, 2000
Page 2
1. Paragon proposes to use a higher inflation factor in its current Form 1240 true -up
period than what was estimated in the projected period for the prior 1998 tiling:
?. Paragon proposes an additional projected year of inflation in itscurrent Form 1240
that will be trued -up nest -year pursuant to FCC regulations: and
_ . As stated above, Paragon proposes to add an additional S 1.45 based on its FCC Fonn
1235 computation.
ANALYSES OF THE FILINGS
Project Objectives and Activities
The project objectives are threefold:
i. assessment of the completeness of the filin�us with re�_ard to the information and
documentation that must be tiled with the Cin.
2. assessment of the reasonableness of the proposed computations in light of FCC
regulations. and FCC rulings.
assessment of the reasonableness of the proposed computations in light of the
Company's election to opt out of certain provisions in the Social Contract.
Given these objectives, C2 conducted the following; project activities:
I . Review of the tilin_=s to assess the completeness based on the FCC Forrn instructions.
2. Review of the filin,_s to identify, any issues v ith respect to the data and/or
methodolouies employed by Paragon.
Submission Of felloV�) data requests and subsequent reyie,y of Puagon's
responses.
-t. Review of FCC decisions that clearly have an impact on Paragon's proposed
methodolo<izies.
Development of potential alternatives available to the Cid;- in establishing maximum
permitted basic service rates.
` Social Contract for firneWarner Cable ("Social Contract"), as approved by the FCC in Social Contract
for line ti'arner, Metnorandran Opinion and Order, FCC 95-478, released November 30, 1995 (`Social
Contract Order').
Ms, ylelisa Leal
January 28. 2000
Pa --e 3
Summary of Findinas
Form 1240:
C'_ identified two main issues with respect to Paragon's proposed Form 1210 computation. These
issues are:
I. Paragon inappropnatcl� included estimated cosh in its true -up period computations,
11, conjunction with correcting the true -up period, the inflation factors to be applied
during, both the true -up period and the projected period need to reflect the most recent
information available.
Form 1235:
The overriding issue related to the Form 12-,5-
1. Para -ons proposal to rccov cr the ups_=rade costs that «ere the primary basis for CPST
increases under application of Social Contract provisions in the last four years should
not be considered noxi in the developutent of rate year 2000 basic service rates.
Discussion — Form 1240
1. L'se of Actual Costs Onl} For "Prue -t p Period
The Form 1240 methodology incorporates a series of calculations that involve an accounting of
the actual costs previously projected for the prior rate year and an allowance for prQlectin,-,
certain cost increases; decreases for the upcoming rate year. In each annual Form 1240 tilin_>, the
projections from the prior computation arc to be "trued -up" to actual costs, and any over under -
collections are taken into account in the development of the new rates.
=.n the 1 illi lee1111 ()t -der on li '�"��t?�l�i.'i?7f1�)tl, the FCC noted:
Because the true -up v,ill extunine what costs were actually incurred. it can only examine
costs as of the date the Forrn 1240 is filed. As a result, and because the Form 1240 must
be tiled at least 90 dw s before the proposed increase is scheduled to take effect... and
the projections are made for the year beginning �, ith the proposed implementation date.
the period applicable for the true up will not exactly coincide with the previous year's
projections. For ex,,unple. IF an operator files annually on October 1 for rates to take
effect on January l _ the true -up will cover the period from the previous October throughSeptember, but the projections will apply to the period January to December. �
Para,,on's filing was submitted on September 30. 1999, for a rate year beginning January 1, 2000
(like the example above). However. Paragon's proposed true -up period is from January 1. 1999.
throut h December 31. 1999. e� en though the information available to Paragon at the time of the
filing was only through September 30. 1999. Therefore, the last three months of the true -up
See Social Contract at HI.F.4.
See paragraph 79, footnote 15 1. FCC 95-397, released September 22, 1995.
Ms. ylelisa Leal
January 28, 2000
r.
Page 4
period as calculated by Paragon is based on estimated data and not on the actual data that
must be used.
