In 2006, the California Legislature adopted the Digital Infrastructure and Video Competition Act (“DIVCA”), which changed the manner in which video services are regulated by replacing local franchising with a state franchising system administered by the California Public Utilities Commission.  DIVCA authorizes cities to impose a five percent gross receipts franchise fee upon state video franchisees, plus additional support for PEG programming facilities.  DIVCA requires state franchise holders to offer at least three PEG channels to each community in which they operate.  DIVCA also authorizes cities to adopt an ordinance imposing a one percent PEG fee on state franchise holders to support PEG programming facilities. 

The City Council adopted Ordinance No. 2731 in 2008 to require video service providers who have been issued state franchises to pay the City a PEG access fee of one percent of the video service provider’s gross revenues.  Ordinance No. 2731 further establishes a five percent franchise fee as authorized by DIVCA.  DIVCA also provides, however, that any ordinance adopting a PEG access fee “shall expire, and may be reauthorized, upon the expiration of the state franchise.” (Public Utilities Code section 5870(n)).

Subdivision (k) of PUC Section 5870 further provides that obligations to provide and support PEG channel facilities contained in a locally issued franchise existing on December 31, 2006, shall continue until the local franchise expires, until the term of the franchise would have expired if it had not been terminated pursuant to subdivision (o) of Section 5840, or until January 1, 2009, whichever is later.  The City had issued Time Warner Cable a franchise on 2002 for a period of 20 years, which expires on August 21, 2022.  This franchise requires franchise fee payments of five percent of gross annual revenues, and monthly PEG support fees in the amount of 50 cents per subscriber.  After the first 10 years of the franchise term, the fee decreased in five-cent increments each year.  Because the PEG support fees under the City franchise decreased to levels lower than the one percent fee authorized by DIVCA, Time Warner Cable opted to remain subject to the City’s local franchise rather than the state franchise.

Time Warner Cable merged with Charter Communications in 2015 and now operates in the city as Spectrum.  Because its franchise will expire on August 21, 2022, it is now appropriate to reauthorize the one percent PEG fee established in 2008 by Ordinance 2731. 

It is recommended that the City Council:

• Introduce and conduct the first reading to approve the attached ordinance reauthorizing the public, educational, and governmental fee on state video franchisees operating within the city.