BILL ANALYSIS

 

 

Senate Research Center

S.B. 1087

82R9818 JXC-F

By: Carona

 

Business & Commerce

 

3/25/2011

 

As Filed

 

 

 

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

 

S.B. 5, 79th Legislature, Regular Session, 2005, made Texas the first state in the nation to adopt a new regulatory framework for providers of video services.  More specifically, Incumbent Local Exchange Companies (ILEC) like Verizon and AT&T were granted the ability to provide video/cable services; however, some cable providers were required to operate under different rules than their competitors, thus providing new market entrants certain advantages over incumbent video providers.  S.B. 1087 helps equalize video provider treatment in Texas by allowing video providers the ability to opt-in to a State Issued Certificate of Franchise Authority (SICFA).  The bill also ends certain outdated institutional network capacity (I-NET) obligations, creates streamlined audit periods, and ensures accountability for the one percent Public, Education, and Government (PEG) fee paid by Texas video customers.

 

Currently, Chapter 66 (State-Issued Cable and Video Franchise), Utilities Code, allows cable and video service providers entering the market after 2005, to forgo municipal franchise agreements and apply to the Public Utility Commission (PUC) for SICFAs when entering the video franchise market.  A SICFA allows municipalities to assess a fee of five percent of gross revenues to cable/video providers.  However, cable providers cannot apply for SICFAs until the existing municipal franchise agreements expire.  In addition, municipalities can review the business records of a video service provider to ensure proper payments of franchise fees.  However, under current law, there are no limits as to how far back municipalities can audit video providers' franchise fee payments.  Furthermore, Chapter 66 allows assessment of a one percent fee that video service providers in this state franchising regime are required to pay to municipalities to assist in funding PEG channels; to help municipalities to assist in funding PEG channels.  This fee was intended to help municipalities pay for PEG capital costs; or to be spent by municipalities as otherwise allowed by federal law.  Although there are clear state and federal statutory limitations as to what the one percent PEG fee can be spent on, there is not a system in place to ensure that those PEG funds are being spent only for their intended purpose.  Lastly, incumbent cable providers are required to continue providing I-NET and cable services to community public buildings after transitioning to a SCIFA.

 

S.B. 1087 helps equalize video provider treatment in Texas by allowing all video providers, including incumbent cable operators, to opt-in SICFAs.  This bill also ends I-Net obligation; but cable services to community public buildings, such as municipal buildings and public schools, will continue to be provided by the cable provider that was furnishing services pursuant to its municipal cable franchise until franchise expiration.  This bill also improves existing franchising procedures by limiting audit periods to the 48 months preceding the payment of the last franchise fee.  Lastly, S.B. 1087 ensures accountability and transparency for the one percent PEG fee paid by Texas video customers by requiring municipalities to maintain a separate account for PEG fees collected.  S.B.1087 also requires municipalities to provide each cable service or video service provider that pays fees to a municipality a detailed account of the deposits to and disbursements from the account for the previous calendar year.

 

As proposed, S.B. 1087 amends current law relating to state-issued certificates of franchise authority to provide cable service and video service.

 

 

 

 

RULEMAKING AUTHORITY

 

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

 

SECTION BY SECTION ANALYSIS

 

SECTION 1.  Amends Section 66.003(a), Utilities Code, as follows:

 

(a) Requires an entity or person seeking to provide cable service or video service in this state, rather than in this state after September 1, 2005, to file an application for a state-issued certificate of franchise authority with the Public Utility Commission of Texas (PUC) as required by this section.  Provides that an entity providing cable service or video service under a franchise agreement with a municipality is not subject to this subsection with respect to such municipality until the franchise agreement is terminated under Section 66.004 (Eligibility for Commission-Issued Franchise) or until the franchise agreement expires, rather than until the franchise agreement expires, except as provided by Section 66.004. 

 

SECTION 2.  Amends Section 66.004, Utilities Code, by amending Subsections (a), (c), and (f), and adding Subsection (b-1), as follows: 

 

(a) Authorizes a cable service provider or a video service provider that currently has or had previous received a franchise to provide cable service or video service with respect to a municipality to seek state-issued certificate of franchise authority to provide service to the municipality under this section, rather than providing that a cable service provider or a video service provider that currently has or had previous received a franchise to provide cable service or video service with respect to such municipalities is not eligible to seek a state-issued certificate of franchise authority under this chapter as to those municipalities until the expiration date of the existing franchise agreement, except as provided by Subsections (b) and (c).

 

(b-1) Authorizes a  cable service provider that was not allowed to or did not terminate a municipal franchise under Subsection (b), beginning September 1, 2011, to elect to terminate that franchise and seek a state-issued certificate of franchise authority for the area served under the municipal franchise by providing written notice to PUC and the affected municipality before January 1, 2012.  Provides that the municipal franchise is terminated on the date PUC issues the state-issued certificate of franchise authority.

 

(c) Provides that a cable service provider that elects, rather than a cable service provider that serves fewer than 40 percent of the total cable customers in a municipal franchise area and that elects, under Subsection (b) or (b-1) to terminate an existing municipal franchise is responsible for remitting to the affected municipality before the 91st day after the date the municipal franchise is terminated any accrued but unpaid franchise fees due under the terminated franchise.  Authorizes the provider, if the cable service provider has credit remaining from prepaid franchise fees, to deduct the amount of the remaining credit from any future fees or taxes it is required to pay to the municipality, either directly or through the comptroller of public accounts (comptroller).

