SR-010996-6ECv! KKV : ckll f \c'ranager\
cable\radsbrc
Cz:.y Council: Jan. 9, 199
Sar_ta Monica, Califorr~ia~A~ ~ 9 ,~~ +
TO Mayor and City Council
FROM City Staff
SUBJECT: Recommendation to Adcpt Resolution Regarding A Rate
Order for "SmartBox" Converter and "Universal" Remote
Control Device Rates for Century Southwest Cable
Television, Inc
INTRGDLTCTION
This report recom.r~ends -hat the City Ccur_cil issue by resolution a
rate orde_,.tc Century Southwest Cable Television, Inc ("Century")
which establishes rates for the "SraartBox" converter and
"Universal" remote control dev7ce, and orders Century to issue
refur_ds, if any.
BACKGROUND
The City has been certified by the Federal Communications
Comrnissior_ [FCC? to regulate basic cable television rates ~whi ch
includes the "basic cable" tier and rates for associated equipment,
installation and services?. Pursuant tc FCC regulations, a cable
company =rust ~usti`y the rates it charges as reasonable in
accordance with federally-devised formulas. The City serves as the
i~r;plementing agency for determining Century`s compliance with the
federal regulations.
bE
JAN 0 9 1996
The .'CC has set forth specific procedures for franchising
authorities and cable companies to `ollow in establ=shing rates for
t:~e period com-r~encing after July 14, 1994. Under those procedures,
Century must justify its rates, and any increases in its rates, by
filing the appropriate FCC Form 1200 Series rate filing. The City
and Century have been oroceeding in accordance w~.th these
procedures
Because threshold issues regarding Century Select rates are already
on appeal before the FCC, the City and Century entered into an
agreement to defer further review of certain of Century's FCC Farm
1200 series rate filings pending completion of current appeals
before the FCC, and jud=coal review if any, and to extend Century' s
refund liabil_ty period This agreement preserves the City's right
to order refunds if rates set forth in the 1200 series rate filings
are found unreasonable under the FCC rules, but minimizes further
litigation costs to the Crty in the interim. However, the deferral
affected by the agreement dces not apply to Century's rate filings
for the "SmartBox" cenverter and associated remote control device
a:~d the "Jniversal" remote control device.
Century subrtiitted an FCC Forr- 1205 rate filing to the City on
February 14, 1995 for the "SmartBox" converter and its associated
remote control device. On May 19, 199, Century submitted an FCC
Form 1205 rate filir_~ for the "Universal" remote control device.
Cer_tu-ry has cor_f=rr~ed t^at the "Tniversal" remote control device is
2
the same piece of equipment as the remote control device associated
with the "SmartBox". Bath devices are referred to below as the
"Universal" remote control device The City reviewed the rate
filings submitted by Century and supplemental .reformation requested
by the City.
The chart below sets forth: (a) the maximum permitted rates
recommended by the City's financial consultant for the "SmartBax"
converter and the °Universal" remote control device, and {b)
Century's proposed rates .or the converter and "Universal" remote
control device
Recommended Rate
Century's Proposed
Maximum Permitted Rate
"Universal" Remote
Control Device ~ 71
"SmartBox" Converter $2.29
$1.~6
$3.20
Century stated that it would offer subscribers -- other than
"basic-only" subscribers (i e., those subscribers receivrng basic
cable service, but not Century Select and other premium services) -
- the equipment aY a special discounted rate of $0.99 per month for
the "SrnartBox converter and $0.00 for the "Universal" remote
control device Cen~ury recently informed City staff that ~t did
r_ct interd tc discont~ nue such discounts prior tc January 31, 1996.
3
Century states that ~t provides a ccnverter box, including the
"SmartBox" converter box, to "basic-only" customers at no charge
{i.e., no installation fee or monthly rental fee). Century
requires that "basic-cr_ly" subscribers use a converter box to
receive basic cable serv_ce. The converter box is used to block
the "Century Select" tier signal, wh-ch "basic-only" subscribers
migrt otherwise receive over their cable-ready televisions.
The rates established by the attached Rae Order would be ire effect
until Century is perm-tted by FC'C regulat'on to adjust the rates
pursuant to tre Company's November 5, 1995 FCC Form 12C5, subject
to City review of such rates.
City staff believes that the City should issue a rate order to
establish the r•Zax-mum permuted rates recommended by the `financial
consultant For the "SmartBox" converter and "Universal" remote
control device during the period covered by the rebruary 1~, _995
ar~d May ~9, 1995 Form 1205 rate fz'~ir_gs, and to order refunds of
overpay-nent, zf ar_y, For the "SmartBox" converter and "Universal"
remote control devices during such period
$UDGET IMPACT
There is no Czty budgetary impact resulting from thQ issuance of
this rate order.
G
RECOMMENDATION
City Staff recommends that City Council adept the attached rate
order to establish the rates fcr the "SmartBox" converter and for
the "Un-vernal" remote control device during the period under
review, and to order refunds, if any, of overpayment for such
equipment during such period
prepared by Kathryn Vernez, Senior Management Analyst
Linda A. Mills-Cayne, Deputy Czty Attorney
Robin Gee, Cable Manager
AttachMents Resolution
Kaiser Scherer & Schlegel Final Financial Report
5
CM,KRK;cK- ~ ~cmanager\
cab.le'~reso~an9 Santa Monica, Calyiornia
City Counc.l Mtg man. 9, 1995
RE50LliTION NG. 8979 (CCS}
(amity Cauncili
A RESO~TJTION OF THE CITY COURTCI~ OF
THr CITY OF SA:'~TTA MOATI CA
ADOPTING A RATE ORDER REGARDING
"SM_ARTBCX" COa?~lVERTER ANL~ "L7I~TIVERSAL" REMOTE CONTROL
DEV-CE RTES OF CEN?'URY SOUTHWEST CAELE TE~,EVISION, INC.
WIiEREAS, the City of Santa Monica (the "City"? became
cert~f~ea ~c recru~ate basic cable service rates and associated
charges as cF October 7, 1993, ar~::~ has Followed regulations
F ~e5~'_'-l,~e•'~ bV the Federal Commun~catic:~s Commission ! °FCC" } for the
r~~u=av~on o= tre basic ser-ice ~,er and associated equipment,
~r.s~allati^~r~, services and charges (the "FCC Rules"}, and
'vdH_REyS, Cen-ury Southwest Cable Televis~or~, Ir~c. (the
"Cc-rr:~ny" : subr~~ tted an FCC ~'crrl 205 to the City on February 14,
G9~ _`or `=^e "Sr~artBox" converter ana associatea remote control
dc=r~ce, ar_ FCC FOrI^1 =20~ v~ Naay 19, 1995 For tY:e "Un1_Ve?"Sal" remote
:~cncrcl device, and suptilementa= rate ~nFcrmation to the City an
Augus~ 8, -9~~ 'ccliec~_vPlti•, tie "Ra*_~ ,i=ings": and
tirT3EREAS, the remote ccntro- device used tc operate the
"S!T1artBOx" C0=1v~rt?r aria tre "Uiil'I°~'Sa~" ret'1Cte CG~n''..x'4; deviC~ are
tre sa~rA peeve of equip-rer~t 'reLerred ~o ccllect~!vAly hArein as the
"Ln~~Tersa~" rerlc~e contro= devic°' ; and
t^~~3EFcFAS vhe Company requ=res basin-only subscribers with
1
a
"cable-ready" televisions to install "SmartBox" converters ir:order
to block such subscribers' receipt cf "Cer:~ury Select", and
WHEREAS, the City issued a public notice seeking written
comments from interested parties o:: the Company's proposed rates,
and the Rate Fill^as were ~r:ade ava=fable for public inspe~t~an ~z
cider to obta~r_ comment from any interested party, and
W~iEREAS, the City Staff has *rade a recommendation tc the City
Council ~;"Council";~ regarding the Company`s rates based on• a•~
~nfor~ratxon contained ~.n the date Filings; `bi the assumed accuracy
of that zr_fcrr~at~cr_, ~:c cc-r-rerlts, eviden^~e and inforrlation fro:r
i~:taresLea parties, ~;d; t a draft rate repot prepared ~y t'r_e
-ty' s ==rya _cial ccY_sultant, 'ei the Cor~nany` s com~rents cn the
dra`_. rate report , f the f~nanc~.al ccnsultant' s f~.nal rate report
ar~d Decer•ber t5, 19c5 ~etter respondxnC tC t e COTpa: y' S CG'rtPlentS
on ~__... draft rate report +: "cc=' Pct~vely, ..ne Fir~a= Repot" j , and
~rd~:~FcEAS, the ~CL'nCi- 'gas considered the City Staff's
rvcc~r-rendat-cps and ~~e reasons therefore, has received and
cons~derea comments from t=~a pub~.ic; ras reviewed and hereby adopts
;and by tr~s reference , ncorporates ?-iereir_, , as appropriate and to
the extent r_ct inccr~sistent with vn~~s Rate Order, the f~ndi gs,
assu~~p_ic~ns and other ~n-ormat~on set fort: .n the f_nanc~al
cons~awtant' s Viral Re~c~ arc
WHEREAS, the Company subrl-sited its annual FCC Form 125 for
ecru~pmert and --~stallat_on •cr_ November 6, 1995 as required by the
FCC ; "~~ove-rber FCC. Form 1205" , , and
b~~HEREAS, ..._~ City ~s continuir_g to review the November rCC
2
corm 120 which s^al~ govern among other things the rases for the
"Sma; v$OX" CC:~Ve'_'~el' and "]nlve'_"Sal" remv^le Cd.^_~rO~ CleV1Ce after
the period cotrered by the February 14 and May ,9 Rorm 1205 rate
Filings; and
6~THEREAS, the Company has the burden of proving by a
~renonderance cF ev_dence that _ts rates for the "SmarlBox"
converter ana trap "~Jniversa-" remote control device are reasonable
ur_der he RCC Rules, 47 ~; F.R. § 75 937 (a};
NO6ti• , T3ER.~FORE , I T I S CRbERED TEAT
_ I'he *raximum permitted rates For the "SmartSox" converter
ar_d the "Jn~versal" remote ocrLtx'ol device u:~t~.l the date Century
~s r~er-ritted by the FCC Ruses to adjust its zates pursuant t, the
NV,.~er-~ber _ ,~~ Fcrrl 1205 sha11 be as rollows
Maxim~.:m
Perr~,itted Rates=
-- "Sr~arrBox" converter $2 29
- - "T~n=zTersai " rer~ot e contro-
dev?ce ilncl•wdina ba4ceries $0.71
The Corlnan~r sisal:. reFuna that portion of the rates (plus interest,
paid by s~wbscr~bers for the equ-prlent described Yn this Paragraph
~c ~he ex~ent such rates exceed t'_:p rates approved in this
?ara,ranh The Cornnany shall nc'~ cffse~ refunds by the amount of
ar_y d-scounts provided cc subscribers on the equipment rates
sLbject tc th_s Rate Order '.'he refund period for the "SmartBox"
= The raves l-sled =r_ the col::-r•r~ entitled "Maximum Permitted
Rates" exc.l~ae rrar_ch~se reel
3
cor_vertpr shall run- fr~-r t e date the Company ==~.°st charged a
subscriber For a "SmarcBox" converter until the date tY?at Cer_tury
.s permitted by the FCC Rules to a3;ust zts rates pursuant to vhe
Nove-rber FCC Form 12Q5 rates. The refund period for t'_`ie "U~ivera~ "
remote control device shat= run from the date the Company _~rst
charged a subscr~aer for such "Universal" rercote control dev=ce
until the date Century ~s permitted by the F^C. Rums tc adyust its
raves pursuant to the Ncvertber FCC Farm 1205. With respect vo each
affected subscriber entitled to a refund, the Company shall
irrplerier_t the rate refunds pursuant tc th-s Paragraph wivh_n sixty
(rr• .days after the City ~+Ianager approves the refund p_an that the
Co*~pany she-' sub~-~t pursuant tc Paragraph No 2
L . ~~~thir: sever. ~;7 days after the da.e cf adoption by tee
Coun~.~~l cF th-s Rate Crde~', t_^_e Co~rpany shal= submit a Wei-tYr plan
~c ~ e ~~ty '~,anager wrich, a- a minimu;r, shall set forte the
Corlpar_t~r' s method cf providing re=ands to subscribers ipius
incerest? pursuant vc ?aragranh '~Tc 1, identifies the bass for the
valc~:lat~o~ cf the amount cf Y4fur_ds, ~deT'a~.~~ticS the arr•ount of ~~he
refuna; zdent~=yes the applivabl~ interest rate and explair_s how it
was calc-~:latea; provides : he r_umber cf subscrrbers e-~t-tled to a
re Fund for each montr• c-'urrng the refund period and the actaal ~-a~e
charged sac: subscrrbers fcr the "SmartPox" converter and fcr the
"~3r~iTrera-" zemo_e control dev=ce during s-.~ch perrod, and exp~.arns
how the rate refunds ordered herein s all by implemented. Such
plan rs sulb_ ect to the •Ci vy ?Manager's reva.ew azd approval The
Cc-rpany' s cblrgatro:~ tc sub-r-t s;~ch p=ar_ shall pat arfect the
Company's obl~gat~on to implement rate refunds, as set farts ~n
?aragraph No. 1.
