FOR RECORD ONLY $// ORDER Remanding local rate order to San Juan Capistrano, California, DA 95-452//$ $/ 76.922 Basic Tier Rates/$ $/ 76.923 Equipment and Installation Rates/$ $/ 76.944 Commission Review of Franchising Authority Rate Decsions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-452 In the Matter of: ) ) TIMES MIRROR CABLE ) TELEVISION OF ORANGE ) COUNTY, INC. d/b/a ) DIMENSION CABLE SERVICES ) ) Appeal of Local Rate ) Order of the City of San ) Juan Capistrano, California ) ORDER Adopted: March 8, 1995 Released: March 10, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On November 3, 1994, Time Mirror Cable Television of Orange County, Inc. d/b/a Dimension Cable Services ("Dimension"), filed with the Commission an appeal of the local rate order adopted on October 4, 1994 by the City of San Juan Capistrano, California (the "City"). In its local order, the City established Dimension's rates for basic cable service, equipment, installations and hourly service charges. As part of this decision setting the basic tier rates, the City found Dimension's collective or package offering ("Preferred Dimension" package) of certain individually offered ("a la carte") channels to be a regulated tier of service and, therefore, included those channels as regulated channels for purposes of the local order. The City ordered Dimension to make refunds to subscribers for all payments made in excess of the rates set forth in the local order for the period September 1, 1993 through July 14, 1994. 2. 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 the Commission 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. With respect to a determination made by a franchising authority on the regulatory status of an a la carte package as part of its final decision setting rates for the basic service tier, the Commission has stated that "the Commission will defer to the local authority's findings of fact if there is a reasonable basis for the local findings," and the Commission "will then apply FCC rules and precedent to those facts to determine the appropriate regulatory status of the [a la carte package] in question." 3. Dimension objects to the City's decision to calculate maximum initial permitted rates for basic services by treating Dimension's a la carte package, consisting of American Movie Classics, Turner Network Television, The Discovery Channel and The Nashville Network, as a rate regulated offering. Dimension argues that its a la carte package conforms with Commission rules for unregulated treatment of a la carte packages. Dimension also objects to the City's decision to not allow its additional outlet charge to cable programming service subscribers and to the City's decision to not allow Dimension to allocate franchise fees to its equipment revenues on Form 393. We address each issue in turn. II. DISCUSSION A. A La Carte Offerings 4. Dimension objects to the City's finding that the channels comprising its Preferred Dimension a la carte package must be included as regulated channels. Dimension argues that its a la carte package complies with the provisions of the 1992 Cable Act, which it contends encourage cable operators to unbundle programming services from regulated tiers and offer them on a per-channel basis, and that the package complies with the Commission's a la carte rules in effect at the time the package was created. Dimension further argues that the City's reliance upon the 15 interpretive guidelines announced by the Commission in March, 1994 to determine the regulatory status of Dimension's a la carte channels constituted "retroactive rulemaking." The City responds that it properly applied the Commission's guidelines on a la carte packages and concluded that the channels in Dimension's package should be treated as regulated channels. 5. The Dimension a la carte package at issue was first offered to subscribers on September 1, 1993, when Dimension restructured the service offerings on its system which serves the City. Dimension states that its September 1, 1993 restructuring involved offering four channels that previously had been offered on its former cable programming service tier on an individual basis and also as a package that Dimension alleges is not subject to rate regulation. 6. The facts presented in this appeal closely resemble the facts presented in one of our recently issued letter of inquiry orders on a la carte packages, Dimension Cable Services, Oceanside, California, 10 FCC Rcd 7311 (Cab. Serv. Bur. 1994). In Dimension Cable Services, we found we could not say that it was clear that the Preferred Dimension package offered by Dimension on its Oceanside, California system was not a permissible non-rate regulated offering under our rules. We further concluded that in light of the prior confusion over what constituted a permissible non-rate regulated a la carte offering, it would be inequitable to subject Dimension to refund liability or to require Dimension to restructure its tiers so as to return the channels offered in the a la carte package to regulated tiers. Instead, we found that, on a prospective basis, the Preferred Dimension package may be treated as a new product tier under the Commission's Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92-266, Sixth Order on Reconsideration, MM Docket No. 93-286, Fifth Report and Order, 10 FCC Rcd 1226 (1995) ("Going Forward Order"). 7. We find that the City's determination in its local rate order that the channels comprising Dimension's a la carte package must be included as regulated channels is inconsistent with the action taken in Dimension Cable Services. We further find that, in accordance with Dimension Cable Services, Dimension's a la carte package should not be treated as a rate-regulated tier of service. Accordingly, Dimension's appeal on this issue is granted and we remand the local rate order to the City for further proceedings consistent with this ruling. B. Additional Outlet Charges 8. Dimension next contends that the City improperly disallowed its additional outlet charge. Dimension claims, and the City does not dispute the claim, that the charge is assessed to recover additional program supplier costs for the cable programming service (CPS) tier and therefore only subscribers receiving the CPS tier are assessed the additional charge. Characterizing the charge as related exclusively to programming costs for its CPS tier, Dimension further contends that the City lacked jurisdiction to rule on the matter. The City counters that Dimension did not adequately justify its claim that the charge was due to additional programming costs for CPS tier subscribers. The City states that, since CPS subscribers with additional outlets also receive basic service over the same outlet, it does indeed have jurisdiction to regulate the charge. Additional outlets, the City contends, are equipment used to receive basic service and therefore subject to rate review by the City. 9. The jurisdiction of local franchising authorities to regulate cable television rates is limited to those charges and services associated with the basic service tier. Charges associated solely with the CPS tier are under the Commission's jurisdiction. Because most equipment-related charges imposed on the CPS tier are also imposed on the basic tier, local franchising authorities almost always regulate such charges. In rare instances, however, certain equipment-related charges may be related only to the CPS tier, such as additional programming costs for channels only carried on the CPS tier, placing the charges under Commission jurisdiction. The City does not contest Dimension's assertion that the additional outlet charges at issue are imposed only on CPS subscribers to recover programming costs associated with the CPS tier. Because the additional outlet charges are imposed only in connection with programming carried on the CPS tier, the Commission, not the City, has jurisdiction over this matter. Under the facts of this case, the City should not have issued a ruling regarding these charges. Since the City did not have jurisdiction to reach the additional outlet charge, we remand this issue to the City so that it may modify its local rate order accordingly. C. Franchise Fees 10. Dimension next contends that the City improperly excluded a portion of its franchise fees ($33,703) which Dimension included as part of its equipment revenue on Line 204 of Worksheet 2, in Part II of Dimension's Form 393. Dimension argues that the Commission's benchmark rates were calculated by excluding the franchise fee expense on programming service revenues, but not the franchise fee expense on equipment revenues. Dimension claims the City's exclusion of franchise fees from its equipment revenue resulted in a substantial understatement of its base rate per channel. The City contends that allowing Dimension to include within Line 204 equipment revenues allocable to franchise fees yields a double recovery, once for the amount that effectively becomes embedded in Line 204 and again as franchise fees are added as a pass-through to the maximum permitted rates. 11. The franchise fee issue raised by Dimension's appeal was addressed in one of our cable programming service rate orders, Times Mirror Cable Television of Orange County, Inc. (San Juan Capistrano, California), 10 FCC Rcd 845 (Cab. Serv. Bur. 1994) ("Times Mirror - San Juan Capistrano"). In Times Mirror - San Juan Capistrano, we stated that, if franchise fees are both included in the base from which maximum permitted rates are calculated and permitted as an addition to maximum permitted rates (as a pass-through), the operator would recover these costs twice. We find that, in accordance with Times Mirror - San Juan Capistrano, Dimension should not be allowed to include $33,703 of its franchise fees, from its equipment revenue on Line 204 of Worksheet 2, in Part II of Dimension's Form 393, in justifying its rates for basic cable service, equipment and installations with the City. Accordingly, Dimension's appeal of this issue is denied. III. ORDERING CLAUSES 12. Accordingly, IT IS ORDERED that Dimension's appeal, with respect to the issue of the regulatory status of its a la carte package and the additional outlet charge outlet issue, IS GRANTED. IT IS FURTHER ORDERED that Dimension's appeal, with respect to these two issues, IS REMANDED to the City for resolution in accordance with the terms of this Order. 13. IT IS FURTHER ORDERED that Dimension's appeal, with respect to the issue of including franchise fees as a part of equipment revenue on Form 393, IS DENIED. 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 (1993). FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau