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RESOLUTION NO. 5982
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF ARCADIA, CALIFORNIA, DISAPPROVING THE RATES
CHARGED BY TCI CABLEVISION OF LOS ANGELES
COUNTY FOR EQUIPMENT DURING THE PERIOD JUNE I,
1996 TO PRESENT, ORDERING A PRESCRIBED RATE, AND
ORDERING A REFUND TO SUBSCRIBERS AND MAKING
FINDINGS IN CONNECTION TO A FORM 1205 DATED
MARCH I, 1996
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 certification 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.
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WHEREAS, TCI filed with the City its FCC Form 1205 dated March 1, 1996 (along
with a Form 1240) purportedly showing the manner in which TCI established its rates for
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equipment and installation used by subscribers.
WHEREAS, on June 1, 1996, pursuant to the Form 1205, TCI raised rates for the
remote control and both types of cable television converters accordingly:
$0.07 increase in remote from $0.05 to $0.12 (140%)
$1.26 increase on addressable converter from $0.75 to $2.01 (168%)
$0.39 increase on non-addressable converter from $0.41 to $0.80 (95%)
WHEREAS, under the FCC rate rules, the City has a full year from the date of receipt
of the Form 1205 to accept the rates as proposed or amended, or make a rate determination
to prescribe new rates and order refunds where necessary.
WHEREAS, the City retained Communications Support Group ("CSG"), the City's
cable television consultant, to review the Form 1205, the additional information submitted
by TCI, and TCl's records relevant thereto.
WHEREAS, TCI asserted in its filing that certain overhead costs were accounted for
as capital costs, identical to the method used in the previous year's filing. The City had
previously not allowed this method of accounting and in the previous year, on June 20, 1995,
issued an order (Resolution No. 5862) pursuant to Section 76.933(b) of the Rules and
Regulations of the Federal Communications Commission determining that TCI had
erroneously capitalized these costs, enumerating them in Schedule C, Capital Costs of Leased
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Customer Equipment of Form 1205. TCl's inclusion of its overhead expenses for converter
units in Schedule C was found in the previous year to have increased the operator's
equipment rates.
WHEREAS, on July 20,1995 TCI appealed this decision to the FCC. On September
12,1996 the Federal Communications Commission released order DA96-1497 pertaining to
TCl's appeal regarding the City's rate determination 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.
Thus, 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. Accordingly, the FCC remands this issue to the local
franchising authority for further consideration consistent with this Order.
WHEREAS, on September II, 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 related to TCl's equipment rates as proposed in Form 1205 dated February 28,
1995:
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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: (J) 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. The Cities excluded the $20 per unit capital cost from Form 1205,
thereby reducing TCl's lease rates to the Cities' maximum permitted converter rates
in the case of all Cities.
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, 1995
to identify costs related to Schedule B and Schedule C. City staff and its consultant,
Communications Support Group, Inc. studied the information submitted previously, and
recently, by TCI to determine whether labor costs of installing and retrieving converters in
the 1994 filing were I) reasonable, and 2) had already been included in Schedule B and on
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the second issue, whether costs related to managing converter inventory were reasonable.
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:
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.
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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.
d. Recent orders by the Federal Communications Commission (DA96-1488 and
DA96-1753) gives compelling arguments why TCl's accounting method used to capitalize
overhead in the Form 1205 is unreasonable, unjustified, and not consistent with FCC rules.
NOW, THEREFORE, TIlE CITY COUNCIL OF THE CITY OF ARCADIA,
CALIFORNIA, DOES HEREBY FINE, DETERMINE AND RESOLVE AS FOLLOWS:
SECTION 1. The City Council of the City of Arcadia hereby finds and determines
that the proposed rate for the basic equipment charges and rates as identified on the FCC
Form 1205 dated March I, 1996 are unreasonable within the meaning of the FCC Form 1205
instructions and in that said rates and charges do not comply with 76.923 of the Rules and
Regulations of the Commission for the reasons and grounds as previously set forth herein.
SECTION 2. TCI is hereby ordered and directed to implement an addressable
converter charge of$1.55; and a non-addressable converter charge of$0.43 by June 1, 1997.
SECTION 3. TCI is hereby directed and ordered to provide a Refund Plan ("Refund
Plan") to the City within thirty (30) days of the date of this hearing. Said refund plan should
1) identifY the amount of money overcharged by TCI for equipment during the period June
1, 1996 to May 31, 1997; 2) identifY how this overage will be credited to subscribers directly
and/or how the overage can be used to lower equipment rates proposed TCI's Form 1205 for
year ending December 31, 1996 along with such written evidence and documentation
."
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demonstrating the reasonableness and appropriateness of said Refund Plan under standards
set forth in Section 76.942 of the Rules and Regulations of the Commission.
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.
~~~u~
ATTEST:
of Arcadia
APPROVED AS TO FORM:
~w1-IJ ~
City Attorney
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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. 5982 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: Councilmember Chang, Harbicht, Kovacic, Young and Kuhn
NOES: None
ABSENT: None
AD
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