3 Te Council reserves the right to order additional
adjustments tG the rates, and any refunds, far the "STa~tLSOX"
converser aid she "Un-versal" remote contrcl device upon complet-cn
of tae City`s review of the Company's November FCC Form 1205.
;. Witr~i~ sever_ (7) days af4er uhe date of adoption by the
Counc~~ of trls Rate Order, the Company shah provide a w}~tten
stave rent as to whecner the Corlpany cr~arged or charges: L any
bass-only subscriber far a "SmartBox" converter or any other
converter tre Company requires any such subscriber to have; and (2!
ar_y s:~ch basic-only subscriber for the "Universal" remote control
ae-r_^e c•r any other remotR cor_trcl device used to operate any such
converter k copy of any source documents ;and a detailed summary
..- the ~r_for-r~atior contained ~.n the source documents; should
accc:~nar~y t:_~ Co:rpary' s response . ^re Cour_c_1 reserves the right
to aeterr~-ne wY?ether any chiarges ~rl~osed by the Company on basic-
o. lv subscribers for con~rerter boxes and reriote cantrol devices are
per~~ssib_e Under apnl=Cable _aw ana tc taxe aN~ropriate ac.1Or~ if
sort charges are not germ=_ssib--e Ln^er app~icas~le law.
5 Te Coun•^il reserves she r_ght to modify this Rate Order
~f, at any time, it determines tzar in~armatzcn the Company
proTvrided ce t:~e City is incorrect in any rnater~al manner.
E '~e City Manageti- is ordered to ma_i a copy of this Rate
Order to v~_e Company, prav~de a~pronrlate public notice of this
a
Rate Order, and make a copy cf thls date Order available to any
persor_ uNCn raquest.
7. the City ~Clerx snail certify to the adoptZOr_ of t is
Reso~uticr, and tl^~enceLorth and thereafter the sane sray~ be ~n
fill force and effect.
APPROV= D AS ~ O ~ ORI~;
:~;~ c,C,~--~ ~~ Lam, ~!~ u
NAR51~~ JONES MOLTTnIE`~
C I "'Y A"_'^'OR~T~ v
5
KaISER SCHERER & SCHLEGEL
CERTIE'IEi1 PI"HI IC AGGOL'~TTA~"TS
1899 L STREET ~ h , SUITE 702
k ~SHI~TG7'OA', D G 200.'38
TEL (2021 488-4658
December 15, 1995
Ms. Lynn C. Barrette
Assistant City Manager
City of Santa Monica
P.O. Box 22DD
Santa Monica, California 90407-22DD
FAX (202) 331-8342
Re: Century S.W. Cable Television III request for equipment
rates for universal remotes and "SmartBox" converters
Dear Ms. Barrette:
You have asked us to analyze the request for equipment rates
for universal remotes and "SmartBox" converters filed with the City
of Santa Monica regarding Community Unit Identification number
CA0455. The purpose of our analysis is to assist the City of Santa
Monica in its determination of whether the rates proposed by
Century Southwest Cable Television III ("Centux'y"}, for universal
remotes and "SmartBox" converters are reasonable under the
regulations adopted by the Federal Communications Commnisaion
("FCC") .
While our efforts involved the analysis of accounting records
and other information supplied by Century, we did not perform an
audit of Century`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 Century 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
including, among others, certain regulations which became effective
on May 15, 1994. The procedures we performed are attached as
Exhibit I.
CEN•rutcY S . W . CABLE TELEVISION III
UNIVERSAL Rffi~IOTES AND SMARTSOX CON~TSRTERS
SUMMARY OF FINDINGS
This section presents a summary of the results of our analysis
for those items which, based on a review of the information
provided and procedures performed, we believe should be considered
by Santa Monica in itS review of the rates for universal remotes
and converters submitted by Century. Below is a chart which sets
forth Century's proposed rates and the recommended rates based on
our calculations:
Century's
Proposed Maximum
Permitted Rate
Universal remote
SmartBox converter
$1.56
$3.20
EQIIIPMSNT RATES
Form 1205 Recommended
Adjusted Rate
$ .71
$2.29
The FCC rules address the process foz~ filing the first 1205 to
establish equipment rates in conjunction with the FCC Form 1200.
The FCC recently clarified that the FCC Form 1205 ss the
appropriate Form to use to determine the rate for new equipment
subject to certain modifications. See Thirteenth Drder on
Reconsideration, MM Docket No. 92-266 at paragraph 91. (released
Sept. 20, 1995). We have attached pertinent sections of the Fox'm
1205 which reflect the calculations we made. These calculations
are summarized as follows:
I. Universal Remote
RSS Calculation:
Gross book value
Accumulated depreciation
Return on investment
Current depreciation
Annual capital costs
Maintenance costs
Total cost of remotes
Rate per month
300 *($12.00+$1.25) _ $3,975
($3,975/10) _ $398
11.25 * ($3,577) _ $402
($3,975/10) _ $398
$402 + $398 = $800
75 hours * $23.48 = $1,761
$1,767. + $800 = $2,561
($2,561/300)/12 = $ .71
2
Our calculations differ from Century's calculations in several
respects. Century calculates its maximum permitted rate as
follows:
Century added the sum of the invoice cost ($12.00), cost of
batteries ($]..25}, cost of handling ($.25 * S}, return on
gross book value of investment ($1.72) and finance cost
($1.70). These costs amounted to $18.57. Century divided
this total by 12 months to arrive at the $1.56 monthly lease
cost.
Century capita],ized the $2 . QQ handling charge with each remote
instead of including these salary costs in the Hourly Service
Charge calculation. We allowed the related 75 hours on the
basis that these hours were used to install batteries, discuss
how to use the remote with subscribers, and to repair the
remotes.
Century added a 10p financing cost to the base price of the
remote.
We believe that Century's methodology is inconsistent with the
FCC's rules for the following reasons:
Century did not follow the methodology outlined in the FCC
rules which is to calculate equipment basket rates by adding
the operating costs plus rate of return on net assets.
The salary cost of employees to maintain and install the
remote should he included in the hourly service charge
calculation. The cost of batteries couJ.d also be included in
schedule B of the hourly service charge calculation. We are
allowing the capitalization here as the impact on the return
on investment calculation is de minimis.
Century did not state that the subscribers would be given the
remotes at the end of one year, yet Century recovers the costs
during the first twelve month period. We have depreciated the
cost of the remotes over a period of ten years, which is the
useful life used by Century in computing depreciation for
converters.
3
II. SmartBox Converters
As with the calculation for the universal remote, we
calculated the maximum permitted rate for SmartBox Converters using
a FCC Form 1205 format, a copy of which is attached. The
calculations reflected on this form are summarized as follows:
ICSS Calculation.:
Gross book value
Accumulated depreciation
Deferred taxes - tax dep
less book dep * tax rate
Return on investment
Current depreciation
Annual capital costs
2,OOQ * ($128.19) _ $256,380
($256,380/10) _ $25,638
($36,537-$25,638) * .4014 =
$4,414
11.25 * ($226,328) _ $25,462
($256,380/10) _ $25,638
$25,462 + $25,638 = $51,100
Maintenance costs
Total cast of converters
Rate per month
47.5 hours * $23.48 ~ $1,115
$1,115 + 51,100 = $52,215
($52,215/1,900)/12 = $2.29
Our calculations differ from Century's calculations in several
respects. Century's calculations are summarized as follows:
Century calculated gross book value as $256,380 by taking the
average cost of the three converters multiplied by the number
of converters.
Century calculated maintenance cost by multiplying maintenance
hours times an average hourly service charge of $16.00.
Century calculated depreciation expense.
Century calculated a return on ~.nvestment.
Century computed total cost of investment by adding return on
the gross book value, depreciation, and maintenance costs.
Century computed the rate per month by dividing the total cost
of investment by the number of units in service by 12 months.
we believe that Century's methodology is inconsistent with the
FCC's rules for several reasons:
Century did not follow the methodology outlined in the FCC
rules which is to calculate equipment basket rates by adding
the operating casts plus rate of return on net assets.
Century calculated depreciation expense, but did not include
the corresponding accumulated depreciation of $25,638 required
in column C of its modified FCC Form 1205.
4
r
Century did not calculate any estimated deferred taxes, which
although de minimis for remotes are more significant for
SmartBox.
Century used an average Hourly Service Charge ("HSC"} of
$16.00. We used the HSC of $23.48 thaC the Gity of Santa
Monica approved in Resolution No. 8781 which established
approved rates far basic service and equipment and
installation rates.
We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
Very truly yours,
R. Schle ~.
Attachment: As stated
5
CS1K'l urc3C S . W . CABLE TEI.$VISIOPT III
IIl~IVSRSAL RSIKOTSS AND SMARTBOS CONVERTERS
E%HIBIT I
PROCSDIIRES
The procedures we performed included, but were not limited to,
the fallowing:
GSPTSRAL
1. We reviewed the City of Santa Monica's Resolution No. 8781,
which established approved rates for basic service and
equipment and installation rates.
2. We assisted the City of Santa Monica in preparing a request
for information in July 1995.
3. We reviewed Century`s response to the request for information
dated August 1995 and the supplemental information attached
thereto.
4. We recomputed the FCC Form 1205 Schedule C for the Universal
Remotes and SmartBox Converters.
5. We developed an understanding of the assumptions and
computations used by Century and analyzed the proposed rates
in relation to the explanations and information provided by
Century.
6. We compared the Book Cost, Accumulated Depreciation, Deferred
Taxes, Current Provision for Depreciation for each asset to
Century's supporting invoices and other documentation.
7. We computed estimated deferred taxes for the SmartBox.
8. We completed a modified FCC Form 1205.
6
Federal Caarm.ar~lxses Cnmmerowa Wnhlrgme ~ C Yn+3a
ApproaedM OMB ~[u~i.1+31;. Ezpncs i3n•;•
a -SLl1EUCLEC CAPrtwL CD5T5 OF LH,tSBa CL°STOMER E4UERME4IT
-A ~Equlpaarnl I Remnte 1 - Rdllac : ~ Ree.m 7 Connrter 1 C.nrenax Y Cxnrenrr l O[her Equlp
I
IH 'Ton! Malr~---~-$m~ce Hone llaach E.~iwnm I
75 fllMail
~
I
~7 SIMXII
~C °TdaliOF lie l4m$p~u ?Ixf 1MXXl 191Ml fXXX!
b IGmri Hon! Vaiuc S3 9'S IxXXf ~ SY'G Sin IxXXI"
E 'Aousmulaled fleproelmrm S79a IYXx1I
I i SY36171 lXMNII
it ~~denadTa~a i I pnXxX+l i
1r .1_ v ,.a, ., ~ n. ~ a+., era S rra S nsr {,+ ,, xrlrvj e~naxl- S• uw.~ S .r,1x•
I 'Remm rm lasxsmlen[Gvfsed f-p for Taxp jG.Hj - SXnY XJY+. S4 f1IXMl f7llgptl $YS •]SII {?7n~ Sa nAlXil SII+xsIXl'- L-~xx~~'
J Correa[ Pfo• Iapn fnr fhvrc4lllOn S+Jx INr}'I- SY5 47A iXNXI
IX Annual Capllal Coals ~I-1~ I SXI}I X1271 Snn[Xxli f!lsX11Ml~ 5411~gp x7toi SU II[YXI SII faXXi. 111 X~Ni
`L iCRANDT07'ALjwa[dL[xl[a![rxij I s+.~vrlenil
Bi3 ~.
