FOR RECORD ONLY $// Appeal CONSOLIDATED ORDER in City of Burbank, CA and City of Glendale, CA, DA 95-194 //$ $/ 76.922 Rates for the basic tier /$ $/ 76.942 Refunds /$ $/ 76.937 Burden of proof /$ $/ 76.944 Commission Review of Franchising Authority/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-194 ) SAMMONS COMMUNICATIONS, INC. ) ) Appeal of Local ) Rate Order of City of ) Burbank, CA.; ) ) Appeal of Local ) Rate Order of City of ) Glendale, CA. ) CONSOLIDATED ORDER Adopted: February 9, 1995 Released: February 10, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. By this Order, the Commission consolidates and resolves two separate appeals of local cable rate orders filed by Sammons Communications, Inc. ("Sammons"). The first appeal involves the local rate order issued by the City of Burbank, California on April 5, 1994 and was filed on May 5, 1994. The second appeal involves the local rate order issued by the City of Glendale, California on April 18, 1994 and was filed on May 18, 1994. In preparing this order, the Commission has reviewed all of the pleadings filed in each appeal and determined that the proceedings are sufficiently similar to justify the joint resolution of all of the issues raised by each party in a single consolidated order. We find that this consolidation will not prejudice any of the parties and will serve the interests of administrative efficiency. 2. In addition to its appeal of the two local cable rate orders, Sammons filed on May 5, 1994, a Request for Stay of the local rate order adopted on April 5, 1994, by its local franchising authority, the City of Burbank. Sammons also filed on May 18, 1994, a Request for Stay of the local rate order adopted on April 18, 1994, by its local franchising authority, the City of Glendale. We granted both stay requests. 3. Each of the local rate orders establishes a new regulated rate schedule for Sammons' basic service tier rates and associated equipment. Specifically, each city's local rate order requires Sammons to implement certain rate reductions and to issue refunds to subscribers for charges levied beginning on September 1, 1993. 4. In the Cities' review of Sammons' Form 393, they approved its proposed maximum permitted rates for the basic service tier. The Cities, however, disapproved Sammons' proposed Hourly Service Charge ("HSC") and its proposed charges for equipment used to receive the basic service tier. The Cities then prescribed rates for the HSC and equipment. Finally, the Cities ordered Sammons to issue a refund to subscribers. Sammons argues that the Cities misapplied the Commission's rate regulations and improperly reduced Sammons' regulated revenues by setting its rates for equipment and installation below the permitted levels and by imposing a greater refund liability than is allowed under our rules. In the case of the HSC, Sammons also argues that the Cities improperly rejected its calculations, because they did not affirmatively demonstrate that Sammons' proposed rate was unreasonable and did not demonstrate that the prescribed rate is reasonable. 5. In response, the Cities maintain that they properly applied the Commission's regulations in their rate orders. The Cities assert that Sammons' basic service tier rate on the effective date of rate regulation was below its permitted benchmark rate and should have been frozen at that lower rate without any adjustment, including an adjustment related to installation or equipment charges. The Cities also argue that, in spite of repeated requests by them for verifiable information, Sammons failed to satisfy its burden of proof as to the reasonableness of its HSC. Therefore, the Cities claim that they were justified in prescribing an HSC, and that the prescribed HSC is reasonable and appropriate. 6. 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. II. DISCUSSION A. Refund Offsets 7. FCC Form 393 is the official form used by regulators to determine whether a cable operator's rates for programming, equipment and installations 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 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. 8. The operator's maximum permitted rates are derived by completing Parts II and III of 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 costs and are calculated in Part III of Form 393. Equipment rates are derived from capital and maintenance costs per unit of equipment. Installation rates are derived from calculation of an 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 under 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. 9. On the Cover Sheet (Part I) of its Form 393, Sammons' maximum permitted rate for its basic service tier is listed as $10.74 per month, while its actual rate is listed as $9.65 per month. The maximum permitted rate for Sammons' remote controls is listed on its Form 393 as $0.39 per month, while its actual rate is listed as $0.48 per month. In their respective rate orders, the Cities' prescribed rate for Sammons' remote controls is $0.29 per month. Sammons' maximum permitted rate for converter boxes is listed as $2.72 per month for type 1 and $2.21 for type 2, while its actual rate is $1.90 and $2.38, respectively. The Cities' prescribed rate for Sammons' converter boxes is $1.39 per month for type 1 and $1.68 per month for type 2. While the Cities approved Sammons' proposed maximum permitted rate for the basic service tier, it prescribed reduced rates for related equipment, which are lower than the maximum permitted level. 10. 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. Thus, if the Cities do not dispute either the validity of the figures used in Sammons' Form 393 or the accuracy of the calculations in the form, they should allow Sammons to charge its maximum permitted rates, as derived by the Form 393. The Cities are instructed to follow the guidelines laid out in this decision in rendering its determinations. 11. 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 exceed 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 Sammons should be calculated based on this method. 12. 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. In this case, the Cities have directed Sammons to charge less than its maximum permitted levels for certain components of its regulated equipment and installation service and to issue refunds without regard to the fact that some rates are below maximum permitted levels. We find that the Cities may not order Sammons to set its equipment and installation rates below maximum permitted levels. Further, the Cities must offset or reduce any refunds they may order by the difference between the actual equipment and installation rates that Sammons charged and the maximum permitted rates that it could have charged during the applicable period of review. We are remanding this case to the Cities so that they can reconsider their respective rulings in a manner consistent with our findings. B. Hourly Service Charge 13. The Cities rejected Sammons' proposed HSC of $71.25 and prescribed an HSC of $22.35. The Cities assert that they prescribed the HSC after Sammons failed to meet its burden of proof in justifying its proposed rate. The Cities further assert that they repeatedly invited Sammons to provide additional supporting data for its proposed HSC, but that Sammons only provided generalized data and assertions and not specific documentation which could justify the amount proposed. For example, the Cities requested specific documentation from Sammons relating to total labor hours for maintenance and installation of customer equipment and service, leased remotes, and converter boxes, but Sammons provided only general information based on its own unverifiable assumptions. After Sammons failed to supply the requested documentation, the Cities chose an alternate method to determine the appropriate HSC. They compared Sammons' HSC to that of similarly situated cable operators in other California communities and adjusted the rate to comply more closely with those other rates. At the same time, the Cities adjusted maximum charges for leased remotes and leased converter boxes to reflect the prescribed HSC. Sammons claims that the Cities failed to demonstrate why its proposed rate was unreasonable and why the prescribed rate is reasonable. 14. In rate regulation proceedings, the cable operator, not the local franchising authority, bears the burden of proving the reasonableness of all of its proposed regulated rates. After providing the cable operator with an opportunity to participate in the rate review proceeding and provide documentation supporting its proposed rates, the local franchising authority is fully justified in prescribing a rate based on the best information available to it at the time it issues the order, as long as it explains why the operator's proposed rate is unreasonable and its own prescribed rate is reasonable. The Cities did give Sammons a chance to participate in the rate review proceedings and provided it with several opportunities to provide information to support its proposed HSC. In addition, the Cities explained the basis for their decision that Sammons' proposed HSC was unreasonable and the basis for the prescribed rate. We will, therefore, affirm the Cities' rate orders on this issue. III. ORDERING CLAUSES 15. Accordingly, IT IS ORDERED that the following Commission proceedings: (1) the appeal by Sammons Communications, Inc. of the local rate order adopted by the City of Burbank, California; and (2) the appeal by Sammons Communications, Inc. of the local rate order adopted by the City of Glendale, California, are consolidated into one proceeding. 16. IT IS FURTHER ORDERED that Sammons Communications, Inc.'s appeal of the City of Burbank's local rate order and its appeal of the City of Glendale's local rate order, regarding the issue of Sammons Communications, Inc.'s permitted charges for certain equipment and installation provided by Sammons and related refunds ARE REMANDED to the respective local franchising authorities for resolution in accordance with the terms of this Consolidated Order. 17. IT IS FURTHER ORDERED that Sammons Communications, Inc.'s appeal regarding its regulated hourly service charge in the City of Glendale and the City of Burbank is DENIED. 18. IT IS FURTHER ORDERED that each of our stays of the local rate orders which were granted pending the resolution of these appeals is hereby VACATED. 19. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau