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Home My WebLink About12.D. Time Warner Cable's Cable Franchise Fee Settlement Offer City of Shakopee 1:< · [)~ Memorandum TO: Mayor and City Council Mark McNeill, City Administrator FROM: John Peterson, Telecommunications Coordinator SUBJECT: Time Warner Cable's Cable Franchise Fee Settlement Offer DATE: March 16, 2006 Introduction The City Council is asked to consider a settlement offer from Time Warner Cable related to the underpayment of franchise fees for the period of January 1, 2002 to December 31,2004. Background In June of2005, the City authorized the hiring of Front Range Consulting (FRC) to conduct an audit of the franchise fee payments made to the City by TWC for the period of January 1, 2002 - December 31,2004. FRC's initial report showed that there was an estimated cable franchise fee underpayment of$30,000 - $32,000. Time Warner agreed with a portion ofFRC's findings and sent the City a check for $9,493.31. However, the City and Time Warner have continued to disagree on the validity of the remaining amount. At its December meeting, the Telecommunications Commission ("Commission") directed Tracy Schaefer, formerly of Bradley & Guzzetta, LLC, to negotiate a settlement with TWC for the remaining amount. After several discussions with Ms. Schaefer, Kim Roden, vice president of public affairs and programming for Time Warner Cable, has provided the City with the attached settlement offer of $4,500, with the condition that the City grant Time Warner a "clean bill of health" for the period in question. It is Ms. Schaefer's opinion that accepting this settlement offer is in the City's best interest, in part because the City could incur significant legal costs if it were to continue to pursue the disputed amount. Recommendation: The Telecommunications Commission has reviewed the settlement offer along with Ms. Roden's letter and recommends that the City Council accept Time Warner's settlement offer and the related terms and conditions. Action Requested Ifit concurs, the City Council should offer and adopt a motion to accept Time Warner Cable's franchise fee settlement offer of$4,500 and the terms and conditions ofa "clean bill of health", for the period of January 1, 2002 - December 31, 2004. :.J . if Cf. ,A. TO: Telecommunications Commission FROM: Mark McNeill, City Administrator DATE: March 15,2006 Subject: Time Warner Cable's Cable Franchise Pee Settlement Offer Introduction Time Warner Cable ("TWC") has put forth a $4,500 cable franchise fee settlement offer to the City of Shakopee ("City") to resolve the outstanding issues remaining from.the initial cable franchise fee review conducted by Front Range Consulting ("PRC"). Background TWC sent the City a c~eck for $9,493.31 in September for an underpayment of its cable franchise fees; however, PRC's initial report showed that there was an estimated cable franchise fee underpayment of$30,000 - $32,000 for the period of January 1,2002- December 31,2004. With that in mind, at its December meeting, the Telecommunications Commission directed Ms. Schaefer, formerly of Bradley & Guzzetta, LLC, to negotiate a cable franchise fee settlement with TWC. After several discussions, Ms. Schaefer and Ms. Roden have both recommended that the City accept TWC's $4,500 cable franchise fee settlement offer and its terms and conditions, referenced in Ms. Roden's February settlement letter, that TWC receive a "clean bill of health." Although the $4,500 is less than PRC' s initial estimated cable franchise fee underpayment, , staff believes that in order to try to collect the remaining funds, the City would incur significant legal and consulting costs. In addition, it would also be a waste of resources for the City to conduct a second audit of the review period of January 1, 2002 - December 31, 2004. By accepting TWC's settlement offer, it would give Comcast, soon to be the City's new cable operator, a "clean bill of health" as they begin operating Shakopee' s cable system. In addition to the $4,500 settlement fee, the City will receive $28,893 in additional cable franchise revenue for 2005 & 2006 underpayments and at least $12,000 in additional cable franchise fee revenue each year going forward from new revenues from the franchise fees on franchise fees. The City spent $4,250 on the cost ofthe initial franchise fee review, and will receive $24,643 in additional revenue from TWC. . -'I.;> '. 2005 - 2006 . $9,493.31- TWC payment for cable franchise fee underpayments . $4,500 - TWC proposed settlement offer . $2,993 - 2005 4th quarter additional TWC cable franchise fee revenue from franchise fee on franchise fee payments . $12,000 - 2006 additional TWC cable franchise fee revenue from franchise fee on franchise fee payments (this revenue will be on-going each year and will probably increase as Shakopee's growth continues.) TOTAL - $28,893 Recommendation If the Commission agrees with staffs recommendation to accept TWC's cable franchise fee settlement offer of $4,500 and its terms and conditions of a "clean bill of health", the Citywill receive an additional $24,643 (including the cost of the franchise fee review). As it is probable that the City would incur significant legal and consulting costs pursuing anticipated amounts in excess of this (which not guaranty of success), it is recommended that the Commission recommend to the City Council that it accept Time Warner Cable's franchise fee settlement offer. Action The Telecommunications Commission should recommend that the City Council accept Time Warner Cable's $4,500 cable franchise fee settlement offer and the terms and conditions of a "clean bill of health", for the City's cable franchise period of December 31,2002 - January 1,2004. 2005 - 2006 . $9,493.31- TWC payment for cable franchise fee underpayments . $4,500 - TWC proposed settlement offer . $2,993 - 2005 4th quarter additional TWC cable franchise fee revenue from franchise fee on franchise fee payments . $12,000 -2006 additional TWC cable franchise fee revenue from franchise fee on franchise fee payments (this revenue will be on-going each year and will probably increase as Shakopee's growth continues.) TOTAL - $28,893 Recommendation If the Commission agrees with staff's recommendation to accept TWC's cable franchise fee settlement offer of $4,500 and its terms and conditions of a "clean bill of health", the City will receive an additional$24,643i (including the cost of the franchise fee review). As it is probable thatthe City would incur significant legal and consulting costs pursuing anticipated amounts in excess of this (which not guaranty of success), it is recommended that the Commission recommend to the City Council that it accept Time Warner Cable's franchise fee settlement offer. Action The. Telecommunications Commission should recommend that the City Council accept Time Warner Cable's $4,500 cable franchise fee settlement offer and the terms and conditions of a "clean bill of health", for the City's cable franchise period of December 31, 2002 - January 1, 2004. ; , . 9705 Data Park Minnetonka, MN55343 Phone (612) 522-5200 "@> TIME WARNER CABLE February 16,2006 Ms. Tracy Schaefer Sr. Project Manager Bradley & Guzzetta 950 Piper Bradley Plaza 444 Cedar Street St. Paul, MN 55101 Dear Tracy: I am writing in regard to our settlement discussions concerning the Initial Report to the City of Shako pee Regarding the Franchise Fees Paid by Time Warner Cable Inc. (the "Audit Report") prepared by Front Range Consulting, Inc. (the "Auditors"). The Audit Report concluded that Time Warner Cable ("TWC") had underpaid franchise fees due the City by between $30,000 and $32,000 for the period of January 1,2002 through December 31, 2004. As you may recall, Time Warner Cable made a payment to the City of Shako pee totaling $9,493.31 on September 12,2005 for franchise fees on franchise fees (which included 12% interest) for the period of August 2004 through the second quarter of 2005. Time Warner disputed that the company owed the City of Shako pee any other franchise fee payments beyond the September .12, 2005 payment as a result of the audit. However, in an effort to settle this matter, we will agree to a payment of $4,500 which both the City and the company have agreed will provide for a "clean bill of health" on this issue. By making this payment, we do not admit to any wrongdoing or liability on our part. This payment is tendered with the understanding that it fully and completely resolves any and all issues associated with our payment of franchise fees over the audited period of time. We trust that both the Telecommunications Commission and the City Council will be pleased regarding this settlement. Very Truly Yours, Kim M. . Roden