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Ordinance No. 8,942Published in the Baytown Sun .20000713 -2 Tuesday, July 18, 2,000 and Wednesday, July 19, 2000 ORDINANCE NO. 8942 ® AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS, ESTABLISHING THE MAXIMUM PERMITTED PER SUBSCRIBER PER MONTH BASIC CABLE SERVICE RATES ALLOWED TO BE CHARGED BY TEXAS CABLE PARTNERS, L.P., WITHIN THE CITY; ALLOWING "MARK -UP" COSTS SUBJECT. TO REFUND; SETTING FORTH OTHER PROVISIONS RELATED TO THE SUBJECT; PRESCRIBING A NL XEV1UM PENALTY OF FIVE HUNDRED AND NO /100 DOLLARS ($500:00); PROVIDING A REPEALING CLAUSE; CONTAINING A SAVINGS CLAUSE; AND PROVIDING FOR THE PUBLICATION AND THE EFFECTIVE DATE THEREOF. WHEREAS, the City of Baytown, Texas (the "City "), is certified to regulate basic cable service rates pursuant to the 1992 Cable Act (the "Act ") and Federal Communication Commission ( "FCC ") rules; and WHEREAS, on or about February 29, 2000, Texas Cable Partners, L.P. ( "TCP "), submitted to the City an FCC Form 1240 with a schedule of rates for the basic service tier and expanded basic service tier (hereinafter "Form 1240 "); and WHEREAS, the FCC rules allow the City ninety (90) days to review the proposed schedule of rates after which time the operator may implement such rates, subject to a prospective rate reduction and refund if the City subsequently issues a written decision disapproving any portion of such rates; and WHEREAS, at the City's request, C2 Consulting Services, Inc. ( "C2 "), reviewed TCP's proposed schedule of rates for the basic service tier; and WHEREAS, C2 has now completed its review of TCP's proposed schedule of basic service tier rates and submitted its report explaining its analysis, findings, and conclusions, which report is attached hereto as Exhibit "A" and is incorporated herein for all purposes; and WHEREAS, a public hearing was held to hear public comments on the proposed schedule of basic service tier rates of TCP; and WHEREAS, the City Council has now concluded its review of TCP's proposed schedule of basic service tier rates and the report and recommendations of C2, and made certain determinations; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS: . Section l: That the City Council hereby adopts and affirms the findings and recitals set forth in the preamble to this Ordinance. 20000713 -2a ® Section 2: That the City Council, having reviewed TCP's proposed basic service tier rates and the report submitted by C2, hereby finds and determines that TCP's proposed rate for the basic service tier, with the exception of "mark -up costs," is reasonable. Section 3: That the maximum permitted rate to be charged by TCP within the City per subscriber per month for basic cable service is an amount not to exceed EIGHT AND 66/100 DOLLARS ($8.66) on and after the effective date of this Ordinance. This rate was derived by using FCC rules, regulations and instructions as further explained in the report from C2, attached hereto as Exhibit "A" and which is incorporated herein by reference for all intents and purposes. TCP is hereby further ordered to refund to subscribers, within forty-five (45) days of the adoption of this Ordinance, the difference between the maximum permitted rate established herein and the actual charges to the extent that actual charges have exceeded the maximum permitted rate, plus interest on such amounts calculated in accordance with FCC rules and regulations. Section 4:. That the City Council finds and determines that, based on the report from C2, TCP's proposed "mark -up" for the channels added subsequent to January 1, 1998, is unreasonable and is hereby rejected; however, TCP may include "mark -up" costs in the rate charged per subscriber per month for basic cable service until such time as the FCC determines that such "mark- up" costs are not allowed under FCC rules and regulations. TCP is ordered to keep an accurate account of all sums received by reason of charging subscribers such "mark -up" costs for channels added subsequent to January 1, 1998, and, in the event the FCC determines that such "mark -up" costs are not allowed, TCP shall reduce the rate charged per subscriber in an amount equal to the amount charged for "mark -up" costs and shall refund to subscribers, within forty -five (45) days of the FCC's determination of the issue, all amounts paid by subscribers for such "mark -up" costs, plus interest on such amount calculated in accordance with FCC rules and regulations. Section 5: That the City Council hereby finds and determines that the rate established hereby is reasonable. Section 6: In adopting this Ordinance the City Council of the City is not approving or acquiescing in any way whatsoever to cost data and/or methodologies not specifically addressed in this Ordinance. Furthermore, the City Council is not waiving any rights to which it is entitled. Section 7: Pursuant to the authority granted to the City under Title 47 C.F.R. § 76.943(a) and Tex. Loc. Gov't Code § 54.001, should TCP fail to comply with any provision of this Ordinance, it shall be deemed guilty of a misdemeanor and, upon conviction, shall be punished by a fine in an amount not to exceed FIVE HUNDRED AND NO /100 DOLLARS ($500.00). Each day of each violation shall constitute a separate offense. In addition to the penalty prescribed above, the city may pursue other remedies available. Section 8: All ordinances or parts of ordinances inconsistent with the terms of this Ordinance are hereby repealed; provided, however, that such repeal shall be only to the extent of such inconsistency and in all other respects this Ordinance shall be cumulative of other ordinances regulating and governing the subject matter covered by this ordinance. 2 20000713 -2b Section 9: The City Council of the City of Baytown, Texas, does hereby declare that if any section, subsection, paragraph, sentence, clause, phrase, word or portion of this Ordinance is declared invalid or unconstitutional by a court of competent jurisdiction then, in such event, it would have passed and ordained any and all remaining portions of this Ordinance without the inclusion of that portion or portions which may be so found to be unconstitutional or invalid, and declares that its intent is to make no portion of this Ordinance dependent upon the validity of any other portion thereof, and all said remaining portions shall continue in full force and effect. Section. 10: That the City Clerk is hereby authorized and directed to mail a copy of this Ordinance by first class mail to TCP. Section 11: This Ordinance shall take effect from and after ten (10) days from its passage by the City Council. The City Clerk is hereby directed to give notice hereof by causing the caption of this ordinance to be published in the official newspaper of the City of Baytown at least twice within ten (10) days after passage of this Ordinance. INTRODUCED, READ, and PASSED by the affirmative vote of the City Council of the City of Baytown, this the 13th day of July, 2000. 114 el " /VL� PETE C. ALFARO, Mayor ATTEST: G Y W SMITH, City Clerk APPROVED AS TO FORM: ACIO RAMIREZ, SR., (C' Attorney 0 c:k1h253\ Counci1\ 0rdinances \00 - 1240- BaytownRevised iWONSULTING SERVICES, INC. 7801 Pencross Ln. Dallas, Texas 75248 April 17, 2000 Ms. Donna Sams Controller City of Baytown 2401 Market Street Baytown, Texas 77522 Dear City Representatives: Ms. Cheryl Wilson Olson & Olson 3485 Three Allen Center 333 Clay Street Houston, Texas 77002 Tel. (972) 726 -7216 Fax (972) 726 -0212 C2 Consulting Services, Inc. ( "C2") has completed its review of the FCC Form 1240 for headend H0594A submitted to the City of Baytown, Texas (the "City") by Texas Cable Partners, LP ( "TCP" or the "Company ") on or about February 29, 2000. Contained herein is a description of the activities performed, a summary of the findings and preliminary recommendations. This study does not constitute an examination of the financial condition of TCP or its parent company. Therefore, C2 cannot and does not express any position with regard to the accuracy or validity of the financial information provided by TCP during the course of the analyses. OVERVIEW OF THE FILING According to the information provided.by TCP, there has been no change in the total number of basic service channels offered to subscribers since the last rate filing. The basic service tier continues to include twenty (20) channels. Additionally, TCP proposes no change to the basic service tier channel line -up through May, 2001. TCP proposes to decrease the basic service rate from a monthly rate of $8.97 to a rate of $8.66. This proposed rate is for the rate year June 1, 2000 through May 31, 2001. There are two major factors that explain TCP's proposed decrease in the basic service rate: TCP's actual external costs per channel were less than those projected in the 1999 Form 1240; and 2. TCP charged a significantly higher rate during the first six months of the true -up period than adopted by the City for the last rate filing.' There exists a six month lag between the end of the true -up period and the starting date of the new rate period. Because of this lag, the first six months of the true -up period in this filing relate to the last six months of the projected period from the 1998 filing. In 1998, the basic service rate was $9.73. With the use of such higher rate during the first six months of this true -up period to compare with a true -up rate of $8.87 (Module F), the formula automatically calculates a refund adjustment to be built into the new rate. EXHIBIT A City Representatives April 17, 2000 Page 2 ANALYSES OF THE FILINGS Project Objectives and Activities The project objectives are three -fold: 1. Assessment of the completeness of the filing 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 regulations and FCC rulings. 