FOR FCC RECORD ONLY $/ORDER remanding local rate order of Lisbon, ME DA95-75/$ $/76.922 Basic Tier Rates/$ $/76.942 Refunds/$ $/76.944 Commission Review of Franchising Authority Rate Decision/$ Before The Federal Communications Commission Washington, D.C. 20554 In the Matter of ) DA 95-75 ) A-R CABLE SERVICES-ME, INC., ) ) Petitioner,) ) v. ) ) TOWN OF LISBON, MAINE (ME 0075), ) ) Respondent.) ) Appeal of Local Rate Order ) ORDER Adopted: January 19, 1995 Released: January 20, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. On July 7, 1994, A-R Cable Services-ME, Inc. ("A-R Cable") filed an appeal of the local rate order adopted June 7, 1994 by its franchising authority, the town of Lisbon, Maine ("Lisbon"). In the local rate order, Lisbon established A-R Cable's regulated rates for basic cable service and associated equipment provided by A-R Cable, as required by the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act). Specifically, Lisbon's rate order requires A-R Cable to implement certain rate reductions and to issue refunds to subscribers, dating back to September 1, 1993. Lisbon opposes A-R Cable's appeal. 2. In its review of A-R Cable's Form 393, Lisbon approved A-R Cable's maximum permitted rates for installations of unwired homes and service calls, but ordered A- R Cable to keep its rates for basic service and other equipment and installations at the current levels, rather than at the higher, maximum permitted levels. A-R Cable argues that because of this misapplication of the Commission's rate regulations, Lisbon has improperly reduced A- R Cable's regulated revenues by setting its rates for converter boxes and remote controls below the maximum levels permitted under the benchmark regime and has imposed a refund liability that is greater than the level allowed under our rules. A-R Cable also appeals the local rate order because Lisbon did not verify A-R Cable's figures and calculations and did not release a "written decision." We consider each of these issues in turn. II. DISCUSSION 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. A. Refund Offsets 4. FCC Form 393 is the official form used by regulators to determine whether an operator's regulated rates for programming, equipment and installation were reasonable during the time period from September 1, 1993 until May 14, 1994. Form 393 is divided into three separate, but interrelated parts. In Part II, the operator calculates its maximum permitted programming rates, while in Part III, the operator calculates its maximum permitted equipment and installation rates. Part I is a cover sheet that lists the various programming, equipment and installation rates that have been calculated in Parts II and III and compares them to the rates the operator has actually charged during the period of review. 5. The operator's maximum permitted rates are derived by completing Parts II and III of the Form 393, pursuant to which the operator calculates the actual aggregate revenues collected by the operator for regulated programming, equipment and installation, as of the initial date of regulation ("current rate") or as of September 30, 1992. After calculating actual aggregate revenues, the operator converts those revenues to a per-channel rate, and then compares the per-channel figures to the applicable benchmark rate. If an operator's current per-channel rate is below the applicable benchmark rate, then the operator's rate is deemed reasonable, but it must remain at its current level. If its current per-channel rate exceeds the benchmark rate, the operator must then compare its September 30, 1992 per-channel rate to the applicable benchmark rate. If its September 30, 1992 per-channel rate is above the benchmark rate, it must reduce this rate to the benchmark rate or by 10%, whichever reduction is less. The adjusted rate will be its maximum permitted rate for programming. Maximum permitted rates for equipment and installation are based on actual cost and are calculated in Part III of the Form 393. Equipment rates are derived from capital and maintenance costs per unit of equipment. Installation rates are derived from the calculation of a hourly service charge and application of that charge to different types of installations. Under our regulations, the maximum permitted rates are deemed to be reasonable, as required by the 1992 Cable Act. Requiring cable operators to set all or some of their rates for programming, equipment or installation below their maximum permitted levels would force them to charge rates at levels below those specifically allowed under our rules. 6. If a franchising authority does not dispute the bases for the figures presented in a cable operator's Form 393 or has not discovered any mathematical errors in the form, the franchising authority should then approve the operator's maximum permitted rates, as derived by the form. A franchising authority should not require the operator to set a particular rate for programming, equipment or installation at any rate less than its maximum permitted rate, even if its current or actual rate is below its maximum permitted rate. Instead, the franchising authority should allow the operator to charge up to its maximum permitted rates, as derived by Form 393. In this proceeding, the City did not dispute either the validity of the figures used in A-R Cable's Form 393 or the accuracy of the calculations in the form. Therefore, Lisbon should allow A-R Cable to charge its maximum permitted rates, as derived by the Form 393. 7. After setting the various regulated rates that an operator is permitted to charge on a prospective basis, a franchising authority should then determine if the operator is liable for any subscriber refunds. A refund liability can be imposed when an operator's actual charges exceed maximum permitted levels during the applicable period of review. If an operator's aggregate revenues computed from its actual rates exceeded its revenues computed from its permitted rates during the period of review, the operator must refund the difference to subscribers. If the operator's aggregate revenues computed from its permitted rates exceeded its aggregate revenues computed from its actual rates, the operator will not be required to issue any refunds for that period of review. In this proceeding, any refunds to be paid by A-R Cable should be calculated based on this method. 8. While the Commission will sustain the decisions of franchising authorities if there is a reasonable basis for doing so, we expect franchising authorities to adhere to the mathematical principles underlying the benchmark methodology, particularly when calculating an operator's refund liability. For instance, in this case, Lisbon may not order A-R Cable to set its equipment and installation rates below maximum permitted levels. Further, Lisbon must offset or reduce any refunds it may order by the difference between the actual equipment and installation rates that A-R Cable charged and the maximum permitted rates that it could have charged during the applicable period of review. According to A-R Cable's uncontested assertion, Lisbon has directed A-R Cable to charge less than its maximum permitted levels for certain components of its regulated service and to issue refunds without regard to the fact that some rates are below maximum permitted levels. We are remanding this case to Lisbon so that it can reconsider its ruling in a manner consistent with our findings. B. Independent Review 9. A-R Cable next contends that Lisbon violated the Commission's rules by its acceptance, without independent verification, of A-R Cable's calculations on its FCC Form 393. While a local franchising authority is free to seek further verification of the information presented in an operator's Form 393, or to require the operator to submit additional information, nothing in our rules requires the local authority to do so. In fact, the local authority's ability to determine whether an operator has met its burden of demonstrating the reasonableness of its rates is in great measure dependent upon accurate self- reporting by operators. Lisbon therefore did not err in accepting the figures reported by the operator. C. Written Decision 10. A-R Cable also contends that Lisbon's rate order should be remanded because there was no "written decision." Lisbon's "written decision" was a one page document, signed by the Town Council, that merely listed the prices that A-R Cable was required to charge. A-R Cable correctly notes that Commission rules require a written decision by the local franchising authority. Moreover, where the franchising authority prescribes a rate, as Lisbon did here, the written decision must affirmatively demonstrate why the operator's proposed rate is unreasonable and why the prescribed rate is reasonable. Since it appears from the record below that Lisbon's "written decision" did not comport with our rules in this area, this issue also must be remanded for further proceedings consistent with this order. III. Ordering Clauses 11. Accordingly, IT IS ORDERED, A-R Cable's appeal of Lisbon's local rate order is REMANDED, with the above instructions, to the Town of Lisbon, Maine (MA 0075) for further proceedings consistent with this order. 12. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's rules. 47 C.F.R.  0.321 (1993). FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau