FROM: W. Calvin Horton, Town Manager
SUBJECT: Public Hearing: Consideration of Resolution Finding Time Warner Cable Basic Service Tier Rates as Consistent with Federal Regulations
DATE: January 22, 2001
Federal regulations allow the Council to review Time Warner Cable Basic Service Tier rates to determine whether such rates are consistent with applicable rules. The purpose of tonight’s public hearing is to receive comment on the increase in Time Warner Cable’s Basic Service Tier rates.
A resolution is attached, which finds the proposed 2001 Basic Service Tier rates in accordance with federal regulations and provides approval.
On October 25, 2000, Time Warner Cable notified us that it intended to set the Basic Service Tier rate at $9.50 a month for Chapel Hill customers and $13.70 a month for Durham customers for the upcoming year. This is an increase from the 2000 monthly rates of $8.28 for Chapel Hill and $12.39 for Durham customers.
Mr. Robert Sepe, the Town’s cablevision consultant, has reviewed the data to determine whether Time Warner Cable calculated the updated Basic Service Tier rates in a manner consistent with Federal Communications Commission (FCC) guidelines, the Time Warner Social Contract, and the Telecommunications Act of 1996. Mr. Sepe reviews FCC 1240 rate forms and data filed by Time Warner Cable to reach his conclusions.
FCC rules allow the Town until January 31 to review the Basic cable rates. We received the consultant’s report on January 10.
The consultant’s report finds that the data submitted by Time Warner is free of material misstatements and that the accompanying report provides a reasonable basis for approval, based on FCC rules. The consultant recommends that the Town find the rates to be reasonable and thus approve them on that basis. Prior to approval, however, the public must be granted the opportunity to offer comment on the matter.
Inflation Factor
We note that Time Warner used an inflation factor of 3% for the last three quarters of 2000 because that was the most current rate published by the FCC when Time Warner completed its required forms. On October 4, 2000, the FCC released the official inflation figure of 2.4%, which Time Warner did not include in its calculations. If Time Warner had used the lower inflation rate, its maximum permitted Basic Service Tier rate would have decreased by 8 cents per month for the Chapel Hill system and 10 cents per month for the Durham system. The Town can only compel Time Warner to revise its inflation adjustments if Time Warner is required to recalculate its FCC-1240 form to address other issues. Absent these issues, the Town cannot compel Time Warner to amend the rate filing in 2001 to account for updated inflation data, but it can request that the company do so. The attached resolution would include that request.
Next Steps
The Council has authorized the Manager to negotiate with Time Warner to keep the Basic Service Tier as “basic” and inexpensive as possible. The Manager and Attorney have met with Time Warner officials regarding these Council concerns. Time Warner is in the process of providing the Manager with more detailed explanations of the Basic Tier, and we plan to meet with Time Warner officials again to discuss these issues. We will return to the Council with a follow-up report regarding the outcome of these discussions.
RECOMMENDATION
Manager’s Recommendation: We recommend that the Council adopt the attached resolution: (1) finding the Basic Service Tier rates to be reasonable in the manner determined by FCC rules; (2) requesting that Time Warner submit an amended 2001 FCC 1240 form in September 2001 when it submits its FCC 1240 form for 2002; and (3) requesting that Time Warner adjust its inflation data from 3% to 2.4%.
ATTACHMENTS
1. January 9, 2001 Letter and report from Mr. Robert Sepe of Action Audits (Re: Time Warner Cable’s FCC 1240, 1235, and 1205 Rate Filings) (p. 5).
