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HomeMy WebLinkAboutAgenda Statement 1974/10/29 Item 02a,b . AGENDA ITEM NO. [ 2a~b] CHULA VISTA CITY COUNCIL MEETING OF: October 29, 1974 ITEM TITLE: Public Hearing - Consideration of Mission Cable T.V. Rate Changes Resolution - Approving Rate Changes, Mission Cable T.V. Inc. INITIATED BY: Director of Finance BACKGROUND On July 9,1974 Mission Cable T.V., Inc., submitted a report to the City Council outlining its cost of operation and services and suggested rate increases. A committee composed of Councilman Egdahl, the City Manager, and the Director of Finance was appointed to review this report and supple- mentary information obtained since then. The Committee has met twice concerning this matter and has prepared a report which contains the following recommendations: 1. The proposed increase is necessary and even when granted will not give the company a 10 percent rate of return. 2. This request is conservative when compared with the industry as a whole which indicates a rate of 14 to 18 percent as a standard rate of return. 3. The requested rate would be consistent with surrounding communities. National City, El Cajon and San Diego have already had their rates increased as of October 1, 1974. 4. The Mayor and Council should consider allowing the City Manager authori- zation to increase the established rates upon proper application to his office. I would suggest that provisions be made in the resolution adopting rates that the City Manager may approve interim rates as long as they do not exceed a 10 percent rate of return. This seems reasonable in the light of present inflationary trends and would allow the adjustment of rates in response thereto. This would be consistent with provisions recently passed in our Taxi Cab Ordinance. ATIACHED: Resolution [X] Ordinance [ ] Agreement [ ] Plat [ ] See EXHI BITS ~x] No. 1 - 2 Financial Statement: Financial information for 1972 through 1974 has been previously submitted to each Councilman, including the proposed rate and charge schedule. Also, the attached report from the Director of Finance. Commission-Board Recommendation: N/A ~artment Head Recommendation: Recommends approval of increased rates. City Manager Recommendation: Concur "'~-'''''--'--''''''--'''''--" 'Rl#r/ l J-- VEPARTMENTAL CORRESPONDENCE EXHIBIT 1 D 1\ r''f'~"'''! Jbl to : flc~ot'''r 't:; l07~ \l :1' l- I' ~~ ! tJ , ..'..r TO: John R. Thomson, City Manager VIA: Rebert S. Bourcier, Assistant City Manager ~~ . FROM 0f;o~ordon K. Grant, Oi t'ector of Fi nance SUBJECT: Cable Television Rate Study In accordance with your request, we have prepared a report on requested rate increases by the Mission Cable T.V. Company. The report is arranged in the following sections: Purpose, Background, Scope, Summary of Services, Present and Requested Rates, 'Result of Consultants Study in San Diego, and our Reconmendations. GKG: j h City 06 Chuia Vi4ta, Cai~604n~a A 111 7 '11!9A/ MISSTON rAB'" -.. 1'l.~Tr. ,.....Uny ... "lot i.~, i\."\ I ~ ~: Li Purpose To provide the City Manager and City Cound1 Nith infoi',nation pertaining to the request of Mission Cable T.V., Inc., for an increase in subscriber rates. Back.around In a written report to the City Council on July 9, 1974, the Mission Cable T.V. Company petitioned for a rate adjustment for all subscribers within the City of Chula Vista. This is the first rate increase request by this compJny since prov.lding service to the City in May, 1964. Subsequent to,this report, the company provided financial information for the years 1972 through 1974. All this material has been forwarded to the City Council and this report will be as brief as possible and not repeat data previously submitted. A detailed study was performed by Mr, Manley W, Edwards, Utility Rate Consul- tant for the City of San Diego concerning similar rate increases for San Diego. ~ 1. Meeting with officials of Mission Cable T.V, Company, a review of Company operations within the City was determined and the Mission Cable T,V. Company's position on present costs of operation and scope of services was ascertained. 2. A review of the report of Mr. Manley Edwards, Rate Consultant for the City of San Diego was made. Selected statistics and information are presented in this report. ""_ I '77Y?-<l1 .. 2 .. 