FOR RECORD ONLY $//Appeal ORDER in Portland, OR, et al, DA 95-380//$ $/76.923 Rates for equipment and installation/$ $/76.942 Refunds/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before The FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-380 In the Matter of ) ) PARAGON CABLE ) ) Appeal of Local Rate Order of the ) Consolidated Cable ) Communications Commission ) for Portland, Multnomah County, and ) Linnton, Oregon Franchise Areas ) ORDER Adopted: February 28, 1995; Released: March 1, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. On April 13, 1994, Paragon Cable ("Paragon"), the franchisee in the above matter, filed an Appeal of a local rate order adopted March 14, 1994 by its franchising authority, the Consolidated Cable Communications Commission ("CCCC"). On April 25, 1994, the CCCC filed a Reply to Paragon's Appeal. 2. In its local rate order, the CCCC established regulated rates for Paragon's basic cable service and associated equipment and installation charges for its Portland, Multnomah, and Linnton franchise areas, as provided by the Cable Television Consumer Protection and Competition Act of 1992. The CCCC's local rate order determined that Paragon's basic service rate was reasonable because it was below its maximum permitted rate. In addition, the CCCC accepted as reasonable those equipment and installation charges which were below Paragon's maximum permitted rate, but ordered reductions in the rates Paragon charges for addressable converters, manual converters, remotes, and changes of service because these were all priced above Paragon's maximum permitted rate. Paragon was ordered to refund to subscribers those equipment and installation charges since September 1, 1993 which were in excess of its maximum permitted rates. This refund liability, Paragon argues, is in excess of permitted levels. 3. The central issue presented in Paragon's Appeal involves the CCCC's failure to allow Paragon to offset certain charges in excess of its maximum permitted rates with undercharges in other services it offered which were below its maximum permitted rate. II. Standard of Review 4. 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 it will remand the issue to the franchising authority with instructions for its resolution. The three issues under consideration in the instant appeal are discussed in the ensuing section of the Order. III. Discussion 5. FCC Form 393 is the official form used by regulators to determine whether an operator's regulated rates for programming, equipment and installations were reasonable during the time period from September 1, 1993 until May 14, 1994. FCC 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. 6. The operator's maximum permitted rates are derived by completing Parts II and III of the 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 ("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 FCC 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 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. 7. If a franchising authority does not dispute the bases for the figures presented in a cable operator's FCC 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 installations 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 FCC Form 393. 8. 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 Paragon should be calculated based on this method. 9. 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, the CCCC may not order Paragon to set its programming, equipment, or installation rates below maximum permitted levels. Furthermore, the CCCC must offset or reduce any refunds it may order with any undercharges in other services offered by Paragon which were below its maximum permitted rate. According to Paragon, the CCCC has directed Paragon 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 of Paragon's rates are below maximum permitted levels. We are remanding this case to the CCCC so that it can reconsider its ruling in a manner consistent with our findings. 10. Accordingly, IT IS ORDERED that the local rate order is REMANDED to the Consolidated Cable Communications Commission for resolution in accordance with the terms of this Order. 11. IT IS FURTHER ORDERED that our stay of the local rate order, which was granted pending the resolution of this appeal, is hereby VACATED. 12. 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