FOR RECORD ONLY $//Appeal ORDER in East Granby, CT, et al, DA 95-210//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ $/1.45(d)Request for Stay/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-210 In the Matter of ) East Granby, CT ) East Windsor, CT CONTINENTAL CABLEVISION OF ) Enfield, CT WESTERN NEW ENGLAND, INC. ) Granby, CT ) Hartland, CT ) Somers, CT Appeal of Local Rate Order of the ) Stafford, CT Connecticut Department of ) Suffield, CT Public Utility Control ) Union, CT ) Windsor Locks, CT Request for Emergency Stay ) of Local Rate Order of the ) Connecticut Department of ) Public Utility Control ) ORDER Adopted: February __, 1995; Released: February __, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. On September 8, 1994, Continental Cablevision of Western New England, Inc. ("Continental"), filed an Appeal ("Appeal") of a local rate order ("Local Rate Order") of the Connecticut Department of Public Utility Control ("DPUC") for the communities of East Granby, Ct.; East Windsor, Ct.; Enfield, Ct.; Granby, Ct.; Hartland, Ct.; Somers, Ct.; Stafford, Ct.; Suffield, Ct.; Union, Ct.; and Windsor Locks, Ct. On November 4, 1994, Continental also filed a Request for Emergency Stay of the Local Rate Order. 2. In the Local Rate Order, the DPUC established regulated rates for Continental's basic cable service, associated equipment and installations, pursuant to the Cable Television Consumer Protection and Competition Act of 1992. The DPUC also ordered Continental to issue refunds or credits to subscribers for those charges collected between September 1, 1993 and July 14, 1994, which were in excess of Continental's maximum permitted rates. 3. In its Appeal, Continental challenges two portions of the Local Rate Order. First, Continental challenges that portion of the Local Rate Order in which the DPUC reduced Continental's benchmark per channel rate on Line 121 of FCC Form 393 from $0.551, which Continental derived by interpolation from the Commission's benchmark tables, to $0.547, which the DPUC calculated using the Commission's benchmark formula. This change resulted in a reduction of Continental's maximum permitted rate for basic service from $8.55 per month to $8.38 per month. Continental contends that it is entitled to use either the benchmark tables or the benchmark formula to calculate its benchmark per channel rate, and that the DPUC erred when it did not allow Continental to interpolate its per channel rate from the benchmark tables contained in FCC Form 393. Accordingly, Continental requests that the Commission overturn those portions of the Local Rate Order which substitute a "formula" benchmark for an "interpolated" benchmark. 4. Continental also challenges that portion of the Local Rate Order in which the DPUC revised Continental's calculations regarding permissible charges for addressable converters and remote controls. Continental's regulated equipment includes only one type of converter box and one type of remote control. In determining Continental's maximum rate for remote controls, the DPUC divided Continental's total remote control costs, including costs associated with remotes in inventory, by the number of remotes in service and in inventory, rather than simply by the number of remotes in service, as Continental had done in its FCC Form 393. The DPUC made the same revision to Continental's converter box rate calculations. The DPUC's revision resulted in lowering Continental's monthly charges for its remote controls from $0.20 to $0.18, and for its addressable converter from $1.82 to $1.80. Continental contends that the maximum monthly lease rates for its remotes and converters must be calculated by dividing its total costs for each type of equipment by the number of units in service only, not the number of units in service and in inventory. II. Standard of Review 5. Under the Commission's rules, appeals of franchising authorities' local rate orders are reviewed by the Commission. In ruling on an appeal of a local rate order, 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 a 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. III. Discussion A. Benchmark Calculation 6. The issues raised in Continental's Appeal involve the calculation of its benchmark per channel rate on Line 121 of FCC Form 393, and the calculation of its maximum permitted equipment charges. FCC Form 393 is the official form used by cable operators to determine whether their regulated rates for programming, equipment and installations are reasonable. FCC Form 393 is divided into three (3) separate, but interrelated parts. In Part II, the operator calculates its 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 under review. 7. The operator's maximum permitted rates are derived by completing Parts II and III of FCC 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 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. The benchmark rate is determined by use of either the benchmark tables that are part of FCC Form 393 or by use of the benchmark formula. If the appropriate benchmark for a particular operator falls between two numbers listed in the benchmark tables, then the operator may either interpolate the appropriate benchmark number or derive it using the benchmark formula. If the per- channel rate exceeds the benchmark rate, the operator must reduce the per-channel rate to the benchmark rate or by 10%, whichever is less. Maximum permitted rates for equipment and installation are based on actual cost and are calculated in Part III of FCC Form 393. 8. Continental claims that the DPUC unjustifiably substituted its calculation of Continental's benchmark rate using the Commission's formula in place of the benchmark rate which Continental derived by interpolating from the benchmark tables contained in FCC Form 393. The DPUC ordered Continental to issue additional refunds based upon the new, and lower, maximum permitted rate which the DPUC derived from the benchmark formula. The DPUC contends that a cable operator is not automatically entitled to the higher of the two values produced by the two methods of determining the benchmark per channel rate. The DPUC believes that a franchising authority should not be bound by a cable operator's choice of methodology where the calculation of the benchmark rate under the Commission's formula is available, because the formula provides a more precise and consistent regulatory analysis for all cable companies in Connecticut. 9. A cable operator's benchmark per channel rate represents the rate that a comparable cable system that is subject to competition would charge. An operator derives its benchmark per channel rate by using either the benchmark tables in Attachment A to FCC Form 393, or the benchmark formula on page 33 of that form. The benchmark tables set forth various benchmark per channel rates, based upon the number of regulated channels and satellite-delivered signals for an operator's community unit, as well as the number of subscribers on an operator's system. If the appropriate benchmark for a particular operator falls between two numbers listed in the benchmark tables, then the operator may interpolate the appropriate benchmark per channel rate from the data in the benchmark tables. Alternatively, an operator may calculate its benchmark per channel rate by inserting its benchmark data (i.e., the number of regulated channels and satellite-delivered signals for the operator's community unit, and the number of subscribers on an operator's system) into the Commission's benchmark formula. 10. The instructions for completing Line 121 of FCC Form 393, which are found on page 11 of FCC Form 393, explain how an operator must interpolate its correct benchmark per channel rate if the appropriate benchmark for a particular operator falls between two numbers listed in the benchmark tables. These instructions go on to state, "[a]lternatively, you may apply the FCC's benchmark formula to calculate your benchmark rate." Furthermore, the "Instructions for Identifying the Appropriate Benchmark Rate from the Tables in Attachment A" on page 22 of FCC Form 393, state, "[i]f either the total number of channels on the regulated tiers or the total number of satellite channels on those regulated tiers for your community unit does not equal the channels displayed in the selected table, you may determine your benchmark rate per channel by using the Commission's formula, or you can perform one of the following [interpolation] calculations." We find that it is clear from these two separate sets of instructions that cable operators may determine their benchmark per channel rate by employing either the Commission's benchmark formula or by interpolating the correct benchmark rate from the benchmark tables in Attachment A to FCC Form 393. Continental followed the instructions on the Commission's Form 393 when it chose to interpolate its benchmark per channel rate from the benchmark tables. The DPUC's insistence that Continental use the Commission's benchmark formula to calculate its benchmark rate is contrary to the Commission's instructions on FCC Form 393, which provide the operator, not the regulator, with the option of calculating its benchmark rate by using either the benchmark formula or the benchmark tables. Accordingly, we find that the DPUC's decision to substitute its calculation of Continental's benchmark rate using the Commission's formula for Continental's calculation of its benchmark rate, which Continental derived by interpolation from the benchmark tables, was unreasonable. In order to comply with the requirements of FCC Form 393, the DPUC must recalculate Continental's maximum permitted rate for the basic service tier using the value of $0.551 as Continental's benchmark per channel rate on Line 121 of FCC Form 393, and modify its Local Rate Order accordingly. B. Equipment Price Calculation 11. Continental contends that the DPUC improperly divided Continental's total costs for both remotes and converters by the number of remotes and converters in service and in inventory, rather than just the number of remotes and converters in service, as Continental did in its FCC Form 393 which it submitted to the DPUC. The DPUC's revision reduced Continental's monthly charge for remotes and converters by $.02 each. It is Continental's position that the DPUC's action is inconsistent with Commission authority in the following respects: (1) the DPUC's actions are contrary to the Commission's requirement that units in service be loaded with inventory cost; (2) the DPUC's actions assume that the deployment of more converters increases net revenues and ignores the fact that equipment rates are adjusted annually; (3) in substituting its own guesswork for Continental's undisputed facts, the DPUC deprived Continental of any recovery of costs of inventory, despite having found those inventories to be reasonable; and (4) the DPUC's action ran afoul of repeated assurances by the Commission that operators would not be penalized for growth. As detailed below, resolution of this Appeal rests on the strength of petitioner's first argument. 