2. October 25, 2000 Letter to the Town Manager from Time Warner (Re: Chapel Hill Franchise) (p. 29).
3. October 25, 2000 Letter to the Town Manager from Time Warner (Re: Durham Franchise) (p. 31).
A RESOLUTION: (1) FINDING TIME WARNER CABLE’S PROPOSED 2001 SELECTED BASIC SERVICE TIER RATES AS REASONABLE IN THE MANNER DETERMINED BY FCC RULES AND PROVIDING APPROVAL OF THESE RATES; (2) requesting that Time Warner submit an amended 2001 FCC 1240 form in September 2001 when it submits its FCC 1240 form for 2002; (3) requesting that Time Warner adjust its inflation data from 3% to 2.4% (2001-01-22/R-1)
WHEREAS, Time Warner Cable submitted Federal Communications Commission 1240 Updating Annual Maximum Permitted Rates filings for regulated cable services with the Town of Chapel Hill. Time Warner Cable’s filing covers external costs, inflation, and cable system upgrade costs for the true up period of October 1, 1999 through September 30, 2000, and the projected period of January 1, 2001 through December 31, 2001; and
WHEREAS, Time Warner submitted two FCC 1235 Abbreviated Cost of Service For Cable Network Upgrade filings with the Town in 1999 to be included in the 2000 and 2001 rates. The upgrade rates in these filings were previously found to be reasonable by the Town, and covered capital expenses directly related to cable system upgrades prior to January 1, 2001; and
WHEREAS, Time Warner submitted an FCC 1205 Equipment and Installation Costs filing with the Town, covering equipment and installation costs aggregated on a state-wide basis; and
WHEREAS, Time Warner Cable is permitted, pursuant to the Social Contract and Thirteenth Order on Reconsideration, to estimate and recover anticipated inflation, external costs, and cable system upgrade costs for the period of January 1, 2001 through December 31, 2001; and
WHEREAS, the Town received a report from its consultant stating that Time Warner submitted its FCC 1240 and FCC 1205 rate filings on or about September 29, 2000, and the FCC 1235 in September 1999; the FCC published an updated inflation factor on October 4, 2000; Time Warner’s FCC 1240s, FCC 1235s, and FCC 1205 rate calculations comply with FCC rate-making rules, and the requested maximum permitted Basic Service Tier, Network Upgrade Cost of Service, and Equipment and Installation rates are reasonable; and
WHEREAS, the consultant’s report stated that Time Warner used in its 2001 FCC 1240 an inflation factor of 3% for the second, third, and fourth quarters of 2000, and for the 2001 projected period; the FCC published the updated 2.4% inflation figure on October 4, 2000, five days after Time Warner completed its rate filings. It would be in the public interest if Time Warner amends its FCC 1240 rate filing prior to completing its next FCC 1240 rate filing in September 2001 for 2002 and that this amended FCC 1240 will incorporate updated inflation figures for the second, third, and fourth quarters of 2000 and the projected period of 2001; and
WHEREAS, Federal Communications Commission rules grant local franchise authorities an initial ninety (90) day review period, measured from the date of receipt of said filing by the franchise authority, with which to review the cable operator’s Federal Communications Commission 1240 rate filing. If said ninety (90)-day review period expires before the rates go into effect, the franchise authority retains review and refund authority past the initial ninety (90) day review period as long as all inquiries from the cable operator regarding said review are responded to in writing within fifteen (15) days of said inquiry; and
WHEREAS, the Town of Chapel Hill is certified with the Federal Communications Commission to regulate Basic Service Tier rates provided by Time Warner Cable in franchise NC-0234;
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that Time Warner Cable’s Basic Service Tier rate assessed to subscribers within the Town of Chapel Hill shall not exceed the Maximum Permitted Rate, subject to modifications in subsequent findings by the cable operator or franchise authority for Basic Service Tier cable television programming during the 2001 calendar year.
BE IT FURTHER RESOLVED that Time Warner Cable may charge a combined monthly Basic Service Tier rate and Network Upgrade Charge rate below the approved Maximum Permitted Rate of $10.12 for Chapel Hill system subscribers and $13.82 for Durham system subscribers, but not above these rates.
BE IT FURTHER RESOLVED that the Equipment and Installation charge during the projected period of 2001 shall not exceed $28.39.
BE IT FURTHER RESOLVED that Time Warner Cable has substantiated the other adjustments to its cable service rates based on past and estimated cost elements.
BE IT FURTHER RESOLVED that Time Warner has complied with FCC rate-making rules, and its requested maximum permitted Basic Service Tier rate, and Cost of Service Network Upgrade Charge “add-on” rate, and Equipment and Installation rate are found to be reasonable.
BE IT FURTHER RESOLVED that it will be in the public interest if Time Warner amends its 2001 FCC 1240 rate filing using updated FCC inflation figures for the second, third, and fourth quarters of 2000, and the projected period of 2001, prior to completing its FCC 1240 filing for 2002.
BE IT FURTHER RESOLVED that the Town Council requests that Time Warner submit an amended 2001 FCC 1240 form in September 2001 when it submits its FCC 1240 form for 2002.
BE IT FURTHER RESOLVED that the Town Council requests that Time Warner adjust its inflation data from 3% to 2.4%, thus lowering the Basic Service Tier rates.
BE IT FURTHER RESOLVED that the Town retains its authority to issue refunds or rate roll backs after the initial 90-day review period with respect to the restructured rate set out in the FCC 1240 and FCC 1205 rate filings.
BE IT FURTHER RESOLVED that Time Warner Cable must keep a full and accurate account of all revenues and costs associated with the aforementioned cable rate adjustment.
This the 22nd day of January, 2001.