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Home My WebLink About84-198 - ADMIN Resolution - City Council - 1984/12/03RESOLUTION RESOLUTION OF APPROVAL OF REQUEST `BY STORER CABLE ("Franchisee") TO INCREASE BASIC SUBSCRIBER RATES WHEREAS, Franchisee notified the City of St. Louis Park ("City") by letter dated February 29, 1984, of Franchisee's request to increase its Basic Service rates by $2.05 from $7.95 per month; and, WHEREAS, Section 9-714(2)(c) of City's Cable Requlation Ordinance ("Ordinance") requires that if Franchisee requests a change in rates, it shall present in detail in writing the sta- tistical basis for the proposed fee change at least 90 days prior to the proposed effective date; and, WHEREAS, Franchisee has presented statistical basis for its request in a manner requested by City and in fulfillment of Franchisee's obligations under Section 9-714(2)(c) of the Ordinance; and, WHEREAS, the City retained the consulting firm of CTIC Associates and the law firm of Herbst & Thue, Ltd., to assist the City in the rate change decision-making process; and, WHEREAS, the City has completed a rate change decision-making process in accordance with the Ordinance and consisting of the following: February 29, 1984 - Franchisee provided written notice of rate change request. March 12, 1984 - City acknowledged rate change request and requested statistical basis for increase as required by Ordinance. May 2, 1984 - City commenced cable subscriber satisfac- tion survey in conjunction with Control Data Business Advisors, Inc. May 21, 1984 - City retained the CTIC Associates consulting firm to assist City in decision-making process. May 24, 1984 - City Cable Advisory Commission considered rate change decision-making process. May 24, 1984 - City, through CTIC Associates, submitted relevent financial and technical questions and requests for information to Franchisee. -1- June 7, 1984 - Franchisee supplied requested technical data to CTIC for review. Late June, 1984 - Franchisee supplied requested financial data to CTIC for review. July 23 -July 27, 1984 - CTIC Associates conducted technical eva- luation of cable system. August 13, 1984 - City completed cable subscriber satisfac- tion survey. Auqust 7, 1984 - CTIC Associates submitted a draft Consultant's Report regarding the rate change request to City. Auqust 23, 1984 - City's Cable Advisory Commission con- sidered the cable survey and draft Consultant's Report and adopted a recom- mendation for City Council. September 7, 1984 - CTIC Associates presented Final Consultant's Report to City. September 10, 1984 - Notice of October 1, 1984, Public Hearing regarding rate change request was published pursuant to Ordinance Section 9-714(2)(d) September 17, 1984 - City Council received and considered Consultant's Report and survey results. October 1, 1984 - City Council conducted Public Hearing regarding rate change request pursuant to Ordinance Section 9-714(2)(d), considered the Final Consultant's Report, considered the Cable Commission recommendation, con- sidered the Cable Survey and Staff Report, considered whether proposed rates would meet the Ordinance standards for rates set forth in Section 9-714(1), including whether rates would be fair, reasonable, and non-discriminatory and desiqned to meet the necessary costs of service, including a fair and reasonable return on investment under economical and efficient management, and considered the factors for review of rate increase requests including additional reasonable costs for increased or additional ser- vices. -2- October 15, 1984 - City Council considered whether proposed rates would meet the Ordinance standards for rates set forth in Ordinance Section 9-714(1) including whether rates would be fair, reasonable and non-discriminatory and designed to meet the necessary costs of service, including a fair and reaso- nable return on investment under economi- cal and efficient management, and considered the factors for review of rate ,increase requests set forth in Ordinance Section 9-714(2)(b) including the con- sumer price index for the Minneapolis - St. Paul area compiled by the U.S. Department of Labor Statistics and addi- tional reasonable costs for increased or additional services. November 5, 1984 - City Council considered proposed rate increase request in light of Franchise Ordinance standards and received comment from interested members of the public. NOW THEREFORE, BE IT RESOLVED, by the city of St. Louis Park, Minnesota as follows: I. FINDINGS OF FACT A. That the Franchisee's rates, if the requested rate change was implemented, would meet the standard of fairness and would be nondiscriminatory as set forth in Ordinance Section 9-714(1) for the following reasons: 1. CTIC Associates reported that Franchisee's current rate of Seven and 95/100 Dollars ($7.95) for thirty-two (32) programmed channels is below the average "Basic Service" rates of the nineteen (19) Minnesota cable franchises sur- veyed by CTIC (see CTIC Report Table 14), and that based on national experience, a Ten and no/100 Dollar ($10.00) Basic Service rate is not high for the package of programming ser- vices received and that it compares favorably with many systems reviewed by CTIC. (See CTIC Report at 26.) 2. CTIC Associates reported that Franchisee's increase in rates to Ten and no/100 Dollars ($10.00) per month would likely have a minimal effect (less than three percent (3$)) on "the drop off in basic subscribership" (see CTIC Report at 5.) -3- 3. CTIC Associates reported that without the Franchisee's requested rate change, Franchisee would not be able to achieve a fair return unless it could more than double subscribership over the next five years. CTIC reported that this is "highly improbable even with the most extensive marketing effort because subscribers do not need cable service to receive good off -air signal reception." (CTIC Report at 22.) In order for Franchisee to meet the necessary costs of service and to achieve a reasonable return on investment, it is fair that the current subscriber base support the requested rate change. B. The Franchisee's requested rate change meets the stan- dard of reasonableness set forth in Ordinance Section 9-714(1) for the following reasons: 1. CTIC Associates reported that with the "pay" and proposed Basic Service rate changes, the average subscriber's bill is expected to increase to Twenty-four and 65/100 Dollars ($24.65) per month. The estimated impact on total subscriber's bill of the Basic Service rate change and pro- jected pay rate increases is eleven (11) percent higher than 1985 level of expenditure without the Basic Service rate increase (See CTIC Report, Page 8.) 2. Although Franchisee's current Basic Service rate increase request constitutes a twenty-six percent (26%) increase since October, 1978, the date of the current rate authorization, the Minneapolis/St. Paul Consumer Price Index (CPI) has risen at a rate of fifty-eight percent (58%) over that same period. 3. Franchisee's Basic Service rate increase will generate about One Hundred Twenty-six Thousand Dollars ($126,000) in additional annual revenues. With the total revenues of Franchisee at $1.7 million, the rate increase provides only seven and four -tenths percent (7.4%) increased revenue to the company (CTIC Report Page 8.) 4. Within the past two (2) years, Franchisee has increased and improved its services by adding approximately ten (10) new channel selections. These channel additions have increased Franchisee's operating expenses, which further justifies the reasonableness of the Basic Service rate change. C. The Franchisee's requested rate change meets the stan- dard that rates be "designed to meet the necessary costs of ser- vice, including a fair and reasonable return on investment under economical and efficient management" as set forth in Ordinance Section 9-714(1) for the following reasons: -4- 1. CTIC Associates reported that without the requested Basic Service rate change, Franchisee -would achieve a ten (10) year average return on net tangible assets (1979-1988) of only two percent (2%) compared with a seventeen percent (17%) cost of capital. The requested rate change would improve the ten (10) year average return to only four percent (4%), still significantly below the cost of capital. Furthermore, Franchisee's Basic Service rate increase is necessary "when the rate of return on assets falls below the cost of the capital used to make the investment or when the rate of return is less than the probable rate of return achieved if the capital had been invested in another project of similar risk." (See CTIC Summary at 2.) 2. Franchisee's annual plant expenses and recent con- solidation in staff are appropriate in light of the system's capacity and points to continued "economical and efficient management." (CTIC Report at 10, 13.) 3. Franchisee's operating expenses report for the St. Louis Park System does not indicate inefficient or unreaso- nably high operating expenses. (See CTIC Report at 15.) 4. Franchisee, in conjunction with the St. Louis Park Cable Advisory Commission, initiated a cable subscriber mail survey. With an eiqhteen percent (18%) response rate, the Commission found that over seventy-five percent (75%) of the respondents rated the quality of services very good to good, while only four percent (4%) rated the services poor. This further supports Franchisee's request for Basic Service rate chanqe as "fair and reasonable." (See Storer Cable/St. Louis Park Cable Subscriber Survey, page 16.) D. The City's independent consultant, CTIC Associates, found that the requested rate increase is justified from a finan- cial standpoint and is merited. (see CTIC Report, page 42 and CTIC Summary, page 2.) E. The St. Louis Park Citizen's Cable Advisory Commission, after considering the CTIC Report and the Subscriber Survey, recommended that the City Council approve the rate increase. -5- II. CONCLUSION In light of the Findings of Fact set forth above, upon payment by Franchisee of all costs of City in determining to approve Franchisee's rate increase request, including consulting fees of CTIC Associates and legal fees of Herbst & Thue, Ltd., Franchisee's request for approval of an increase in Basic Service cable subscriber rates from Seven and 95/100 Dollars ($7.95) per month to Ten and no/100 Dollars ($10.00) per month is approved. City further requests that Franchisee provide reasonable notice to all subscribers prior to imposition of the rate increase approved hereby. Passed and adopted December 3 1984. Atte t: ,By a B : Uu City lerk M or City of St. Louis Park, Minnesota n Reviewed for administration: Approved as to form and legality: City Manager ity Attorhey -6-