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HomeMy WebLinkAboutRPT 6 CABLE TV REG 08-16-93AGE N DA - REPORTS NO. 6 · -8-16-93 AUGUST 16, 1993 Inter-C.om TO' WILLIAM A. HUSTON, CITY MANAGER FROM. PUBLIC WORKS DEPARTMENT/ENGINEERING DIVISION SUBJECT: CABLE TELEVISION REGULATION UPDATE RECOMMENDATION It is recommended that the City Council direct staff to apply to the Federal Communications Commission (FCC) for certification to regulate cable television rates after September 1, 1993. FISCAL IMPACT There is no direct impact on the City of Tustin; however, there is a potential for residents of Tustin to ultimately save money on cable rates. BACKGROUND The Federal government recently enacted the Cable Television Consumer Protection and Competition Act of 1992 (Act). The impetus behind the rate regulation provisions of the Act is the FCC finding that cable rates have grown three times as fast as the Consumer Price Index since rate deregulation. FCC studies found that rates in areas with effective competition average 10% below those areas where cable operators are not subject to effective competition, such as Tustin. In those markets in which penetration of any single cable operator did not exceed 30%, the rates averaged 30% below those areas which do not have effective competition. DISCUSSION The Act permits franchising authorities to regulate rates for basic cable service only. This includes both charges for the basic service tier and for equipment utilized in providing the basic service tier. However, because the same benchmark formula is used for regulating the rates of other tiers, the franchising authority may, to some degree, regulate the rates of all tiers. In order to assert jurisdiction over the basic service tier and equipment rates, the City must be certified by the Federal Communications Commission (FCC). The final forms for franchising authority certification will be available October 1, 1993. It is expected to be a fairly simple form which will require the City to certify in writing to the FCC that: ® It will adopt and administer rules with respect to rates that are consistent with FCC regulations. · It has the legal authority to adopt the regulations and the personnel to administer the regulations. If a franchise fee is charged, as in Tustin, there is a presumption that personnel will be available to administer the regulations. · That procedural laws and rules governing rate regulation proceedings by the City provide a reasonable opportunity for consideration of the Views of interested parties. Essentiall~, this involves adequate notice of a public hearing at which al~ interested parties can testify. Provision for written comments should also be made. The certification becomes effective 30 days after filing unless the FCC finds that one of the three criteria has not been met. If the certification is disapproved, the FCC will notify the City of any necessary modifications. If the FCC either disapproves or revokes the certification, the FCC must exercise the City's regulating jurisdiction until the City becomes qualified. The FCC will not regulate where the City simply does not apply for certification. The city can request the FCC to regulate, but it must show that it cannot meet certification standards. Any franchise agreement which prohibits rate regulation is null and void to that extent. The City must serve copies of the certification request on the cable operators by first class mail on or before the date the certification is filed with the FCC. Two or more communities served by the same cable system can file a joint certification and exercise joint regulating jurisdiction even if the areas covered do not have uniform rates. For example, Dimension Cable Services provides service to East Tustin, Irvine, and Newport Beach. There is no deadline for~seeking certification. The City will have 120 days from the date' th~ certification becomes effective to adopt regulations which are consistent with the FCC's and to promulgate rule~. providing a reasonable opportunity for views of interested parties. The City will be required to notify the cable operators that it has been certified and that it has adopted regulations before it can begin regulating rates and, if necessary, drdering refunds. A cable operator may file a petition for reconsideration of the City's certification. This petition must be filed within 30 days from the effective date of the certification. A petition to revoke the certification can be filed at any time. Revocation would be proper if the City's regulations do not conform to FCC regulations. All petitions opposing rate regulation must be served on the City, which has 30 days to file an opposition. RATE REGULATION PROCEDURES The cable operators will be required to file rate schedules for the~ basic service tier and accompanying equipment with the City within 30 days after receiving notice that the City has been certified by the FCC. All supporting materials as to how the rates conform to FCC rate standards must be submitted. If the City then determines that the cable operator's current rates for the basic .tier service and accompanying equipment are reasonable~under FCC standards or the cable operator has agreed to reduce such r~tes to FCC standards, they go into effect 30 days after filing with the City. If the City is unable to make such a determination based on t~e material submitted or if the cable operator:~ have submitted a cost-of-service showing, the City may toll the effective date of the.proposed rates up to 90 days in the first instance and 120 days in the s~cond. To do so, the City must issue a brief order TREATMENT OF EXTERNAL COSTS Cable operators may pass through~s~~xternal co~ts without a cost-of- service showing even if the re~~'~'?~tes exceed the benchmark.