Division 2 Rate Provisions

Initial date of regulation.

For purposes of this section, the initial date of regulation for the basic service tier shall be the date on which the city gives written notice to the cable operator that:

The city has been certified by the commission to regulate rates for the basic service tier; and

This article has been adopted by the city.

Rates in effect.

For purposes of this section, rates “in effect on the initial date of regulation” or “in effect on September 30, 1992” shall be the rates charged to subscribers for service received on that respective date.

Permitted charge.

The permitted charge for the basic service tier shall be, at the election of the cable operator, either:

A rate determined pursuant to a cost-of-service proceeding;

The full reduction rate;

The transition rate, if the system is eligible for transition relief; or

(D)

A rate based on a streamlined rate reduction, if the system is eligible to implement such a rate reduction. Except where noted, the term “rate” in this subsection means a rate measured on an average regulated revenue per subscriber basis.

Full reduction rate.

The “full reduction rate” on May 15, 1994, is the system’s September 30, 1992 rate, measured on an average regulated revenue per subscriber basis, reduced by 17 percent, and then adjusted for the following:

The establishment of permitted equipment rates as required by section 4.04.033;

Inflation measured by the GNP-PI between October 1, 1992, and September 30, 1993;

Changes in the number of program channels subject to regulation that are offered on the system’s basic service tier between September 30, 1992, and the earlier of the initial date of regulation for basic service or February 28, 1994; and

(D)

Changes in external costs that have occurred between the earlier of the initial date of regulation for the basic service tier or February 28, 1994, and March 31, 1994.

(5)

March 31, 1994 benchmark rate.

The “March 31, 1994 benchmark rate” is the rate so designated using the calculations in Form 1200.

(6)

Transition rates.

A “system owned by a small operator” is a system owned by an operator that has a total subscriber base of 15,000 or fewer subscribers as of March 31, 1994. Such systems shall be eligible to establish a transition rate for the basic tier in accordance with 47 CFR section 76.922.

A “low-price system” is a system:

Whose March 31, 1994 rate is below its March 31, 1994 benchmark rate; or

(ii)

Whose March 31, 1994 rate is above its March 31, 1994 benchmark rate, but whose March 31, 1994 full reduction rate is below its March 31, 1994 benchmark rate, as defined above. Such systems shall be eligible to establish a transition rate for the basic tier in accordance with 47 CFR section 76.922.

Notwithstanding subsections (A) and (B) above, the transition rate for the basic service tier shall be adjusted to reflect any determination by the city that the rate in effect on March 31, 1994, was higher (or lower) than that permitted under applicable regulations. Refund liability for such rates shall be as set forth in 47 CFR section 76.922.

(7)

Streamlined rate reductions.

Small systems that are not owned by or affiliated with any other system (independent systems), and small systems owned by small multiple system operators (MSOs), that have not already restructured their rates to comply with this article may establish rates for the basic service tier and related equipment by making a streamlined rate reduction, in accordance with 47 CFR section 76.922. “Small MSOs” are those multiple system operators that:

Service 25,0,000 or fewer total subscribers;

Own only systems with less than 10,000 subscribers each; and

Have an average system size of 1,000 or fewer subscribers.

(8)

Establishment of initial regulated rates.

Cable systems, other than those eligible for streamlined rate reductions, shall file FCC Forms 1200, 1205, and 1215 for the basic service tier by June 15, 1994, or thirty days after the initial date of regulation. A system that becomes subject to regulation for the first time on or after July 1, 1994, shall also file Form 1210 at the time it files FCC Forms 1200, 1205 and 1215.

Subsequent permitted charge.

The permitted charge for the basic service tier after May 15, 1994, shall be, at the election of the cable operator, either:

A rate determined pursuant to a cost-of-service showing; or

A rate determined by application of the price cap requirements set forth below to a permitted rate determined in accordance with this section.

Price cap requirements.

After May 15, 1994, adjustments for changes in external costs shall be calculated by subtracting external costs from the system’s permitted charge and making changes to that “external cost component” as necessary. The remaining charge, referred to as the “residual component,” will be adjusted annually for inflation. Cable systems shall use FCC Form 1210 (or Form 1211 where applicable) to justify changes in permitted rates made pursuant to the price cap requirements.

Calendar-year quarters.

All systems must use a calendar-year quarter when adjusting rates under the price cap requirements. The starting date of adjustments on account of external costs for the basic service tier shall be the earlier of the initial date of regulation or February 28, 1994.

Inflation adjustments.

The residual component of a system’s permitted charges for the basic service tier may be adjusted annually on account of inflation. The annual inflation adjustment shall be based on inflation occurring from June 30 of the previous year to June 30 of the year in which the inflation adjustment is made, except that the first annual inflation adjustment shall cover inflation from September 30, 1993, until June 30 of the year in which the inflation adjustment is made. The adjustment may be made after September 30, but no later than August 31 of the next calendar year. Adjustments shall be based on changes in the Gross National Product Price Index (GNP-PI) published by the Bureau of Economic Analysis of the United States Department of Commerce. Cable systems that establish a transition rate pursuant to 47 CFR section 76.922 shall not be permitted to adjust rates on account of inflation until the transition rate adjusted for external costs and changes in numbers of regulated channels is less than, or equal to, the system’s full reduction rate adjusted for inflation, external costs and changes in numbers of regulated channels.

External costs.

Permitted charges for the basic service tier may be adjusted up to quarterly to reflect changes in external costs experienced by the cable system. In all events, a system must adjust its rates annually to reflect any decreases in external costs that have not previously been accounted for in the system’s rates. A system must also adjust its rates annually to reflect any changes in external costs, inflation and the number of channels on the basic tier that occurred during the year if the system wishes to have such changes reflected in its regulated rates. A system that does not adjust its permitted rates annually to account for these changes will not be permitted to increase its rates subsequently to reflect the changes.

A system must adjust its rates in the next calendar year quarter for any decrease in programming costs that results from the deletion of a channel or channels from the basic service tier.

Any rate increase made to reflect an increase in external costs must also fully account for all other changes in external costs, inflation and the number of channels on the basic service tier that occurred during the same period. Rate adjustments made to reflect changes in external costs shall be based on any changes in those external costs that occurred from the end of the last quarter for which an adjustment was previously made through the end of the quarter that has most recently closed preceding the filing of the FCC Form 1210 (or FCC Form 1211, where applicable). A system may adjust its rates after the close of a quarter to reflect changes in external costs that occurred during that quarter as soon as it has sufficient information to calculate the rate change.

(D)

External costs shall consist of costs in the following categories:

State and local taxes applicable to provision of cable television service;

(ii)

Franchise fees, which shall be calculated separately as part of the maximum monthly charge per subscriber for the basic service tier;

(iii)

Costs of complying with franchise requirements, including costs of providing public, educational, and governmental access channels as required by the city;

(iv)

(v)

Retransmission consent fees incurred after October 6, 1994, for the program channels or broadcast signals offered on the basic service tier;

(vi)

Other programming costs for the program channels or broadcast signals offered on the basic service tier. Adjustments to permitted charges to reflect changes in the costs of programming purchased from affiliated programmers, as defined in section 4.04.002, shall be permitted as long as the price charge to the affiliated system reflects either prevailing company prices offered in the marketplace to third parties (where the affiliated program supplier has established such prices) or the fair market value of the programming. Adjustments to permitted charges on account of increases in costs of programming shall be further adjusted to reflect any revenues received by the operator from the programmer. In calculating programming expense, operators may add a mark-up of 7.5% for new programming added after May 15, 1994, and shall reduce rates by decreases in programming expense plus an additional 7.5% for decreases occurring after May 15, 1994; and

(vii)

Commission cable television system regulatory fees imposed pursuant to 47 U.S.C. section 159.

Changes in number of channels on regulated tiers.

A system may adjust the residual component of its permitted rate for the basic service tier to reflect change in the number of channels offered on the tier on a quarterly basis, in accordance with 47 CFR section 76.922.

Cost-of-service charge.

A monthly cost-of-service charge for the basic service tier is an amount that is calculated in accordance with 47 CFR section 76.922(g).

(g)

Network upgrade rate increase.

Cable operators that undertake significant network upgrades requiring added capital investment may justify an increase in rates for the basic service tier by demonstrating that the capital investment will benefit subscribers.

A rate increase on account of upgrades shall not be assessed on customers until the upgrade is complete and providing benefits to customers of the basic service tier.

Cable operators seeking an upgrade rate increase have the burden of demonstrating the amount of the net increase in costs, taking into account current depreciation expense, likely changes in maintenance and other costs, changes in regulated revenues, and expected economies of scale.

Cable operators seeking a rate increase for network upgrades shall allocate net cost increases in conformance with the cost allocation rules as set forth in 47 CFR section 76.924.

(5)

Cable operators that undertake significant upgrades shall be permitted to increase rates by adding the benchmark/price cap rate to the rate increment necessary to recover the net increase in cost attributable to the upgrade.

(h)

Hardship rate relief.

A cable operator may adjust charges by an amount specified by the city for the basic service tier if it is determined that:

Total revenues from cable operations, measured at the highest level of the cable operator’s cable service organization, will not be sufficient to enable the operator to attract capital or maintain credit necessary to enable the operator to continue to provide cable service;

The cable operator has prudent and efficient management; and

Adjusted charges on account of hardship will not result in total charges for regulated cable services that are excessive in comparison to charges of similarly situated systems.

Cost-of-service showing.

A cable operator that elects to establish a charge or to justify an existing or changed charge for the basic service tier based on a cost-of-service showing must submit data to the city in accordance with forms established by the FCC. The cable operator must also submit any additional information requested by the city to resolve questions in cost-of-service proceedings.

(j)

Subsequent cost-of-service charges.

No cable operator may use a cost-of-service showing to justify an increase in any charge established on a cost-of-service basis for a period of 2 years after that rate takes effect, except that the city may waive this prohibition upon a showing of unusual circumstances that would create undue hardship for a cable operator.

(1986 Code, ch. 4, sec. 10:6)

§ 4.04.032 “A la carte” offerings.

Cumulative offerings of unregulated per-channel or per-program (a la carte) video programming is not regulated if:

The price for the combined package does not exceed the sum of the individual charges for each component of service; and

The cable operator continues to provide the component parts of the package to subscribers separately in addition to the collective offering. The second condition will be met only when the per-channel offering provides consumers with a realistic service choice. Collective offerings available on April 1, 1993, shall not be regulated if subsequently offered on the same terms and conditions as were in effect on that date.

In reviewing a basic service rate, the city shall make an initial decision addressing whether a collective offering of “a la carte” channels will be treated as an unregulated service or a regulated tier. The city shall make this initial decision within the 30-day period established for review of basic cable rates and equipment costs in section 4.04.063, or within the first 60 days of an extended 120-day period (if the city has requested an additional 90 days) pursuant to section 4.04.063. The city shall provide notice of its decision to the cable operator and shall provide public notice of its initial decision within seven days. Operators or consumers may make an interlocutory appeal of the initial decision to the FCC. Operators shall provide notice to the city of their decision whether or not to appeal to the FCC within this period. Consumers shall provide notice to the city of their decision to appeal to the FCC within this period.

A limited initial decision under subsection (b) shall toll the time periods under section 4.04.063 within which the city must decide a rate case. The time period shall resume running seven days after the FCC decides the interlocutory appeal, or seven days following the expiration of the period in which an interlocutory appeal pursuant to subsection (b) may be filed.

§ 4.04.033 Rates for equipment and installation used to receive basic service tier.