3. Assessment of the reasonableness of the proposed computations in light of rate decisions rendered by the City during its 1999 review of the Form 1240. Given these objectives, C2 conducted the following project activities: 1. Review of the filing to assess the completeness based on the FCC Form instructions. 2. Review of the computations concerning specific issues raised during the 1999 review of TCP's Form 1240 filing. 3. Review of the filing to identify any issues with respect to the data and/or methodologies employed by TCP. 4. Submission of follow -up data requests and subsequent review of TCP's responses. 5. Development of potential alternatives available to the City in establishing maximum permitted basic service rates. Summary of Findings As you recall, there were several issues addressed in the 1999 review of the Form 1240. Therefore, one of the primary focuses of this analysis was to ensure that these issues were addressed by TCP in the rate filing and subsequent information provided. In summary, TCP has addressed each of these prior issues in a satisfactory manner as follows: 1. "Mark -Up39 Costs During the 1999 review, C2 noted that TCP has included a $.01 additional mark -up for a channel that had been added subsequent to the "sunsetting" of this rate provision in the FCC regulations. Since representatives from the FCC had indicated that this issue needed further study, the City decided to allow the additional mark -up with the provision that it wouid be deleted if the FCC continued to stand by the original sunset requirement. The FCC has not issued any ruling with respect to the treatment of "mark -up" adjustments on the basic service tier, but has issued at seat ooe.. order that disallowed additional unark -up oil the City Representatives April 17, 2000 Page 3 CPST tier of service.z In the instant filing, TCP has not changed the "mark -up" amount used in the 1999 filing, but has continued to include the additional $.01 that was added last year. C2 continues to take the position that the additional $.01 mark -up used in both the true -up and projection periods of this filing is not in compliance with the FCC regulations. However, the City could reasonably decide to continue to allow inclusion in the computation of basic service rates until the FCC makes a final decision with respect to the sunsetting of mark -up regulations. As with the prior filing, C2 recommends that the City provide for a retroactive computation in the event that mark -up adjustments are found by the FCC to have been sunset since 1998. Such a finding could either be with the issuance of an order specifically addressing the sunset issue in general or an order that finds in favor of a franchising authority that has challenged this adjustment. 2. Programming Costs During the review of the 1999 filing, TCP initially failed to provide supporting documentation for the projected increases in programming costs. With the instant filing, TCP's initial responses to the requests for additional information included such supporting documentation in sufficient detail to allow for review and recommended approval of the projected increases. In general the programming costs are projected to increase approximately nine percent (9 %) between the true - up period (ended November 1999) and the projected period (ended May 2001). 3. Costs Previously Classified as "Forced Relocates" In 1999, the City adopted a recommendation to adjust the 1999 filed rate to exclude costs previously incurred by TCI (the prior operator) and classified by same as "forced relocates' on Worksheet 7. The rationale for C2's recommended exclusion of such costs in the computation of basic service rates was that neither'operator provided sufficient supporting documentation in light of FCC regulation and FCC decisions. In the instant filing, TCP has appropriately excluded any reference to these costs. SUMMARY OF RECOMMENDATIONS In summary, C2 does not recommend any adjustment to the basic service rate filed by TCP for the rate period June 1, 2000 to May 31, 2000. However, with respect to the "mark -up," C2 does recommend that the City include in its written decision a provision that allows for a retroactive adjustment with a FCC decision as described above. C2 greatly appreciates this opportunity to assist the City of Baytown in its review of the Form 1240 filing. If you have any questions, please contact Ms. Connie Cannady at 972 - 726 -7216. Very truly yours, C2 Consulting Services, Inc. 2 See Urger, Century Communications Corporation, released March 5, 1999 (DA 99 -421).