· Cable operatorS must also reduce rates if there is a cost reduction in these categories· Costs which may be passed through directly include: 1. Retransmission consent fees. These are fees paid by cable operators to broadcasters for the right to carry the broadcast signal. However, such fees cannot be passed through until October 6, 1994, and this pass-through only applies to new or additional retransmission consent fees incurred after that date. · · Other programming costs. These are fees paid by cable operators to obtain programming. Increases can be passed through on a going forward basis. Taxes, franchise fees and costs of satisfying 'franchise requirements for local and PEG access channels. REGULATING RATES FOR EQUIPMENT The Act directs the FCC to' establish standards for equipment rate regulation on the basis of actual cost plus reasonable profit for installation and lease of equipment used by subscribers to receive the basic service tier. Equipment to be regulated includes converter boxes, remote control units, connections for additional TV receivers and wiring. The Act requires the cable operator to unbundle the costs for equipment. Cable operators cannot include the cost of promotions as part of equipment charges. This must be included in the general overhead, if the cable operator sells such equipment, the price cannot be set at a rate higher than'necessary to recover the cable operator's costs. REMEDIES AND APPEALS The City will be able to disapprove of rates proposed by the cable operators. Further, the City will be able to impose a prospective rate reduction to meet the benchmark if it determines that the rates exceed the standard. The City will be able to prescribe a reasonable rate in lieu of the cable operator's proposed rate. The City will be able to order refunds of basic service tier rates. The city would utilize this if the cable operator failed to comply with the rate decision 'of the City or as part of review of the initial rates. Prior to doing so, the franchising authority must provide notice to the cable operator and allow rebuttal. Refunds should include interest at the Internal Revenue Service rate for refunds. The City cannot impose fines or penalties for unreasonable rates and the Act preempts any state law which allows such punishment. The FCC is the sole forum for appeals of franchising authority rate decisions. Decisions can be appealed by either the cable operator or other interested parties. The standard of review is whether there was a reasonable basis for the franchising authority decision. within the initial 30-day period stating the reasons for the extension. During this extension, the City can solicit additional information from the cable operators and hear from interested parties. If no action is taken during these time periods, then the cable operators proposed rates go into effect, subject to refund orders. The franchising authority can still issue a written decision after this time ordering refunds. While the Act does not require formal rate hearings, the City must issue a written decision and provide public notice of the decision. Although no specific notice requirements are contained in the Act, FCC suggestions include placing notice on the cable system or in a newspaper. At a minimum, the City should comply with Brown Act notice requirements. The written decision must state the reasons the City is approving or disapproving the rates. No written decision is necessary if the franchising authority has approved the cable operator's proposed rates in their entirety and no one has objected. The cable operators must notify subscribers in writing of any proposed increases in rates for the basic service tier and accompanying equipment at the billing cycle which is at least 30 days before any proposed increase is effective. REGULATIONS OF BASIC GROUP TIERS The basic service tier Cable operators must offer includes at least: · · Ail local commercial and non-commercial educational television and qualified low-power station signals carried to meet the carriage obligations of Sections 614 and 615 of the Act. All public, educational and government ("PEG") programming which is actually used for PEG programming. · Ail television broadcast stations (such as ABC, CBS and NBC) offered by the cable operator, unless it is a secondarily transmitted by a satellite beyond the local service area of such a station (such as ~TBS out of Atlanta and WGN out of Chicago). 4. The cable operator can include other channels. The franchising authority can require that the PEG channels be carried on non-basic service tiers. By completing the FCC forms, the cable operator determines whether or not its rates are below the FCC benchmark. The basis of the benchmark formula is three characteristics the FCC found to have the most significant impact on rates: (1) the number of channels offered; (2) the number of subscribers served; and (3) the number of satellite-delivered signals. The benchmark formula is applied by inserting these three characteristics into a mathematical equation. The benchmark rate is based on a September 30, 1992, FCC study. Those systems below the benchmark will have rates capped at that level. Those systems which have rates greater than the benchmark will be required to reduce them to the lesser of the benchmark or 10%. CONCLUSION As stated in this report, in order to regulate rates the City must first apply for certification to the FCC. The effective date for regulation is September 1, 1993. Staff has been informed by the FCC that the forms for certification will not be available until October, 1993. At that time, should the City Council wish to proceed with a request to the FCC for certification staff will prepare the required documents. Robert S. Led&ndecke~/ Director of Public Works/City Engineer Katie~P~t~~ --- Administrative Assistant II RSL: KP: ccg: cabletv