The city may alternatively decide whether a collective offering of “a la carte” channels will be treated as an unregulated service or a cable programming services tier as part of its final decision setting rates for the basic service tier. That decision may then be appealed to the FCC as provided in the FCC’s rules.

(1986 Code, ch. 4, sec. 10:6A)

Scope.

The equipment regulated under this section consists of all equipment in a subscriber’s location that is used to receive the basic service tier, regardless of whether such equipment is additionally used to receive other tiers of regulated programming service and/or unregulated service. Such equipment shall include, but is not limited to:

Converter boxes;

Remote control units;

Connections for additional television receivers; and

Other cable home wiring.

Subscriber charges for such equipment shall not exceed charges based on actual costs in accordance with the requirements set forth below.

Unbundling.

A cable operator shall establish rates for remote control units, converter boxes, other customer equipment, installation, and additional connections separate from rates for the basic service tier. In addition, the rates for such equipment and installations shall be unbundled one from the other.

Equipment basket.

A cable operator shall establish an equipment basket, which will include all costs associated with providing customer equipment and installation under this section. Equipment basket costs shall be limited to the direct and indirect material and labor costs of providing, leasing, installing, repairing, and servicing customer equipment, as determined in accordance with the cost accounting and cost allocation requirements of section 4.04.034. The equipment basket shall not include general administrative overhead, including general marketing expenses. The equipment basket may include a reasonable profit.

Hourly service charge.

A cable operator shall establish charges for equipment and installation using the hourly service charge (HSC) methodology. The HSC shall equal the operator’s annual equipment basket costs, excluding the purchase cost of customer equipment, divided by the total person-hours involved in installing, repairing, and servicing customer equipment during the same period. The purchase cost of customer equipment shall include the cable operator’s invoice price plus all other costs incurred with respect to the equipment until the time it is provided to the customer. The HSC is calculated according to the following formula:

Where:

EB = Annual equipment basket cost;

CE = Annual purchase cost of all customer equipment; and

H = Person-hours involved in installing and repairing equipment per year.

Installation charges.

Installation charges shall be either:

The HSC multiplied by the actual time spent on each individual installation; or

The HSC multiplied by the average time spent on a specific type of installation.

Remote charges.

Monthly charges for rental of a remote control unit shall consist of the average annual unit purchase cost of the type of remote leased, including acquisition price and incidental costs such as sales tax, financing and storage up to the time it is provided to the customer, added to the product of the HSC times the average number of hours annually repairing or servicing a remote, divided by 12 to determine the monthly lease rate for a remote, according to the following formula:

Where:

HR = Average hours repair per year; and

UCE = Average annual unit cost of remote.

Separate charges shall be established for each significantly different type of remote control unit.

(g)

Other equipment charges.

The monthly charges for rental of converter boxes and other customer equipment shall be calculated in the same manner as for remote control units. Separate charges shall be established for each significantly different type of converter box and each significantly different type of other customer equipment.

(h)

Additional connection charges.

The costs of installation and monthly use of additional connections shall be recovered as charges associated with the installation and equipment cost categories, and at rate levels determined by the actual cost methodology presented in the foregoing subsections (e), (f), and (g) of this section. An operator may recover additional programming costs and the costs of signal boosters on the customers’ premises, if any, associated with the additional connection as a separate monthly unbundled charge for additional connections.

§ 4.04.034 Cost accounting and cost allocation requirements.

Charges for equipment sold.

A cable operator may sell customer premises equipment to a subscriber. The equipment price shall recover the operator’s cost of the equipment, including costs associated with storing and preparing the equipment for sale up to the time it is sold to the customer, plus a reasonable profit. An operator may sell service contracts for the maintenance and repair of equipment sold to subscribers. The charge for a service contract shall be the HSC times the estimated average number of hours for maintenance and repair over the life of the equipment.

(j)

Promotions.

