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HomeMy WebLinkAboutOrdinance No. 97-13 ' � ' �� �`� ' , ` . ORDINANCE NO. 97-13 AN ORDINANCE REJECTING TI� SCHEDULE OF EQUII'MENT AND INSTALLATION RATES PROPOSED BY TCI CENTRAL, INC., DB/A TCI CABLEVISION OF HOUSTON AND FINDING THAT SUCH RATES ARE UNREASONABLE; ESTABLISHING TI� 1�ZAXIMUM HOURLY SERVICE CF�RGE; ESTABLISHING TI� MA��MMUM PERMITTED RATES FOR EQUIl'MENT AND INSTALLATION CHARGES CONIlV�NCING ON JiJNE 1, 1997; DECLARING TI-� REGULATED STATUS OF THE INSIDE WIRE MAINTENANCE PROGRAM; ESTABLISHING TI� 1�tiAXIMUM PERNIITTED RATE FOR TCI'S INSIDE WIRE MAINTENANCE PROGRAM COMNIENCING ON JLJNE 1, 1997; DECLARING AN EMERGENCY SO THAT SUCH RATES MAY BE ADOPTED PRIOR TO TI� PROPOSED JLJNE 1, 1997, IlVIPLEMENTATION DATE; AND SETTING FORTH OTI�R PROVISIONS RELATED THERETO. * * * * * * * * * * WHEREAS, the City of Friendswood, Texas, (the "Cit}�') is certified to regulate basic cable service rates pursuant to the 1992 Cable Act (the "Act") and Federal Communication Commission ("FCC")rules;and WI�REAS, on or about March 1, 1997, TCI Central, Inc., d/b/a TCI Cablevision of Houston ("TCP') submitted to the City an FCC Form 1205 with a proposed schedule of equipment and installation rates(hereafter"Form 1205"); and WHEREAS, the FCC rules allow the City ninety(90) days to review the proposed schedule of equipment and installation rates after which time the operator may implement such rates unless the City has rejected the proposed rates as unreasonable;and WHEREAS, at the City's request, C2 Consulting Services, Inc., has reviewed TCI's proposed schedule of equipment and installation rates and deternuned that the methodology used by TCI to develop such rates did not comply with FCC rules, regulations, instructions, directives and recent decisions rendered by the FCC; and WHEREAS, C2 Consulting Services, Inc., based on its review of TCPs Form 1205 submitted an alternative schedule of equipment and insta.11ation rates and its reports explaining its analysis, findings, and conclusions which are attached hereto as Exhibit"A"and Exhibit"B"; and WHEREAS, a public hearing was held to heaz public comments on the proposed schedule of equipment and installation rates of TCI; and WHEREAS, the City Council has now concluded its review of TCI's proposed schedule of equipment and installation rates and made certain deternunations;NOW TI-�REFORE, Friendswood�'97-12056.Ord. , , , �--. --_. ' , ' , BE IT ORDAINED BY TI� CITY COUNCIL OF THE CITY OF FRIENDSWOOD, STATE OF TEXAS: Section 1. That the City Council hereby adopts and affirms the findings and recitals set forth in the preamble to this Ordinance. Section 2. That the City Council, having reviewed TCI's proposed schedule of equipment and installation rates and the reports submitted by C2 Consulting Services, Inc., hereby finds and determines that TCI's proposed equipment and installation rates are unreasonable and are hereby rejected. Section 3. That on and after June 1, 1997, TCI's Hourly Service Charge for installation, maintenance and repair of equipment shall not exceed the rate in e$'ect on the date of adoption of this Ordinance until the service provided by TCI is brought into compliance with its franchise ageement. The maximum permitted equipment and installation rates on and after June 1, 1997, shall not exceed the rates in effect on the date of adoption of this Ordinance until the service provided by TCI is brought into compliance with its franchise agreement. TCI is hereby ordered to refund to subscribers, within forty-five (45) days of the adoption of this Ordinance, the difierence between the permitted rates and the actual charges to the extent that actual charges have exceeded the pernutted rates. Section 4. That the City Council hereby declares and affirms that the FCC has deternuned by FCC order DA 96-2105, adopted and released December 13, 1996, that an inside wire maintenance progam is a regulated service. The maximum permitted rate for TCI's inside wire maintenance program shall not exceed the rate in e$'ect on the date of adoption of this Ordinance until the service provided by TCI is brought into compliance with its franchise agreement. TCI is hereby ordered to refund to subscribers, within forty-five (45) days of the adoption of this Ordinance, the difference between the pernutted rate and the actual charges to the extent that actual charges have exceeded the pernutted rate. Section 5. All ordinances in force when this Ordinance becomes effective and which are inconsistent or in conflict with this Ordinance are hereby repealed insofar as such ordinances aze inconsistent or in conflict with this Ordinance. Section 6. The City Council of the City of Friendswood, Texas, does hereby declare that if any section, subsectioq 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 7. There is hereby declared an emergency requiring that this ordinance be enacted on one reading only in order to adopt the maximum permitted rates for equipment and installation prior to the proposed June 1, 1997, implementation date. - 2 - Friendswood�'97-1205b.Ord � , . , .,.,,�. —...� , , Section 8. That the City Secretary is hereby authorized and directed to mail a copy of this Ordinance by first class mail to TCI. PASSED, APPROVED, AND ADOPTED on emergency reading this 19th day of May, 1997. CITY OF FRIENDSWOOD, TEXAS �_ - � ,, � ' « '�rrl i' �� �. Harold L. Whitaker Mayor ATTEST: . � Deloris McKenzie, City Secretary - 3 - Friendswood�'97-1205b.Ord . , , � � , � .--, .�' EXHIBIT " A " � �N�ULTIhI� �ER1fI�E�, IN�. 7801 Pencrass Lane {�72} 7�6-'�21� Dallas, Te�as �5�48 �972} 7�6-7�1� (Fa�} �,��gl� ll����9 h � � ls May 9, 1997 ,,�' MA� 199� � N �,\��� o � Ms. Eugenia Cano Mr. Ron Cox � ��F:Ez;�t�s�'� O° City Attorney City Manager � ����c���`�y;��+��`�E� '��,° City of Alvin City of Friendswood `n6'� ,��,ti 216 West Sealy Street 910 South Friendswood Drive ����9ZSZb2�''�,� Alvin, Texas 77511 Friendswood, Texas 77546-4856 Mr. David Stall Ms. Margaret Hunt City Manager Interim City Manager City of Nassau Bay City of Webster 1800 Nasa Road One 311 Pennsylvania Nassau Bay, Texas 77058 Webster, Texas 77598 The Honorable Roger Nylin The Honorable James Cumming Mayor Mayor City of EI Lago City of Taylor Lake Village 98 Lakeshore Drive 500 Kirby EI Lago,Texas 77586-6398 Taylor Lake Village,Texas 77586-5298 Mr. Chad Nehring Mr. Ron Wrobleski Assistant to the City Manager Administrative Specialist City of La Marque City of League City 1111 Bayou 300 West Walker La Marque, Texas 77568 League City, Texas 77573 Mr. Tom Pedersen Mr. Ron Wicker City Secretary City Manager City of Texas City City of Seabrook 1801 9th Avenue North 1700 First Street Texas City, Texas 77592 Seabrook, Texas 77586 Ms. Cheryl Wilson Olson&Olson 3485 Three Allen Center 333 Clay Street Houston, Texas 77002 Dear City Representatives: C2 Consulting Services, Inc. ("C2") issues the following prelirninary report with regard to the evaluation of the FCC Form 1205 filed by TCI Cablevision of Houston("TCI" or City Representatives May 9, 1997 Page 2 the"Company")with the Cities on or about March 1, 1997. As you are aware, the Form 1205 provides the methodology and calculations by which cable operators propose annual changes in equipment installation and maintenance rates that can be charged to their subscribers and is filed simultaneously with the Form 1240. As with the monthly basic service rate, the franchising authority has original jurisdiction with respect to the review and regulation of charges resulting from the Form 1205 computations. This study does not constitute an examination of the financial condition of TCI or its parent company. As such, C2 cannot and does not express any position with regard to the accuracy or validity of the financial information provided by TCI during the course of the analyses. BACKGROUND Beginning with the Form 1200/1205 filings that occurred in August 1994, the Form 1205 has been filed annually following the close of a cable operator's fiscal year. With the introduction of the annual Form 1240 filings to establish monthly programming services rates, the Form 1205 must be filed as a component of the overall annual filing with the same ninety (90) day review period prior to rate implementation. Prior to the passage of the Telecommunications Act of 1996 (the"Act"), operators were permitted to aggregate "equipment basket"costs at the franchise, system, regional and/or company level, but only in a manner consistent with the operator's accounting practices that were in effect as of April 1993. In essence, this meant that any aggregation had to be done by specific type of equipment being offered. Section 301(j)of the Act amends this requirement by adding: "(A) In General - The Commission shall allow cable operators, pursuant to any rules promulgated under subsection(b)(3),to aggregate, on a franchise, system, regional, or company level, their equipment costs into broad categories, such as converter boxes, regardless of the varying levels of functionality of the equipment