HomeMy WebLinkAboutStaff Report 119-08City of Palo Alto
City Manager’s Report
7
TO:
FROM:
HONOtL~BLE CITY COUNCIL
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
JANUARY 22, 2008 CMR:ll9:08
ADOPTION OF AN ORDINANCE AMENDING CHAPTER 2.11 OF
TITLE 2 OF THE PALO ALTO MUNICIPAL CODE TO ESTABLISH A
FEE TO SUPPORT PUBLIC, EDUCATION, AND GOVERNMENT
ACCESS THAT WILL APPLY TO COMCAST AS IT PROVIDES
SERVICE UNDER ITS STATE VIDEO FRANCHISE
RECOMMENDATION
Staff recommends that the Council adopt an ordinance amending Chapter 2.11 of Title 2 of the
Palo Alto Municipal Code to establish a fee to support Public, Education and Government (PEG)
access that will apply to Comcast as it provides service under its State Video Franchise issued
by the California Public Utilities Commission (Cormnission).
BACKGROUND
On September 29, 2006, Governor Schwarzenegger signed into law Assembly Bill 2987, the
Digital Infrastructure and Video Competition Act of 2006 (DIVCA). The purpose of DIVCA is
to create a stremnlined process for the granting of video service franchises in an effort to foster
the rollout of tectmology, encourage competition and expand customer choice. This new law
permanently changes the franchising and regulatory structure for the provision of cable television
and other video services in the State of California. Under DIVCA, video service franchises are
now granted exclusively by the Commission rather than by local franchising entities.
DIVCA gives the City certain rights and responsibilities with respect to any holder of a state
franchise (Holder). These rights and responsibilities must be established by local ordinance
before they become effective and enforceable. On April 9, 2007 Council approved an ordinance
amending and adding to several chapters of Title 2 (Administrative Code) and Title 12 (Public
CMR: 119:08 Page t of 4
Works and Utilities Code) to implement the provisions of DIVCA (CMR: 171:07). On June 18,
2007, Council approved amendments to Title 19 to conform the City’s architectural review
process to the requirements of DIVCA (CMR:273:07).
The Commission commenced accepting applications for state franchises in March 2007. The
Commission has 30 days to determine whether a franchise application is complete, and is
required to issue a state franchise within 14 days of detem~ining an application is complete.
Prior to offering video service, the state franchise holder is required to notif), the local entity.
The notice shall be given at least 10 days, but no more than 60 days, before the video service
provider begins to offer service.
DISCUSSION
Under DIVCA, Comcast may seek and obtain a state franchise from the Commission after
January 1, 2008, whenever another Holder (such as a competitor like AT&T) enters the Palo
Alto market. AT&T filed for a state franchise to serve an area that includes Palo Alto; the
Commission granted AT&T its state franchise on March 30, 2007. Comcast filed for a state
franchise to serve an area that includes Palo Alto; on January 2, 2008, the Commission granted
Comcast that state franchise. The City anticipates receiving notice from Comcast that it will
begin service in Palo Alto under its State Video Franchise in the near future.
DIVCA allows the City to continue to collect its current PEG support fee of $0.88 per residential
subscriber per month from any Holder. Comcast has been providing PEG support funding of
approximately $300,000 mmually. Palo Alto has designated the Media Center, as its community
access organization, to operate and manage its PEG channels and to promote PEG access. The
Media Center relies on the PEG support fee to bring local community media services to Palo
Alto.
Upon the termination of Comcast;s local franchise, the City can by ordinance collect from
Holders either its current PEG support fee ($0.88 per subscriber per month) or a PEG support fee
of 1 percent of the Holder’s gross video-service revenues in the City. At the present time, a PEG
fee of $0.88 per subscriber exceeds what a 1 percent PEG fee would yield by about 30 percent or
$75,000. As a result, staff is proposing that Council adopt an ordinance, amending Chapter 2.11
of the Palo Alto Municipal Code, to establish a PEG fee of $0.88 per subscriber for Holders.
Selecting the $0.88 option has some potential downsides. First, this option has no built in
mechanism for growth and over time inflation could erode its purchasing power. In addition, if
Comcast revenues continue to grow at their current rate, the 1 percent option could yield greater
PEG fees than the $0.88 option in the next 4 to 5 years. However, with anticipated competition
driving down prices and the expected bundling of video with non-video service revenues, it is
risky to assume revenues will grow at the same rate in the future. These potential downsides
notwithstanding, staff and the Media Center recommend the $0.88 option because it provides
more revenue in the short-term and a stable funding amount in the long-term.
DIVCA requires the City to re-authorize by ordinance its PEG fee at the expiration and renewal
of each Holder’s state franchise. Under DIVCA, the tem~ of a state franchise will be 10 years.
CMR: 119:08 Page 2 of 4
It is important to note that, under DIVCA, certain obligations contained in the City’s just expired
franchise with Comcast (e.g., its I-Net obligations and its obligation to provide free cable service
to schools and other public and governmental buildings, etc.) will continue to apply to Comcast
until the franchise would have expired by its terms, or until July 25, 2010. Holders are not
obligated to provide I-Net facilities and free cable service, and Comcast will no longer be
required to do so after July 25, 2010. Staff hopes to negotiate a continuation of these facilities
and services with Comcast after 2010.
NEXT STEPS
In 1983, the cities of Palo Alto, Menlo Park, East Palo Alto, the Town of Atherton and portions
of San Mateo and Santa Clara Counties entered into a Joint Exercise of Powers Agreement (JPA)
for purposes of obtaining cable television service for residents, businesses and institutions within
these jurisdictions. The JPA gives the City of Palo Alto the sole authority to grant and
administer the cable franchise process on behalf of its members. Under DIVCA, Palo Alto no
longer has the authority to grant franchises to providers of cable or video services in the JPA’s
service area. DIVCA does, however, allow the JPA to continue to serve as the "local entity" for
DIVCA purposes, thereby permitting the JPA members to continue to rely on Palo Alto for such
activities as franchise fee and PEG fee collection, PEG oversight, customer service and the like
with respect to all Holders in the JPA’s service area. In early 2008, the JPA plans to amend its
Agreement to reflect changes in the law due to DIVCA.
RESOURCE IMPACT
The proposed ordinance provides for the continued payment of a PEG support fee by Comcast as
it provides service under its State Franchise.. In 2006, the JPA received PEG fees from Comcast
in the amount of$316,113. In 2007, PEG fees are expected to reach about $327,000. In addition
to PEG fees, Holders will continue to pay franchise fees to compensate the City for the use of its
public streets and rights-of-way. In 2006, the City received franchise fees in the amount of
$581,000. Staff does not currently anticipate any material impacts to these revenues as a result
of DIVCA.
Although the City will continue to collect PEG and franchise fees under DIVCA, support for in-
kind PEG services (e.g., free cable service to schools and other public and goverrmaental
buildings and free inclusion of PEG program information on a "TV Guide" channel, etc.) and for
Institutional Network services will be discontinued at the expiration of Comcast’s cun’ent
franchise. The potential loss of these services after July 25, 2010, could have a significant, but
undetemained, adverse fiscal impact on govermnent facilities and schools in the JPA’s service
area.
POLICY IMPLICATIONS
This proposed ordinance is consistent with the cun’ent State law for video service franchises.
CMR: 119:08 Page 3 of 4
ENVIRONMENTAL REVIEW
This is not a project under the CEQA.
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
ATTACHMENTS:
Attaclmaent A: Ordinance
cMa~ 1LeI ScSoao r~
LALO PEREZ /
Administrative Services Director
EMILY[HARRISON ......
Assistant City Manager
CMR: 119:08 Page 4 of 4
NOT YET APPROVED
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING SECTION 2.11.070 OF CHAPTER 2.11 OF TITLE 2 OF
THE PALO ALTO MUNICIPAL CODE TO ESTABLISH A FEE TO
SUPPORT PUBLIC, EDUCATION, AND GOVERNMENT ACCESS
THAT WILL APPLY TO COMCAST AS IT PROVIDES SERVICE
UNDER ITS STATE VIDEO FRANCHISE
The Council of the City of Palo Alto does ORDAIN as follows:
SECTION 1. The definitions set forth in Section 2.11.020 of Chapter 2.11
of Title 2 the Palo Alto Municipal Code shal! apply to this ordinance.
SECTION 2. Section 2.11.070 of Chapter 2.11 of Title 2 of the Palo Alto
Municipal Code is hereby amended to read, as follows:
"2.11.070
Capacity and Support.
Public, Education~ and Governmenta4 Access Channel
(a)PEG Channel Capacity.
(1)A state franchisee shall designate and activate seven (7) PEG
channels on its network. The state franchisee shall designate and activate the seven (7)
PEG channels within three (3) months from the date that the state franchisee receives a
state franchise to provide video service in an area including the City, provided, however,
that this three-month period shall be tolled for such a period, and only for such a period,
during which the state franchisee’s ability to designate or provide such PEG capacity is
technically infeasible, as provided in Section 5870(a) of the California Public Utilities
Code.
(2) A state franchisee shall provide an additional PEG channel when
the standards set forth in Section 5870(d) of the California Public Utilities Code are
satisfied by the City or any entity designated by the City to be responsible for PEG access
channel capacity and suppork
(b) PEG Support.
(1)Amount of PEG support fee.
(A) Except as provided in subparagraphs (B) and (C), every
state franchisee operating within the jurisdictional boundaries of the City shall pay a PEG
support fee to the City in the amount of ggeighty-eight cents ($0.88) per month per
subscriber within the jurisdictional boundaries of the City.
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(B) Upon the expiration of the Comcast Franchise or its earlier
termination pursuant to Section 5840(o)(3) of the California Public Utilities Code, every
state franchisee operating wittnin the jmisdictional boundaries of the City shall,--gy
establish pay a new PEG support fee to the Cit) ...... ,.,.j~,-,~ ~’~.~ ,.,,,.,.,";"1~’, (i)in the
amount ofo,.,o~" +>’"’ ~-, ,,, ,,, :,, ............. t~-,~,~.,~q~,,~" ~-~/~,,~e~ht)-e~.htv,,~,.,~^~ ~ , ~ cents ($0.88) per month per
b Cit3 ())su scriberin the ~. o: :: one .........
(C) The PEG support fee established by the City pursuant to
paragraph (b)(1)(B) shall expire with respect to a particular state franchisee upon the
expiration of that state franchisee’s state franchise, and the City shall, by ordinance,
reauthorize the PEG support fee for that state franchisee upon such expiration.
(2) The PEG support fee shall be used by the City for PEG purposes
consistent with state and federal law.
(3) A state franchisee shall remit the PEG support fee to the City
quarterlD within forty-five (45) days after the end of each calendar quarter. Each
payment shall be accompanied by a summary explaining the basis for the calculation of
the PEG support fee.
(4) If a state franchisee fails to pay the PEG support fee, when due, or
underpays the proper amount due, the state franchisee shall pay a late payment charge at
an annual interest rate equal to the highest prime lending rate during the period of
delinquency, plus one percent (1%) or the highest rate allowed by California law,
whichever is lower.
(c)PEG Carriage and Interconnection.
(1)State franchisees shall ensure that all PEG channels are receivable
by all subscribers, whether they receive digital or analog service, or a combination
thereof, without the need for any equipment other than that needed to receive the lowest
cost tier of service. PEG access capacity provided by a state franchisee shall be of
similar quality and functionality to that offered by commercial channels on the state
franchisee’s lowest cost tier of service unless the PEG signal is provided to the state
franchisee at a lower quality or with less functionality.
(2) If a state franchisee and an incumbent cable operator cannot reach
a mutually acceptable interconnection ageement for PEG carriage, the City shall require
the incumbent cable operator to allow the state franchisee to interconnect its network
with the incumbent cable operator’s network at a technically feasible point on the state
franchisee’s network as identified by the state franchisee. If no technically feasible point
of interconnection is available, the state franchisee shall make interconnection available
to the PEG channel originator and shall provide the facilities necessary for the
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interconnection. The cost of any interconnection shall be borne by the state franchisee
requesting the interconnection unless otherwise agreed to by the parties.
(d) Institutional Network and Other In-Kind PEG Facilities and Cable
Service Support Obligations.
The incumbent cable operator’s obligation to provide and support PEG
channel facilities and institutional networks and to provide free cable service to schools
and other public buildings as provided in the Comcast Franchise shall continue until
July 25, 2010."
SECTION 3. This ordinance is the ordinance that may be adopted in
accordance with the requirements of Section 5840(n) of the California Public Utilities
Commission, which requires the adoption of an ordinance to establish a PEG support fee
upon the expiration or termination of the Comcast Franchise.
SECTION 4. If any section of this ordinance, or part hereof, is held by a
court of competent jurisdiction in a final judicial action to be void, voidable or
enforceable, such section, or part hereof, shall be deemed severable from the remaining
sections of this ordinance and shall in no way affect the validity of the remaining sections
hereof.
SECTION 5. The Council hereby finds that this ordinance is exempt
from the provisions of the California Environmental Quality Act pursuant to Section
15061(b)(3) of the California Environmental Quality Act Guidelines, because it can be
seen with certainty that there is no possibility of significant environmental effects
occurring as a result of the adoption of this ordinance.
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SECTION 6. This ordinance shall become effective upon the
commencement of the thirty-first day after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
NOT PARTICIPATING:
ABSENT:
ATTEST:APPROVED:
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
Mayor
City Manager
Director of Administrative
Services
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