The FCC has issued a number of decisions concerninu, this issue. many of which ha%e been
related to Pilin f,s submitted by Paragon in other jurisdictions. For example
Upon review of the Operator's FCC Form 1_240. . . ��e find that Operator has not
correctly calculated its MPR_ In particular. Operator made true -up adjustments through
to the effective date of the rate increase. This is incorrect... The true -up data is intended
to indicate real, not projected data. This policy is reflected in instructions accompanying,
FCC Form 1240.'
in C2's opinion and based on these FCC decisions. Paragon should not be authorized to include
October 1999 throu�lh December 1999 in its Form 12-140 true -up period. The true -up period
Should be onlv for the nine months ended September 1999." actual data for the October through
December 1999 period should be trued -up in Paragon's next rate tiling.
The impact of allowing only a nine month true -up period is to reduce the rate year 2000 Form
1240 proposed basic serrice calculation by approximately S.01.
2. Adjustment to Inflation Rates
The Form 1240 methodoloL)y allov�s for an intlarion adjustment to be projected for each rate year.
Such projection becomes part of the true -up computation in the nest rate filing. Based on FCC
. ' rei-,ulations. a cable operator is to use the most recent information published by the FCC
concernin,,, duarrerly inflation factors to be applied.' At the time of Para on'scurrent Form 1210
Pilin, the latest published inflation factor for any of the true -up period in question Was for the
first quarter of 1999. Paragon used this factor of 1.60% not only to true -up the entire true -up
period, but also to project for the t�tielve months ended December 2000,
On October 4, 1999, which is shorib,after Paragon tiled its current Form 1240. the FCC
published the second quarter inflation factor at 1.55°0. In December 1999, the FCC published the
third quarter inflation factor at 10"o
Typically,
0"o
Typically, if the inflation factor used is the only issue found in a franchisinS7 authority's review of
a Form 1240 filing. the FCC has found in favor of the cable operator usin-a what was the most
recent data available at the time the fluuwas made. This policy was detailed by the FCC in the
Third 0;r ler w7 Recw7stderavm7 as follows:
Ve share National Cable Television Association's concern that rates adopted in an effort
to comply with our rules as quickly as possible may become unreasonable solely as a
Sze Order, DA 97-1852 released August 29, 1997, paragraph 9 (Paragon Cable operations in Portland.
Oregon); Order, DA 97-1936, released September 9,1997, paragraph 9 (Paragon Cable operations in
ylultnomah County); and Order, DA 97-1936, released September 9,1997, paragraph 9 (Paragon Cable
operations in Gresham et. al.).
Typically, a true -up period would be for twelve months. In this case. Paragon already trued -up October
fl" 1998 through December 1998, albeit inappropriately, in its prior rate filing.
FCC Form 1240 Instructions, Part I: Module C [Revised July 19961.
Ms. Mehsa Leal
January 28. 2000
Page
result of using later data to refresh the calculations. Operators should not be penalized
for makinu good faith attempts to comply v,-ith our rules in a tirnely manner.
When current rates are accurately justified by analysis using the old data (and that data
was accurate at the time), cable operators will not be required to change their rates.. .
When current rates are not justified by analysis using the old data (so that a rate
adjustment would be necessary- in any event), cable operators will be required to correct
their rates pursuant to current data. In these circumstances. the resulting rates must be
based on current data.' [emphasis added]
Clearly, if the franchisina authority finds adjustments need to be made other than those
attributable to the inflation factors. the FCC has found that the inflation factors can be adjusted
with data that became available subsequent to the date of the filing. The FCC's position on this
issue is evidenced in the above cited Portland Order (DA 97-1852). In that decision. the FCC
Lound error with Para,_�on's use of estimated data in its true -up computation for CPST rates and
also made an adjustment to reflect current inflation factor data:
This adjustment required that we refresh Operator's inflation factors
Therefore, because Paragons rate year 3000 Form 1240 true -up period should be reduced from
twelve months to nine months to reflect actual data, the inflation factors for both the true -up
period and the projected period need to be adjusted to include those published inflation factors
throuah the most current data available (third quarter 1999). The impact of making such
adiust7netit is to reduce the current Form 1240 proposed basic service rate calculation by
approximately S.09.