SCHE~CLE d ~YERAGE HOGRS PER INSTALLAT1OIti
~4 A•rnFe }ioars pe* Lna-lrrd [;plat lrlwllarlnn f1a~h an e4pl+ao+.on+ I lI IX~
-H •.x[age Haun per Ple 44"csd Howe lrula'Irnm:rmch an expWuwnl I13+r11
C A.rnSe Fioun pa Addllronal Coml¢[xa Inanlla[xan al Tunc of innul Imnlla[wn ;,alneh .n explaluuon, 1194!X1
^ w,mgc Hoare per Addlnonar Cpnnxrwn lnslallanon ReoulrmE Separate Inrunnarn laaxh an e+pkrlarxra~ I ^']fxl~
E Olher lnanikrrcn r6~ `[emT~pe:-
- Item I iSpeclf.
A•rn~c Hesls. per lnmllasser lxrp:h ar e4plaai•son• 1411X1
'lem _' 15oceri•
4•Cra~e[ route per' ru ~ahpr IalnCa a~ etplanahph' f3'AMXI
Arrn~r rev-s pr- rsnlu Inn avrh an r.pusa1xv11 i
F$e 1..,us A II - R n i`ers•cn ? " FCC Fern1 I'_- 4 No• -
Fadml Commlmrr~avr Camunm Werhrapm D C 2n7ia
`S'[FR G CLr~p hr leued Rerre
r.r...a... err nei f N drlfrieet r+~r
la Tarl lL__ - 5er'roe Han {C.. I _ xrme Nam Saheduk C Lrnc B]
1 [ HSC {Lme '~
il: Tpas N-~-••~•••+-~•--les tap {LaelUx Lms SS]
IJ Neel Capimf Coal {C... I g whmn f Schduk C Lms K]
f+ Talsl Caaof Remaa (Lre l2+Lere 1J]
c Numbaof ilea m Scnix {C....~~.[..y,rMroa from SchWok C, Lrnc C]
4~G UnrCr<r{LlxlULxli]
I' A.ecpv Mor-3 {Lra 161(12]]
-STR fl C>tarp hr Inre1 Cwrnaa ll~sra
(G=.=:;: ,y_. Ile far ad a~llfluarlr ifferale tyllej
IiR Tolal'-'-_------Senaoe Hour ]~ - Jrn- ookmn f ScbeWak C f.me 8;
llrs souS:.~...,~......,-Sen+Q Cass 1Llee faS lvS
~I I Aeucl Caglal Cress {~ I xkrmn E om Seheduie C Lne K~
'22 Taal Caa ofConsaar ]Line 21}-Lae 2i~
- tiuln6er of lines m Sacs-sct ]C.,.--~_- ~__ mlvmn frgn 5cheduk C. Lme C]
2+ Gnu Crd ]Lme 2I.7.me ?.3~
~ R<re per Mend ]Lure 2sgl2]]
ISTE! B GLlrcies hr O[ler l.caaa!'•~ ~~^~~~
'21• Twl M--•-^•^w'~--Ke Hmry {Gar-a-M•": wlumn from Scheuuk C, LrM 6~
- 2~ HSC {Lme 7]
I Ia Tool v._.-"•^•^^-~-'•><a Coa {[mac 26 x Line 27I
.29 Nmsal C.poil Gow {Gc.-: -~ -'•••• mluna firm Sdrduk C. Luw K]
"JU Tmal Caa of c°..~~• {Lma 2f=Lure 29]
31 huelw of f1.ra m Sac'rce {Carrwpandla5 aolamn from 5ched.k C, Lme C]
32 Una fan {Lma 3mLme )l]
3? RMe per Mond ]Lmc 331[32}]
MLrI'AOD OP 61LLLtiG FOR C-7fANgRG SERV YCE 71SR5 OR f?QGR51f41I ]ice en "c" in the apprapnau Oea]
ua Hmaml Cbege (Ealx ie rlosesal dram m Lrsr 31]
ar ^ llnifmm Homla Sesrree L3usa
rv u Asenee Charee rFrsv de Astraee Hmn for Cheneure Sensor Teen In Line 3(•b 1
STEF F Cllar~n for {luxralrf Seniee Trpf rr Fgmpmnr
iq Nmolnal CharSe for Chaa5a5 Senwe Tlen
[f 1vu ure m acakhnF sryk of dar~ee. place an i m de bar at the n~lll
OR
:li Undwm Hurl} Semee Clurae
OR
yl[. Aserai Cker~e (ar Cluoysm~ yen-u>r Tiers
34 HSC ~Lmc ~]
]Gh A.<rage Hoan >a Cban6e Servu< Tiers
JrK Asereae Cbrr6e iw Clunhmy Ser+-IK Trcn ~L~oe 3w s Lme ~46
Ftmale 1
7s rM/a7~
523 4f(xl-
f7 761 upon.
i5d1s123~
5236{ {125.
Jdlaceml
S}^s fzfel~
T'"1{Si
CarsxrYrl
a' S'ao~
S3 iSlxll
f 1 1 LS J+xx3
tS l3§6s'Hi~
f`2.711 77iu-
I7d>Irpllni
~~' xa~n
52.3! 17
I
II IMIIii
f23 iS110:
Sn hGm:
f<I WMIni
fll dF-.I
a naflN
~Il aa~
IM19f!
LJa
s~=.
f} S
I Su yna~
1 4ppreseAM Qs+SS ily+uls`II E~gaos +'Zrl"-
h
Rn+role 2
n dxxl.
32J 4arlfi
SO agMr
f(11111(ar-
ft1 dyn
0.Mrr1
Se tldllr
~Q d11M1 ~
h
ran,zraer 2
tl }xxMl~l
Sj] aclxl-
Srl fF-311-
f17 drMl~.
inllnUU-
~pn nolxi
l fMMYI.
fh dxr~ l
ltamo
u ail texMl
Ls: aStllr
pl txril(r
ill IxMT]'
fIL[axa[
it Iaxhi'
y.Ix11F1
~I P19UI
Lmsmtt'
/. -Illn ~•
S_J +anil
lpi rxlpl
f~l Ix_-
Su drHr-
' >•~:
~1 rMlf:)'
Slr-Ixk•r`
Fayza _n. .•=1 V.- \ersror '_.- F"~F^rr -_ 'I~s l •.
