R-9846
City Council Meeting: April 22, 2003
Santa Monica, CA
Resolution No. 9846
(City Council Series)
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF SANTA MONICA
ADOPTING A RATE ORDER REGARDING
THE BASIC CABLE SERVICE TIER AND
THE EQUIPMENT AND INSTALLATION RATES FOR
CENTURY-TCI CALIFORNIA, L.P.
(D/B/A ADELPHIA COMMUNICATIONS CORPORATION)
THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES RESOLVE AS
FOLLOWS:
WHEREAS, the City of Santa Monica (the "City") became certified to regulate
basic cable service fates and associated charges as of October 7, 1993, and has
followed regulations prescribed by the Federal Communications Commission ("FCC")
for the regulation of the basic service tier and associated equipment, installation,
services and charges (the "FCC Rules"); and
WHEREAS, Century-TCI California, L.P. (the "Company") submitted FCC
Forms 1240 and 1205 to the City on May 6, 2002 for the basic cable service tier and
equipment and installation (collectively, the "Rate Filings"); and
1
WHEREAS, the Company was permitted to implement its basic service tier
and its equipment and installation rate adjustments on August ,2002, such
adjustments subject to the City's right to adopt a rate order and order rate refunds; and
WHEREAS, the City issued a public notice seeking written comments from
interested parties on the Company's proposed rates, and the Rate Filings were made
available for public inspection in order to obtain comment from any interested party; and
WHEREAS, the City staff has made a recommendation to the City Council
("Council") regarding the Company's rates based on: (a) information contained in the
Rate Filings; (b) the assumed accuracy of that information; (c) comments, evidence and
information from interested parties; (d) the draft rate report prepared by the City's
financial consultant; (e) the Company's comments on the draft rate report; and (f) the
financial consultant's final rate report ("Final Report"); and
WHEREAS, the Company has the burden of proving by a preponderance of
evidence that its rates for the basic service tier, equipment and installations are
reasonable under the FCC Rules, 47 C.F.R. S 76.937(a); and
WHEREAS, the FCC Rules permit a franchising authority to disallow a cost
where an operator has failed to meet its burden under FCC Rules to demonstrate the
reasonableness of its rates, see, ~.g., In re Tel Cablevision of St. Louis, Inc., DA 97-
2099 (FCC Cable Services Bureau, reI. Sept. 29, 1997); and
2
WHEREAS, FCC Rules permit a franchising authority to establish maximum
permitted rates for equipment and installations based on the "best information
available" where a cable operator fails to meet its burden of proving that its proposed
rates are reasonable, 47 C.F.R. ~ 76.937(c); and
WHEREAS, the Company's Form 1205 establishes a rate for "Downgrade to
Basicn; and
WHEREAS, the FCC Rules state that "[d]owngrade charges that are the same
as, or lower than, upgrade charges are evidence of the reasonableness of such
downgrade chargesn; 47 CFR ~ 76.980; and
WHEREAS, the Company's rate card includes a charge of $29.00 for both the
"Trip Charge" and "Downgrade to Basic"; and
WHEREAS, the Company has previously stated that the Downgrade to Basic
requires a "truck roll plus the installation of a trap on the pole at the customer's home,n
and the City's January 2002 Rate Order established a rate for such service based on
such information; and
WHEREAS, the Company does not have a specific charge for the upgrade to
a service, but has previously stated that it charges a "Trip Chargen for, among other
things, converter installation and removal of pay service traps; and
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WHEREAS, the Company has failed to meet its burden of explaining why the
charge for a service upgrade requiring the installation of a trap and a truck roll is
significantly lower than the charge for a service downgrade requiring the removal of a
trap and a truck roll; and
WHEREAS, the Company has previously claimed that it takes on average one
hour to downgrade service to basic by undertaking a truck roll and removing a trap from
a pole; and
WHEREAS, the Company claims that it takes on average one hour to initially
install cable in a home that has never been wired for cable; and
WHEREAS, the Company has failed to meet its burden of explaining why it is
reasonable to assume that it takes the same amount of time to downgrade to basic
service as it does to do the initial install of cable service in an unwired home; and
WHEREAS, the City concludes that the maximum permitted rate for a "Trip
Charge" established herein is also a reasonable charge for a downgrade to the basic
tier that is not effected solely by coded entry on a computer terminal or by other
similarly simple methods; and
WHEREAS, the FCC Rules permit cable operators to aggregate, on a
company level, equipment costs "into broad categories," 47 C.F.R. 9 76.923(c)(1); and
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WHEREAS, the FCC Rules treat remote control devices as a broad equipment
category, 47 C.F.R. 9 76.923(a)(1); and
WHEREAS, the Company's rate card establishes a $0.25 rate for a universal
remote control device; and
WHEREAS, the FCC Form 1205 does not include a calculation for a universal
remote control device in the amount of $0.25; and
WHEREAS, the Company chose to consolidate its rates for categories of
equipment pursuant to 47 C.F.R. 9 76.923(a)(1), and calculated a maximum permitted
rate of $0.28 for remote control devices; and
WHEREAS, the City concludes that $0.28 is a reasonable maximum permitted
rate for a universal remote control device; and
WHEREAS, the Company's rate card includes rates of $33.00 for a 'Transfern
of service and $28.00 for "Non-Pay Reconnect," but such rates were not calculated on
the FCC Form 1205; and
WHEREAS, Adelphia previously stated that it takes on average 0.75 hours to
complete such installations; and
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WHEREAS, assuming an installation took 0.75 hours, the maximum permitted
rate for both services would be $35.40; and
WHEREAS, a rate of $33.00 for a 'Transfern of service and a rate of $28.00 for
"Non-Pay Reconnect" do not appear to be unreasonable; and
WHEREAS, the Company's Form 1205 includes a rate of $0.92 for a "lease of
additional outlets"; and
WHEREAS, the Company does not include a charge for "lease of additional
outletsn on its rate card and has informed the City that it does not impose such a charge
in Santa Monica; and
WHEREAS, the Company's rate card includes a charge of $0.95 for the lease
of a non-addressable converter box; and
WHEREAS, the Company informed the City that the rate card was in error and
that it no longer charges subscribers for non-addressable converter boxes; and
WHEREAS, the Council has considered the City staff's recommendations and
the reasons therefore; has received and considered comments from the public; has
reviewed and hereby adopts (and by this reference incorporates herein), as appropriate
and to the extent not inconsistent with this Rate Order, the findings, assumptions and
other information set forth in the financial consultant's Final Report;
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NOW, THEREFORE, IT IS ORDERED THAT:
1 The maximum permitted rates on and after August 1, 2002 for the basic
service tier and for the equipment and installation charges set forth below are as
follows:
Maximum Permitted Rate 1
BASIC SERVICE TIER
FCC Maximum
Permitted Rates
~-~~-----"~-~--~
$34.19
EQUIPMENT & INSTALLATION: ~.'.
Houri Service Chal'i e
Unwired Homes
Prewired Homes
Under: round Burial
Relocate Service
_Trip Charge
_Downgrade to Basic (Nonaddressable)
__ Additional Connection (initial trip)
_ Additional Conne~!ion (sepc~I~te trip)
Changing Tier (addressable)
_---L~nsfer ~
Non-Pay Reconnect
___ Remote Control Device (Addressab~L
____ Remo!~ Control Device (Universal)
Remote Control Device Di ital
Converter Box JAddressabl~
Converter Box (Non-Addresl)!lble
__ Converter Box (Digital
Lease of Additional Outlets
_~7.20 I
47.20 I
35.40 !
___.82.60 I
35.40 I
31.62 I
-~
31.62 i
23.60 I
I
.. 35.40 I
2.00 I
33.00 i
I
28.00 i
--~
.28 i
--~
.28 ;
--~
_~82 i
.00 i
---~
3.82 I
.00 I
The rates set forth in this Paragraph shall remain in effect until the date in 2003 the
Company is permitted by the FCC Rules to adjust such rates pursuant to its next FCC
Form 1240 and Form 1205 rate filings.
1 All rates listed in this Rate Order exclude franchise fees.
,2. 1lIeCOmpeny.....~. "'POI1iDnOfIhe.(PhIe ~)~ by
subscribers for the basic service tier and equipment and installations described in
~ 1 . the .... tvoh.... exceed the rates ap~ih~t. ,~
Company shall not offset refunds by the amount of any discounts provided to
subscribers on the basic service tier, equipment and installation rates subject to this
Rate'Ottt8r. 'DIe ttl#undpelftGd .... ~n~ the date th8~ ~..
refunds required by this Rate Order back to August 1,2002. With respect to each
affected subscriber entitled to a refund, the Company shall implement the refunds
within sixty (60) days after the date of this Rate Order.
3. Within five (5) days after the date of this Rate Order, the Company shall
submit a written plan to the City Manager which, at a minimum, shall set forth the
Company's method of providing refunds to subscribers (plus interest), if any, pursuant
to Paragraphs 1 and 2; identifies the basis for the calculation of the amount of refunds;
identifies the amount of the refund; identifies the applicable interest rate and explains
how it was calculated; provides the actual rates charged subscribers for equipment and
installations each month during the refund period; and explains how the rate refunds
ordered herein shall be implemented. Such plan is subject to the City Manager's review
and approval. The Company's obligation to submit such plan shall not affect the
Company's obligation to implement rate refunds, as set forth in Paragraphs 1 and 2.
4. In the event any of the Company's current rates are above the level set
forth in Paragraph 1, the Company shall adjust such rates to the levels set forth in
Paragraph 1 within 60 days after the date of this Order.
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5. The Company may not increase the rates for any of the items listed in
Paragraph 1, nor may the Company institute new charges for other types of service,
equipment or installations associated with the basic service tier which are not listed in
said Paragraph, without first complying with applicable law or regulation, including the
FCC Rules.
6. Nothing in this Rate Order prohibits the Company from submitting with its
2003 rate filing a proposed rate for Downgrade to Basic for review by the City that
satisfies the Company's burden of demonstrating that the rate is permissible under the
FCC Rules.
7. The Council reserves the right to modify this Rate Order if, at any time, it
determines that information the Company provided to the City is incorrect in any
material manner.
8. The City Manager is ordered to mail a copy of this Rate Order to the
Company, provide appropriate public notice of this Rate Order, and make a copy of this
Rate Order available to any person upon request.
9. The City Clerk shall certify to the adoption of this Resolution, and
thenceforth and thereafter the same shall be in full force and effect.
APPROVED AS TO FORM:
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Adopted and approved this 22nd day of April, 2003.
I, Maria M. Stewart, City Clerk of the City of Santa Monica, do hereby
certify that the foregoing Resolution No. 9846 (CCS) was duly adopted at a
meeting of the Santa Monica City Council held on the 22nd day of April, 2003,
by the following vote:
Ayes:
Council members: O'Connor, Genser, Pro Tem McKeown, Feinstein,
Mayor Bloom
Noes:
Council members:
Abstain: Council members:
Absent: Council members: Holbrook, Katz
ATTEST:
~ ~..
" _ '...' , ~ _ _ ,', _, 'L:_ ',', - ,,' _ ',:',;
_, .....tio~ ......,' .... .... .<~."', ..
.: · . "M. ~ . ..... .... . . Clerk
Attachment B
Council Mtg: 4-22-03
KAISER SCHERER & SCHLEGEL, PLLC
Certified Public Accountants
1899 L Street, N.W.
Suite 11 00
Washington. D.C. 20036
Tel: 202-466-4656
Pax: 202-331-8342
E-mail: us@uaacctcom
March 31, 2003
Mr. William Cook, Esquire
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Re: FCC Forms 1240 and 1205 filed with the City of Santa Monica Infonriation
Technology Agency by Adelphia Communications Corporation
Dear Mr. Cook:
Independent Accountants' Reoort
on Aoolvimz Alrreed- Upon Procedures
You have asked us to analyze the FCC Form 1240, dated April 19, 2002 setting basic
service rates for the period August 1,2002 through July 31,2003 and the FCC Form 1205, dated
April 19, 2002 using data from th~ fiscal year ending December 31, 2000. These forms were
filed with the City of Santa Monica, California ("Santa Monica") by Adelphia CommWlications
Corporation (" Adelphia") regarding Franchise Community Unit Identification Number CA0456.
The purpose of ow analysis was to assist Santa Monica in its determination of whether the rates
proposed by Adelphia for basic service and equipment for its Santa Monica system are
reasonable Wleier the regulations adopted by the Federal Communications Commission ("FCC"),
as such rate regulations have been amended from time to time.
We have performed the procedures enumerated at Exhibit L which were agreed to by
Santa Monica, solely to assist Santa Monica with respect to the determination of whether the
basic service rates and equipment rates proposed by Adelphia are reasonable.
This engagement to apply agreed-upon procedures was performed in accordance with
standards established by the American Institute of Certified Public Accountants. The sufficiency
of the procedures is solely the responsibility of the specified users of the report. Consequently,
we make no representation regarding the sufficiency of the procedures described at Exhibit I
either for the purpose for which thi& report bas been requested or for any other purpose.
While our efforts involved the analysis of accounting records and other information
supplied by Adelphia, we did not perform an audit of Adelphia's financial statements in
accordance with generally accepted auditing standards. Had we performed additional procedures
or had we made an examination in accordance with generally accepted auditing standards, other
matters might have come to our attention that would have been reported to you. Furthermore,
our report assumes that the information provided and representations made by Adelphia are true
and accurate. Our analysis and this report are intended solely for use by Santa Monica for the
purpose described above. This report is based on work performed to date and the regulations
adopted by the FCC.
Copies ofthe FCC Forms 1240 and 1205 submitted by Adelphia have been submitted
separately and are incorporated by reference.
ADELPHIA COMMUNICATIONS CORPORATION
FORMS 1240 AND 1205
SUMMARY OF RATES Effective
Adelphia Oct. 1, 2002
Computed Adelphia
Rates Rate Card
Basic Service Rate, exclusive
of Franchise Fees and FCC
regulatory fees $34.19
Operator Selected Basic Rate 26.24 $26.24
Equipment and Installation Rates
Hourly Service Charge 47.20
Unwired Homes 47.20 44.00
Prewired Homes 35.40 33.00
Underground Burial 82.60 75.00
Relocate Service 35.40 33.00
Trip Charge 31.62 29.00
Downgrade to Basic 47.20 29.00
Addt'l Connections (initial) 23.60 22.00
Addt'l Connections (separate) 35.40 33.00
Charge for Changing Tiers 2.00 2.00
Transfer 33.00
Non-Pay Reconnect 28.00
Lease of Remote Controls
Addressable and Digital 0.28 0.25
Universal 0.25
Lease of Converter Boxes
Addressable and Digital 3.82 3.25
Non-addressable (Note 1) .95
Lease of Additional Outlets (Note 1) 0.92
Note 1: Adelphia stated in a letter dated January 16, 2003 that the rate card was in error.
Adelphia no longer charges subscribers for non-addressable converters. Adelphia also does not
charge for additional outlets in Santa Monica.
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SUMMARY OF FINDINGS
This section presents a summary of the results of our analysis for those items that, based
on a review of the information provided and procedures performed, we believe should be
considered by the City of Santa Monica in its review of the FCC Forms 1240 and 1205 submitted
by Adelphia and the rates proposed therein.
BASIC RATE
Based on the work performed at Exhibit I, we do not propose any adjustments to the
Adelphia computed Maximum Permitted Rate of $34.19 for basic service.
EQUIPMENT AND INSTALLATION RATES
Form 1205 is used to develop equipment and installation rates based on an operator's
actual costs, as determined according to FCC guidelines and procedures. Pursuant to the
Telecommunications act of 1996, the FCC has modified the rules to allow a cable operator to
prepare the Form 1205 based on the level at which it aggregates its costs. This leads to average
rates applicable throughout a region or throughout the country rather than rates that may differ
from system to system. Adelphia chose to file the Form 1205 setting rates as of October 1,2002
using data from its Los Angeles Region.
Furthermore, Adelphia has chosen to aggregate its converter and remote equipment costs
under broad categories. Adelphia has computed one converter rate for addressable and digital
converters and one rate for remotes and digital remotes.
Based on the work performed at Exhibit I, we do not propose any adjustments to the
Adelphia computed Maximum Permitted Rates outlined in the Summary of Rates above except
as set forth below:
In addition, as noted in the prior year report, Adelphia's Form 1205 establishes a $47.20
rate for "Downgrade to Basic." Adelphia bears the burden of establishing the reasonableness of
this rate, and Santa Monica has the right to establish a rate based on the "best information
available" where a cable operator fails to meet its burden of proving that its proposed rate is
reasonable. The FCC rate regulations state that "[ d]owngrade charges that are the same as, or
lower than, upgrade charges are evidence of the reasonableness of such downgrade charges," 47
C.F.R. 976.980. Adelphia does not have a specific charge for the upgrade to a service, but stated
in the prior filing that it charges a "Trip Charge" for among other things, converter installation
and removal of pay service traps. Based on the best information available, it would be
reasonable for Santa Monica to conclude that the $31.62 is a reasonable rate for a downgrade to
basic that requires a trip. Additionally, we note that Adelphia states on its rate card that it
charges subscribers $29.00 for both the trip charge and the downgrade to basic charge.
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As stated in our prior report, we noted that Adelphia's rate card accompanying this filing
listed two installation rates that were not computed on the Form 1205: charges for "Transfer" of
$33.00 and "Non-Pay Reconnect" of $28.00. The FCC rules require that all rates for installations
charged to basic subscribers be computed on the Form 1205. Adelphia did not provide time
studies or other documentation demonstrating the actual average time it takes to complete such
installations with its Form 1205. However, Adelphia stated in the prior year filing that both
services took .75 hours. If we accept .75 hour for these services, the maximum permitted rate for
both services would be $35.40. Therefore, a rate of $33.00 for "Transfer" and $28.00 for "Non-
Pay Reconnect" do not appear to be unreasonable.
We have no responsibility to update this report for events and circumstances occurring
after the date of this report.
Very truly yours,
Ann M. Bryan
ab\sm 12402003 .rpl.doc
5
ADELPHIA COMMUNICATIONS CORPORATION
I FORMS 1240 AND 1205
EXHIBIT I
PROCEDURES
The procedures we performed included, but were not limited to, the following:
1. We received a copy of the FCC Form 1240, setting rates as of August 1, 2002, dated
April 19, 2002, filed with the City of Santa Monica by Adelphia. We also received the
attached Form 1205, dated April 19, 2002.
2. We recomputed the FCC Forms 1240 and 1205.
3. We developed an understanding of the assumptions and computations used by Adelphia
in completing the FCC Fortns 1240 and 1205 and analyzed the proposed rates in relation
to the explanations and information provided by Adelphia with the filings and in the
response to a supplemental request for information dated January 16,2003.
4. We developed an understanding of the computations required in the Form 1240 as stated
briefly below:
The Form 1240 is used to evaluate regulated cable rates on or after September 15, 1995
by giving regulated cable operators the option of filing for rate adjustments on an annual
basis instead of on the existing quarterly system.
The maximum permitted rates for this period are computed by using seven segments:
Headend Upgrade Segment;
External Costs Segment--siDc external costs are allowed to be passed through directly to
subscribers: programming fees associated with channels added prior to May 15, 1994 or
added after May 15, 1994 using the Markup Method, retransmission consent fees,
copyright fees, cable specific taxes, franchise related costs, and FCC regulatory fees;
Caps Method Segment;
Markup Method Segment;
Channel Residual Segment;
True-Up Segment--contains the compensation for overcharges and undercharges which
have occurred during the Tree-Up periods; and
Inflation Segment--allowances for the effects of inflation on the operator's costs.
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PART I: PRELIMINARY INFORMATION
Module A: Maximum Permitted Rate from Previous Filing
Al We agreed the current maximum permitted rate input by Adelphia to the previous FCC
Form 1240.
Module C: Inflation Information
C3-C5.We recomputed the inflation percentage after agreeing the monthly rates to the
appropriate FCC Public Notices.
Module D: Calculating the Base Rate
02. We compared the current external costs stated on Line D2 to the previously submitted
FCC Form 1240, noting any discrepancies.
08. We recalculated the base rate on Line 08 and agreed this amount to Line 14 from the
previously adjusted Form 1240, net of the GAP external cost adjustment.
PART II: TRUE-UP PERIOD
Module F: Maximum Permitted Rate for True-Up periods 1 and 2
F4. We recalculated the True-Up period rate eligible for inflation on Lines F4 and G4.
F5. We recalculated the inflation segment for True-Up period on Lines F5 and G5
Module H: True-Up Adjustment
H14. We recomputed the True-Up adjustments.
PART III: PROJECTED PERIOD
14. We recalculated the Projected period rate eligible for inflation on Line 14.
15 We recalculated the inflation segment for Projected period on Line 15.
17. We agreed the external costs segment for Projected period to the amount on Worksheet 7.
19. We recalculated the maximum permitted rate for the Projected period.
WORKSHEET 7: EXTERNAL COSTS TRUE-UP AND PROJECTED PERIODS
We agreed the information in Questions 1 through 3 to the applicable information on the
front page of the filing.
We compared the amount stated for current cost of programming to amounts stated in
prior FCC 1240 for reasonableness. We agreed the cost per subscriber to the attached
documentation.
We compared the amount stated for copyright fees to supporting documentation.
We recomputed the monthly per-sub external costs on Line 710.
FORM 1205
1. We agreed the amounts for the assets listed on Schedule A: Capital Costs of Service
Installation and Maintenance of Equipment and Plant to various supporting documents
provided by Adelphia.
2. We recomputed the depreciation expense percentage for reasonableness.
3. We agreed the amounts for Schedule B: Annual Operating Expenses for Service
Installation and Maintenance of Equipment to supporting documentation provided by
Adelphia. We compared the costs to prior years for reasonableness. We noted that this
filing was based on 138 CUlDs and the prior filing included 89 CUIDs. The costs and
hours dramatically increased in this filing. The hours increased from 388,162 to 622,150
(60% increase) and the costs increased from $17,336,504 to $29, 987, 615 (73%
increase). The result is a 6% increase in the HSC from $44.66 to $47.20.
4. We agreed the amounts for the assets listed on Schedule C: Capital Costs of Leased
Customer Equipment to various supporti~g documents provided by Adelphia.
5. We compared the computed rates to the published rate card effective as of October 1,
2002. We noted several variances as discussed in the report above.
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