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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR FCC RECORD ONLY $/ORDER in Westland, MI DA 95-412/$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installations/$ $/76.944 Commission Review of Franchising Authority Decisions/$ $/1.45 Request for Stay/$ $/1.45(d) Request for Stay/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-412 ) CONTINENTAL CABLEVISION, INC. ) OF MICHIGAN ) ) Appeal of Local ) Rate Orders of City of ) Westland, MI ) CONSOLIDATED ORDER Adopted: March 3, 1995 Released: March 6, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. By this Order, we consolidate two proceedings into one and rule on the merits in each proceeding. In deciding this appeal, the Bureau has reviewed all the pleadings filed in each of the separate proceedings. We have determined that the two proceedings are sufficiently similar and related to one another to justify the joint resolution of all the issues raised by each of the concerned parties in one consolidated proceeding. 2. Continental Cablevision of Michigan, Inc. ("Continental"), the franchisee in the above-referenced proceedings, filed with the Commission on April 6, 1994 an appeal of the local cable rate order adopted by the City of Westland, MI ("the City") on March 7, 1994. That rate order established Continental's basic service tier rates and associated equipment and installation rates, and ordered corresponding refunds dating back to September 1, 1993. The City did not file any opposition. 3. On November 4, 1994, Continental filed with the Commission an appeal of a second local rate order adopted by the City on October 24, 1994. In this second rate order, the City established rates for Continental's basic service tier for the period beginning May 15, 1994. Along with its November 4, 1994 appeal, Continental also filed a Request for Emergency Stay. The City filed oppositions to both the November 4, 1994 appeal and request for stay. Continental filed a reply to the City's opposition to the appeal on November 28, 1994. Because we are resolving this dispute on the merits presented in the appeal, the petition for stay has been rendered moot. 4. Under our rules, rate orders adopted by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission does not conduct a de novo review, but instead will sustain the local authority's order as long as there is a reasonable basis for its decision. The Commission will therefore reverse a local authority's decision only if it is determined that the local authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a local authority's decision, it will not substitute its own decision but will instead remand the issue to the local authority with instructions to resolve the case consistent with the Commission's decision on appeal. 5. In the first appeal, Continental raises issues involving calculations in its FCC Form 393, which it submitted to justify its rates for the period of September 1, 1993 to May 14, 1994, and alleges that the City used an incorrect Department of Commerce GNP-PI statistic for the 3rd quarter of 1992 in setting Continental's benchmark rates on the Form 393. In the second appeal, Continental raises issues involving calculations in its FCC Form 1200, which it submitted to justify its rates for the period beginning May 15, 1994, and alleges that: (1) the City refused to allow Continental to correct errors made by Continental on its FCC Form 1200 which were discovered and brought to the City's attention prior to the adoption of the October 24, 1994 rate order; and (2) in the second local rate proceeding the City adopted and retroactively applied a "five day" rule to prevent Continental from making corrections to its FCC Form 1200. We consider each of these issues in turn. II. DISCUSSION A. City's failure to use the correct GNP-PI figure in its March 7, 1994. 6. 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. 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. 7. 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 level is below the applicable benchmark rate, then the operator's rate level 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 level to the applicable benchmark rate. If its September 30, 1992 per-channel rate level is above the benchmark rate, it must reduce this rate to the benchmark rate or by 10%, whichever reduction is less. Maximum permitted rates for equipment and installation are based on actual cost and are calculated in Part III of the Form 393. 8. With respect to the calculation of the inflation factor on Line 123, Continental states that it restructured its rates on September 1, 1993 using the most current information available at that time. Continental claims that it could reasonably rely upon the third quarter 1992 GNP-PI inflation estimate as printed on Line 123 of Worksheet 1 of Form 393 (121.8), and that it was not required to adjust this figure to reflect updates or revisions made to that estimate by the Department of Commerce subsequently. The City contends that it applied the revised figure of 122.5 based on the Commission's instructions holding that the most recently available GNP-PI determination should be used when making the rate benchmark calculations rather than the 121.8. 9. Generally, an operator should use the most recent, publicly available data applicable to the period on which the operator bases its Form 393 calculations. Continental submitted its Form 393 to the City on November 10, 1993, but its rate calculations were based on data available on September 1, 1993, which is the date Continental revised its rates in response to our rules. Continental used the estimated figure for the third quarter 1992 GNP-PI which was 121.8. In a Public Notice released on November 10, 1993, the Commission announced that the correct figure to be used in the Line 123 calculation for the third quarter 1992 GNP-PI figure is 122.5, not 121.8. Subsequently, in the Third Recon. Order, the Commission stated that operators whose rate calculations are otherwise accurate were not required to adjust their rates simply because of the use of then-current data. When an operator's rates are not justified and must be recalculated for reasons other than the use of then-current data, the operator will be required to make the necessary recalculations and use the updated data in doing so. In the present appeal, the City does not dispute that Continental's rates are justified using the "then-current" GNP-PI figure of 121.8. Accordingly, the City should not require Continental to adjust its rates to reflect the revised GNP-PI figure of 122.5. We remand this issue to the local franchising authority for resolution in accordance with the terms of this Order. B. The City's rejection of the revised Form 1200 in its October 24, 1994 order. 