~i1l.ISER SGHERER SC SCHLEGEL
CERTIFIED PL'BI IG AGGOE71~'TA\TS
1898 L STREET K 'M', SL"ITE 702
M'ASFIIiTGTO~, D G 20038
T£L [242) 49®-4859
December 15, 1995
Ms. Lynn C. Barrette
Assistant City Manager
City of Santa Monica
P.O. Box 2200
Santa Monica, California 90407-2200
FAX (242) 331-8342
Re: Century S.W. Cable Television III response to Dx'aft
Financial Report dated November 30, 1995 regarding the
5martbox converter and the Universal remote control
Dear Ms. Barrette:
As we stated in our draft report, the FCC rules address the
process for filing the 1205 to establish equipment rates in
conjunction with the FCC Form 1200. The FCC recently clarified that
the FCC Form 1205 also is the appropriate Form to use to determine
the rate for new equipment subject to certain modifications. See
Thirteenth Drder on Reconsideration, MM Docket No. 92-266 at
paragraphs 90-91, released Sept. 20, 1995, a copy of which is
attached. The purpose of following these procedures is to compute
an "interim rate". This rate for new equipment would be adjusted
when the cable operator completed the next annual Form 1205 filing,
which is the filing the City received November 1995.
Qur calculation for the Smartbox converter is summarized
below:
1. Gross book value
2. Accumulated depreciation
3. Deferred taxes - tax dep
less book dep * tax rate
4. Return on investment
5. Current depreciation
6. Annual capital costs
2,000 * ($128.19) _ $256,380
($256,380/10) _ $25,639
{$36,637-$25,638) * .4014 =
$4,414
11.250 * ($226,328) = $25,462
($256,380/10) _ $25,638
$25,462+ $25,638 ~ $51,100
7. Maintenance costs
8. Total cast of converters
9. Rate per month
47.5 hours * $23.48 = $1,115
$1,115 + 51,140 = $52,215
{$52,215/1,900)/12 = $2.29
It is our understanding that Century disagrees with two parts
of the above calculation:
Line 2. Accumulated depreciation
Century states that since the "equipment is brand new, there
should be no accumulated depreciation. An annual depreciation
provision is necessary to determine a rate, however, depreciation
does not begin to accumulate until the end of the first year."
The FCC rules state that a cable operator must use generally
accepted accounting principles {"GAAP") when completing the FCC
forms.l On schedule C of the Form 1205, the cable operator is
asked to: a) state the gross book value; b)state the accumulated
depreciation; c} state the defex'red taxes; d) compute the net book
value; and e) compute a rate of return on this "net asset" value.
This computed rate of return value forms one component of the rate
charged to subscribers. A separate component of the rate is
calculated by including the annual operating expenses relating to
the piece of equipment, i.e., depreciation expense and costs for
maintenance and repair of the equipment. In this case, Century
wants to include in the rate calculation the estimated annual
depreciation expense, but does not want to reduce the gross asset
value by the corresponding accumulated depreciation in computing
its rate of return. We believe this is inconsistent and is not
permitted by the FCC rules.
The FCC Forms consistently calculate a rate based on a
snapshot of the data at a paint in time (i.e. data for a certain
fiscal year whereby the balance sheet items are as of the end of
the year and the expense items are for the 12 months in that fiscal
year), just as if the data had been recorded on the company's
general ledger in accordance with GAAP. Once the cable operator
takes depreciation against an asset, the net asset value decreases,
which in turn, decreases the base amount used to compute the return
component of the rate. The cable operator cannot recover
depreciation plus a rate of return on the original undepreciated
asset value.
Under GAAP, depreciation accumulates throughout the period of
service and is recorded as an offset to the original asset cast.
The net book value of an asset consists of its original cost less
accumulated depreciation. Depreciation expense begins when an asset
is placed in service, and hence, begins to generate revenue. It is
K~~C~ ~ c~3:2CZ i7'"~°~ u~:I~ _ ::~ ~i':p~ iti~ ~i C° O~ ~r~y OSc''~ K'~:~ ~.'i'~'K~P~
~ebr-~ary 22, 1.~~4, ~'. Acc~~zt~~g Requ~rementG
_? ^.F R s76 ~2s .~. any §~~ X24 ~
_ ..~. . vr~ ~2~~5, N1ay ~ 99~, Genera- ~nstrLCticns, 0 3
-2-
inconsistent to book depreciation expense on the profit and loss
side of a company's ledger and not to book the corresponding credit
' to accumulated depreciation on the balance sheet side of the
ledger. GAAP does not allow the one-sided entry Century is
attempting to justify.
Equipment is classified as an asset on the balance sheet or is
expensed immediately in a company's profit and loss statement
depending on its estimated useful life. If a piece of equipment
has a de minimis cost or has a useful life less than one year, a
company usually chooses to expex~se it ~mmediately. If a company
estimates that the asset will generate revenue for, in this case,
ten years, then the company records the item on the books as an
asset and the value appears on the balance sheet of the company.
A company also realizes that the asset value deteriorates over time
and accounts for this deterioration by establishing a depreciation
policy. GAAP requires that this asset cost be spread over the
expected useful life of the asset in such a way as to allocate it
as equitably as possible to the periods during which services are
obtained from the use of the asset. This procedure is known as
depreciation accounting.
Generally accepted accounting principles define depreciation
accounting as follows:
A system of accounting that aims to distribute
the cost or other basic value of tangible
capital assets, over the estimated useful life
of the unit in a systematic and rational
manner. It is a process of allocation, not of
valuation.
