HomeMy WebLinkAboutAgenda Statement 1983/11/22 Item 20a-b COUNCIL AGENDA STATEMENT
Item 20a
Meeting Date 11-22-83
ITEM TITLE: Report on Cox Cable TV, Inc. Rate Increase
SUBMITTED BY: Director of Finance (4/5ths Vote: Yes No x )
REVIEWED BY: City Manager 9
On November 15, 1983, the City Council requested the pending rate increase in
secondary services for Cox Cable TV, Inc. be held over one week for additional
information from staff.
RECOMMENDATION: That the City Council
1. Accept the Report.
2. Approve the rate increase. (Effective as of January 1 , 1984) .
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
The City Council expressed concern last week that the rate study for Cox Cable TV, Inc.
did not address the total company operations and was limited in scope to the request
for an increase in secondary services only. The reason this was done is because we
had completed a rate study on all operations seven months earlier in April , 1983 and
in addition, the City of San Diego has just completed a full rate study on all operations
and has recommended the rate increase for secondary services is reasonable and
justified. Therefore, we were primarily interested in an examination and audit of
secondary services to determine whether or not we would be able to support their
request in Chula Vista.
In our report to Council on November 15, 1983, we concluded the requested rates for
secondary services were appropriate and recommended approval . However, as a result
of the additional concern, we have calculated the impact that the requested increase
in secondary services would have on the rate study we completed on April 12, 1983.
The previous rate study in April , 1983 included a schedule showing the impact of the
rate increase for a 12-month period. We have revised this schedule to reflect the
full impact of a rate increase on all primary and secondary services, revenues, and
expenses (Schedule A) .
As indicated on Schedule A, the additional income after taxes with no increase in
expenses from calendar year 1982 is $87,226 and the return on net assets increases
from 4.2% to 6.1%. If expenses are increased by 5%, the additional income is $24,558
and the return on net assets changes from 4.2% to 4.8%.
In summary, the requested rates for secondary services seems justified even when
included as part of total company operations.
Form A-113 (Rev. 11/79) ," 1/ ViT
SCHEDULE A
IMPACT OF THE RATE INCREASE FOR A 12-MONTH PERIOD
12 Months 12 Months
Basic Service 12 Months Full Rates-
Rate Increase Full Rate 5% Increase
Only (1) Increase In Expenses
Total Revenues $3,050,860 $3,243,815(3) $3,243,815
Total Expense 2,654,661 (2) 2,660,450(4) 2,788,607(5)
Income Before Taxes $ 396,199 $ 583,365 $ 455,208
Total Taxes 198,160 298,_100 232,611
Net Income $ 198,039 $ 285,265 $ 222,597
% of Net Profit After Taxes 6.5% 8.8% 6.9%
Net Assets $4,668,976 $4,668,976 $4,668.976
Return on Net Assets 4.2% 6.1% 4.8%
(1) Increase in rates approved by Council on 4/12/83 (Resolution No. 11220)
effective May 1 , 1983.
(2) Assumes the same actual expenses as reported by the Company for calendar
year 1982.
(3) Reflects a projected $192,955 in additional revenue if secondary service
and second outlet rates are increased as requested.
(4) Increased by $5,789 to account for additional franchise taxes on the
increase in revenue ($192,955 x 3%) .
(5) Provides for a 5% increase in expenses except franchise taxes that are
based on revenues.
WPC 0151G :,..
COUNCIL AGENDA STATEMENT
Item 4--.4a
Meeting Date 11,1.5-83
ITEM TITLE: Public Hearing - To Consider Requested Rate Increase in
Secondary Services for Cox Cable Television, San Diego
Resolution /0471 Amending Resolution No. 11220 - Approving
Increased Rates
SUBMITTED BY: Director of Finance (4/5ths Vote: Yes No X )
REVIEWED BY: City Manager
On June 14, 1983, Cox Cable of San Diego filed a letter of request with the
City Manager to increase the rates it charges for secondary services. The
last increase for these services was in May 1977.
RECOMMENDATION: That the City Council
1. Conduct a public hearing.
January 1 , 1984
2. Approve the rate increase. (Effective as of iVinmdrin- ,==F9$3)
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
The rate study we conducted was based on a review of costs associated with the
provision of secondary services and the pro-forma financial data submitted by
the Company for the years ending December 31, 1984, through December 31, 1987.
Staff examined the financial records at the offices of Cox Cable in San Diego
to determine the reliability and accuracy of reported costs. Specifically,
payroll records, materials inventory, and vehicle costs data were analyzed.
The financial statement we prepared (Schedule A) was based on budget forecasts
provided by the Company and also discussions with Company officials. We made
several adjustments to the cost data the Company submitted. The major change
was in depreciation where the Company used a five-year life and we felt that
ten years was more appropriate for the capitalization of the "Distribution
System and Drop Lines." In addition other adjustments were made to vehicle
costs and general administrative costs.
The financial statement, presented as Schedule A, projects a loss each year
through December 31, 1987, at the current rates. The proposed rates will
yield a profit varying from 12.9% for the first full year in 1984 to 7.6% in
1987. In dollars, we are talking about $55,151 in 1984 down to $35,448 in
1987. When you consider the investment in each of these years, the return is
6.9% in 1984 down to 2.5% in 1987.
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Page 2, Item A--4a
Meeting Date -'r —
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Schedule B shows the proposed rates for Cox Cable compared with other cable
companies in San Diego County. As indicated, the proposed rates for Cox Cable
are competitive with the other companies.
Current cable rates and staff recommended rates are shown on Schedule C.
Finally, all the cities served by Cox Cable, including the County of San
Diego, have approved the new rates requested by the Company except the City of
San Diego and La Mesa. The City of San Diego decided to do a complete rate
review of all operations before granting any rate increase.
We contacted the rate analyst for San Diego on Monday, September 26, 1983, and
he indicated that their rate study has been completed. He reported that the
proposed increase in rates for Cox Cable is reasonable and justifiable.
In summary, it appears to me that the requested rates for secondary services
are appropriate and will provide uniform rates throughout the County of San
Diego.
FISCAL IMPACT: None
WPC 0131G
Chula Vista, Caiuonita
Dated