OR 2000-913 Cable Equipment Fees AN ORDINANCE OF THE CITY OF COPPELL, TEXAS
ORDINANCE NO. 2000913
AN ORDINANCE OF THE CITY OF COPPELL, TEXAS,
ESTABLISHING FINDINGS AND THE MAXIMUM PERMITTED
EQUIPMENT RATE CHARGED BY PARAGON CABLE; PROVIDING A
REPEALING CLAUSE; PROVIDING A SEVERABILITY CLAUSE; AND
PROVIDING AN EFFECTIVE DATE.
WHEREAS, the City of Coppell, 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
Coppell and Paragon Cable ("Paragon"); and
WHEREAS, in accordance with applicable provisions of the Telecommunications Act of
1996 (the "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 are related equipment and installation charges and
providing for a reasonable opportunity for interested parties to express their views concerning
basic cable regulations; and
WHEREAS, on or about October 1, 1999 the City reviewed what is commonly known as
FCC Form 1205; and
WHEREAS, the City has caused to be audited and has concluded that said proposed rates
for maximum permitted monthly lease rates in Form 1205 are inappropriate;
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE
CITY OF COPPELL, TEXAS:
SECTION 1. That after review the following are ordained findings of this City Council:
A. That on or about October 1, 1999, the City of Coppell received Paragon's FCC
form 1205 filing.
B. That the City reviewed Paragon's FCC Form 1205 to determine the
reasonableness of the proposed monthly equipment lease, installation and
maintenance rates.
C. That the findings of the C2 Consulting audit, which is attached hereto and
incorporated herein by reference as Exhibit "A", are hereby established as
findings.
D. That based upon the information received from Paragon, the City concludes that
the rates proposed by Paragon for maximum permitted monthly lease rates are not
reasonable.
SECTION 2. That the City has an obligation to timely act upon the pending rate
application consistent with current FCC rules and regulations and that Paragon' s submittal of the
FCC form 1205 received on or about October 1, 1999, is hereby rejected for the reason that the
proposed rate is not reasonable.
SECTION 3. That the City hereby further ordains:
A. That Paragon's request for maximum permitted monthly lease rates of $3.44 for
addressable converters and $0.64 for non-addressable converters included in its
Form 1205 filing is hereby denied.
B. That based on the information received from Paragon and recommendations from
C2 Consulting Services, Inc., which is attached hereto and incorporated herein by
reference as Exhibit "A", the maximum permitted rate for the monthly lease rate
for addressable and non-addressable converters is established at $3.39 and $0.62
respectively effective July 1, 2000.
SECTION 4. All provisions of the ordinances of the City of Coppell in conflict with the
provisions of this ordinance be, and the same are hereby, repealed, and all other provisions of the
ordinances of the City of Coppell not in conflict with the provisions of this ordinance shall
remain in full force and effect.
SECTION 5. Should any sentence, paragraph, subdivision, clause, phrase or section of
this ordinance be adjudged or held to be unconstitutional, illegal or invalid, the same shall not
affect the validity of this ordinance as a whole, or any part or provision thereof other than the
part so decided to be invalid, illegal or unconstitutional, and shall not effect the validity of the
Code of Ordinances of the City of Coppell, Texas.
SECTION 6. That this ordinance shall take effect immediately from and after its
passage and publication, as the law and charter in such cases provide.
DULY PASSED by the City Council of the City of Coppell, Texas, this ~, ~ day of
d.~ta:~t~, 2000.
APPROVED:
By: C/)~~~&-
CAND~ S~-t'E'~HAN, MAYOR
ATTEST:
~_~H ~,~
LIBBY B/~tTL,'C~'~Y SECRETARY
ZTTROVE~~/d
~)~EP~T ]~. ~I~GER, CITY ATTORNEY
(REH/cdb 06/22/00)
3 32817
.TING SERVICES, INC.
7801 Pencross (972) 726-7216
Dallas. Texas 75248 (972) 726-0212 (fax)
I
January 28, 2000
Mr. Rick Moore
City of Coppell
PO Box 478
Coppell, Texas 76019
Dear Mr. Moore:
C2 Consulting Services, Inc. CC2'') has completed the evaluation of the FCC Form 1205 filed by
Paragon Cable ("Paragon" or the "Company") with the City of Coppell, Texas ("City") on or
about September 30, 1999. This is Paragon's first year to file a Fonn 1205 for City review of
regarding its proposed changes in equipment monthly lease rates and installation and maintenance
charges since implementation of the Social Contract provisions in 1996.2 In August 1999,
Paragon opted out of the Social Contract provision that established regulation of such installation
and equipment maintenance costs by the FCC.2 Therefore, Paragon has filed for review of these
proposed rates by each oft he franchising authorities' with jurisdiction over such rates.