12. In the Local Rate Order, the DPUC noted that in the annual capital costs columns in Steps C and D of its FCC Form 393, Continental included the capital costs of its remotes and converters that were both in service and in inventory. However, when Continental determined its monthly charges for the leased remotes and converters, its capital costs were divided only by the number of units in service. The DPUC maintained that this treatment would be appropriate if Continental maintained an inventory only for the purpose of promptly replacing units needing repair. However, since Continental's inventory included not only units needed for replacement, but also units needed to satisfy additional customer demand for this equipment, the DPUC modified Continental's remote and converter calculations in order to account for the revenue-generating element of its equipment inventory. The DPUC did this by dividing Continental's total costs for remotes by the number of remotes in service and in inventory. The DPUC made the same modification to Continental's converter box calculations. 13. An operator's monthly lease charge for remotes and converters is designed to recover its actual costs of providing and maintaining the remotes and converters, and includes a reasonable profit. An operator determines its maximum monthly lease charge for remote controls in Step C of FCC Form 393, and for converter boxes in Step D of FCC Form 393. In order to derive its maximum monthly lease charges for remotes and converters, an operator first determines its total costs for each category of equipment by adding together the annual capital costs and the total maintenance/service costs of that particular category of equipment. Then, the operator determines its annual unit cost for that particular type of equipment by dividing the equipment's total costs by the total number of units in service. Finally, the operator derives its maximum monthly rate for each type of equipment by dividing the annual unit cost by 12. 14. The instructions for completing Steps C and D of FCC Form 393 require the operator to list on Lines 12 and 19, respectively, the total number of either remotes or converters that were in service on the last day the operator closed its books. Likewise, the instructions for completing Column I of Schedule C of FCC Form 393 require the operator to enter the total number of units in service for leased remotes and converter boxes. We find that it is clear from these two separate sets of instructions that, in order to calculate their maximum permitted rate for remotes and converters, cable operators should divide the total cost of remotes and converters by the total number of remotes and converters in service (as Continental did), rather than by the number of units both in service and in inventory (as the DPUC did). Continental followed the instructions on the Commission's Form 393 when it calculated its maximum monthly lease rates for both remotes and converters. The DPUC's insistence that Continental determine the total unit cost of its remotes and converters by dividing the total cost of the remotes and converters by the number of remotes and converters in service and in inventory was contrary to the Commission's instructions on FCC Form 393. Accordingly, we find that the DPUC's decision to revise Continental's calculation of its maximum monthly rates for its remotes and converters was unreasonable. In order to comply with the requirements of FCC Form 393, the DPUC must recalculate Continental's maximum permitted monthly rate for both remotes and converters by (1) dividing the total cost of Continental's remote controls (Line 11, FCC Form 393) by the total number of Continental's remote controls which were in service on the last day Continental closed its books prior to submission of its FCC Form 393; (2) dividing the total cost of Continental's converter boxes Line 18, FCC Form 393) by the total number of Continental's converter boxes which were in service on the last day Continental closed its books prior to submission of its FCC Form 393; and (3) dividing both of these numbers by 12. The DPUC then must modify the Local Rate Order accordingly. IV. Ordering Clauses 15. Accordingly, IT IS ORDERED that the Appeal filed by Continental Cablevision of Western New England, Inc. is REMANDED to the Connecticut Department of Public Utility Control for resolution in accordance with the terms of this Order. 16. IT IS FURTHER ORDERED that, in light of the resolution of its Appeal herein, the Request for Emergency Stay filed by Continental Cablevision of Western New England, Inc. IS DISMISSED as moot. 17. 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