A cable operator may offer equipment or installation at charges below those determined under subsections (e) through (g) of this section, as long as those offerings are reasonable in scope in relation to the operator’s overall offerings in the equipment basket and not unreasonably discriminatory. Operators may not recover the cost of a promotional offering by increasing charges for other equipment basket elements, or by increasing programming service rates above the maximum monthly charge per subscriber prescribed by this article. As part of a general cost-of-service showing, an operator may include the cost of promotions in its general system overhead costs.

(k)

Franchise fees.

Equipment charges may include a properly allocated portion of franchise fees paid to the city.

(l)

Company-wide averaging of equipment costs.

For the purpose of developing unbundled equipment charges as required by subsection (b) of this section, a cable operator may average the equipment costs of its small systems at any level, or several levels, within its operations. This company-wide averaging applies only to an operator’s small systems as defined in section 4.04.002; is permitted only for equipment charges, not installation charges; and may be established only for similar types of equipment. When submitting its equipment costs based on average charges to the city, an operator that elects company-wide averaging of equipment costs must provide a general description of the averaging methodology employed and a justification that its averaging methodology produces reasonable equipment rates. The city may require the operator to set equipment rates based on the operator’s level of averaging in effect on April 3, 1993, as required by section 4.04.034(c).

(m)

Documentation.

Cable operators shall maintain adequate documentation to demonstrate that charges for the sale and lease of equipment and for installations have been developed in accordance with the rules set forth in this section.

(1986 Code, ch. 4, sec. 10:7)

Applicability.

The requirements of this section are applicable for purposes of rate adjustments on account of external costs and for cost-of-service showings.

Accounting requirements.

Cable operators electing cost-of-service regulation or seeking rate adjustments due to changes in external costs shall maintain their accounts:

In accordance with generally accepted accounting principles; and

In a manner that will enable identification of appropriate investments, revenues, and expenses.

Accounts level.

Except to the extent indicated below, cable operators electing cost-of-service regulation or seeking adjustments due to changes in external costs shall identify investments, expenses, and revenues at the franchise, system, regional, and/or company level(s) in a manner consistent with the accounting practice of the operator on April 3, 1993. However, in all events, cable operators shall identify at the franchise level their costs of franchise requirements, franchise fees, local taxes, and local programming.

Summary accounts.

Cable operators filing for cost-of-service regulation shall report all investments, expenses, and revenue and income adjustments accounted for at the franchise, system, regional, and/or company level(s) to the summary accounts listed in 47 CFR section 76.924(d).

Cable operators shall not be required to report their investments, expenses and revenues to the summary accounts listed in 47 CFR section 76.924(d) for the purposes of adjusting rates based on changes in their external costs.

Allocation to service cost categories.

For cable operators electing cost-of-service regulation, investments, expenses, and revenues contained in the summary accounts identified in 47 CFR section 76.924(d) shall be allocated among the equipment basket, as specified in section 4.04.033(c), and the service cost categories specified in 47 CFR section 76.924(e).

Cable operators seeking an adjustment due to changes in external costs identified in FCC Form 1210 shall allocate such costs among the equipment basket and the service cost categories specified in 47 CFR section 76.924(e)(2).

Cost allocation requirements.

Allocations of investments, expenses and revenues among the service cost categories and the equipment basket shall be made at the organizational level in which such costs and revenues have been identified for accounting purposes pursuant to subsection (c) of this section.

Costs of programming and retransmission consent fees shall be directly assigned or allocated only to the service cost category in which the programming or broadcast signal at issue is offered.

Costs of franchise fees shall be allocated among the equipment basket and the service cost categories in a manner that is most consistent with the methodology of assessment of franchise fees by the city.

Costs of public, educational, and governmental access channels carried on the basic tier shall be directly assigned to the basic tier where possible.

(5)

All other costs that are incurred exclusively to support the equipment basket or a specific service cost category shall be directly assigned to that service cost category or the equipment basket where possible.