within each such broad category. Such aggregation shall not be permitted with respect to equipment used by subscribers who receive only a rate regulated basic service tier." The FCC, in following its legislative directive, amended the rules related to the aggregation of costsl within the equipment basket in FCC Order 96-257.2 The amendment provided for the operators to aggregate costs into "broad categories"of equipment of the same type, regardless of the level of functionality within each broad category. The exception is the equipment that serves basic-on1X subscribers, which has to 147 C.F.R. Section 76.923(c) 2Also referred to as CS Docket No. 96-57, released June 7, 1996. City Representatives May 9, 1997 Page 3 be specifically identified in order to avoid having the basic-only subscriber pay for advanced technologies that are not required for that level of service. Additionally,the FCC determined that the charges for installation and service could also be aggregated at the various organizational levels, but should be aggregated at the same level as that chosen by the operator for the aggregation of equipment costs. With each of the aggregated computations, the operator is to provide: ". . . a general description of the averaging methodology employed and a justi�cation that its averaging methodolo�ry produces reasonable equipment rates."3 For purposes of the instant Form 1205 filing, TCI has based its proposed installation and equipment rates on the aggregation of costs related to all owned and/or managed systems of TCI Communications, Inc. ("TCIC"). Due to the aggregation of costs for all of the approximate 434 systems,4 and the inclusion of costs related to a variety of new facilities and dispatching services, the proposed rates for installation and maintenance of equipment are significantly greater than those computed from the "system level" related costs used in the 1996 Form 1205 filing. The following chart provides some comparisons to the rates that were filed by TCI in 1996 and those included in this �ling.5 $ 40 .0 � ,'� $ 35 .00 �I $ 30 .00 1 $ 25 .00 ! � 1 996 � $ 20 .00 �=: I $ 15 .00 � 'I � 1997 $ 1 0 .p0 -' �� J $ 5 .Q0 ;' I � � $ 0 .00 + � - �' , �j cv �„ Cr7 � �y '� _ � � a a� a? � � � a� � � � o � {� U 347 C.F.R. Section 76.923(c)(1)through (3) 4The total number of systems was identified within the Statistical Analysis Report,dated February 2l, 1997 as provided in response to the First Requests for Information submitted on behalf of the Cities. SThe rates filed by TCI in 1996 were determined to be unreasonable by the Cities. Lower City Representatives May 9, 1997 Page 4 As shown, all but the rates to be charged for non-basic only converters demonstrate significant increases over the rates filed by TCI in 1996. The 1997 proposed rates are based on a single Form 1205 calculation that has been proposed in each of the jurisdictions in which these rates are regulated. While the overall aggregation methodology employed by the Company is at a much higher organizational level than prior Form 1205 calculations,the actual individual sample system computations are consistent with calculations of costs that were conducted in TCPs 1995 and 1996 filings. However,the 1997 aggregated filing has the following major components: ■ The computation of an aggregated Hourly Service Charge ("HSC")that is based on the "averaging" of the results of individual Form 1205 computations for forty sample TCI systems. ■ Allocation of common costs to these forty sample systems based on the number of subscribers. ■ The computation of individual installation activities based on the HSC times an averaging of the time requirements for the forty sample systems. ■ The computation of equipment rates based on the costs reported at the TCIC level. ■ The computation of converter rate categories that are dependent of the type of service rather than the type of equipment. ■ Proposed"Operator Selected Rates" for each category that are somewhat less than TCI's proposed maximum permitted rates. More specifically, TCI is proposing the following rates: Current Rate Pro�osed Rate6 Install - Unwired Home $29.43 $44.95 Install -Prewired Home $14.71 $24.95 Install -Add. Connect Initial $ 9.81 $12.50 Install -Add. Connect Separate $14.71 $18.75 Move Outlet $14.71 $18.75 Up/Downgrade $ 2.00 $ 1.99 Upgrade Non-addressable $ 9.81 $12.95 rates were adopted by the Cities which were appealed by TCI to the FCC. FCC issued a decision in DA 96-2105, released December 13, 1996, which TCI petitioned for reconsideration. Such petition is still pending review. TCPs 1996 rates are only provided as a comparison to the rates filed by TCI in the instant filing. 6Reflects the"Operator Selected Rate"proposed by TCL The maximum permitted rates resulting from the actual computations are shown in Attachment A. City Representatives May 9, 1997 Page 5 Downgrade- Non-addressable $ 9.81 $ 6.95 Hourly Service Charge $19.62 $29.00 Remote Control $ .17 $ .30 Basic Only Converter $ .79 $ 1.50 Non-Basic Standard Equip. $ .79 $ 1.54 Non-Basic Advanced Equip $ 3.21 $ 3.00 PROJECT ACTIVITIES Due to the aggregated approach taken by TCI in computing its Form 1205 filing and because the same filing was made in all of its regulated jurisdictions, C2 reviewed not only information that was directly supplied to the Cities, but also information that was provided to other jurisdictions during their respective review processes. This discovery process was crucial in attempting to evaluate the myriad of allocation and estimating methodologies employed by TCI in the development of its proposed rates. More specifically, C2 conducted the following project activities: ■ Review of the Form 1205 and related documentation provided at the time of filing with the Cities. ■ Development of detailed requests for information submitted to TCI. ■ Analysis of responses to requests for information and development of follow-up requests on numerous occasions. ■ Review of specific information that was provided to a number of other jurisdictions in their review of the filing. ■ Review of FCC rulings related TCI's prior inclusion of specific costs. ■ Development of alternative treatment/methodologies for specific costs in the computation of the equipment and installation rates. SUMMARY OF PRELIMINARY FINDINGS Based on C2's review of the filing, various FCC rulings regarding the Form 1205 computations, and responses to information received as of the writing of this preliminary report, C2 has identified ten major issues with respect to the development of the "aggregated"rates proposed by TCI. These are: ■ The capital costs related to Schedule A and Schedule C assets inappropriately include an amount refened to as"unfunded defened income taxes." ■ The computation of the HSC inappropriately includes the costs and the hours related to converter retrieval. ■ The computation of the lease rates for converters inappropriately includes the labor costs related to converter retrieval. City Representatives May 9, 1997 Page 6 ■ The computation of the HSC inappropriately includes the costs related to activities resulting from disconnects. ■ The computation of the HSC inappropriately includes the costs related to the conduct of"tap audits." ■ The computation of the HSC inappropriately includes the costs and the hours related to services regarding security devices. ■ The computation of the converter lease rates inappropriately includes the "averaging" of costs for security devices in the capital component of the converter category costs. ■ The computation of the HSC inappropriately includes the costs related to what the Company has termed as "self insurance." ■ The computation of the HSC inappropriately includes the costs related to "installation materials." ■ The computation of the converter lease rates inappropriately includes, as part of the current provision for depreciation, a$.20 per converter per month for insurance. "Unfunded" Deferred Income Taxes As with the 1996 Form 1205 filing, TCI has included an amortization of what the Company has claimed as being the"unfunded" portion of the defened income taxes that are being deducted from the capital costs noted on Schedule A and Schedule C. Consistent with the 1996 filing, the calculated amounts are being included as part of the cunent provision for depreciation within the Form 1205 computations. Because TCI is using an "averaging"methodology for computing the Schedule A components of customer equipment and installation costs(Step A,Line 5),the alleged unfunded defened income taxes are calculated for each of the forty sample systems and averaged for inclusion in the computation of the HSC. The Schedule C alleged unfunded defened taxes appear to be based on the total capital costs related to converters and remotes for TCIC, but is not clear from the information provided if such calculation of "unfunded"defened taxes also include the security devices that TCI has included in the costs of the converters. C2 has taken exception to TCI's inclusion of these alleged unfunded defened income taxes for the following reasons: ■ TCI never"unbundled"the alleged costs from its monthly basic service rates calculated in its regulated systems. ■ TCI never met its burden to demonstrate that such costs were, in fact, "unfunded"by the subscriber. ■ The FCC rules do not provide for the amortization of any"unfunded"taxes in the provision for depreciation within the Form 1205. City Representatives May 9, 1997 Page 7 As you recall, the Cities took issue with TCI's inclusion of these alleged costs in the 1996 Form 1205 that was filed at the system leveL� The Cities found that(1)TCI had not met its burden of proof with regard to its position that the subscribers had not previously provided these funds; (2)the FCC rules did not provide for recovery of such costs as a component of the allowed depreciation expense; and(3) it would be inappropriate for TCI to include costs in the eyuipment basket that had not been"unbundled" during the Form 1200/1205. Without the prior unbundling of these costs from the computation of the monthly service rates, inclusion in the computation of the equipment basket rates would provide TCI with a"double recovery" of the costs. TCI appealed the Cities' decisions to the FCC and an order was issued on December 13, 1996. With respect to this issue,the FCC found: "Our rules to not provide for the amortization that TCI included in its depreciation expenses on FCC Form 1205. Because TCI's methodology was improper, we find that the Cities were conect in disallowing that amount in TCI's equipment rates. The computation proposed by TCI allows it to recover more than its acquisition costs of the assets providing regulated services." g C2 points out, however, that the FCC remanded this issue to the Cities in order to provide for a calculation that deducts from the book amounts only the defened income taxes that have been accumulated since regulation. This appears to be consistent with the FCC's regulations with regard to the treatment of deferred income taxes within cost-of-service filings. TCI's petition for reconsideration of the FCC's position is still pending. Based on the calculations performed by TCI in this filing and the information that has been provided in support of these computations,there is insufficient data to perform the calculation pursuant to the approach noted by the FCC within the 1996 decision. In the event that a final decision is made with respect to an alternative treatment of the alleged unfunded deferred income taxes,then the Company should be required to provide the necessary computation at the aggregated level. However, pending FCC's final decision, the Cities should consider continuing to disallow the inclusion of the alleged costs within the computation of the cunent provision for depreciation as this is clearly not provided for within the rules. In addition, while the FCC did not address the "unbundling" issue within its decision DA 96-2105,the Cities should continue to disallow these costs on the basis of a"double recovery"from both the equipment rates and the monthly service charges. �The 1996 Form 1205 filing was based on costs recorded at the system level for all jurisdictions included in the Company's GL#61442. gTCI TKR of Houston, Inc.,DA 96-2105, at paragraph 8. City Representatives May 9, 1997 Page 8 Converter Retrieval CostslHours in HSC and Converter Lease Rates Within the computation of the individua140 sample system Form 1205s,9 TCI included hours spent by technicians and/or contract laborers for retrieval of converters from subscriber premises. These additional hours increased the allocation factor to be applied to the total costs for technicians/contract labor,thereby increasing the amount of costs assigned to the equipment basket for these systems. Because of TCI's averaging methodolo�,ry, the averages for the sample are then aggregated for a11434 systems. TCI has included the hours related to this activity are included in the denominator of the HSC calculation(Step A, Line 5) and has included the additional costs in the numerator (Step A, Line 6). However, these additional retrieval hours have been directly assigned to the labor costs included in the computation of equipment lease rates. Depending on the system is question,the impact of including these additional hours has a significant impact on the converter rates. Converter retrieval costs were originally proposed by TCI to be included as a component of a $20.00 per converter"direct overhead" in the Company's 1995 Form 1205 computations. Based on the Cities' review of that filing,the Cities concluded the following: ■ TCI did not unbundle the converter retrieval cost in conjunction with its Form 1200/1205 rate computation. Therefore, inclusion in the Form 1205 rates would provide for a"double recovery." ■ TCI's inclusion of these costs as a capital component in Schedule C was not consistent with FCC rules. ■ TCI did not demonstrate that these costs were reflective of the cost of converter retrieval within the Cities' franchise areas. TCI appealed the rate orders issued by the Cities with respect to the disallowance of these costs. In the appeals, TCI argued that even if the Cities did not agree with the Company's accounting treatment of these costs (i.e., as capital costs), the Cities should not totally disallow the costs. As an alternative, TCI argued that such costs should be entered on Schedule B as operating costs. TCI appealed numerous local rate orders which took exception to TCI's inclusion of converter retrieval costs as a capital component of the converter lease rate computation. Many of these franchising authorities based their decisions on the same issues identified above. To date, the FCC has issued several decisions,the most �ecent of which is the 9C2 reviewed the information related to nine of the sample systems. City Representatives May 9, 1997 Page 9 FCC decision in DA 96-1753.10 As stated within that decision with respect to the same issues noted by the Cities: "Because TCI did not include these costs in its previous Form 1205 used for the Form 1200 unbundling, including the costs now would result in a double recovery of the costs, once in the monthly programming service rates and again in the converter charges themselves. Allowing these costs permits an operator to identify "overhead"costs for the equipment basket it had not unbundled when the initial rates for monthly programming services were established."t t "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."12 ". . . the instructions to the Form 1205 require that the data be identified at the level of organization at which records are kept. . . TCI keeps records on a system level, so its capital costs per converter figure must be identified at the system level as well."t3 In the 1997 filing, TCI has included these costs on Schedule B as it argued as an alternative method in appeals of the Cities' prior rate orders. However,because the hours are being directly assigned to the calculation of the converter lease rates, there is a significant impact on the rates in this filing due to TCI inclusion of these costs. While the arguments presented in 1995 with respect to the capitalization and system specific nature of these costs are not relevant with respect to TCI's treatment in this filing, the issue of double recovery remains. The Company has not demonstrated the extent to which these costs are "new" costs in addition to those that the Company was incurring for converter retrieval at the time of the equipment basket unbundling from the monthly programming services rates. Therefore, the inclusion of the converter retrieval costs and hours at each of the sample systems should be disallowed in determining the computation of the HSC. In addition, the labor costs assigned to the repair and maintenance of converters should not include any costs for the retrieval of converters from the subscriber premises. 1oTCI Cablevision ofNevada, lnc., Consolidated Order DA 96-1753, released October 30, 1996. t tId., at paragraph 16. 12Id., at paragraph 9. t3Id., at paragraph 13. City Representatives May 9, 1997 Page 10 Disconnect Costs Included in HSC The FCC has ruled on several occasions that the operator may include the costs and hours related to the activities conducted during the disconnection of a subscriber's services,but such inclusion is not required by the regulations regarding equipment basket costs.14 In fact, the FCC has stated that it can be determined by the operator as to whether such costs are classified as equipment related or as a general system expense. Therefore, the critical factor in this filing is not whether the costs for disconnection should be considered a"legitimate" equipment basket costs,but whether such costs are already being recovered in the monthly programming service rates. Like the converter retrieval costs, TCI chose not to include the labor costs related to disconnect activities in the eyuipment basket during the Form 1200/1205 unbundling process. Therefore,the monthly programming service already include the Company's costs for service disconnects. To allow TCI to include these labor costs related to disconnects in the calculation of the HSC would provide for a"double recovery." An alternative argument is one that has been presented by the FCC which provides for a separate installation charge for disconnects. This would necessarily entail the inclusion of not only the costs,but also the associated hours in the computation of the HSC.15 TCI has only included the costs,because the Company argues that these costs are for "indirect"time which is not billed to the subscriber. Based on what appears to result in a"double recovery"of costs related to disconnects, C2 recommends that the Cities consider disallowing the hours and the related costs in the computation of the HSC within each of the sample systems. Costs Related to "TAP"Audits TCI has included the installer hours related to the conduct of"tap" audits, as applicable, within each of the 40 sample systems. As with the hours for converter retrieval, the hours spent in conducting these"tap"audits are used in developing the allocation factor applied to total installers' costs to determine the equipment basket portion. Therefore, the result is to increase the total dollars that are being assigned to the equipment basket for determination of the HSC. It is C2's understanding, as of the writing of this report, that a"tap" audit is conducted in order to determine if the receipt of services is based on a known relationship between the 14For example, See DA 96-1712, released October 18, 1996. 1 sOf course, this argument assumes that there would be no "double recovery" of the costs. City Representatives May 9, 1997 Page 11 Company and the subscriber. These audits are performed on a regular basis to ensure that services are not being inappropriately delivered to a particular location. Given the purpose of these audits, it is not at all clear that such activities are related to installation and maintenance of customer eyuipment. It appears that a stronger relationship exists between the provision of monthly programming services and the need to perform these activities to ensure that all recipients are, in fact, subscribers to the services. Also, like the converter retrieval costs and the disconnect costs, the costs assigned to the equipment basket for the conduct of"tap" audits were not previously unbundled during the Form 1200/1205 process. These costs are not new, and therefore, if not unbundled, are already being recovered through the monthly programming services charges. Because of the issue of potential "double recovery" of costs as well as the issue that TCI has not clearly demonstrated that these activities are related to the installation, repair and maintenance of customer equipment, the Cities should consider disallowing these costs in the computation of the HSC. Security Devices CapitaVServicing Costs In the 1996 Form 1205 filings, TCI included the capital costs (and therefore a return on such capital) as well as the annual depreciation expense related to security devices (commonly referred to as"traps") in those systems where these devices are used to either block or allow certain types of channels to be received by a particular subscriber. These costs were included in the overall costs for converters rather than as a separate equipment category. Many jurisdictions took exception to the inclusion of these costs in the 1996 rates for the following reasons: ■ The costs related to security devices were not previously unbundled from the monthly programming service charge. ■ Security devices do not appear to meet the FCC definition of customer premises equipment. ■ Treatment of such devices requires the establishment of a separate and distinct rate from the converter lease rates. In the instant filing, TCI has again included the capital costs and depreciation expense related to security devices as an embedded costs in the computation of the converter rates. In addition,the Company has included the hours spent servicing these devices as a component of the hours used to develop the allocation factor to be applied to Schedule B costs. Both categories of costs are based on the 40 system sample with 22 of the systems demonstrating the inclusion of"traps" in their respective operations. City Representatives May 9, 1997 Page 12 As with the costs related to converter retrieval, disconnect,tap audits and others to be discussed later in this repoR, the costs related to security devices are not"new"costs incurred subsequent to the computation of rates during the unbundling process in 1994. Therefore, assuming there is any validity to the inclusion of these costs as a component of customer premises equipment, such inclusion would provide for a"double recovery" by the Company. With respect to the arguments of whether security devices should(1)be considered as customer premises equipment and(2)have a separate a distinct rate from other types of equipment, it is necessary to review of regulations as amended by the Telecommunications Act of 1996. The regulations related to the computation of rates for customer premises equipment are found in 47 C.F.R. Section 76.923. Section 76.923(a) reads: "The equipment regulated under this section consists of all equipment in a subscriber's home, provided and maintained by the operator,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: (i) Converter boxes; (ii) Remote control units; and (iii) Inside wiring." Section 76.923(b)reads: "A cable operator shall establish rates for remote control units, converter boxes, other customer eyuipment, installation, and additional connections separate from rates for basic tier service. In addition, the rates for such equipment and installations shall be unbundled one from the other." Based on the language in Section 76.923(a), it is not clear that security devices are customer premises equipment that is used to receive the basic service tier. In fact, based on TCI's accounting system, security devices are classified as "pay security devices" suggesting that such devices are used to receive premium channels. In the 1996 filing, TCI included all of the costs related to security devices in a given system. A number of Cities argued that, pursuant to the FCC's determination in FCC Order 93-177 that a subscriber's premises begins at twelve inches outside of the point at which the cable enters the subscriber's home and/or facilities, security devices that are physically located on the poles clearly would not be classified as customer premises equipment. In the instant filing, TCI claims that it has only included the costs related to security devices that are located within twelve inches of the point of entry and has City Representatives May 9, 1997 Page 13 allocated the repair and maintenance time based on the relationship of such costs to the total security device capital costs within the sample systems. However,TCI has not provided a clear explanation as to how such a determination was made. Pursuant to Section 76.923(b), and assuming that the security device costs can be properly classified as customer premises equipment, it seems evident that the security devices should not be treated as converters,but rather should be unbundled as a separate equipment category, with a separately computed cost. To do this,the Company not only would have to identify the costs related to such devices, but also would have to show the actual number of devices in service in order to develop a separate security device monthly rate. As with the 1996 filing, no such separate rate is being proposed by TCI in this filing. The inclusion of the security device capital costs and servicing costs impacts the computation of TCI's proposed HSC and proposed converter rates. All of these hours are being classified as converter repair and maintenance labor assigned to the costs for both categories of converters based on the HSC. Pursuant to the above arguments, the Cities. should consider disallowing the inclusion of the labor costs as well as the capital costs for security devices in the computation of both the HSC and the converter rates. Self Insurance Costs In 1996, TCI included what the Company termed as "self insurance"costs in a number of system specific Form 1205 filings. Many municipalities challenged the inclusion of the these costs on the following bases: ■ The self insurance costs were never unbundled from the monthly programming services rates under the Form 1200 methodology and, if included, would result in a"double recovery" of the costs. ■ The self insurance expenses are general and administrative expenses; specifically excluded by the FCC rules for purposes of determining equipment basket rates. ■ The Company assigned all of the costs to the technical operations (of which a portion is allocated to the equipment basket) without consideration that other operations (e•�•- customer service, marketing, administrative staf� are covered by such insurance. Based on the 40 system sample, TCI has included self insurance costs in the development of the HSC in this filing. The costs are derived at the TCIC level and apparently allocated to each of the sample systems based on employee headcount. Further allocation is made at the individual sample system level to the eyuipment basket based on the composite allocation factors for the technical employee salaries. City Representatives May 9, 1997 Page 14 In its 1997 filing, TCI did not address the issue previously raised with respect to the unbundling of these costs and whether the Company had, in fact, already included insurance costs in the monthly programming services rates. Even in appeals to the FCC of local decisions that addressed this issue, TCI has chosen not to comment on the unbundling issue, but rather focus on the second issue with respect to whether the costs are administrative and general in nature.l6 The argument presented by a number of Cities in 1996 with respect to the issue of general and administrative expense was based on Section 76.923(c) of the FCC rules which states: "A cable operator shall establish an Equipment Basket, which shall include all costs associated with providing customer eyuipment 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,. . . The Equipment Basket shall not include general administrative overhead including marketing expenses." [emphasis added] While TCI has argued that: ". . insurance costs are inextricably linked to the installation and maintenance of eyuipment. They are easily distinguished from general and administrative costs (such as marketing costs) which related to the general business operations of the system, because inswance costs are directly attributable to the provision of customer premises equipment."1� However, based on the types of insurance costs shown to be included in this filing and TCI's allocation to the equipment basket, TCI argument that they are "easily distinguished" is not supported. For example,the Company has included the cost of business interruption insurance for the loss of revenue due to damage to cable plant. These costs represent approximately 55%of the total insurance premiums included at the aggregated level. Clearly, business interruption insurance is linked with the receipt of revenue from the general operations of the system and not"directly attributable to the provision of customer premises equipment".18 16See �neal of Local Rate Order, TCI Cablevision of North Texas, filed March 19, 1997 with respect to Flower Mound, Texas. 17Id., at 15. 1 gC2 also notes that the aggregated amount of business interruption costs have been assigned to technical employees based on headcount between technical and non-technical employees. City Representatives May 9, 1997 Page 15 The Company has attempted to address the third issue with respect to the allocation of costs among operations by employing a series of allocation factors to different types of insurance based primarily on employee headcount. However, as noted above with respect to business interruption insurance, the use of headcount between technical and non-technical employees does not necessarily explain a cost-causal relationship for the types of insurance costs that have been included. While there are certain types of insurance costs that are clearly related to the number of employees(e.g., workers compensation) many of the insurance categories do not appear to show a cost-causal link between employee headcount and expenses actually incurred. Therefore, while the Company has attempted to modify its 1996 methodology for allocating self insurance expenses to the equipment basket, the fundamental issues that were identified by numerous Cities in 1996 remain unresolved. Therefore, C2 recommends that the Cities consider the disallowance of what TCI has termed as"self insurance" expense in the calculation of the HSC. Installation Materials In its 1995 Form 1205 filings with the Cities, TCI included an estimated cost of$3.00 per converter for installation materials as a component of a $20.00 per converter cost. As with the converter retrieval labor costs, the Cities challenged the inclusion of these costs because(1)the Company had not unbundled the costs from the monthly programming services rates; (2)they were not costs specific to the system; and(3)TCI had not demonstrated that these costs were, in fact, a capital component of converter costs as defined by the FCC rules. In this filing, TCI has included the cost of installation material in the Schedule B component of the equipment basket rather than as a capital component related to converter costs.�9 However, as stated above with respect to converter retrieval costs, in FCC Order DA 96-1753, the FCC ruled that if the Company had not unbundled these costs in its Form 1200 calculations and had not established that these costs were new costs subsequent to the unbundling process,then inclusion of such costs in the Form 1205 computations would provide for a double recovery.20 TCI's inclusion of such costs in 19While the FCC has issued a ruling that(1) if supply costs are determined to be appropriately included in the equipment basket, and(2) if there is not a separate charge established for� se items,then the costs should be included in Schedule B. See FCC Order DA 96�, (released September 12, 1996)paragraph 13. 20The Form 1205 filings during the Form 1200 process were on a franchise and/or system basis. However, based on C2's review of a number of separate and distinct Form 1200/1205 computations, it appears that TCI did not unbundle these costs in any of its Form 1200 rate computations. City Representatives May 9, 1997 Page 16 Schedule B does not answer the issue of whether these costs are appropriately included in the equipment basket at all and would not result in a double recovery from subscribers. Consistent with the arguments that have been put forth by the Cities in the prior Form 1205 computations, and due to the fact that TCI has not provided information to demonstrate that a double recovery will not occur, the Cities should continue to disallow the costs related to installation materials in the computation of the installation and equipment rates. Insurance on Converters TCI has included, as a component of the common costs allocated to the equipment basket, an amount that equates to $.20 per converter per month. According to information provided by TCI,this amount was determined by TCIC's Risk Management Group. Follow-up information has been requested in order to clarify the exact nature of this insurance and whether the $.20 is based on a Company estimate or actual allocation of insurance premiums. As of the writing of this report,this additional information has not been received. The total amount of approximately$20 million has been included by TCI in the current provision for depreciation for the two categories of converters. While the FCC has ruled that the costs related to the managing of converter population are reasonably capitalized,21 TCI has not demonstrated that these inswance costs are actually related to the " . . .storing and handling of goods before they are sold."22 Much like any type of property insurance,this additional "insurance" appears to be a general and administrative expense similar to the self insurance expense discussed above. Therefore, C2's preliminary recommendation is that the Cities consider excluding the $.20 per converter per month costs in the computation of the monthly converter lease rates. Inside Wire Maintenance Program Since the inception of the Company's Inside Wire Maintenance Program ("IWMP") within the Cities, the Cities have taken issue with TCI's position that this service is an unregulated service. TCI has appealed the Cities' decisions which have established an IWMP rate to the FCC and argued that the Cities had no right to"assert regulatory control"over the IWMP rates. 21 TCI of Central lowa, DA 96-1488, released September 1 l, 1996, at paragraph 9. 