This study does not constitute an examination of the financial condition of Paragon or its parent
company. As such, 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.
BACKGROUND
In its 1999 Form 1205 filing for the 2000 rate year, Paragon proposes to decrease all its 1999
rates with the exception of the monthly charge for addressable converters. This rate is being
increased form $2.76 to $3.44 per month per converter-a twenty five percent (25%) increase.
The following table provides a comparison of Paragon's 1999 rates and Paragon's proposed 2000
Form 1205 rates:
~ Social Contract for Time Warher Cable ("Social Contract';), as approved by the FCC in Social Contract
for Time Warner, Memorandum Opinion and Order, FCC 95-478, released November 30, 1995, ("Social
Contract Order").
2 See Social Contract, III. B.
Mr. Rick Moore
January 28, 2000
P~e 2
COMPARISON OF EQUIPMENT AND INSTALLATION RATES
Paragon
Paragon Proposed
1999 MPR* 2000 MPR* Difference
Houdy Sentice Charge $29.84 $29.78 $(0.06)
Service
Install - Unwired home $29.84 $29.78 $(0.06)
install - Prewired home $17.31 $17.27 $(0.04)
Install - Additional connect initial $13.40 $13.40 0
Install - Additional connect separate $27.46 $27.40 $(0.06)
Truck Trip $17.31 $17.27 $(0.04)
Change of sentice tier $29,84 $29.78 $(0.06)
Monthly Lease Rates
Remotes $0.31 $029 $(0.02)
Non addressable converters $0.84 $0.64 $(020)
Addressable converters $2.76 $3.44 $0.68
*Maximum Permitted Rate
Par~on's proposed 2000 rates are based on a single Form 1205 calculation that was provided to
each of the franchising authorities impacted. However, each of the components of the aggregated
filing is a sum of that same component on Form 1205 filings developed for the following five
Time Wamer divisions operating in Texas:
· Austin Division
· Houston Division (East and West, with East being previously operated by TCI)
· San Antonio Division
· Southwest Division
· Waco Division
Therefore, each individual Form 1205 must be reviewed for accuracy and the appropriateness of
any computations.
ANALYSES OF THE FILINGS
Project Objectives and Activities
The project objectives are three fold:
1. Assessment of the completeness of the filings with regard to the information and
documentation that must be filed with the City.
2. Assessment of the reasonableness of the proposed computations in light of FCC
regulation, recent FCC rulings and prior ownership and operations of the system
included in the calculations.
3. Assessment of the reasonableness of the proposed computations in light of Paragon's
proposed method of aggregation.
Mr. Rick Moore
January 28. 2000
Page 3
Given these objectives, C2 conducted the following project activities:
· Review of the filings to assess the completeness based on the FCC Form 1205
instructions.
· Review of the filings to identify any issues with respect to the data and/or
methodologies employed by Paragon.
· Submission of follow-up data requests and subsequent review of Paragon's
responses.
· Review of recent FCC decisions that may have an impact on Paragon's proposed
methodologies or the City's alternative actions.
· Development of potential alternatives available to the City in establishing maximum
permitted equipment and installation rates.
Summary of Findings
C2 identified two main issues with respect to Paragon's proposed computations of maximum
permitted equipment and installation rates. The issues are:
1. The computation of the Hourly Service Charge CHSC') and the monthly lease rates
inappropriately include both the costs and hours related to converter retrieval in the
previously owned TCI systems.
2. It does not appear that Time Warner has instituted adequate quality control measures
to assure that the five Texas divisions follow standard methods by which the data are
derived, accumulated and/or allocated to the Form 1205 computations.
1. Converter Retrieval Costs/Hours in HSC and Converter Lease Rates
Within the Houston Division are a number of previously owned and operated TCI systems that
were transferred to the control of Time Warner in November 1998. Prior to that time, TCI had
filed aggregated Fonn 1205s that included all its owned and/or managed systems on a national
basis.
C2 reviewed the TCI Form 1205s for these ~stems for the period 1996 through the 1998. In
1999, Time Warner presented the Form 1205 filing based on information that was provided by
TCI.3 In the 1996-1998 filings, C2 determined costs and hours concerning converter retrieval
had inappropriately been included in the development of the HSC and the monthly equipment
lease rates. C2's argument was premised on (1) these costs (and hours) were not related to "new
activities," but in fact, were related to activities conducted during the period of "unbundling" in
the Form 1200/1205 process; and (2) TCI had not unbundled the costs related to these activities
into the equipment basket (thereby continuing to recover them from the monthly programming
services rates). C2 concluded that allowance of these costs in the equipment basket would
provide for a double recovery from the subscribers served by these systems.