The FCC rules require cable operators to establish equipment
rates in accordance with GAAP. '. In this case, since Century
established a ten year useful life for these converters, Century
should take one tenth of the asset value away each year by making
a debit entry to depreciation expense for one tenth of the value
and by making a corresponding credit entry to accumulated
deprecation, an account which appears on the balance sheet. This
"double-entry" procedure is in accordance with FCC policy stated at
47 C.F.R. §76.1152 (b) Accumulated Depreciation as follows:
This account shall be credited with
depreciation amounts cancurrently charged to
the Depreciation Expense--Cable Services Plant
in Service Account. [Emphasis added]
Century`s methodology overstates the rate charged to
subscribers by seeking to exclude the concurrently charged
` ~RB~3, ~~lyr', par
- wee ~^ ~ _ .k o76 ~2~ c~ and 67~ 924 ;;^'~
-3-
depreciation expense from the asset value and including in the rate
calculation the full original cost of the equipment plus a full
year of depreciation expense. Because Century seeks to include
depreciation expense in calculating its rate, we believe it is
appropriate under GAAP and the FCC rules to reduce the net asset
value by posting a corresponding value to accumulated depreciation.
Inclusion of accumulated depreciation decreases Century's proposed
rate by $.13.
Line 3. gstimated deferred taxes
Regarding deferred taxes, Century states, "because the
equipment is new, there would be no deduction for deferred taxes
since the asset has not yet been depreciated (creatzng a book
versus tax depreciation difference.)
For the reasons stated above, book and tax depreciation
expense are theoretically computed simultaneously. The
instructions to the FCC Form 1205 Schedule C. Line F state that
deferred taxes should be included in the calculation. The
instructions explain that deferred taxes result from the use of
faster depreciation write-offs for tax purposes than for financial
reporting purposes. In this case Century uses a ten year life for
financial reporting purposes and a seven year life for tax return
purposes. This "book-tax" difference results in Century accruing a
future tax liability relating to these assets. The FCC rules
require that this deferred tax liability value be included as a
component of the net equipment asset value. Inclusion of an
estimate of deferred taxes decreases Century's proposed rate by
$.02.
Please call us if your have any questions regarding this
matter or if vse can be of further service.
Very truly yours,
J re R. Sch el
-4-
r•
equtpment costs
90 ~[nrro~'rr undrr C\i+tin~~ E~tlcs, c~(+rritorti kt thrEr tqutprnrnt and instailauon
rafts an an annual basis usin~_ [hz prcLe~finr' tisLal ,ear ~~'e LrEYttnur [~~ hefirtiC as •~e
found m the Tlrrrd RerQ,r~rclrrurrvrr Qrclcr that `cttuty r'att~ u~tm' cu•[• nctt pry-~GLird rrrrriE[S
operators to reco~Cr their tuEE Lost ~~t ryuEpmrnt.'"' For th~~•e Lases «hrrr uprrators tacC an
unusual change En operatEOns that «uuld not tK rrt]rLted Eel the prz~u~us }tar .annual data.
the First Rc•cwtsrcleratrorr Orzi~r stand that operators are pzrmttted [o use a rrpresentatE~'e
month for the purpose of caiculatEn~~ ryuEpmrra rates. prop icizd that franchtstng authortties
asree to thts arrant=.ement.'~`
91 Finall}•. the clartf} huw an operator should set Ets tniua[ rates for new t}•pes of
equipment '°` Wr have prey Eauslti sta[Cd that ~~•hen an oprrator Entroduees a new t}°pe t~f
equipment, the operator ma} set a rate for that rqutpment at the time Et is tntrocluccd '""
Uttrtl now. ho«•errer. -ve have not pro~•tded a mrthodola~**~ :~tLUrdtnglr. no rariier than 60
daps before the date the neca npt of zyutpEncnt is scheclttlC<i to ht intrexluocd to subscribers.
the operator ~ti•Eii bz permuted to tilc for a ratz adjustment fin a Furn~ I?0~ The prupo~d
rate would ~o into effect a[ the rnd of thts b0-da}• ptrEOd unlcs~ feet frtnchistn~~ authority
rtJects the proposed rate as unreaisonahlt or the fratkhtctng autlwnt~ finds that the upcrator
has Submuteci an mcotnplerz tiltm_ In srrtinL rats Fier nr~~ t~ pts of tyutpmtnt, opcr.ttors
~Lauld compEetr fete relE:~ant purnnn of Schedule C and the rCir~an[ Step of the 1~'orkshret for
CalLUlattng Permuted EquipnYrn[ ;end Installatwn C1zar~CS L?t a F~~rm I'_0~ ~IurCO-'cr.
~+,'here applECable the operator cstYUld use figures from the must rcrrnt Farm I'_03 for thz
mtornYatEUn nut sptuticall} rzlatre! t~~ tltz nc~~ tyuirmrnt. L ~ .the H~wrh SrnfECe Chan*t
ltl CaECUEatlns the annu.E! nllintC*7.inLC anal ~Cr. ire h~~urs tc~r the nCti~ C4uEpmtnt. [hr ~~rat~~r
~hUl3El! ba]C its en[n l~n [EYt .1~Cr:tYC .llYnual C\pCLtC[! [lEliC rCC~UtrCLE IP maEntain thr Untt. i r .