22Id. City Representatives May 9, 1997 Page 17 In the FCC's decision regarding the appeal of the Cities' 1996 Form 1205 rate orders,the FCC found: "There is not dispute, however, that the regulatory treatment of inside wiring and costs associated with its maintenance depends on who owns the wiring.. . In this instance, however,the inside wiring is owned by TCI's subscribers. Under these circumstances, no lease rate applies, but TCI's costs of providing any maintenance and repair of that wiring may be recovered through a service contract. Our rules provide that charges for such service contracts must be based on the operator's HSC multiplied by either the average number or the actual number of hours for maintenance and repair. The Cities' computation is based on the Cities' recommended hourly service charge multiplied by the actual hours (presented by TCI) devoted to inside wire maintenance and repair. Therefore,the Cities' conclusion regarding TCI's wiring maintenance plan is conect, and we deny TCI's appeal on this issue."23 Based on this decision as well as other similar FCC decisions, it is C2's opinion that any rate for an inside wire maintenance program should be regulated. However, with the aggregated filing, the rate is based on the aggregated HSC times the estimated total number of hours devoted to inside wire maintenance and repair in all of TCI's owned and/or managed systems. As of the writing of this report, C2 is awaiting data necessary to perform the required computations at the aggregated level. In the event that such data is not received prior to the establishment of the appropriate rates by the Cities, TCI should be ordered to provide a computation of the IWMP rate based on the Cities' approved methodology. Alternative Computation Given that the filing is based on aggregated costs that are either booked at the TCIC level (equipment lease rate computations)or based on the averaging of costs included in the 40 sample systems, the methods by which C2 has addressed the above issues vary. To begin with, the exclusion of the $.20 per converter costs as well as the exclusion of the security devices capital costs from the computation of converter lease rates was performed by merely eliminating the total costs at the aggregated level from Schedule C. In addition, the alleged unfunded defened income taxes have been removed from the current provision for depreciation for each of the converter categories and the remotes. With respect to the remaining adjustments, TCI's sample system calculations had to be reviewed. The Form 1205 computations performed by TCI for nine of the forty systems were re-computed with the exclusion of: 23TCI TKR of Houston, Inc., DA 96-2105, at paragraph 17. City Representatives May 9, 1997 Page 18 ■ Alleged unfunded deferred income taxes related to Schedule A assets ■ Converter retrieval hours in both the development of the HSC (costs and hours)as well as the assignment of costs made by TCI to the converter lease rate computation ■ Disconnect hours in the development of the HSC. ■ "Tap" audit hours in the development of the HSC (costs and hours) ■ Trap service hours in the development of the HSC related to servicing the security devices ■ Self insurance costs included in the development of the HSC ■ Installation materials costs included in the development of the HSC. Once the individual system computations were adjusted, an average impact on the TCI calculations of these sample systems was calculated. While TCI may argue that this "averaging" methodology may not produce results that are as accurate as if all forty sample system were adjusted accordingly, it is C2's opinion that this approach is reasonable. In the event that TCI chooses to adj ust all forty sample systems pursuant to the computations made for the nine filings reviewed, the Cities should consider adjusting the recommended rates accordingly. SUMMARY OF PRELIMINARY RECOMMENDATIONS Based on the above preliminary findings and conclusions, the Cities should consider taking the following actions: 1. Establish an Hourly Service Charge of$22.92 to be used in the development of the installation and equipment rates. 2. Adopt installation and equipment rates as shown on Attachment A. 3. Reaffinn the regulated nature of the IWNiP and establish a rate pursuant to the calculations approved by the FCC. C2 appreciates having this opportunity to work with the Cities in review of the Form 1205 rates. Based on the receipt of outstanding requests for infarmation, C2 will finalize its evaluation and issue final recommendations with regard to the Form 1205 filed by the Company. City Representatives May 9, 1997 Page 19 If you have any questions regarding this preliminary report or need clarifications as to the preliminary recommendations, please contact Ms. Connie Cannady at(972) 726-7216. Very truly yours, c� l�fY1��.`� ` ���`,� � l.l„�t-C. � C2 Consulting Services, Inc. 05/�12/97 MO:�T U1:10 F�X 9?2 726 7216 C2 CQNSCLTING -�-�i FRIENDiP00D (�Jd01 ,_� � ,���19202]�� �� � �3 � �� � �- �9� �, �s � a a�., � `,": `_' �m w ^? � rn � �;'=, : N �,x �, �- _ —� r- 7 '. ._ ti r Q , Q' � � . : �:� �� �s� �_; ��,o �9Sti�2�' � n en n c+� Y- rn c� cYs tv a �!] cv d� tv dCr W � N cb L� 1� tfl Gn I� i0 I+ GC 4 L�} ;t 1� Q �ciai � cpc6 � ou�ioui � oTc�i o (*y r r r- � tfyr H�? rff} � H} (f}�f} (13 � m � �3 �'}�3 ff3 Ef� fH d$ fi3 Sd � Q 0 0 � C) � � '' u� u� ou� u� rn �n �n �ca �nu� oao .�• � � � I� t+ O? R� Pirnrnrn c+� �no � ��., �: �T' 'Q ['+i Lb OQ r- tv 40 C'`1 Gfl N 4 � c7 !�- �� ��� �r���tr��� � c€��i�r � � G� � � � d v d � o a� a�s � a� a a t a � a � � � Q N c- t�] a0 � t� 4� !� N N �1 7� v G � ('� �!? c'h � N 0) G�i �f� c`? � a0 ['7 N Lf') � � � I� (O � NiV �- '�?' I�. ttf� � ON (+') � � � ���?�4f b9�69� Ef3 � 49�id9 � Q � � ,� .r ~ � = Q a � � aa � a z � � � p � � W � � � :_' m E D � � � z o o �' o � � U �� �� � c� u� � � � � m m � m a� m � `� m a c�.� � � o o m � a � ` wy c S�. O � C3 V m � ` C � � _ � ¢ `-° a w y ° � � � � � Q? (� w N � � � � Qy � Q V C � �J C � � 3 a�ia `a a� `�° p a� l- v � vd m C � � 'CS — rn� � 73 �'' � � � � rtd � C � as � ,._, � � ��, � c i i c � i Z7 L � v V Q CSf �— m �O Rd � � C C O �} Cn QI in in N in O � � O L O O Uf G6 0 � � � C � � � � � UUU � CLS � � � � - , , , EXHIBIT "B" �N��JLTING �ER1fI�E�, ING. 7801 Pencrass Lane �97`�) �26-721� Dallas, Te�as 752�8 (97�'} T26-�216 (Fa.g} May 12, 1997 Ms. Eugenia Cano Mr. Ron Cox City Attorney City Manager City of Alvin City of Friendswood 216 West Sealy Street 910 South Friendswood Drive Alvin, Texas 77511 Friendswood, Texas 77546-4856 Mr. David Stall Ms. Margaret Hunt City Manager Interim City Manager City of Nassau Bay City of Webster 1800 Nasa Road One 311 Pennsylvania Nassau Bay, Texas 77058 Webster, Texas 77598 The Honorable Roger Nylin The Honorable James Cumming Mayor Mayor City of El Lago City of Taylor Lake Village 98 Lakeshore Drive 500 Kirby EI Lago, Texas 77586-6398 Taylor Lake Village, Texas 77586-5298 Mr. Chad Nehring Mr. Ron Wrobleski Assistant to the City Manager Administrative Specialist City of La Marque City of League City 1111 Bayou 300 West Walker La Marque, Texas 77568 League City, Texas 77573 Mr. Tom Pedersen Mr. Ron Wicker City Secretary City Manager City of Texas City City of Seabrook 1801 9th Avenue North 1700 First Street � 1 Texas City, Texas 77592 Seabrook, Texas 77586 0���11`;� 'l ��Sl�, � � J� Ms. Cheryl Wilson :f; C,��� ��9, � Olson&Olson ��; 3485 Three Allen Center �� � �FFR��VFO ' 333 Clay Street "��',� c�Tr MqNq�S�YOpO �� Houston, Texas 77002 r cFR ;' 1 . Dear City Representatives: �� __ On May 9, 1997, C2 Consulting Services, Inc. ("C2") issued a preliminary report with regard to the Form 1205 filings submitted to the Cities by TCI Cablevision of Houston ("TCI"or the "Company"). At the time of the writing of the preliminary report, certain City Representatives May 12, 1997 Page 2 information had not yet been received from either TCI or other jurisdictions conducting analyses of the same filing.l Since that time, additional information has been received and C2 provides the following changes to the preliminary findings, conclusions and recommendations. Preliminary findings and recommendations that are not addressed in this report remain unchanged from those reported on May 9, 1997 and are considered final as presented in that report. Costs Related to "Tap"Audits On May 9, 1997, TCI provided to C2 the following explanation of"tap" audits: "TCI defines `tap audits' as a review and verification of installation work completed at the customer premise including review and verification as to the quality of work, compliance with TCI and other standards, verification of services received by the customer, proper functioning and installation of converter equipment and other customer premise equipment, etc." [emphasis added] What is not clear from this definition is the extent to which each of the various activities is actually performed in a particular tap audit. It seems logical to assume that much of what TCI has included in its definition involves actual entry into the subscriber's premise. However, TCI provided no additional data to support the extent to which installers obtained entry. In fact, TCI provided nothing more that this definition and its rationale that these costs can be included under the FCC rules. Even if one were to agree with TCI's assertion that these activities are related to the installation, maintenance and repair of customer premise equipment,the Company has not provided any information that counters C2's argument put forth in the preliminary report with respect to the unbundling of these types of costs during the Form 1200/1205 process.2 Therefore, it is C2's opinion that(1) TCI has still not met its burden of proof that these costs are entirely related to appropriate equipment basket activities, and(2) these costs do not appear to have been unbundled during the Form 1200/1205 process, thereby resulting in a potential double recovery. IAs noted in the May 9, 1997 preliminary report, the Form 1205 filing has been prepared on an aggregated basis for all of TCI's owned and/or managed systems. Therefore, all regulated systems have received the identical filing. 