In the 1999 Time Warner Form 1205 filing related to the systems that had been transferred from
TCI, TCI provided Time Warner with computations that did not include converter retrieval costs
or hours. These 1999 filed rates are the rates that were adopted by the franchising authorities.
3 Time Warner's 1999 Form 1205 filing in the Houston East systems was based on a fiscal year end
December 31, 1998.
Mr. Rick Moore
January 28, 2000
Page 4
However, in the instant filing, Paragon has included converter retrieval costs and hours again for
these prior TCI systems. Not only is the Company collecting from the basic service rates in the
Houston systems, but it is also attempting to collect these same costs fi'om all other subscribers
through equipment and installation rates.
The FCC recently ruled on this issue in DA 99-2227:
MACC disallowed TCI's recovery of costs associated with disconnects and converter
retrievals based on the consultant's finding that these costs were not unbundled from the
operator's programming charge. TCI appealed this action but does not dispute the
unbundling finding. Because an operator cannot include in the equipment basket costs
that were lef[ in the base programming service rates.. . TCI's appeal on this point is
denied.4
Therefore, the inclusion of the converter retrieval costs and hours by Paragon in the previously .
managed TCI systems should be disallowed in determining the combined divisions' HSC. In
addition, the labor costs assigned to the repair and maintenance of converters should not include
the hours related to the retrieval of converters from the subscribers' premises for these systems.
Based on the information provided, the impact of deducting the converter retrieval costs and
associated hours from the Houston Division East's Form 1205, and thereby reducing the
combined Form 1205 computations, results in no change to the HSC, but reduces the monthly
equipment lease rates as follows:
· Non addressable converters - $0.64 to $0.62
· Addressable converters - $3.44 to $3.39
2. Apparent Lack of Standard Quality Controls
During the review of the five Texas divisions' Form 1205 computations, C2 noted that the
development of certain data and/or mcthodologics varied among divisions. For example, some
systems used the actual contract labor costs and others developed an average annual cost based on
average annual jobs times average costs per job. The supporting documentation provided by each
division also varied significantly.
For purposes of the instant filing it does not appear that the lack of standardization has resulted in
any significant impact to rates (outside of the above issue, and in light of the fact that most of the
rates have been reduced for the 2000 rate year). However, for future filings, Paragon should be
required to demonstrate that a standard methodology is being used, that the divisions are
following such standards, and that the Company has instituted quality control measure to test the
reliability of each division' s computations.
SUMMARY OF RECOMMENDATIONS
Based on the above findings and conclusions, the City should consider taking the following
actions:
1. The City should consider disallowing the converter retrieval costs and hours used in the
4 Memorandum Opinion and Order, DA 99-2227, released October 21, 1999, paragraph 18.
Mr. Rick Moore
January 28, 2000
Page 5
development of the Houston Division' s East Form 1205.
2. The City should consider adopting a maximum pemdtted non-addressable converter rate
of $0.62 per month.
3. The City should consider adopting a maximum perutilted addressable converter rate of
$3.39 per month.
4. 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 mount should accrue to the time the refund is
issued.
5. The Company should be required to institute quality controls for consistency in the
reporting of data by Time Wamer divisions should the Company continue to employ this
aggregated methodology.
C2 appreciates having this oppommity to work with the City of Coppell in review of the Form
1205 rates. If you have any questions regarding this report or need clarifications as to the
recommendations, please contact Ms. Connie Cannady at (972) 726-72 16.
Very truly yours,
C2 Consulting Services, Inc.
PARAGON
C A B L E
May 11, 2000
Mr. Rick Moore
City of Coppell
255 Parkway Blvd
Coppell, Texas 75019
RE: Rates for Basic Cable and Equipment Rates
Dear Mr. Moore:
This letter is to officially notify you that Paragon Cable is implementing rates for Basic Service
and for Addressable and Non-Addressable Converter Rental recommended by C2 Consulting,
effective no later than July 1, 2000. Refunds for overpayment plus interest, where applicable,
will be accomplished via one-time credits to affected customers' accounts.
Customers who will experience an effective rate change resulting in a refund will be notified
directly on their billing statements at the time the refund and rate change is reflected on the
statement. Customers who ~vill not experience an effective rate change or refund will be notified
via legal advertising in local newspapers. Digital package customers, whose services and
equipment rates already are discounted, are not affected.
If we can provide additional information, please call me at 972-501-7144, or Dennis Moore at
972-501-7001. Thank you.
Sincerely,
a'C_i~an Patteff
Vice President of Government and Public Affairs
Time Warner Cable, Southwest Division
CC: Dennis Moore, General Manager
2951 Kinwest Parkway, Irving, Texas 75063-3498
972/501-7000 Fax 972/501-7070
A Time Warnet Company