CCpCCIeCE ~Cf~'t(,C hours reyttirrc! t~~rr the litC at the CyuipnYrnt umt hztn~, tntraduerd dtticlzel
h}• t}:z Cgtlipmrnt :snit ~ z\pCC.tt~i l~tr
b ReetElatan Reti Ee~~ Period for annual Rate Changes
a. Bsstc Ser-ice Tier
9? Qperators that elect the annu~~l rate adjustment methoduiuvv must tiie I35T rate
Lhangr requzst5 at Eeast 90 Jai ti prier w thz date thcti plan to irnpiemznt the propvsecl
'" Tltrrd Rrc vrt~tdercurr~rr C~rc;cv 9 FCC EZc~I •!: ~~
"' Fu st R!'t U1151CfCl c1'!Wi (h.rc l 9 FCC RL~1 at l W0(]
" This .~ppr('a~h i~ not [linitt~l <<~ +~p~raiL~s tn~t ziC~t t1YZ atlnuaE tiltn~_. E~ut applie. u~ all
t'r^.C'.ltc~r~ th.lt CIc E-~~C':' I.U'
~~ i 1!)r .~~(~1rl3f[~C"Cfrl~llr ()r,~~• '7S i'l C ~{..i :i ~ lt~~)
:ti
1
RECOMMENDATiON$
It is recommended that the City Council adopt the attached salary resolution
establishing the new salary rates far the listed position classifications
Prepared By: Karen L. Bancroft
Attachments: List of New Community and Cultural Services ClassEfications
Salary Resolution
ATTACHMENT
LIST OF NEW CLASSIFICATIONS
DEPARTMENT OF COMMUNITY AND CULTURAL SERVICES
Prmc~pal Community Services Supervisor
Principal Community Services Supervisor -Senior Services
Principal Community Services Supervisor -Youth and Family Services
Community Services Program Supervisor
Community Services Program SupervESOr -Aquatics and Community Sports Programs
Community Services Program Supervisor -Community Sports Programs
Community Services Program Supervisor -Employment Programs
Community Services Program Supervisor -Therapeutic Recreation Programs
Community Services Program Supervisor -Volunteer Programs
Community Services Program Supervisor -Youth and Family Programs
Community Services Specialist IV
Community Services Specialist III
Community Services Specialist III -Youth Fitness
Community Services Specialist li
Commur:rty Services Specialist I
Comrnun+ty Outreach Coordinator
RESOLUTION NO. ssa4 (ccs)
(City Council Series)
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF SANTA MONICA ESTABLISHING NEW
CLASSIFICATIONS AND ADOPTING SALARY RATES FOR
COMMUNITY SERVICES SPECIALIST IV, PRINCIPAL COMMUNITY SERVICES
SUPERVISOR, PRINCIPAL COMMUNITY SERVICES SUPERVISOR -SENIOR
SERVICES, PRINCIPAL COMMUNITY SERVICES SUPERVISOR -YOUTH AND
FAMILY SERVICES, COMMUNITY SERVICES PROGRAM SUPERVISOR,
COMMUNITY SERVICES PROGRAM SUPERVISOR -AQUATICS AND COMMUNITY
SPORTS PROGRAMS, COMMUNITY SERVICES PROGRAM SUPERVISOR -
COMMUNITY SPORTS PROGRAMS, COMMUNITY SERVICES PROGRAM
SUPERVISOR -EMPLOYMENT PROGRAMS, COMMUNITY SERVICES PROGRAM
SUPERVISOR -THERAPEUTIC RECREATION PROGRAMS, COMMUNITY SERVICES
PROGRAM SUPERVISOR -VOLUNTEER PROGRAMS, COMMUNITY SERVICES
PROGRAM SUPERVISOR -YOUTH AND FAMILY PROGRAMS, COMMUNITY
SERVICES SPECIALIST III -YOUTH FITNESS, COMMUNITY SERVICES
SPECIALIST II, COMMUNITY OUTREACH COORDINATOR, COMMUNITY
SERVICES SPECIALIST III, AND COMMUNITY SERVICES SPECIALIST f
THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES RESOLVES AS
FOLLOWS:
SECTION 1. The following monthly salary level is hereby established for the
indicated permanent classification effective July 1, 1995.
COMMUNITY SERVICES
SPECIALIST IV
52,605/Month E-Step
{ $ 2, 787/Month with PERS}
SECTION 2. The #ollowing monthly salary levels are hereby established for the
indicated permanent classifications effective January 9, 1996.
PRINCIPAL COMMUNITY SERVICES 54,4801Month E-Step
SUPERVISOR {54,794/Month with PERS}
PRINCIPAL COMMUNITY SERVICES $4,480/Month E-Step
SUPERVISOR -SENIOR SERVICES (54,794/Month with PERS}
PRINCIPAL COMMUNITY SERVICES 54,4801Month E-Step
SUPERVISOR - YOUTH & FAMILY {54,7941Month with PERS}
SERVICES
COMMUNITY SERVICES PROGRAM 53,667/Month E-Step
SUPERVISDR {53,9241Month with PERS}
COMMUNITY SERVICES PROGRAM $3,667/Month E-Step
SUPERVISOR - AQUATICS AND ($3,924/Month with PERS}
COMMUNITY SPORTS PROGRAMS
COMMUNITY SERVICES PROGRAM $3,667/Month E-Step
SUPERVISOR -COMMUNITY SPORTS {$3,924/Month with PERS}
PROGRAMS
COMMUNITY SERVICES PROGRAM 53,667/Month E-Step
SUPERVISOR -EMPLOYMENT (53,924/Month with PERS}
PROGRAMS
COMMUNITY SERVICES PROGRAM $3,667/Month E-Step
SUPERVISOR -THERAPEUTIC {$3,924/Month with PERS}
RECREATION PROGRAMS
COMMUNITY SERVICES PROGRAM 53,667/Month E-Step
SUPERVISOR -VOLUNTEER (53,924/Month with PERS}
PROGRAMS
.;
COMMUNITY SERVICES PROGRAM
SUPERVISOR -YOUTH AND FAMILY
PROGRAMS
COMMUNITY SERVICES
SPECIALIST III -YOUTH FITNESS
COMMUNITY SERVICES
SPECIALIST II
COMMUNITY OUTREACH
COORDINATOR
$3,667/Month E-Step
03,924/Month with PERS)
52,282/Month E-Step
(52,442/Month with PERS)
$ '! , 615/Month E-Step
(51,728/Month with PERSf
53,4101Month E-Step
(53,649/Month with PERS)
SECTION 3. The following hourly salary levels are hereby established for the
indicated temporary classifications effective January 9, 1996.
COMMUNITY SERVICES 510.661hr. A -Step
SPECIALIST III 511.19/hr. B -Step
51 '1.84/hr. C -Step
512.511hr. D -Step
513.171hr. E -Step
COMMUNITY SERVICES 56.141hr. A -Step
SPECIALIST I $6.43/hr. B -Step
56.811hr. C -Step
57.19/hr. D -Step
57,571hr. E -Step
SECTION 3. The City Clerk shall certi#y to the adoption of this Resolution, and
thenceforth and thereafter the same shall 6e En full force and effect.
APPROVED AS TO FORM:
~~ ~ ~
~~ tt~
Marsha Jones )(Ulautrie
City Attorney/
i
Adopted and approved this 9th of January, 1996
~~o~..~
Mayor
I hereby certify that the foregoing Resolution $9$4 {CCS) was duly adopted at a meeting
of the City Council held on the 9th of January, 1996 by the following vote
Ayes Council members Abdo, Ebner, Genser, Holbrook, Rosenstein
Noes Council members None
Abstain Council members Nane
Absent Council members Greenberg, O'Connor
ATTEST
City Clerk ~