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Home My WebLink About5981 RESOLUTION NO. 5981 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, RESPONDING TO 1HE REMAND DIRECTED BY 1HE FCC (DA96-1497) AND AFFIRMING THE REASONABLENESS OF 1HE CITY'S JUNE 20, 1995 RATE DETERMINATION (RESOLUTION NO. 5862) AND UPHOLDING 1HE FINDING TIIAT RATES CHARGED BY TCI CABLEVISION OF LOS ANGELES COUNTY FOR EQUIPMENT PROPOSED IN A FORM 1205 DATED FEBRUARY 28,1995 ARE UNREASONABLE WHEREAS, the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") and the regulations adopted pursuant thereto by the Federal Communications Commission (the "FCC regulations") permit the City of Arcadia (the "City") to regulate the cable television subscriber rates charged by TCI Cablevision of Los Angeles County (''TCI'') for the basic service tier and associated equipment. The FCC regulations establish the guidelines, rules and regulations under which the City may regulate such rates. Pursuant to these regulations, the City of Arcadia was certified by the FCC to regulate the basic service tier on October 3, 1993. On November 3, 1993, the City duly notified TCI of this certifications and the rate regulation authority granted thereby. The City has adopted regulations with respect to the basic service tier and associated equipment that are consistent with the regulations prescribed by the Commission. Furthermore, the City has adopted procedural laws and regulations applicable to rate regulation proceedings which provide a reasonable opportunity for consideration of the views of interested parties. 1 WHEREAS, on June 20, 1995, the City found that TCI had incorrectly included in its rate calculations certain costs described by the operator as overhead expenses for converter units. TCI defmed these costs as: material costs (cable jumpers, fittings, etc.); labor costs associated with the installation of converters; labor costs to retrieve converters from customers; and operating costs to manage the converter population, Le., inventory management costs. The City found that TCI had erroneously capitalized these costs, enumerating them in Schedule C, Capital Costs of Leased Customer Equipment of Form 1205. TCl's inclusion of its overhead expenses for converter units in Schedule C increased the operator's equipment rates. In its review of TCl's Form 1205, the City excluded all of these costs, thereby reducing TCl's rates to subscribers for addressable and non-addressable converterS by $0.28 and $0.27 per month, respectively. WHEREAS, TCI appealed the City's decision for a review by the FCC. WHEREAS, on September 12, 1996 the Federal Communications Commission Cable Television Bureau released order DA96-1497 pertaining to TCl's appeal regarding the City's rate detennination on June 20, 1995 as it pertains to converter costs identified in form 1205 submitted by TCI Cablevision of Los Angeles County on February 28, 1995. The FCC said TCI should be permitted to recalculate its Form 1205 to include the labor costs of installing and retrieving converters in Schedule B, and the operating costs of managing inventory in Schedule C. 2 5981 WHEREAS, in addition, on September 11, 1996 the FCC released an order pertaining to Des Moines, Iowa (DA96-1488) and on October 23 released an order addressing Washoe County, City of Reno, Carson City, Nevada City and the City of Sparks, Nevada (DA96- 1753). In these cases the FCC denied appeals by TCI on all grounds and thereby upheld the cities claims that the rates proposed in TCl's Form 1205 dated February 28, 1995 were unreasonable. The Cities disallowed TCl's capitalization of converter costs in TCl's Form 1205 stating that the proposed rates would be tantamount to a double recovery of these costs, first in the monthly programming rates and again in the converter charges themselves. In addition to this "double recovery" concern, the costs were disallowed because: (1) the costs are inconsistent with the Commission's definition of "annual purchase costs;" (2) the proposed capital costs for converters are not based on a local system; (3) capitalization of the costs is inconsistent with generally accepted accounting principles ("GAAP"); (4) TCI has not substantiated that the material costs it seeks to capitalize are not already in the converter lease charge as an hourly service charge; and (5) labor or other operating costs associated with converter disconnects and converter inventory management are already incorporated in programming service rates. 3 5981 WHEREAS, the City directed TCI in letters dated September 26, 1996 and dated January 21, 1997 to resubmit a revised Form 1205 for the year ending December 31, 1994 to identify costs related to Schedule B and Schedule C. City staff and its consultant, Communications Support Group, Inc. related to the first issue studied the infomlation submitted previously, and recently, by TCI to determine whether labor costs of installing and retrieving converters in the 1994 filing were 1) reasonable, and 2) had already been included in Schedule B and on the second issue, whether costs related to managing converter inventory were reasonable. TCI did not submit a revised form 1205 to comply with the remand for the year ending December 31, 1994. WHEREAS, the City has given proper notice of this hearing pursuant to Section 76.935 of the Rules and Regulations of the Federal Communications Commission and has provided a reasonable opportunity for the consideration of the views of interested parties. Moreover, the City has considered the views of interested parties as expressed at this public hearing, as continued from time to time. WHEREAS, based upon the evidence submitted, including but not limited to the attached Report and Recommendation; the February 28, 1995 Form 1205 submitted by TCI, the staff and consultant reports, FCC decisions, and all other written and oral evidence received in connections with this matter, the City Council hereby finds that the rates established by TCI for equipment are unreasonable and do not comply with the FCC regulations accordingly: 4 5981 a. FCC Rules governing the recovery of equipment and installation costs do not provide for the capitalization of the cost of retrieval, re-installation, and re- inventorying of converters. Installation costs are to be recovered as separate installation charges, and therefore such costs may not also be capitalized. b. In addition, the FCC's rules define incidental costs as costs incurred up to the time the converter is provided to the customer, and the converter installation and retrieval costs that TCI seeks to capitalize would be incurred after the converter is provided to the customer. c. TCI does not distinguish clearly the converter costs at issue from the operating expenses and labor costs that are ordinarily included in Form 1205. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES HEREBY FIND, DETERMINE, AND RESOLVE AS FOLLOWS: SECTION 1. The City of Arcadia has complied with its duties pursuant to the FCC order (DA96-1497). SECTION 2. The City of Arcadia finds that even though the Commission's instructions for Form 1205 indicate that TCI should include the labor costs of installing and retrieving converters in Schedule B rather than in Schedule C, we conclude upon further study that TCI costs as described in their Form 1205 dated February 28, 1995 are not justified. 5 5981 SECTION 3. Because this finding is consistent with the actions of City Council in its adoption of Resolution No. 5862, on June 20, 1995, the City of Arcadia and because TCI implemented the rates mandated by Resolution No. 5862, no further orders are necessary. SECTION 4. The City Clerk shall certify to the adoption of this Resolution and is hereby directed to post a copy of this Resolution in such place or places as City Notices are normally posted and to make copies of this written decision available to the public at the office of the City Clerk during normal business hours. SECTION 5. This Resolution shall become effective as of the date of adoption. Passed, approved and adopted this 18th day of February ,1997. ~,(, ff d;:~ ~ayor of the City of Arcad;a ATTEST: APPROVED AS TO FORM: 1!J~ ~ rr;~ City Attorney 6 5981 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES) CITY OF ARCADIA ) I, June D. Alford, City Clerk of the City of Arcadia, hereby certify that the foregoing Resolution No. 5981 was passed, approved, and adopted by the City Council of the City of Arcadia, signed by the Mayor and attested to by the City Clerk at a regular meeting of said City Council held on the 18th day of February , 1997 and that said Resolution was adopted by the following vote to wit: A)1ES: Councilrnernber Chang, Harbicht, Kovacic, Young and Kuhn NOES: None ABSENT: None J 7 5981