(6)

Costs that are not directly assigned shall be allocated to the service cost categories in accordance with the following allocation procedures:

Wherever possible, common costs for which no allocator has been specified are to be allocated among the service cost categories and the equipment basket based on direct analysis of the origin of the costs.

Where allocation based on direct analysis is not possible, common costs for which no allocator has been specified shall, if possible, be allocated among the service cost categories and the equipment basket based on indirect, cost-causative linkage to other costs directly assigned or allocated to the service cost categories and the equipment basket.

Where neither direct nor indirect measures of cost allocation can be found, common costs shall be allocated to each service cost category based on the ratio of all other costs directly assigned, and directly or indirectly attributable.

(7)

Commission cable television system regulatory fees imposed pursuant to 47 U.S.C. section 159 shall be directly assigned to the basic service tier.

(g)

Cost identification at the franchise level.

After costs have been directly assigned to and allocated among the service cost categories and the equipment basket, cable operators that have aggregated costs at a higher level than the franchise level must identify all applicable costs at the franchise level in the following manner:

Recoverable costs that have been identified at the highest organizational level at which costs have been identified shall be allocated to the next (lower) organizational level at which recoverable costs have been identified on the basis of the ratio of the total number of subscribers served at the lower level to the total number of subscribers served at the highest level.

Cable operators shall repeat the procedure specified in subsection (g)(1) of this section at every organizational level at which recoverable costs have been identified until such costs have been allocated to the franchise level.

(h)

Part-time channels.

In situations where a single channel is divided on a part-time basis and is used to deliver service associated with different tiers or with pay-per-channel or pay-per-view service, a reasonable and documented allocation of that channel between services shall be required along with the associated revenues and costs.

§ 4.04.035 Costs of franchise requirements.

Transactions with affiliates.

Adjustments on account of transactions with affiliates shall be determined as set forth in 47 CFR section 76.924(i).

(j)

Unrelated expenses and revenues.

Cable operators shall exclude from cost categories used to develop rates for the provision of basic service tier and equipment any direct or indirect expenses and revenues not related to the provision of such services. Common costs of providing the basic service tier and equipment and unrelated activities shall be allocated between them in accordance with subsection (f) of this section.

(1986 Code, ch. 4, sec. 10:8)

The costs of satisfying franchise requirements to support public, educational, and governmental channels shall consist of the sum of:

All per-channel costs for the number of channels used to meet franchise requirements for public, educational, and governmental channels;

Any direct costs of meeting such franchise requirements; and

A reasonable allocation of general and administrative overhead.

§ 4.04.036 Charges for customer changes.

The costs of satisfying any other requirement under the franchise shall consist of the direct and indirect costs, including a reasonable allocation of general and administrative overhead.

(1986 Code, ch. 4, sec. 10:9)

This section shall govern charges for any changes in service tiers or equipment provided to the subscriber that are initiated at the request of a subscriber after initial service installation.

The charge for customer changes in service tiers effected solely by coded entry on a computer terminal or by other similarly simple methods shall be a nominal amount, not exceeding actual costs, as defined in subsection (c) of this section.

The charge for customer changes in service tiers or equipment that involve more than coded entry on a computer or other similarly simple method shall be based on actual cost. The actual cost charge shall be either the HSC, as defined in section 4.04.033 of this article, multiplied by the number of person-hours needed to implement the change, or the HSC multiplied by the average number of person-hours involved in implementing customer changes.

A cable operator may establish a higher charge for changes effected solely by coded entry on a computer terminal or by other similarly simple methods, subject to approval by the city, for a subscriber changing service tiers more than two times in a twelve-month period, except for such changes ordered in response to a change in price or channel line-up. If a cable system adopts such an increased charge, the cable system must notify all subscribers in writing that they may be subject to such a charge for changing service tiers more than the specified number of times in any twelve-month period.

Downgrade charges that are the same as, or lower than, upgrade charges are evidence of the reasonableness of such downgrade charges.