FOR RECORD ONLY $//Appeal ORDER in Middlebury, CT, et al, DA 95-450//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ $/1.45(d)Request for Stay/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-450 In the Matter of ) Middlebury, CT ) Plymouth, CT SAMMONS COMMUNICATIONS OF ) Prospect, CT CONNECTICUT, INC. ) Waterbury, CT ) Wolcott, CT Appeal of Local Rate Order of the ) Connecticut Department of ) Public Utility Control ) ) Request for Stay ) of Local Rate Order of the ) Connecticut Department of ) Public Utility Control ) ORDER Adopted: March 8, 1995 Released: March 9, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. On September 16, 1994, Sammons Communications of Connecticut, Inc. ("Sammons"), filed an Appeal ("Appeal") of a local rate order of the Connecticut Department of Public Utility Control ("DPUC"), dated August 17, 1994, for the communities of Middlebury; Plymouth; Prospect; Waterbury; and Wolcott. On September 16, 1994, Sammons also filed a Request for Stay of the Local Rate Order. 2. In its local rate order, the DPUC approved Sammons' rate for its basic tier service and established regulated rates for Sammons's equipment and installations, pursuant to the Cable Television Consumer Protection and Competition Act of 1992. The DPUC also ordered Sammons to issue refunds or credits to subscribers for those equipment and installation charges collected between September 1, 1993 and July 14, 1994, which were in excess of Sammons's maximum permitted rates. 3. In its Appeal, Sammons challenges those portions of the local rate order in which the DPUC (1) lowered Sammons' equipment and installation charges and ordered Sammons to refund any charges in excess of the prescribed rates; and (2) revised Sammons' monthly equipment revenue figure on Line 104 of FCC Form 393. The DPUC contends that Sammons wrongly computed its Hourly Service Charge ("HSC") by understating the percentage of labor hours associated with installations, thereby causing its equipment and installation rates to be impermissibly high. Sammons requests that the Commission remand the local rate order to the DPUC with instructions (1) to desist from prescribing Sammons' HSC and related equipment and installation charges based upon selectively updated data; (2) to approve Sammons' actual equipment costs; and (3) to desist from revising Sammons' estimate of its monthly equipment revenues. It is the DPUC's position that its local rate order is reasonable, and therefore, Sammons' Appeal should be dismissed. 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 will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. III. Discussion 5. The sole issue raised in Sammons's Appeal involves the calculation of Sammons' permitted equipment and installation charges in Part III of FCC Form 393. 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. 6. 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. 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. 7. The DPUC maintains that Sammons wrongly computed its HSC by understating the percentage of labor hours associated with installations. Based upon Sammons' responses to interrogatories posed by the DPUC, the DPUC included an additional 928 hours in Sammons' HSC calculation. Based upon this revised calculation, the DPUC lowered Sammons' permitted HSC from $47.50 to $42.14. The DPUC then made corresponding adjustments to Sammons' equipment and installation charges, based upon this lower HSC. 8. Sammons claims that the Commission's rules prohibit the DPUC from refreshing data by using updated information based on actual experience to lower rates that Sammons established based upon accurate estimates of revenue prior to becoming subject to rate regulation. The DPUC, however, claims that it is not "refreshing" the data, but rather that it is using data which was developed for the first time during the rate review process, and which was the only available data upon which to assess the reasonableness of the filing made by Sammons. The DPUC claims that since Sammons' actual experience is so different from its estimate, the DPUC finds Sammons' estimate to be unreasonable. Sammons responds that rates set in accordance with then-current data should not be deemed unreasonable solely on account of subsequent changes in that data. The DPUC acknowledges that the Commission's rules generally prohibit rate changes based upon updated data, but it notes that there must at least be justification to support the operator's original data. The DPUC claims that Sammons did not carry its burden of proving that its equipment rates complied with the 1992 Cable Act and the Commission's rules because when Sammons submitted its FCC Form 393, it failed to include any of the required attachments to support its conclusion regarding the labor hours it used in its HSC calculation. The DPUC further claims that Sammons submitted evasive responses to the DPUC's several requests for justification for its labor hours estimate. The DPUC states that the only evidence available to it in the record was the actual number of hours which Sammons employees spent on installations for the period of time between September 1, 1993 and May 14, 1994, which Sammons submitted to the DPUC for purposes of the DPUC's determination of Sammons' refund liability. Therefore, the DPUC relied upon these actual installation hours when it adjusted Sammons' labor hours. 