2See C2's preliminary report, dated May 9, 1997, at page 11. City Representatives May l2, 1997 Page 3 Insurance on Converters As discussed in C2's preliminary report, TCI has included a $.20 per converter per month amount in its computation of both categories of converter rates. Based on information received on May 9, 1997,this amount is: ". . . an estimate of actual premiums and losses provided by TCIC's risk management group."3 TCI did not provide any information on how the estimate was derived, what the insurance covered, or how any offsets have been considered based on customer provided funds. More importantly, however, TCI's explanation that these costs are included in order to account for converter losses that are recorded using the "group accounting method"raises the issue of unbundling. Clearly, TCI has been incurring converter losses since before regulation. In order to avoid any double recovery af this type of cost (whether it is classified as insurance or as actual losses), the Company should have unbundled the costs from the monthly programming services rates. Based on the information that was provided and C2's review of prior Form 1200/1205s, it does appear that TCI unbundled these costs in 1994. Based on the above, C2 continues to recommend that the proposed additional $.20 per converter per month be disallowed in determining the appropriate costs to be included in the equipment basket. lnside Wire Maintenance Program Subsequent to the writing of the preliminary report, C2 has computed an estimated monthly rate per subscriber for the inside wire maintenance program offered by TCI. As mentioned in the May 9th report, C2 reviewed the 1997 Form 1205 information for approximately 25% of the total sample systems selected by TCI. Based on this sub sample,the average monthly rate for all hours spent on inside wire maintenance times the HSC, divided by all subscribers is approximately$.04. However, at this time, C2 recommends that the Cities reaffirm the rate for inside wire maintenance that was adopted during the review of the 1996 Form 1205. The Cities adopted an inside wire maintenance program rate of$.08 per subscriber per month which was based on cost data for the system and not set at the national level. TCI has not filed for any change in the rate that it charges for inside wire maintenance.4 Because TCI is not proposing a rate change to the rate the Cities established in 1996, the 3TCI response to Third Follow-Up Request for Information,For�n 1205, Q. 3-4. City Representatives May 12, 1997 Page 4 Cities are not obligated to change the rate that is currently approved Continuing with the current monthly rate of$.08 is conservative given that the sub sample produces an estimated rate of$.04. Security Devices Costs C2 also received additional information regarding the costs that TCI proposes to include in the common assets shown on Schedule C. In the breakdown of these assets were capital costs related to security devices located at the Material Support Centers. Because C2 has argued that the costs related to security devices should not be included,5 these common security device assets should also be disallowed. Alternative Computations As of the writing of the May 9, 1997 preliminary report, C2 had reviewed the Form 1205 information for nine systems. An additional system was added in order to have systems from each of the five strata employed by the Company in its averaging calculations. As shown on Attachment A,the inclusion of the tenth system as well as the additional adjustment for common expenses discussed above, has resulted in a slight decrease in the preliminary rates included in the earlier report. SUMMARY OF RECOMMENDATIONS Based on the above findings, conclusions and recommendations as well as those not discussed in this report,but presented in the May 9, 1997 preliminary report, C2 recommends that the Cities consider the following actions: 1. Establish an Hourly Service Charge of$22.51 to be used in the development of the installation and equipment rates. 2. Adopt installation and equipment rates as shown on Attachment A. 3. Reaffirm the regulated nature of the IWMP and reaffirm the $.08 per month per subscriber rates adopted in 1996. 4As stated in the May 9th preliminary report, TCI does not consider the inside wire maintenance program to be a regulated service. SSee C2's preliminary report, dated May 9, 1997, at pages 11-13. City Representatives May 12, 1997 Page 5 If you have questions regarding the findings and recommendations identified within this report or those which remain unchanged from the May 9, 1997 preliminary report, please contact Ms. Connie Cannady at(972) 726-7216. Very truly yours, C� � l.�(�l M�`'�� ' oil�/V�c.1�� �'�,/�C . � C2 Consulting Services, Inc. ,� I� lnl� ('7 � � NMNO � N � N 40 +.+ N N OD CO 1� CO � I� CO I� CO O M '7 f� O � � OC� t0 � 0 � 0 � .- O � N O ('7 c- e- � � E!� � (fl � EA � ffl EA d9 Efl a��.r � � d9 EA ffl tfl 69 Ef3 E�3 Ei9 C E Q� 0 0 U � m � � �n �n o � �n rn �n �n �n �n �n o 0 0 r rnrn �nr� r� rnrnrnrna� rn c� � o W ` r � � NCOCO � NCONC� N O � ('� H p,� � � Efl Efl Efl Efl � ti� � Efl � tfl Efl Efl � � ° � � � � � � a W o ° � � oN a a r � U � � W ON � ('� OD � l� tf� l� NN � � �f Q O � ('OCflM � N � M � ('7 � 00 MN � Z � r I� C O � N N � � I� � 1� � O N M Z �� � � � ��� � � cfl�e9 � �s3cflc� 'a Q ~ d � Q a € � oa N a z LL � � O � N W � � � J � Q Q .� %j N W = o O � O U a�i aUi � oi aNi a� a � m c c � m +r � � °� Eoo v, � m � � > � a�i o = UU � v � `m °� � p a�i 2 v Q �, a N cn -� �u ia -o � a� �a � V � . N � .O .O N Q, O N C � J � C (0 � 3 -- = � cz m � � V � � � v � � � o � �U U � N � aQQ � cZ -v » ?� U � � � � � 03 � � � � � a�'ipc�'o �a m �o �a � � � � � c c o � m a� > � rn3cucc E 'cnc � v, �n �n �noaQO � oo a� mo � SS � S � » oUUU � mZ S Fadsrel Communicat�ore Cortmiixvion .approred by:OMH 3061H1703 Washington,D.C-20554 SCRF:DULE A:CAPITAL COSTS OF SERVICE INSTALLATION AND MAINTF.NANCF.OF EQUIPMENT AND PI.ANT Mainteoaoce Ot6er 1. Ot4er 2. A t end Planl Ve►icln Tools Fuilidn (S .i below�) (S i 6elmv) B CnoxaHiwkValue 5313,218,479_53 $164,W3,6)2.62 SI').U35,362.91 S4N,4�,364.64 512,09?,3l31.W C Accwnulazed eciation 5146.054,424.63 596,781,467.61 $3,830,429.35 59,316,76038 %,651,335.W D DeCemedTuey S1q264,777.16 SI6,545,67831 5270,95344 $2,S:.fS,583.05 �3157,945.fN11 E tiet Hook Value[B-(C+D)] S]52,899,277J4 568,676,746.9U SI4,433,9tl0.12 536,654,02121 55,548,991.OD e r�eock�c„�.� u.iizs G Colcuiotlon o Gross-u Ra(e lil Federal tr�come Tax Rate 0.35 G? State Icxrnne Tax Rate 0 0652 G3 Na Taal lncome Tez Rate[(GI+G2}{GI z G2)J 0.3924 G4 Ad�ustrnenf m Re0ec1 In[erest Deduc�ibili[ G4a Actual Interest Amauu 51,077,733,520.16 G4b Total Net Assets 522,685,657,19523 OAc Bex Ret�un on Invesnnrnt Amount�G46 x F 52,552,136,434.4634 64d Imnrae�Dedi�tibili Fector(G4a�G4c] 0.4223 GS Efleaive Ta�c Rate[G3 x(I1'i4dj][C - to G7] 02267 O6 Ad�ustmarcs f Non-C C (i6a Base Retum on Inveshnent Amount(G4c] 52,552.]36,434.4634 G6b D�stribwi<xu 50.00 - G6c Contribu[ions lcoa not exceed G66) 50.00 G6d Iteuans Sub�«t�n Income Ta<�G6a-G66��li6c] S2,S52.136.434.4634 G6e Renuns Percen Sub t to Income Tau(Cfid/G6a] 1. u'? liros.s-U Rete�C-Corps9/(I-05)Gthed/Q{GSxG6e11] 12931 H Gra.�ud-U Rate o(Retum�F z G7� 0.1455 I Renmi on Imesiment Grossed-Up Cor Taces�E z H� 522.243.363A816 59.990,902.9436 $2,172,SSA.0692 55.332,325.4949 SX14.525.7(M7 1 Qurera Prwn�on for iation 545,093,.61.58 516,929,242.08 SSSS,OI SS9 57,078,323.69 5953,R78.IXi R AnnualCapitalCoss(1+1] %7,336,625.W18 S?b,920,145A236 53,027,569.6592 SI'.,41q649.1844 51,1653.403J637 L GRAhD TOTAI.�wo of Li�e K e�trin� Si 11,r6i�92.63/1 ISo:1. SpecdY:Cx7ier 1. Specify�qhor 2. SCI�DI,'LE B:AIYI\"UAL OPERATING EXPEIVSES FOR SERVICE INSTALLATION AND hWN1'ENAIYCE OF EQ[JIPhfEN? Salaries Other I. t�her'. &BeneGta Su lies Uulines CtthzrTazrs IS. oiFMlnw1 �S aifvt.elowl A Annual Op.Expenses tor Svc.Install.and Maint.of Equip. $527,581,531.65 558,9li3,762.31 50.(Nl $37,090,366.40 SI�0,438,037.37 $Ei3,?57,9-17.(�1) B GR�ND TOTAI,��um ot Line A mMee� 5827�51,645.43 Hoc 2. SpacJy:Ot}icr I. Specify:Chher 2. FCC Form I 205 Page 2 Exce14 0 fex W indows June I 99G Federel Commiwcanons Cortun�ss�on Approvcd by.tiMB 3l7(�(l-p'03 N'asttingtoq D.C. 20554 SCDEDC7.E C:CAPTTAL COS7S OF LEASED CUSTOMER EQUIPMENT A Remote 1 Rertate 2 Remote 3 Converter 1 Converter 2 Converter 3 01her B To�al Maurtenarwe/Scrvice Hwus(Anach lana�ion) 199421.806 84495.542 3704525.5(� C Toial b oCl.h�iis in Serv�ce 7139105. I88811. 826:922. D uross I3ook Value SI46,340,436.U7 519.941,455.13 S1.u65,99G,006.66 E AcmrnWated eciatian 593.686,208.90 $17,64?.047 6£t $736,533,225.13 F De(ertedTa�w 5964.57321 (590,528.15) 53,338,619J6 G NetHookValue[D{E+F)] 551,689,653.96 50.00 50.00 52,389,935.60 33:b,i24,161.79 5000 SO.W H C�roased-U Rate o(Renan�F'rom Sched.A,Lme HJ 0.1455 I Renun on Inveshnent Gossad-U for Tazes[G x li� Y7,519,667.7072 $O.W 50.00 5347,681�l?3 $47,443,639.8791 50.00 Y0.00 J l.lurrnt Provisan for iatwn SI4,997.975.87 SI,ll6.935.90 $139,738,97236 K AnnualCapvalCosts[I+TJ 522,517,643.5772 SO.W 50.00 S1,464,61'7.1113 SI87,182,6I2-^_391 50.00 SO.W L GRAIrU TOTAI.��u of Li�e K atries� 5211.16�,8Tt.9287 Bo:3. SCHEDC7.E D:A��R.4GE HOURS PER INSTALLAT[ON A Averzge Hours r Unwired Home Inatallation fattach ari ex lanerion) 1.567 B. Ave e Hours r Pre-W irni Home ln.vtallation(attach an ex lanationl 0.882 C. Are e Hours r.4dA�tional Connection[nvtallatiori at Tune of initial Installation(attach an ex lariation) 0.494 D. .4ver e Hours r Additional Connecuon Installation R ara[e Installation(attach an ex lanation) 0.743 E. Gther Installation(b Item Ty ): Item 1. (5 � y .Avo e Houn r InsWllation fattach an ex Ianationl 0.i3R Item 2.1 S d r) Aver e Hours Installatiun(attach mi e lanat�on) 0.476 Item 3_(S �� Aver e Hours r Installation(attach an ex IeneUOn) 0"�'S FCC Fam 1'_OS PaRe 3 Excel 4.0 fqr W mdemz � J�me 199C+ Federal Communicatwns Cortwiasion Approved by:OMB 3060-U")03 Waehingtrnti D.C.:0554 WORKSFIEET FOR CA[,CIJ[,ATING PERMIITED EQUIPl1�NT AND WSTALLATION('IIARGES STF.P A H Servia CYa 1. 'fotal C iial Coyu of icntelletion m�d Maintenance(Schcdule A,Boz 1 j Sl l l,A(3,392.6341 To�al�ual C ra (lactallation and Mamtenance�Schedule B,Boz 2j 5827,351,615.43 3. Total C i�al Cosb arul- rat fa Installation and Mau�tenar�ce[L�nc 1+Lme 2]. Y938,815,038 0641 4. Cliatnmer t�d trutallation Percentege(attach an ex Ia�ution). 0.3353 5 Armual CLstomu F em Maintenance and Ins�allation Cosis,Ezcl Coats o(I.eased t�I.ine 3 x Line 4] 5314,782,449.535. 6. Total labor Hows(or 7�,t,�.+rm�..ce m�d lnstallat�on of(,lutnmer and Services(atlach Im�atwn I 13983477.964 Hourl Serv�« (HSC)(Line 5/Lme 6) 5�2.511 MET60D OF BILI.IIVG FOR INSTAI.I,ATIONS(plaoe u"i"u tie apqopriAe 60=) Installatwns billed 6y the haQ baeed on ihe HSC alculazed m I.me 7. I I�utallations bdled as a atand�d ctu'ge. STEP B.Ins�allation Charge 8. Unilorm HSC!r all installations(From Step A,Ime 7 i n/a OR 9 Aver e e for Installat�on T a.Unwired Home Lutallation al.HSC[Line 7] 522.511 �. Average Houn per Unwvad Homc In.vtallation(Schedule D,Lme A) 1.567 al.Charpe per Unwved Home Installation�al x a2] ;35.�748 b.Re-wved fiome Installauon bl HSC(I.ine 71 52251 I 62 Averuge fiou+v per Yre-wued Home Lutullauon IJchedule D,Lme B� �88? 63.(.'Iwge per Pre-wved Home Uutallation[bl x 62J E19.N547 c.Additionnl Connection Installation at Time of Initial Installation cl.HSC[Line 7] ;2?.511 c'_.Averege Hours per Additionai Connection Installation at Time of Init. InstalL�Schedule D,Line C] 0.474 c3.Cliargz pzr Additlonul Connection L�xtallatiun at Tune of Initiul Inslallation[cl x c2] $10.6'J02 d Addn�onal Connect�on Installa[ion Re u� te Installation dl.HSC(Line 7� $22.511 d2.4vg.Houn per AdeLtional Connection Ins�allation Req.Sep.InstalL[Schedule D,Line DJ OJ43 d3.CF�arge per Additional Connection Installation Requinng Separete Installation�dl z d2) $I!>.7?57 e.Gther Installatiorss(As s ified in Schedule D,Line E): el.HSC[I,ine 7] 522511 r'_.:�veragz Hours pzr Insiallatio��oCltem 1 (Schedule D,Luie E,Item 1 J �]38 e3 Ctiarge per Installation of Icem 1[el x e2] SI6.6131 a4.HSC[Lfne 7) g�p,5�� e5.Average Hours per lnstallat�on of Icem 2[Schedule D,Gne E.Item 2] U.476 eF.Charge�er Installxtion�f]tem 2[e4 x e5] $]�.��5� e7.HSC[Line 7J g�2_5�� e£t.4verage Hours Fxr Insrallatinn of Item 3(Schediile D,Line E,Item i) (1.25 e9.Clwge per]nstallation of Item 3[a7 z e8] $5.6278 FCC Frnm I'?OS Pege'i Ezcel 4.0 Cw Wmdows lime 1996 Fedeal Communications Commission Approved by.OMB 306U-0703 WasYiu�gton,D.C. 20554 57'EP C.C6a�for lea�ed Reoo4+ a b c (Gkrlatr u n fw cacY i i(fw� diffe�sd ) Ranou 1 Remae 2 Remote 3 10. Total Meuneriarwe/Service Hourv(Cmrec - col�¢nn 6om Schedule C,Lme BJ 199421.806 0. 0. ii. Hx�t�,�>> s^_�sii szzs>> szs�i I 2. Totai Maunnw�ce/Service Coet�Line 10 x Lme 11) 54,489,189.6526 50.00 SO.OU 13. Acmual Ca�tal Coats�Corres colwnn Gom Sclwdule C,Line K) 522,517,6f3.5772 SO.W SO.LYI I i Total Cost of Remoce[Line I 2+Line 13] $27,W6,833 32y71 S0.W SU.00 15. Number o(Units m Savice�C - coluw�Gan Schedule C,Lme C] 7139105. 0. 0. 16. Lhtit Cost[Lme 14/Lme I S] 53.7829 SU.W SO.W 17. Ratc pQ Momh[Lme 16/Q_'1] 503152 S0.W S0.W STEP D.CYarEe.for Iwed Co�rMer Hom e b e (Calc�lale for eaeh dilfereet ) Conventt 1 ConvMer 2 Ccmverter 3 I8. Total Mamtenance/Service Hours[Corres d colwm Gom Schedule C,Line B] 84495.5q� 3704525-5(rii 0. 19. HSC[Lme 7] 522511 S225ll T22.511 20. Total Maune�nce/Servi«Cost�Line IS z 19� 51,902,081 4245 583.392.613.6092 50.� 21. Acmual C ital Costs�Corzes wlumn Gom Schedule C,Lme K] S1,464,617.1123 St 87,182,61_.2391 50.00 ToW Cost of Converta[Line 20�Line 21] 53.366,6485369 S'_7Q575,285.8484 50.00 23. Num6er of Urtita m Service�Carrd d wlumn 6om Schedule C.Lme C� 1 RNN I 1. 82R'_92' U. ?4. Unit Cost[Line 22/Lme 23� S17.tl311 $326G66 $O.lkl 25. Rate per Morrth�Lmc 24/(12 Q Sl.4859 52.7?2? S0.W STEP E.Chargea for Ol6er Leaaed E ui meot :6. 'Iotal!�-IaintenancrJSernce Hours�Corres nd� wlw�u�Gom Schedule C,Line B] 0. 2' HSC Lme'] $22.S11 38. Toral�famrenancaiServica Cost[Line 26 rc Linz?7] $0.00 29- Mnual Ca rtal Coats[Cortes nd� column Gom&hedula C,Lme K] $0.W 30. Total Cost of E ment[Line 28+Line?9j $0.00 31. Number o(Cnits in Service[Cortes nd- column Gom Schedule C,Lme C] 0. 3?. Unrt Cost[Line 30/l.ine 31] $0.(X� 33 Rate pe�Month[Lme 32/(121� $0 W \�THOD OF BD.I.LtiG FOR CHANGING SERVICE 7TERS OR EQUIPMEN'f�plaee ao":"fo the appropriate bo=� av a hommal Cta�ge(Entm ihe nomu�al charge in Line 341 as a U�rm Hourly Service C9�arge S es an Average C�arge(Enrer Ihe Average Hours for C}�arigu�g Service Tiemm in Luie 366.1 STEP F.C for C ' Service'fim or d oe�t 34. Nrnomal f Service Tim If ou uee an acale of , lace an'x'in the box at We � t. OR 35. [Jnifam Haal Smice Na OR 36. Av F Service Tim 36e.HSC�Lme 7] 522511 366.Avefage Hoim w Cliar�ge Service Tien 0.476 36c.Averege(.'harge Cor Ctw�gu�g Service T�ers�I.ine 36a c Lme 366] 510.7152 FCC Fortn I?OS Pege 5 Ezcel 4.0 for W uidowa Jwie 1�76 Fedefal Communica[ions Commission .lpproved by.uMB 3UG40'03 Wasttingtoq D.G :0554 WORKSFQ±ET FOR CALCUI.ATING TOTAL EQUIPMEN'I AND INSTALLATION COSTS 1 Total C �tal Coa�s of L�s�alla�wn ard Maintrnar�ce�Sciredule A,Box 1] SI 11.463.392.6341 2. Totrl Annual (Inatalletion ar�d Mau�tenance ISchedule B.Box 2� SN?7;351.645.43 3. Total Annual C ital Costs o(Installation and Mamtenance�Lme 1+L�ne 2] $938,815,038.0641 4. Clutnmer' - t ar�d Invtallation Per (attach lar�e[ionl. 5. Aunual Qutomer �rtwnt Maintrnarice and Ina�allazion Costs.Ezcl � Cwts ot Leaaed nt $0.W [Lme 3 x Line 4] 6. 'fotal C i�al Costs oCl,eased llsstomer rnt[Schedule C,Box 3] 5211,164,872.92II7 7 pnnual C}ictomer t m�d Inetallatwn Cosu�I.vx 5+Line 6] 5211,164.87?.9287 S. Per .Ulocatwn to Frar�chise Area I+ee inetnictions� 9. Nlocated lvmual � eM a�d LWellatmn Cost[Lme 7 z Lme 8] SO.W 1 Q Monthl t ar�d IruW IaUon Cost(Line 9/Q 2)J 50.00 1 I Number of Eiu�c Subscriben in Franch�ae 12. Monthl mt and Installation Cost Subecriber[Lme 10/Lme 11 J 1lDN/0! 13. Inflatimi Ad�ustment Factor[See lnstruccionaJ 14. Ad�usted Monthly t and ImWlauon Cost Subscnber[Line 12 x Lme 13) HllN/0! FCC Fumi 1'_OS Pa�Se 6 Excel 4.0 Cor W indows June 1�J6 Ftderal Commwtiptions Commission .4pproved by:OASB 3U6t�U7p3 Washington,D.C.20554 SI1bA-fARY SCf�DULE Cv+e�t rf se�t a�d tishll�tlou Rifn PertnLLted Actual 1. Cf�a`gea for Cable Service Imtallatieu a.Ilaal Rate[Ste A,Line 7] �e h.Av G�stallation 1. Gutalletion of lJmvQed Homes( B,Line 9a3] 535.27 2.ins�allsaion oCPrewmed kiortw[S B,Line 963] 519.85 3.U�stalla�on of Additional ConnecUrnu at Tane of Initial Inatalle[ion[S[ B,Lme 9c3] 510.67 4.Insiialletian oCAddGioml Cma�ections Imtall[S 8.Lire 9d3] Y16.73 5.Other lnsfallatior�v( � )[S1e B.Lines 9t3.9a6,9a9] a S16.61 b. $10.72 55.63 Monthl Fw I.ease of Rertwte Crnurola[S C,Lme 17,col�nms e�c] Remoa Controi T ]� 50.32 Remote(:a�trol T 2�. SO.W Reimte Caurol T 3: ��� 3. Monthl Cor I<ax oCComdter Hoxea[S D,Lme 25,cohmrtu ac� Converter Box T 1-. S1.49 Converter Box T 2. 52.72 Converter Boz T 3�. ��� 4. Mofak�l fa Lease of Other u [S E,Lme 33] Gthm t( � 1 50.00 5. for � Tiva(dm�)[ F,Line 34,35 or 3bc] SI OJ2 I.ABOR COST Ah"D POLICY CHANCES Induate your enswer to ihe follawmg tivx quertimu by plecing m�"x'm the appropriate box 1.Have you mcluded i}re lahor coeh aseociated with subscri6er cable draq o�your ctwges Cor mi�ial i�talleticm? B YES NO '_.Have you capnalized ihe labor costs asvuc�atad with subsmiber qble drops? YES NO 3.]Cyw have filed thia form belore,have Y�����Y P��wY,e.g,coat acc�imtiog or cont allocation t}iet ceusn an i�u,reau m�he coats mcl�ded u�the u�u�pwation of equqxoe�n ar�d uutallations chergea? BYES(Yw mus[attacA a Cull expim�atwn) NG CERTa1CATtON STATEAIEN7' WQ.LFUL FALSE STATEtvfENTS MADE ON'fFIIS FORM ARE PIJNISHABLE BY FINE AND/OR A-IPRISONMENI' (U-S.CODE TITI.E I8,SECTION 1001),AND/GR FORFEI'I'URE(U-S.CODE,TITLE 47,SECTION 503). I certdy that thc n,N..�.'�r.�mde in this fam are we ard carat to the bert of my Imowled�e and bclieC,and are�oade in good faith. N�e oCt}rc Cable Operatur Sig�anve Uare Title FCC Fortn 1�OS Page 7 Excel 4 0 for W indows lune 1996