FOR RECORD ONLY $//Appeal ORDER, Staten Island Cable, Staten Island, NY, DA 95-704//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-704 ) STATEN ISLAND CABLE ) OF NEW YORK CITY ) ) Appeal of Local Rate Order ) of the City of New York, New York ) (Staten Island, CUID No. NY1312) ) MEMORANDUM OPINION AND ORDER Adopted: March 31, 1995 Released: April 4, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On October 31, 1994, Staten Island Cable, the franchisee in the above matter, filed an appeal of a local rate order adopted on September 30, 1994 by its local franchising authority, the City of New York, New York ("the City") for the borough of Staten Island. On November 15, 1994, the City filed an opposition, urging the Commission to reject Staten Island Cable's appeal and to allow the City's rate order to go into effect unchanged. Staten Island Cable filed a reply on November 22, 1994 claiming that the City's interpretation of the Commission's rules was incorrect. In its rate order, the City established permitted rates for the basic service tier and associated equipment and installations and required Staten Island Cable to refund overcharges to subscribers. 2. In its appeal, Staten Island Cable alleges that the City inappropriately based its rate order on the use of updated data on Staten Island Cable's FCC Form 393, which resulted in an improper reduction of Staten Island Cable's basic service tier rate. Staten Island Cable argues that the Commission's rules, which limit a regulatory authority's ability to update or "refresh" data on an operator's rate filing, prevent the City from ordering refunds based solely on the substitution of updated data. Staten Island Cable argues, in the alternative, that it should at least be permitted to reduce its refund liability by offsetting undercharges for rates it charged for its cable programming services ("CPS") tier. 3. In response, the City argues that Staten Island Cable's Form 393 was based on data that was not current as of the initial date of regulation, as required by our rules, and, therefore, the City was justified in making revisions to Staten Island Cable's rate filing. The City disputes Staten Island Cable's interpretation of the Commission's "refreshing" policy. The City also argues that there is no basis under the 1992 Cable Act or the Commission's rules to allow Staten Island Cable to offset the refunds ordered by the City for the basic tier with alleged undercharges of its CPS tier rates. 4. Under the Commission's rules, appeals of franchising authorities' local rate orders are reviewed by 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 we determine 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. II. DISCUSSION 5. On September 1, 1993, the Commission's rate regulations implementing the 1992 Cable Act became effective. On this date, Staten Island Cable restructured its rates in an effort to comply with those rules. At that time, Staten Island Cable offered a 29-channel basic service tier for $10.45, and a 23-channel CPS tier for $8.29. Subsequently, on October 1, 1993, pursuant to the terms of a then recently-negotiated retransmission consent agreement, Staten Island Cable added a new service, ESPN-2, to its CPS tier, increasing the number of offerings on this tier to 24 channels and, therefore, increasing the total number of regulated offerings, including both the basic service and CPS tiers, to 54 channels from the previous 53 channels. However, Staten Island Cable made no rate adjustment to account for this new additional channel, leaving intact the rates it had initially set for its basic service tier and its CPS tier on September 1, 1993. 6. On October 15, 1993, the City filed with the Commission its certification to regulate rates and notified Staten Island Cable that it had 30 days to submit its rate filing, in accordance with our rules. On November 15, 1993, Staten Island Cable, justifying its rates using the benchmark methodology, submitted to the City a FCC Form 393, which relied on the same data that it used to restructure its rates on September 1, 1993. Staten Island Cable had adjusted neither its basic service tier rate nor its CPS tier rate to account for the channel it added in October. In the City's rate order, it adjusted Staten Island Cable's rate to account for the added channel and found that its permitted basic service tier rate should be reduced from $10.45 to $10.27, solely because the increase in the total number of channels resulted in a reduced permitted per-channel rate. Because CPS tier rates are regulated by the Commission, not local franchising authorities, the City's rate order did not address Staten Island Cable's CPS tier rate. Staten Island Cable claims that the rates that it established on September 1, 1993 were based on a channel line-up that was accurate at the time of its restructuring and, therefore, the City should have approved them. 7. The issue here is whether Staten Island Cable should have reduced its basic service rate when it submitted its rate filing to the City to account for the channel added in October. Under the benchmark regulations, an operator's per-channel rate, as derived by Form 393, is determined by a formula that includes as variables the number of subscribers served by the system, the number of regulated channels offered, and the number of satellite channels offered on regulated tiers. Therefore, an adjustment in the total number of channels available on regulated service tiers would have an impact on an operator's permitted per-channel rate for each regulated service tier. 8. The Commission's rules generally require an operator to measure its maximum permitted rates from data that is current as of the initial date of regulation. With respect to the basic service tier, the initial date of regulation is the date on which the franchising authority certifies to regulate rates. Therefore, the number of channels that Staten Island Cable offered on October 15, 1993, not September 1, 1993, would ordinarily be used to determine Staten Island Cable's maximum permitted rates because October 15th was the initial date of regulation. However, the Commission has created an exception to this general rule. 9. In the Third Recon. Order, the Commission addressed the issue of updating rate calculations due to changes in data that are material to determining an operator's permitted rates, after an operator has already restructured its rates in accordance with the Commission's rules. In the Third Recon. Order, the Commission stated that "[o]perators should not be penalized for making good faith attempts to comply with our rules in a timely manner." The Commission was concerned that operators, who attempted to comply with the Commission's rules when they became effective and who set their rates based on data that was current at the time of their restructuring, could see their rates become unreasonable solely due to replacing that data with data that became subsequently available. The Commission determined that if an operator was required to immediately adjust its rates in accordance with the new data, operators would face significant administrative expenses and subscribers would be confused by another adjustment in their rates. However, the Commission was also cognizant of the need for regulatory authorities to accurately verify the reasonableness of an operator's rates and to ensure that any inaccuracies were not compounded in future rate increases or adjustments. In order to balance these concerns, the Commission determined that an operator's rates that are justified by using data that was available at the time of an operator's rate restructuring should not be required to adjust its rates to reflect current data. If its rates are not justified by using that data, an operator would be required to adjust its rates using data that was current as of the initial date of regulation. 10. We agree with Staten Island Cable and find that the City should have reviewed Staten Island Cable's rates using the data that was available at the time Staten Island Cable initially restructured its rates (i.e., old data). Staten Island Cable restructured its rates in accordance with the Commission's rules on September 1, 1993. Staten Island Cable added a single channel subsequent to its initial restructuring on October 1, 1993. The initial date of regulation for its rates for the basic service tier and associated equipment and installations was October 15, 1993. However, the Third Recon. Order specifically mentions the addition of channels as an example of the type of information that may have changed between the time operators initially set their rates and the time those rates were reviewed by a regulatory authority. Under the terms of the exception described above, because the permitted per- channel rate that Staten Island Cable calculated in its initial attempt to restructure its rates was based on data available at the time of restructuring and because the City did not find that Staten Island Cable's rates were not justified using this old data, Staten Island Cable should be permitted to use its September 1, 1993 benchmark calculations to justify its rates in its November 15, 1993 rate filing with the City. We will remand this matter to the City so that it can enter a ruling consistent with the terms of this Order. III. ORDERING CLAUSE 11. Accordingly, IT IS ORDERED that Staten Island Cable's appeal of New York City's rate order regarding the City's use of updated data to justify subscriber refunds IS REMANDED to the City for resolution in accordance with the terms of this Order. 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