 

(f) Provides that, except as provided in this chapter, nothing in this chapter is intended to abrogate, nullify, or adversely affect in any way the contractual rights, duties, and obligations existing and incurred by a cable service provider or a video service provider before the enactment of this chapter, or before the date the provider terminates a franchise under Subsection (b-1), as applicable, and owed or owing to any private person, firm, partnership, corporation, or other entity including without limitation those obligations measured by and related to the gross revenue hereafter received by the holder of a state-issued certificate of franchise authority for services provided in the geographic area to which such prior franchise or permit applies.  Requires that all liens, security interests, royalties, and other contracts, rights, and interests in effect on September 1, 2005, or the date a franchise is terminated under Subsection (b-1) to continue in full force and effect, without the necessity for renewal, extension, or continuance, and to be paid and performed by the holder of a state-issued certificate of franchise authority, and shall apply as though the revenue generated by the holder of state-issued certificate of franchise authority continued to be generated pursuant to the permit or franchise issued by the prior local franchising authority or municipality within the geographic area to which the prior permit or franchise applies. 

 

SECTION 3.  Amends Section 66.005(b), Utilities Code, as follows: 

 

(b) Provides that the franchise fee payable under this section is to be paid quarterly, within 45 days after the end of the quarter for the preceding calendar quarter.  Requires each payment to be accompanied by a summary explaining the basis for the calculation of the fee.  Authorizes a municipality to review the business records of the cable service provider or video service provider to the extent necessary to ensure compensation in accordance with Subsection (a), provided that the municipality is authorized to only review records that relate to the 48-month period preceding the date of the last franchise fee payment. 

 

SECTION 4.  Amends Section 66.006, Utilities Code, as follows:

 

Sec. 66.006.  IN-KIND CONTRIBUTIONS TO MUNICIPALITY.  (a) Requires the holder of a state-issued certificate of franchise authority, until the expiration or termination of the incumbent cable service provider's agreement, to pay a municipality in which it is offering cable service or video service the same cash payments on a per subscriber basis as required by the incumbent cable service provider's franchise agreement. 

 

(b)  Makes conforming changes.

 

(c) Makes a nonsubstantive change.

 

(c-1) Provides that if a municipality uses fees paid to the municipality under this section for a purpose described by 47 U.S.C. Section 524(g)(2)(c), the fees are not chargeable as a credit against the franchise fee payments authorized under this chapter.  Provides that if the municipality uses the fees for another purpose, the fees are chargeable as a credit against the franchise fee payments authorized under this chapter.  Makes nonsubstantive changes.

 

(c-2) Provides that a municipality that receives fees under this section:

 

(1) is required to maintain revenue from the fees in a separate account established for that purpose;

 

(2) is prohibited from commingling the revenue from the fees with any other money;

 

(3) is required to maintain a record of each deposit to and disbursement from the separate account, including a record of the payee and purpose of each disbursement; and

 

(4) is required, not later than January 31 of each year, to provide to each certificate holder that pays a fee to the municipality under this section a detailed accounting of the deposits to and disbursements from the separate account made in the preceding calendar year.

 

(d) Requires cable services to community public buildings, such as municipal buildings and public schools to continue to be provided by the cable provider that was furnishing services pursuant to its municipal cable franchise until the expiration or termination of the franchise, rather than until January 1, 2008 or until the term of the franchise was to expire, whichever is later, thereafter as provided in Subdivisions (1) and (2).  Deletes existing text of Subdivision (1).  Deletes existing text of Subdivision (2) relating to furnishing certain cable services to community public buildings.  Authorizes a provider that provides the services, on the expiration or termination of the franchise agreement, rather than beginning on January 1, 2008, or the expiration of the franchise agreement, whichever is later,  to deduct from the franchise fee to be paid to the municipality an amount equal to the actual incremental cost of the services if the municipality requires the services after that date.  Provides that such cable service generally refers to the existing cable drop connections to such facilities and the time of the expiration or termination.

 

SECTION 5.  Amends Section 66.009(h), Utilities Code, as follows: 

 

(h) Requires the holder of a state-issued certificate of franchise authority that is not an incumbent cable service provider and an incumbent cable service provider, including an incumbent cable service provider that holds a state-issued certificate of franchise authority issued under Section 66.004(b-1), where technically feasible, to use reasonable efforts to interconnect their cable or video systems for the purpose of providing public, educational, and governmental (PEG) programming.  Authorizes interconnection to be accomplished by direct cable, microwave link, satellite, or other reasonable method of connection.  Requires the holder of a state-issued certificate of franchise authority and the incumbent cable service provider to negotiate in good faith, and the incumbent cable service provider may not withhold interconnection of PEG channels.  Makes nonsubstantive changes.

 

SECTION 6.  (a) Requires a municipality that received fees described by Section 66.006(c), Utilities Code, as amended by this Act, before September 1, 2011, to, on September 1, 2011, transfer any fees that have not been disbursed to a separate account as required by Section 66.006(c-2), Utilities Code, as added by this Act.

 

(b) Provides that the change in law made by this Act in adding Sections 66.006(c-2)(3) and (4), Utilities Code, applies only to transfers, deposits, and disbursements made on or after the effective date of this Act.

 

SECTION 7.  Effective date:  September 1, 2011.