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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ********************************* ******************************** DA 99-934 CSB-ILR 99-1 Released: May 18, 1999 City of Bowie, Maryland c/o David Deutsch City Manager 2614 Kenhill Drive Bowie, Maryland 20715 Dear Mr. Deutsch: This correspondence is in response to your letter of December 7, 1998. According to your letter, you are seeking the Commission's opinion and advice concerning the regulatory treatment of a proposed public, educational, and governmental ("PEG") access fee levied by the franchising authorities in addition to the customary 5% franchise fee. You state that the City of Bowie is participating in a joint renewal process with Prince George's County, Maryland and several municipal franchising authorities located within the County and Jones Communications of Maryland, Inc. ("Jones"). You state that the parties have negotiated a Memorandum of Understanding ("MOU") to develop a franchise agreement in an informal franchise renewal process in lieu of an ongoing formal renewal proceeding pursuant to 47 U.S.C.  546. The MOU provides, at Paragraph 5, that Jones will provide "grants equal to three percent of gross revenues, to be used exclusively for PEG capital costs" and other specified costs. You believe that the 3% PEG fee may be passed through to subscribers "to the extent" permitted by the Commission's rules. You also note that the proposed PEG grant is measured by gross revenues in the same manner as the franchise fee. You explain that in its reports to the Commission and in basic cable rate regulation proceedings by the City, Jones has treated all PEG access costs as basic cable service costs. If the proposed MOU is accepted and executed, you state you are uncertain about how to treat such costs for purposes of regulating basic service costs. Under Section 622 of the Communications Act, a cable operator may be required under the terms of any franchise to pay a franchise fee. 47 U.S.C.  542. The term "franchise fee" includes any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator or cable subscriber, or both, solely because of their status of such. Franchise fees do not include, inter alia, any tax, fee or assessment of general applicability or requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages. 47 U.S.C.  542(g)(2)(A) and (D). For any twelve month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system to provide cable services. 47 U.S.C.  542(b). You seek answers to four questions raised by the PEG access cost issue. We will address each question in turn. 1) May the cable operator specifically identify the 3% PEG access fee on billing statements? Yes. Under Section 622(c) of the Act and Section 76.985 of the Commission's rules, a cable operator may separately identify the amount of the total bill assessed to satisfy franchise agreement requirements to support PEG channels or the use of such channels. 2) May the Commission regulate the PEG access costs as a component of basic cable rates? No. First, the Commission will not regulate basic cable rates unless the local franchising authority demonstrates that it is unable to regulate such rates and requests that the Commission assume jurisdiction. Even if the Commission were to involve itself in a basic service rate dispute, PEG access costs are not regulated at the Federal level. The costs of providing PEG channels are treated as external costs under Sections 76.922 and 76.925 of the Commission's rules, and may be passed through to subscribers. 3) How should the PEG costs be "booked" for purposes of FCC Forms 1205 and 1210? Form 1205 is the worksheet for calculating permitted equipment and installation charges. This Form is used to determine the costs associated with regulated customer premises equipment and installation. PEG facilities and equipment costs are not regulated by the Commission and the Form is not to be used for any accounting related to PEG equipment. However, PEG access costs may be included in Form 1210--Module D at Line D6. This section of the Form concerns the calculation of current external costs per subscriber and the specific line asks for the operator to submit franchise-related costs, which of course, would include PEG access costs. Form 1210 may be filed every quarter by the operator to update its maximum permitted rates for regulated cable services. The operator may also use Form 1240 to update its maximum permitted rates on an annual basis. Worksheet 7 is used to determine franchise-related costs for that Form. There, the costs need to be allocated in the tier on which the PEG channels are carried. 4) Is the 3% PEG access fee permitted under the law or is it considered to be a franchise fee in excess of the 5% cap? The 3% fee is permitted under law if it is collected only for the cost of building PEG facilities. Section 622 of the Communications Act provides that, for any franchise in effect after October 30, 1984, capital costs required by the franchise agreement for PEG access facilities are not includable as franchise fees for the purpose of calculating the 5% cap on such fees. 47 U.S.C.  542(g)(2)(B). Capital costs refer to those costs incurred in or associated with the construction of PEG access facilities. See H.R. REP. No. 98-934, at 19 (1984) reprinted in 1984 U.S.C.C.A.N. 4655. These costs are distinct from payments for, or in support of the use of, PEG access facilities. PEG support payments may include, but are not limited to, equipment costs, salaries, and training. Any payments made by Jones in support of PEG access facilities are includable as franchise fees under Section 542 for purposes of determining the 5% cap. Any capital costs incurred by Jones for PEG access facilities may not be included as franchise fees for purposes of calculating the 5% cap under Section 542. See City of Naperville v. Jones Intercable, 1997 WL 433628 (N.D. Ill. 1997) at 13. I hope this correspondence has been helpful. Please do not hesitate to contact me if you require further assistance. Sincerely, Deborah A. Lathen Chief, Cable Services Bureau cc: Denise Mahoney, Community Relations Coordinator