Discussion - Form 1235
The FCC developed the Form 12-35 in order to allow cable operators an opportunity to justify rate
increases for recovery of investment in cable system upgrades. It was intended to provide an
abbreviated means of filing a "cost -of -service" showing, but only with respect to costs of upgrade
and notgeneral operations of the system. Forgeneral operations, a cable operator could continue
to use the `benchmark' approach to developing rates reflected in the Form 1240. However. the
results of a Form 1235 analysis could be added to the development of rates under the benchmark
method for a total tier rate.
In C2's opinion_ the Form 1235 should not be available to Paraaon under die Social Contract.
The major components of the Social Contract that apply include:
I. CPST rates can be increased by S1.00 in each rate year over a five year period to
fund an investment of S4 billion dollars to upgrade all Time Warner's systems
(Social Contract, Section IILFA)
2. Basic service rates only shall be increased for changes in external programming costs
and inflation (Social Contract, Section III.A.2.)
In the Form 1235, Paragon proposes to recover its investment in the City's upgrade even though
it alreadv has collected from subscribers during the period 1996 through 1999 based on the
s See Third Order on Reconsideration, FCC 94-40, released March 30, 1994, paragraphs 93 and 94.
9 See Order, DA 97-1852, released August 29, 1997, paragraph 10.
',Is. \lelisa Leal
January 28. 2000
Page 6
provision of the Social Contract as outlined in =1 above. However. Paragon clearly already has
been compensated for this upgrade. By proposing now to spread the recovery between basic
service and CPST rate tiers. P ara,_,on's proposal, in C2's opinion, is not only a `double dip" into
the pockets of subscribers, but also is in direct violation of the Social Contract to which Time
Warner agreed. The intent of the Social Contract is unequivocally stated in the folio,,vinU:
At the core of the Social Contract is the upgrade incentive plan whereby Time warner
will rebuild and upgrade all of its domestic cable systems and in turn will be allowed to
recover the costs of the upgrade over time by addin�a a charge to the highest penetrated
CPST durin<a the %ears of the Social Contract. "I
Cleariv, the 51.00 per year increase to the CPST tier was intended to cover all the upgrade costs
to both the basic service and other re,_nu(ated tiers. 1 1 The Social Contract provided that Time
Xirlier would not seek to pass any capital costs_ in addition to the already received S 1.00annual
increase to subscribers. `- Paragon should be prohibited from recovering costs already recovered
and from proposing to place some of that burden on the basic service subscriber.
Paraaon takes a different position ar�tiiM' that it is no longer bound by the provisions of the
Social Contract as it opted out pursuant to Section 111.1. l.c:
In the event of anv changes to the Act or any material changes to the FCC rules
hereunder relating to rates (BST.CPST or equipment) that are favorable to TI'C . any
TWC system may elect to be relieved from the relevant rate provisions (Sections III.A.2.,
HLA.33_ III.B., III.D.. III.F.4.. and II1.G.) of this Contract accordingly, but shall remain
bound by all other provisions of this Contract.
The Company further states that. as a result of exercising this option_ it is no longer subject to the
10% reduction to the basic service rate, the prohibition alaamst adding satellite channels to the
basic service rate, FCC ro aulation of equipment rates_ and the prohibition against filing cost -of -
service showings for the basic service tier.
In an august 1999 letter to the City. Paraxon indicates that the event to which it attributes its
decision to opt out of thcSocial Contract rate provisions %vas the passage of the
Telecommunications Act of 1906 and the total dereuulation of the CPST tier of service. It
appears that Paragon desires the freedom to increase its CPST rate beyond the limits provided for
in the Social Contract. Indeed, it is interestima to note that the provisions of the
Telecommunications Act related to the 1999 deregulation of the CPST tier have been known
since 1996 . but Paragon continued to collect the SL00 per year increase on CPST until such time
that this tier no Ions=er was reuulated by the FCC.
In C2's opinion,under the Social Contract there are only two circumstances under which Paragon
should be able to charge additional amounts for upgrade costs outside of what it has already
collected:
`0 SeeSocial Contract Order, FCC 9478, paragraph 19.
SeeSocial Contract Order, FCC 95-478, paragraph 25-26.
Subject to the provisions discussed below concernmLl, franchising authorities' requirements for upgrades
that exceed the requirements of the Social Contract.
Paraon's response to Third Request for Information for the City of Grapevine, question 2, dated January
'
4,2000- .
Ms. Melisa Leal
January 28. 2000
Page 7
1. In the event that the City had negotiated all upgrade that exceeded the scope of the
upgrade in the Social Contract (Section III_F.2.),an&'or
2. Implementation of the favorable regulatory treatment on which the Company based
its decision provides for a incremental increase in the amounts already recovered
under the Social Contract (Section 111_1.I.e.).
Based on C2's understanding, the City did not request any additional upgrade requirements. With
respect to an allowance for the incremental increase in amounts to be recovered from the
favorable reuulatory provisions (i.e. the deregulation of CPST under the Teiecoitunurricatrons
.act). Paragon has every nuht to increase the CPST more than the S1.00 that �,ould Kaye been
added in 2000 under the final year of the Social Contract.
in Cts opinion. Paragon has no basis to nosy seek total recovery of its upgrade costs pursuant to
the Fonn 1235 methodology. The Telecommunications Act did not establish this methodologw,
nor did it provide for any ne�y upgrade increment not already available to cable operators. It
merely provided for the deregulation of the CPST tier rates. through which Paragon could
justitiably recover the incremental amount that results under such favorable
regulatory provisions on this tier of service.
5L1'NIMARY OF RECOMMENDATIONS
Based on the above findings. C' recommends the following adjustments be considered by the
Cite in determining the maxinrum permitted monthly basic service rate:
1. The True -up Period should only reflect the nine months ended September 30, 1999.
2. 1lie inflation factors should be adjusted to reflect the published factors for the first
througJi the third quarters of 1999.
The City should consider ordering a maximum permitted rate for the Form 1240
computation of 59.36 rather than the S9.46 proposed by Paragon.
The Citv should consider coi7lpietel� disallowing Paragons proposed Form 1235,
basic sen -ice rate increase of S 1.45.
The City, should order Paragon to issue refunds to subscribers within ninety (90) days
of a rate order based on the difference between the ordered rate and the January 3.
2000, implemented rate. Interest on the refund amount should accrue to the time the
refund is issued.
C2 greatly appreciates haying this opportuarity to work with the City of Grapevine. If you have
any questions regarding this report, the project activities, or any of the recommendations, please
contact Nts. Connie Cannady at ( 972) 726-7216.
Very trully� yours,
C2 Consulting Services. Inc.
_..oral t'ommumcaUonN �lmmrxvron
A h moon. LA 't)554
S. Status of Previous Filing of FCC Form 1210 (enter an "x" in the appropriate box)
\. )Pro,ed by O>IB 3061N,:��S
't FS NO
" s an FCC Form 1210 been previously filed with the FCC?
:f vos. enter d?e date of rhe most recent filing: ; (mmldd/yy)
1.S `r)
b. Has an FCC Form 1210 been previously filed with the Franchising Authority?
If yes, enter the date of the most recent filing: (mm/dd/yy)
9. Status of FCC Form 1200 Filing (enter an "x" in the appropriate box)
`r,
a. Has an FCC Form 1200 been previously filed with the FCC"
If yes. enter the date filed:J immlddlyy)
b. F1 as an FCC Form 1200 been previously filed with the F.anch-i-mg Aut1homy J
If ves, enter the date file j (mm/ddlyy)
10. Cable Programming Services Complaint Status (enter an "x" in the appropriate box)
a. Is this form being filed in re:-ponse to an FCC Form 329 compiu mt°
f yes. enter the date of die complaint j ( immJddlyy)
S 0
11. Is FCC Form 1205 Being Included With This Filing [
12. Selection of "Going Forward' Channel Addition Meth adoiopy (enter an "x' in the appropriate box)
=Check here if you are using the original rules (`YlARKUF' 11ETH0Dj.
1 --heck here d you are ging the new, alternative rules- [C.Ar'S ME ITHODI
I ° u.;ing the CAPS METHOD, have you elected to revise recover-: for N0
channels added during the period tilay 15, 1994 to Dec. 31. 1994,
13. Headend Upgrade Methodology
'1:Jr'.:"f%xratrrsmus7reroirrorhe.1oUxeJnJ.zuerhanas/r rIok-
�I
' Check here if you are a qualifying small s-�srem using the streamlined headend upgrade methodology.
Part I: Preliminary Information
Module A: Maximum Permitted Rate From Previous Filing
a b c d e
Linc Line Description basic Tier 2 "Fier 3 Vier 4 Tier 5
.�.:-�crrent Maximum Pe:-rmtied Rite $° los4 j
?Nodule R: Subscribershin
a b c d c
Line Line Desc'tion $.sic Tier 2 '1 ier 3 Tier 4 Tier 5
7r:nre Suhscnbershrp for True-L:p Pcnod
s
"2 A=crage Subscribersbip For True-Cp Period 2 ' I
1
E,,,umated A%era,e Su bscnbershtp For Projected Penvd . - '"4
Module G Inflation Information
Line Line Descri tion
C: 1'nc:auned lnflatiun: OperatorSscitching From 1210 To 2a0
;:clatmal Inflation: L'arceuiated Operator Responding to Ra:c C:?n:r=iJ:nt LI',tY.X;
C3 inflation Factor For True -L p Period ; [WKS i
C4 Inflation Factor For True -lb Ported 2 [\Vks ; J
C5 Current FCC Inflation Factor LOlt1a
Module D: Calculating, the Base Rate
t line
Line Description
a b c d e
Basic Tier 2 Tier 3 Tier 4 Tier 5
D:
Current Headead Upgrade Segment
t 50.000)
D2
Curren [sternal Costs Segment
Si1?453 ,
D 3
Current Caps Methml Segment
911.04XX)
Current Markup Method Segment
i0.Gill"
Current Channel Movement and Deletion Segment
'S0.0000
!io
Current lrue-LpSegmenttS0.1f'�l
Page 2
Microsoft Excel 40 1"ersion
FCC Form 1240
lute 19%
v.,provect bs ONIB 306041ohS
_J--rai C mmumcatwns t cmm.;von
iT' 20554
)' lorient Inflation Seclment SO. 10;.3
`t Base Rate JAI-DI-D2-D3-D4-Di-D(rD71 S8.8829
Past. II: True -lip Period
Module E: Timing Information
Line Line Description
• , -,n I,pe of true-Lp Is Tieing Per!ormej' i,lns.. er or '33 [n tructwns for a JeWripuon Of ;hese tclxx S.t
II T, go to Module L If '2", answer E2 and P.3. If '3'. answer E2, F3, E4• and ES.
F_' `•umber of ?fonths in the true -t p Perlod i
\umber .�t A(ands beu.een the end of lir e-l.p Pcrnxl 1 and the end ; i the most recem Prolected I'cr;oci
int ber of Months in In;e-L p Penod 2 Eligible for Interest
u7ber of Months I Pzrtod 2laeli_;tble for Imerest
Line
Line Description
-
a b c d e
Basic 'Pier 2 Tier 3 Tier 4 Tier 5
i :
Cans Method Segment For True -Up Period 1 [M6'ks 21
C hall ML'mut Deletn Segment For I rue -i. p Period 2 (MM
c,4
>i !r\up Method Segment For lruc-Cp Penod i ff" 3j
S{l-txart
'-3
than } I v m n i Deletn Segment For Irue -L p Peric-1 1 [A 1.+ 4•`1
St LtX)
4
.-r;e-Co Period '. Rate Eligible For inflation (tl>i^-F1-h'-t t1 I
S-i,up 2q
=
Ilit iatton S,rgmem Ior-1rje-Cp Pened 1 [,T4`C3'--F41
: _rm -_ ..•r Inc .:. ; C---Gz -C-. -�
flanJend L pgradc Segment For true -Up Period 1 IV, 1,s o"
I: eternal Costs Seement For Tn:e-Up Pered;fw'ks ?)
So.24 w1
i nue-(_ p Segment I or I nue-Lp Period '; 1
iSO.!6.i?1
•-o
Msc fern: Raie for In. -L p Period I (i4-FS-Fo-['_t.w'
S9 (Vl4o
Linc
ivtuuuic v. tYA a.tuuuux x •- -- --r -
a b c d e
Line Description Basic Tier Z Tier Shier 4 'tier 5
Method Seg, rtent For Tree -iso ?,nod 2 2j
_
`.larKelp Method Segment For True -L o Penxxl 2 [WkI 31
�• i
C hall ML'mut Deletn Segment For I rue -i. p Period 2 (MM
c,4
!-t Period 2 Rate Eligible For Inflation (Dk+Fb-Cr:-G_-C,31
G<
ir.Cu;on Segment for Tn;e-L'p Peru ? (t G4`C 41 -Cr]
Iiaadecd Cpgrade Segment 1'cr fn�e-Cp Period 2
V
-_s:ernai Costs Segment Per [rise -i p Period _' 1'•M'�s
_
=. S zn;em Eor i -rue -1 p Penocl 2
: _rm -_ ..•r Inc .:. ; C---Gz -C-. -�
FCC Form 240
Page 3 NLicrosoft Excel 4A',ersion July 1996
':4.c.h,n2ton, DC :95f -i
Module H: True -Up Adjustment Calculation
,\ooro,ed bs. ONIB 3(ibO-+:,b.S5
Line Description
a b c d e
Basic Tier 2 Tier 3 Tier 4 Tier5
Xic -' ent For True -Up Period I
Rc,enue From Period :
SS24.3Ei0.434W
H2 ae,'cnue From Max Permitted Rate for Period 1
'S•92b.594.2143
13 live-CpPeriod f Adjustment (112-liij
.112.33.7937
114 interest on Period 1 Adjtrstment
&159.7134
For True -Up Period 2
Proj. Period Rate Elipble For Inflation IDR -1`5 -GS -P-121-131
�Adli,usixnent
Revenue From Period'_ Eligible for Interet
Revenue From Max Perm Rate for Period 2 Eligible For Interest
S0.0936
117 Period 2 AdjustmenI Eligibie For Interest [1ltrHSJ
Headend I pgrade Segrmnt For Projected Period [Wks of
- :verest on Period 2 Adiustment (Sce msur taons for formula)
I
HQ evenue From PericKI, 2 Ineligible for Interest
40.2422
11:0 32cveaue From Max Perm Rate for Period 2 ineligible for Interest
Tuve-l: o Segment For Projected Pcnod
11! : Period 2 Adjustment Ineligible For Interest (HU3-H9J
Total Prue -Up Adjustment
S9.3S63
ifi2;'revtousRemaining True-i.pAdjustment
()perator Selected Rate For Projected Per.od
H:3 [ota] rn)e-CpAdjustment([13+11+-[i7-113-11 l-IC21
52.393.3970
ii :4 .\count of 1-t- -i p Claimed For This Projected Period
S2.393.:970
!f: S Remaining I rue-\ p Aujustment (III 3-H:41
s0.woo
Part III: Projected Period
ahociule It New Maximum Permitted Rate
Line
Line Description
a b c d e
Basic Tier 2 Fier 3 Pier 4 Tier 5
Caps Method Segment For Projected Period (\X":is 21
_
Markup \fetbcxi Se,meni For Protected Period [Wks 31
� so -001)0
; ?
Chan Mvtnnt Delem Segment For Projected Period I \Yks 4,3 1
SOM
Proj. Period Rate Elipble For Inflation IDR -1`5 -GS -P-121-131
19.1-
Inflation Segment for Projected Period t(14'CS)-141
S0.0936
;o
Headend I pgrade Segrmnt For Projected Period [Wks of
Ertemal Costs Segrnetn For Projected Period [\\"les 71
40.2422
Tuve-l: o Segment For Projected Pcnod
SO.0194
\las Permitted Rate for Projected Period [14-15-Io-C,f51
S9.3S63
()perator Selected Rate For Projected Per.od
59 46
1.ve t.ic. rarmiumprr.^.trsrd.a/e!�/vesde�n<stinteia/c�acrcun/.urr a7a•:rd:r..rriin wuma, ha'e. onku Jh<"/heCoitmusmoa or towirrr/.i-.a/rhrsm,;>eut„conn romG(emtum/s.
v.!'cna/retie t-rrJ Ul,t; ur '�✓, 9lJOJI !U n:l.tt sorb /Aunt./s: �r2 J.'h8�:'YL9.7Oer//_!d i...:..erl7Jn/..ec<.=`e5 <•J.:ve yr o"OIJ�L'/Te/t/ri.'e.
Certification Statement
WILLFUL FALSE STATEMENTS BLADE ON THIS FORM .ARE PUNISHABLE BY FINE AND/OR IMPRISONMENT
I U.S. CODE TITLE 13, SECTION'1001), .AND/OR FORFEITURE (U.S. CODE. TITLE 47, SECTION 503).
I certifv that the statemen� made in this form are true and correct to the best of my knowledge and belief and are made in good [atth
Signature I Date
I
Name and Title o; Person Completing this Form:
Telephone number Far Number
I
Page 4
Microsoft Excel 4.0 Version
FCC Form 1240
Jult996
=Fderai Communications Commission
4'ashington, UC 20554
aaproved By 014E 3060-0635
Worksheet l - True -Up Period Inflation
rr ,n..;n�ct;ons..cc appendu a of [nstntctinns For FCC Fan" 1:1;t
Line
Period
F('C Inflation Factor
101
102
103
iGl
106
107
It)S
i 10
Month I �
Monlh
Month
Month-'
M"nul :
Month
\loath
Month 1�
Month I�
Month I i
Month I
era_,r 4.. t!r 1. r
Pcnc>,1 t
1-60°°
I.�i+?°�
1.'•00
1.35'0
135°0
1
1 C4"
i i
11�
C,
i1I
IN
119
I_U
.I
Month I t
M'.nt;i 1!
., ,nth I
\lamb I
Month 1"
.•h1nti1
`!orth I ;
M"wh
Month �.
`1"nlh _
'
FCC Form 1240
Page I
Microsoft Excel 4.0 Version Judy 1996
z �
—jeral C onnmunicmions Commission
W"I'llatzlon. Dc 20 54
Worksheet 7 - External Costs
True -Up Period
1 or msunems. xte App-idix.%, oflmtnu:tsons For I,-(' Fran 1 214
;a,ii,n 1. I -or ",M), time p"'Od — "'. III I I. n'-, out this ' il'al in N n "'.: ar^r, rrir� I- -I
-,lion M., I o- i, th� tirst p—cid, in month,, for ishich rat- arc hcir,-, -t th thi,
110 1—s i, the c—rd i—t-i. in —,rth, for , hich rirW ar,. hen =at —tli ih,. —,ri,,hcct
crw,cd B
I , 0\13 -iUtN}-',oeiS
Pr.�Iected Period
-1 i,r 3 Pier 4 Tier 5
Period I
IF xtemal Costs E I igible for Nlarkup
-r,i of Proizrammin� or Ownn,�i AJIzd 1 or to � 11 94 ,r
Art --r 5 94 Markup M�tih'd F" Pd
Ao,wI
--ion or,�nt F v 1'c�",,d
1--s For Pcrioci
14 Elimbic for Vai-k.T,
13
lExternal Costs Not Eligible for Markup
-0,
L,rnai C-ts Di,-zlbie For 7 " Mar' -'up
K:fawd C -[,i For 11c"d o
I
"n'i —on Kcvu)atoi, i cc, F,,r i,criod
!6
For Pena[
i-
F mnchi- Mat -d C,tF P,—,,,i
i') ',:onthix Per -Subs, nr Extcmal C -L, For P:n-ioll I ;t7
Cornrn—i— P—iruliiw- F-, For i',,,,j
[_1�j
Period 2
17
trnal Costs Eligible for.Mark-up
Ao,wI
Cost of Progammmjz For Channels -kd&,d Prior to 5 15 04 or
All- 5 15 94 Ui.g Markiip.\I�thod F- P-1
-
Rctrammis non Co—m F— Por Pa ad
13
Cops -right F— For Period
L,rnai C-ts Di,-zlbie For 7 " Mar' -'up
715
Marked UP External Coxtc
External Costs Not Eligible for Markup
!6
Cable Sm.ak T— F- Peri -i
i-
F mnchi- Mat -d C,tF P,—,,,i
I-! I
Cornrn—i— P—iruliiw- F-, For i',,,,j
[_1�j
','I Fxtcmal f ""A" F'r Fm' -j
m
M.crowl( Excd 4.) ', zion
jrCC Fcrm 1240
Jul, 19%
Worksheet 7 - External Costs
Projected Period
F:a �n<tracnoa,. — Apr<Y:dit: A of lns[rucuon, for I'(V Form I
,uc,"tion i. Fur 'a hn h ttnc prnal — ••eu filing out this worksheet' [Put an .\'• :n the.It'prnpr.atz N)r [
:; u.a4on 2. How long is ilio Brat -r+eri.xL :n months for which rets ar hain_, -t s:th .his work,hact'
:Utihrn ?. 11ow long is bw ;rccnd in months. I::r w h+ch rats u- can! ti,t •.s uh this workshe t
vopro,'ed B, OABaIMi-+.:b<�
1-4 p P -,"I I rojocted Pctiod
I)
a e
f u e I t [e Dc.0 ipu >❑
P is i -i r' bier 3 Ticr J Tier i
Period 1
Externa( Costs Eligible for Markup
'—i of Proernuunine For Channels AJJ! d i'nrr to 5 15 ` I .x
.AA.r 5 15 of L-sme A(:-irkup \1�•ih �d trr
`t.
e;:,
Ri t—'u-n—,n t'encnnt F—
,'op— ht Fora I or 11--i
-ill
cisternal Coat, Elismblc i:- Z5''o Alakuo
191.5:
-05
\1.Iri d L E.xtc—1 C—L (
9�1.9311.49,tK
External Costs Not Eli-_ible for Markup
Cable SVx;cilie C.crs For Ni -i-1
iU •'o
-
I rmeh,s RzWed Cc,ts For Prod
S:">t1
-J3
t'ommr,ion Reauia[ex-} Foes For P —d }
S -V -'t' l 75
'�w
Total I.�t rtial C'c.ts For P—, -.d
529.362.6448
Momhlr. Per -Sub.: n,,r E-vwmal C -L, Fo, P,-1 I
50.2423
FCC Form 1240
Pa,•e 2 Microsoft Excel 4.0 %'er swn Jul- ;996
..deral Commtmications Commission
'A ashington. DC 20554
`Vorksheet 8 - True -Up Rate Charged
i ��r urttmctions. ,ce,Aprtindis A of Instructions For FCC Form 1--10
t h,enton I ! hm lone is the (nue-Up Period t, in months'
t ac,non.'.. Flo%k Ione i> the Tnte-Up Period 2. in months'
\pproved B;: OMB 3060-0635
0
Line
Line Description
a b c d e
Basic Tier 2 Tier 3 Tier 4 Tier 5
S01
S02
S03
304
305
506
307
303
509
i10
a 11
SL
1313
Month 1
'Aonth 2
Month 3
%lonrh 4
Month 5
`•lonth 6
Month 7
Mondt S
`•tonth 9
Month 10
Month 11
Month 12
Fenod i Average Rate
59.0600
59.0600
59.0600
$9.0600
$9.0600
59.0600
$9.0600
$9.0600
59.0600
59.0600
314 Month 13
:t\limdt 14
Month 15
517 Month 16
31S %1onth 17
31? Month 13
320 Monrh 19
3_'1 %lonth _70
'.1,mah 21
lonth 22
31-4 tlonth. 23
335 M,Jrith 24
i26 Pr;od 2 average Rate
f
( i
, {
Page 1
Microsoft Excel 4.0 Version
FCC Form 1240
July 1996