10. FCC Form 1200 is the official form used by operators to determine whether their regulated rates for programming, equipment and installations are reasonable for the period beginning May 15, 1994. Through the use of Form 1200, an operator calculates three sets of figures: (1) the operator's actual March 31, 1994 rate; (2) the operator's March 31, 1994 benchmark rate; and (3) the operator's "full reduction" rate. An operator must first calculate its equipment and installation charges on Form 1205, and these changes are then subtracted from the operator's per-subscriber rates. Once the Form 1205 is completed, the operator uses the first part of Form 1200 to determine its provisional rates. The operator is permitted to charge the larger of its provisional rates and its full reduction rates, the latter calculated in the second part of Form 1200. 11. The operator first completes Module A of the Form 1200 to calculate its actual March 31, 1994 total monthly regulated revenue, as well as a per-subscriber per-month average regulated revenue. Next, the operator completes Module B to calculate changes in external costs since the operator first became subject to regulation and Module C to calculate its March 31, 1994 benchmark rate on a per-subscriber, per-month basis. The March 31, 1994 actual rate is then compared to the benchmark rate, with the operator carrying forward the smaller of the two. If the March 31, 1994 actual rate is the smaller of the two, the operator completes Module D, subtracting the per-subscriber equipment rate taken from Form 1205 and adding the external costs calculated from Module B. If the benchmark rate is the smaller of the two, the operator completes Module E, subtracting the per-subscriber equipment rate taken from Form 1205. Depending on which is used, either Module D or E establishes per-tier rates, which the operator carries forward into Module F, as its provisional rates. 12. In the second part of Form 1200, the operator derives its full reduction rate from its September 30, 1992 rates. The revised benchmark rules require cable systems to lower their regulated rates to a level that represents their September 30, 1992 rates, reduced by 17 percent, and then adjusted upward for certain permitted increases. The rate that regulated systems are allowed to charge under the revised rules is called the "full reduction rate." To compute this rate, in Module G, the operator calculates its September 30, 1992 total monthly regulated revenue, reduces it to a per-subscriber per-month average, reduces it by the 17% competitive differential, and adjusts upward by 3% to reflect the inflation from September 30, 1992 until September 30, 1993. In Module H, the operator then adjusts the results from Module G for changes that the operator has made since September 30, 1992 with respect to the number of subscribers, regulated channels, and satellite channels. In Module I, the operator subtracts the per-subscriber equipment rate from Form 1205, establishes per-tier rates, and adjusts the rates from Module H for changes in external costs. In Module J, the operator compares its provisional rates with its full reduction rates. Finally, the operator's maximum permitted rate, the greater of its provisional and full reduction rates, is entered into Module K. 13. Continental filed its original FCC Form 1200 with the City on June 29, 1994. On August 1, 1994, the City passed a resolution tolling the review period for an additional 90 days, to October 30, 1994. On September 7, 1994, the City mailed Continental a copy of a public notice which solicited comments and objections from interested parties and provided that such comments should be filed with the City on or before September 19, 1994. On September 19, 1994, an independent consulting firm hired by the City wrote the City regarding several errors in Continental's original FCC Form 1200. On September 29, 1994, the City held a public hearing regarding Continental's rate request. On September 30, 1994, Continental submitted a revised FCC Form 1200 correcting Module C, line C5, Census Income Level. Module C uses information about a cable system's characteristics, including household income data of residents in the franchising area, in calculating a benchmark rate. In its initial filing, instead of entering a figure on Line 5 for "per household" income, as required by the Form's instructions, Continental had used a lower "per capita" income figure in its original Form 1200, which produced a lower benchmark rate than if the correct per household income data is used. Continental's September 30 submission contained a revised FCC Form 1200 correcting the error, along with a letter of explanation. On October 24, 1994, the City adopted its rate order based on the original FCC Form 1200 and rejected the amended FCC Form 1200. 14. Continental contends that the City had not closed the record on September 30, 1994, when the revised Form 1200 was submitted, and that the City impermissibly rejected Continental's revisions. It claims that both the City's consultant and Continental notified the City of the mistaken use of the per household income figure prior to the adoption of the rate order. It also asserts that the City ignored the benchmark formula's required use of household income to derive the benchmark rate. As support for its contentions, it notes that the City's consultant reviewed the revised rates and found that they were reasonable. According to Continental, the reversal of the City's order would serve the public interest by upholding the integrity of the benchmark process. 15. The City argues that franchising authorities must not only perform the mathematical review of an operator's submission, "but also provide meaningful public comment regarding the enormous profits that cable operators are reaping." It asserts that it rejected Continental's amendment because interested parties could not have commented on it since the comment period had expired on September 19, 1994. It characterizes Continental's correction as an attempt to circumvent public comment and implement a "huge rate increase." The City argues that Continental was served with a copy of the City's rules regarding public comment and should have met the closing date for comments. 16. If a franchising authority elects to toll the deadline for review of a cable operator's rate filing, as the City did here, the solicitation and collection of additional information during the review period will be at the franchising authority's discretion. However, where the franchising authority is unable to rule on the reasonableness of a proposed rate, the tolling order should provide the cable operator an opportunity to cure any deficiencies in its original filing. Under such circumstances, a local franchising authority should accept for review amended or supplemental filings to an original FCC Form 1200 if an operator submits the new information within a reasonable period of time and presents an adequate explanation for the change or changes. 17. In this instance, the City rejected Continental's revised filing because the City's public comment period had expired. The City's notice requested comments on Continental's Form 1200 by September 19, 1994. Continental did not file its amended form until September 30, 1994. However, the amendment was filed three weeks prior to the release of the local order and within the tolling period which extended the review period to October 30, 1994. Operators should be allowed to correct data deficiencies under such circumstances. Continental had the responsibility to explain and justify the information contained in its FCC Form 1200, as well as in any modifications to its original filing. When Continental refiled its FCC Form 1200, it fulfilled this responsibility by attaching a cover letter explaining why the changes were necessary. Because Continental explained that the revisions were to cure a deficiency, the nature of which the City does not challenge, the City should have accepted the revised form for review. We find that the City's rejection of Continental's revision on the basis of untimeliness was unreasonable. Accordingly, we remand this issue to the City so that it can enter a ruling consistent with these findings. C. The City's adoption of the "five day" rule in its October 24, 1994 order. 18. On October 24, 1994, at the same time that it issued its rate order, the City adopted a new rule requiring any corrections to rate data submitted by Continental to be resubmitted within five days of the initial filing date of the document to be corrected. Continental claims that the City retroactively applied the rule to bar Continental from correcting its original FCC Form 1200. The City disputes Continental's assertion that it retroactively applied the rule to bar Continental's revised FCC Form 1200. It asserts that it disapproved the revised FCC Form 1200 because it was submitted after the public hearing was held and the notice and comment period had expired. 19. Under the Commission's rules, appeals of local franchising authorities' ratemaking decisions that do not turn on whether a franchising authority has acted consistently with the 1992 Cable Act, or the Commission's rules regarding rate regulation, "may be heard in state or local courts." Both the City's procedural rules regarding comment periods and the City's five-day rule are local rules, the validity of which should be tested in a local forum. However, if application of such rules is inconsistent with our procedural requirements, the local rules cannot be held valid. Such is the case here. We have stated that a cable operator should be permitted to revise its data during the tolling period. The five-day rule, to the extent that it unreasonably disallows operators' revisions of data permitted by our rules, is inconsistent with our regulations. Its application is especially troublesome here since Continental, in submitting the revised Form 1200, was responding to comments of the City's own consultant, which were themselves not available to Continental until after the five-day period would have run. For the same reasons, we find the City's argument regarding the expiration of the comment period unpersuasive. Continental's submission was made a full three weeks before release of the local order and was within the period set forth in the tolling order. The City has offered no reasonable explanation for refusing to accept the correction. Under the local rules, no corrections appear to be permissible after the City's review of, and public comment on, the Form 1200. While local authorities are permitted to enact rules regarding time limitations for filing amendments, such rules must allow operators a reasonable period to discover errors and make corrections. The City's rule does not do so. The restriction is unreasonable. We remand this issue to the City for further consideration consistent with this finding. VI. Ordering Clauses 20. Accordingly, IT IS ORDERED, that Continental Cablevision of Michigan, Inc.'s appeal of the City of Westland's local rate order regarding the issue of the City's use of an incorrect Department of Commerce GNP-PI statistic for the 3rd quarter of 1992 in setting Continental's benchmark rates for the period of September 1, 1993 through May 14, 1994 is REMANDED to the local franchising authority for resolution in accordance with the terms of this Order. 21. IT IS FURTHER ORDERED that Continental's appeal of the City's refusal to allow Continental to correct errors made by Continental on its FCC Form 1200 is REMANDED to the local franchising authority for resolution in accordance with the terms of this Order. 22. IT IS FURTHER ORDERED that Continental's appeal of the City's adoption and retroactive application of a "five day" rule to Continental's attempted correction of its Form 1200 is REMANDED to the local franchising authority for resolution in accordance with the terms of this Order. 23. 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