House Bill 5047 and Senate Bill 636 are identical, and the text is provided in the appendix at the end of this document. Both were introduced on July 24, 2007, and would amend Section 6 of Michigan's Uniform Video Services Local Franchise Act of 2006.
As currently written, Section 6(3) of the act effectively permits local governments to collect only two types of fees and charges from cable companies under franchise agreements. The first fee, described in Section 6(1)(a)-(c), is an "annual video service provider fee" of up to 5 percent of the gross revenues of the cable system. The local government can spend this money — the franchise fee — as it chooses.
The second fee, described in Section 6(8)(a)-(c), is an annual payment for PEG channels. The current language provides that any fees for PEG channels described in an existing franchise agreement will continue until the agreement expires and then be capped at the lower of the current charges or 2 percent of gross revenues. Since most franchise agreements today have PEG fees set at levels much lower than 2 percent, the current franchise agreement would set the ceiling for most future PEG fees much lower than 2 percent as well.
Section 6(8)(a)-(c) contains two other important provisions. First, in situations where more than one cable company is in the territory of the local government, all cable companies will pay the PEG fees set forth in the agreement for the cable company covering the largest number of subscribers. Second, the law says that when no franchise agreement is in place, the maximum fee for PEG channels in a negotiated agreement will be 2 percent of gross revenues and "determined by a community need assessment."
The proposed PEG bills would significantly change the PEG fees limitation in Sections 6(8)(a)-(c). When a new franchise agreement was negotiated, whether for a new cable provider or due to the expiration of an existing franchise agreements, a local government would be allowed to set the PEG fee at any level it chose up to 2 percent of gross revenues, and no community need assessment would be required. The bills would also eliminate the language in Section 6(8)(a) providing that in situations where more than one cable company is in the territory of the local government (i.e., when a new cable systems by a telephone company or other provider is established or is entering the territory), all cable companies would pay the PEG fees set forth in the agreement covering the largest number of subscribers. Instead, local governments would be authorized to charge a PEG fee of up to 2 percent of gross revenues immediately to telephone companies or other firms entering the market, rather than wait for the expiration of any existing franchise agreements with established cable providers that set lower PEG fees.
As a practical matter, the proposed bill would allow local government to raise the PEG fee to 2 percent for each cable system in their jurisdiction as soon as that system's current franchise agreement expired. It would also authorize local governments to charge a full 2 percent PEG fee immediately for any new cable entrants, even if the franchise agreement for the established cable company set a lower PEG fee.