Last August, the Board of Mayor and Aldermen authorized Telecommunications Consulting Associates (TCA) of Waynesville, N.C., to conduct a franchise fee audit on Charter and to assist in the renegotiation of a franchise agreement with the cable provider.
City leaders said the audit was to ensure Charter was paying the city the appropriate franchise fees. Charter pays Kingsport 3 percent (about $324,000) of its gross revenue annually for the right to operate within the city.
The audit period covered the 2000 to 2005 calendar years, and as a result, TCA discovered $191,438 in unpaid revenues - $97,885 in unpaid franchise fees and $93,553 in associated assessed interest. TCA reports that of these amounts, approximately $179,000 related to unpaid franchise fees prior to April 2002.
Under the terms of the contract, Kingsport and TCA will split the $191,438.
Nick Pavlis, spokesman for Charter, said most of the unpaid franchise fees was for Internet service and some digital products.
"There was obviously some revenue streams that weren't being properly collected on, and we certainly will settle this audit as we do any audit," Pavlis said.
According to FCC regulations, Charter will have the ability to recover this settlement amount from its subscribers and has agreed to spread the recovery period over at least 24 months.
Pavlis confirmed Charter would recover the charges from its Kingsport subscribers, adding the company has not determined the time frame of when the increases would take place.
"It was a sizable amount, and we'll have to get together as a team and decide exactly how we want to run those charges back through," Pavlis said.
On March 1, Charter implemented a variety of rate increases for subscribers:
•$5 on its Family and Information Tier (now called Charter Total View) and its Movie View Tier (which includes Showtime, The Movie Channel and Encore channels).
•The 384k download rate increased by $5 and its 3 Meg rate increased by $2.
•Basic cable went up $3.49.
The 5 Meg and 10 Meg Internet rates were unaffected, while Expanded Cable dropped by $2.36.
The agreement with Charter also includes a provision to set a new franchise fee, going from 3 percent to 4 percent until June 30, 2008, and then increasing to 5 percent thereafter. This new franchise agreement is under review by Charter and is expected to be submitted to the BMA for approval in the coming weeks.
John Howell, with TCA, said 5 percent is the maximum franchise fee Kingsport could charge Charter, according to federal regulations. Howell said each percentage point amounts to $108,000 in franchise fees to Kingsport.
Howell defended Charter's right to recover the settlement amount, saying had Charter paid the fees all along, the customers would have paid it with rate increases. Howell said the settlement amount would be about a 50 cent increase per customer.
"Charter does not have to pass this through. We just see a minimal increase if there's any adjustments," Howell said. "Charter does not have to pass this through for two years. One case took six years to pass through."
During Monday's BMA work session, city leaders complained about potential rate increases and the amount TCA is being paid for the audit.
"The one thing I have a problem with is the enormous amount we pay for the audit," Mayor Dennis Phillip said. "In the future if we do another audit, let's negotiate a better deal."
Kingsport Finance Director Jim Demming and City Attorney Mike Billingsley, who then was interim city manager, negotiated the contract, and the BMA voted unanimously on Aug. 15 to approve it.
Vice Mayor Larry Munsey suggested any time the city negotiates an agreement similar to this one, it should set a maximum amount to be paid to the consultant.
Howell said TCA had put 625 hours into the Charter audit, adding that one performed for Mount Carmel found $18,000 in unpaid franchise fees, while another audit amounted to $415,000.
In other business Tuesday night:
•The BMA approved a series of ordinances establishing the guidelines and penalties associated with the new red light camera program. All six cameras went live on March 31, and for the next 30 days only warnings will be issued to motorists who run the specified red lights.
•City Manager John Campbell said the city would charge 25 cents a trip for the new Midday/Midtown shuttle service being implemented by the Kingsport Area Transit System. The new service calls for two buses to run through the downtown area during lunch hours Monday through Friday. Campbell said a trial run of the service would run from May 14 through September.
•The BMA voted to authorize up to $2 million in capital outlay notes to fund energy improvements to five city buildings including City Hall, the Justice Center and the Civic Auditorium.
•The BMA approved the purchase of a tandem-axle automated garbage truck for $216,778 and 2,000 carts for $99,900 to be used to provide automated garbage collection service to Mount Carmel.