FOR RECORD ONLY $// Appeal ORDER in Warren, Ohio, DA 95-315 //$ $/ 76.922 Rates for the basic service tier /$ $/ 76.942 Refunds /$ $/ 76.944 Commission Review of Franchising Authority Decision /$ Before the FEDERAL COMMUNICATIO NS COMMISSION Washington, D.C. 205 54 In the Matter of: ) DA 95-315 ) TCI Cablevision of Ohio, Inc. ) ) Appeal of Local ) Rate Order of City of ) Warren, Ohio ) ORDER Adopted: February 21, 1995 Released: February 22, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On October 28, 1994, TCI Cablevision of Ohio, Inc. ("TCI"), the franchisee in the above matter, filed an appeal of the local rate order ("rate order") adopted on September 28, 1994 by its local franchising authority, the City of Warren, Ohio ("the City"). On December 12, 1994, the City filed an opposition to TCI's appeal. TCI did not file a reply. The rate order establishes a new regulated rate schedule for TCI's basic service tier rates and associated equipment. Specifically, the City's rate order requires TCI to implement certain rate reductions and to issue refunds to subscribers, dating back to September 1, 1993. 2. In its review of TCI's Form 393, the City approved TCI's rates for equipment and installation, but ordered TCI to lower its actual rate for the basic service tier to the City's prescribed maximum permitted level and to issue refunds accordingly. On appeal, TCI argues that the City erred in its inflation adjustment calculation, resulting in a $.03 basic service overcharge. TCI also argues that the City's rate order ignores the Commission's instructions for the calculation of refunds, which it asserts require that any overcharges be offset by any undercharges. 3. In its Opposition, the City explains that the reason for the difference in the maximum permitted rate found by the City and TCI for the basic service tier is attributable to the differing methods by which the City and TCI calculated the inflation adjustment in Worksheet 1 to Form 393. Prior to filing its Opposition, the City reviewed and modified its inflation adjustment calculation method. As a result, the City has decided that, "for purposes of this appeal, [it] concedes that the maximum permitted rate which TCI is entitled to charge for the basic service tier is $9.52 per month." Because the maximum permitted rate for the basic service tier as recalculated by the City is identical to that arrived at by TCI in its Form 393, this issue is moot. However, since TCI's actual rate for its basic service tier is $9.53, which is $0.01 more than the maximum permitted rate, we still must address the issue of proper calculation of refunds. In response to the refund calculation issue, the City argues that, contrary to TCI's assertion, the Commission's rules do not authorize a balancing of past overcharges and undercharges in ordering a refund. II. DISCUSSION 4. 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. 5. 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. 6. 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. In this proceeding, the City approved the maximum permitted rates for equipment and installation calculated by TCI in its Form 393, but the City did not provide for the possibility of offsetting TCI's undercharges for equipment and installation against its overcharge for basic service. 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 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 TCI 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. In this case, the City must offset or reduce any refunds it may order by the difference between the actual equipment and installation rates that TCI charged and the maximum permitted rates that it could have charged during the applicable period of review. We are remanding this issue to the City so that it can reconsider its ruling in a manner consistent with these findings. III. ORDERING CLAUSES 9. Accordingly, IT IS ORDERED that TCI Cablevision of Ohio, Inc.'s appeal of the City of Warren, Ohio's local rate order, regarding the issue of inflation adjustment is DISMISSED as moot. 10. IT IS FURTHER ORDERED that TCI Cablevision of Ohio Inc.'s appeal of the City of Warren, Ohio's local rate order, regarding the issue of refund calculation is REMANDED to the local franchising authority for resolution in accordance with the terms of this Order. 11. 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