3. Present and proposed costs of Cable T.V. Service in surrounding cities Vlei~e compared. ~~~ of Services Cable T.V. Services are not to be compared or confused with public utilities. They are not a "life necessity service" and depend entirely on marketing services at a price that will be attractive enough to provide volume operation within a given city. Presently in Chula Vista, the system offers full 12 channel service. This includes major T.V. stations originating in Los Angeles, San Diego and Tijuana, Mexico. The Federal Communications Commission has ordered that by March 31, 1977 the present 12 channel service be increased to 26 channels. This is to be accomplished through utilizing set-top converters estimated to cost between I , $35 and $55 for each set connection made by the Company. The percentage of business performed by Mission Cable T.V. Company within the City limits of Chu1a Vista is 54 percent. This means that out of 18,520 poten- tial housing units, there were 9,994 households using Cable T.V. Service. There are four major operations within the Mission Cable T.V. Company. They are: Customer Services; Marketing; Engineering; and Technical Services. i 71/91" ... - j .. r~esent and~i.9ueste~ R~.te~ The foilowing scheduie out'lines the c~ist'ing rates and the proposed rates. Individual Service (Monthly) Proposed * Existing 12 thannel Service 6.50 5.50 20 Channel Service 7.50 Additional Outlet 1. 75 1. 75 F.M. Music Outlet 1.75 1.75 Cowmercial Service (Monthly per outlet) (Hotels, Motels, Hospitals) Minimum . ~1ax i mum 3.00 7.50 1.00 5.50 Installation Charges Initial Installation 19.75 11.25 I Reconnect Outlet 9.25 5.50 I I Add Additional Outlet 9.25 5.50 I I ' I Move or Extend Outlet 9.25 5.50 Commercial Installation Actual Cost Actual Cost I Underground Service Trench 30.25 (Not to Exceed 50 Feet) I I I j Surcharges I I Federal, State and/or City Fees or Pro rate I taxes on subscribers, service or of I total gross receipts (exclusive of Actual I I income or property taxes and fees required by franchise.) Public Broadcasting and Copyright Pro rate Fees of Actual * The proposed rates above have been in effect as of October 1,1974 in , San Diego, National City and El Cajon. ----- , k: IY9A) - 4 - Result of Consultants Study Mr. Manley Edwards, Rate Consultant for the City of Sar. Dieg~, prepared a study on C,,~.T.V. rates for all companies operating in the City of San Diego. After reviewing the study, Mr. Edwards was asked to segregate operations for each company and report the individual financial data and his recommendations for rate adjustment. Assuming a debt interest cost at the rate of 7 1/2% and an earning requiremen~ of 12.5% on equity, a 10% cost of capital results computed as follows: Item Ratio Rate Amount Debt Equity Tota 1 50% 50% 100% 7.5% 12.5% 3.75% 6.25% 10.00% Mr. Edwards concludes that to provide a 10 percent rate of return for Mission Cable T.V. Company in 1974 it would require a subscriber rate of $10.33 per month. This is significantly higher than the present $6.50 being charged. Also, I have learned that the company has been unaPle to borrow capital at 10 percent, but is actually paying a.quarter percent over prime, which at this point in time is 12 percent. Recommendations It is my recommendation that the Mission Cable T.V. Company's request for rate increase be granted by the City of Chula Vista for the following reasons: 1. The proposed increase is necessary and even when granted will not give the company a 10 percent rate of return. "'--', J/ .-1 ,,r', I '('. . /l./L/Iy r I , I . . . . . . . - 5 - 2. This request is conservative when compared with the industry as a whole which indicates a rate of 14 to 18 percent as a standard rate of return. "- 3. The requested rate would be consistent with surrounding communities. ~ationa1 City, E1 Cajon and San Diego have already had their rates increased as of October 1, 1974. 4. The Mayor and Council should consider allowing the City Manager authori- zation to increase the established rates upon proper application to his office. I would suggest that provisions be made in the resolution. . adopting rates that the City Manager may approve interim rates as long as they do not exceed a 10 percent rate of return. This seems to be reason- able in the light of present inflationary trends and would allow the adjustment of rates in response thereto. This would be consistent with ' provisions recently passed in our Taxi Cab, Ordinance. 711191.