9. Sammons further claims that the DPUC selectively updated the data which Sammons used to derive its HSC. In revising Sammons' HSC calculations, the DPUC replaced Sammons' estimate of installation labor hours with actual labor hour data without also updating, based on actual data, Sammons' related equipment and installation capital costs and operating expenses, which are calculated in Schedules A and B of Part III of FCC Form 393, and then entered in Line 1 of Step A of Part III. Sammons claims that the DPUC prescribed an HSC that was impermissibly low, because it divided data based upon Sammons' estimated costs and expenses by the DPUC's revised number of labor hours. The DPUC claims that it fairly and rationally accounted for the increased direct and indirect additional labor hours by upwardly adjusting Sammons' customer equipment percentage on Line 2 of Step A of FCC Form 393 by nearly a full percentage point. However, Sammons contends that the DPUC should have used Sammons' actual capital costs and operating expenses in order to accurately account for its increased service installation and maintenance of equipment. 10. Finally, Sammons contends that the DPUC improperly revised its Line 104 figure representing monthly equipment revenue from $63,991 to $63,144. It is Sammons' position that it properly provided the DPUC with a reasonable estimate of its monthly equipment revenue, rather than actual monthly equipment revenue, because Sammons did not provide subscriber equipment on an unbundled basis prior to rate regulation. Thus, it is Sammons' position that it acted in accordance with the Commission's directive to use anticipated revenues because its actual revenues were not available. The DPUC revised the Line 104 figure in order to keep this figure consistent with the equipment and installation costs on Lines 34 and 301, as Sammons had done on its FCC Form 393. The DPUC maintained that the revised monthly equipment revenue figure which it substituted was a "better estimate" of revenues generated by rates in effect after September 1, 1993. The DPUC points out that Sammons' base rate per channel on Line 110 remained unchanged at $0.638, despite the DPUC's revision of Line 104. Sammons contends that since both its basic tier rate, and its aggregate monthly rate, are below the benchmark rate, it should not be subject to refund liability in any amount. 11. Under the Commission's rules, an operator is not required to change its rates to reflect updated data if the operator's rates are accurately justified by prior data. In this instance, Sammons did not accurately justify its rates, because it did not attach any of the required explanations to FCC Form 393, and it did not offer any justification for its estimate of its technicians' labor hours. The DPUC states that the only evidence available to it in the record was Sammons' actual installation hours, which it submitted for purposes of determining its refund liability. It was, therefore, reasonable for the DPUC to revise Sammons' submission based upon these actual hours. However, the DPUC should have revised Sammons' FCC Form 393 in a consistent and equitable manner. Instead, we find that the DPUC revised Sammons' FCC Form 393 in an unreasonable manner, by employing a mixture of updated data (i.e., installation labor hours, customer equipment percentage) and original data (i.e, capital costs and operating expenses). The DPUC may not use a mixture of updated data and estimated data. Sammons' HSC, which the DPUC determined by dividing Sammons' estimated costs and expenses by a greater actual number of labor hours, produced an inaccurate, and lower, HSC. The DPUC must, therefore, recalculate Sammons' maximum permitted rate for equipment and installations using Sammons' actual equipment costs for the period of time between September 1, 1993 and May 14, 1994, as well as its actual labor hours for the same period of time, so that the data which is used in these calculations is consistent. In recalculating Sammons' equipment and installation rates, the DPUC may equate Line 104 with Lines 301 and 34, as Sammons did in its FCC Form 393, and as the Commission anticipated would occur in most instances in which an operator restructured its rates prior to September 1, 1993 in accordance with our rules. The DPUC must then modify its local rate order accordingly. IV. Ordering Clauses 12. Accordingly, IT IS ORDERED that the Appeal filed by Sammons Communications of Connecticut, Inc. is REMANDED to the Connecticut Department of Public Utility Control for resolution in accordance with the terms of this Order. 13. IT IS FURTHER ORDERED that, in light of the resolution of its Appeal herein, the Request for Stay filed by Sammons Communications of Connecticut, Inc. IS DISMISSED as moot. 14. 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