FOR RECORD ONLY $//ORDER Denying Appeal in Livingston , NJ, et al, DA 95-783//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-783 In the Matter of: ) ) SUBURBAN CABLEVISION ) ) Appeal of Local Rate ) Order of State of New Jersey ) Board of Public Utilities, Office of ) Cable Television ) ORDER Adopted: April 10, 1995 Released: April 12, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. On July 15, 1994, Suburban Cablevision ("Suburban"), filed an Appeal ("Appeal") of a local cable rate order adopted by the State of New Jersey Board of Public Utilities, Office of Cable Television ("Board"). The Board filed an Opposition to Suburban's Appeal on July 26, 1994. Suburban submitted a Reply to the Board's Opposition on July 29, 1994. On July 15, 1994, Suburban also filed a Request for Emergency Stay of the local rate order, which the Commission denied in an Order released on August 10, 1994. Subsequent to the release of the Commission's Order denying Suburban's stay request, Suburban filed a Motion to File Additional Pleading, along with a Supplement to Appeal, which was designed to explain Suburban's use of inconsistent data. The Board opposed this request in an opposition filed on October 7, 1994. 2. In its local rate order, the Board established rates for Suburban's basic service tier and associated equipment, and required Suburban to issue subscriber refunds, dating back to September 1, 1993, for charges in excess of its newly established maximum permitted rates. In its Appeal, Suburban challenges only that portion of the local rate order in which the Board modified the inflation adjustment figure used by Suburban in the calculation of its maximum permitted basic tier rate. Based upon this modification, the Board ordered Suburban to issue a refund to its subscribers of $.06 per month for the period of time beginning on September 1, 1993. II. Standard of Review 3. 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 4. The sole issue raised in Suburban's Appeal involves the inflation adjustment figure used by Suburban in Worksheet 1 of its FCC Form 393. 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 equipment and installation costs and 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. 5. 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 ("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 level 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 level to the benchmark rate or by 10%, whichever reduction is less. After computing the permitted rate level in this manner (whether based on current rates or September, 1992 rates), monthly equipment and installation costs are removed to derive the maximum permitted programming rates. Maximum permitted rates for equipment and installation are based on actual cost and are separately calculated in Part III of FCC Form 393. 6. FCC Form 393 allows operators to adjust their benchmark rates forward in order to account for inflation since September 30, 1992. Operators arrive at their adjusted benchmark rate by employing an inflation adjustment factor, which takes into account the inflation which has occurred between September 30, 1992, and the date on which an operator files its FCC Form 393. Operators calculate their inflation adjustment factor on Lines 122- 128 of FCC Form 393. As part of this calculation, operators are instructed to enter the GNP-PI for the most recent quarter in Line 122 of FCC Form 393. Operators then determine the appropriate inflation factor on Line 123 by (1) dividing the current GNP-PI from Line 122 by the GNP-PI for the third quarter of 1992; and (2) subtracting one from this total. Operators then compute their inflation adjustment factor by (1) multiplying the inflation factor from Line 123 by the time factor from Line 126; and (2) adding one to this sum. Finally, the operator would compute its adjusted benchmark rate by multiplying its inflation adjustment factor by the benchmark per channel rate from Line 121. Operators then compare their current rates with their adjusted benchmark rate in order to determine their maximum permitted rates for regulated services, as described in paragraph 5, supra. 7. The Board asserts that Suburban used an incorrect inflation adjustment when calculating its maximum permitted per-channel rate in its FCC Form 393. On Line 123 of its FCC Form 393, Suburban used an inflation figure of 121.8 for the third quarter of 1992 to determine its inflation factor, in accordance with the directions on the FCC Form 393. However, the Board contends that Suburban should have used 122.5, which was the updated inflation figure issued by the Department of Commerce on August 31, 1993, which is prior to the time Suburban's rates were effective. In addition, the Board notes that, two days prior to Suburban's submission of its FCC Form 393 to the Board, the Commission issued the November 10, 1993 Public Notice stating that operators should use the updated inflation figure of 122.5, rather than the 121.8 figure printed in the FCC Form 393. The Board contends that Suburban's rates were calculated using inflation data that was not accurate at the time of the calculation. Therefore, it is the Board's position that it correctly ordered Suburban to adjust its inflation adjustment figure for the third quarter of 1992 to 122.5, which resulted in a reduction in Suburban's maximum permitted monthly basic rate from $10.49 to $10.39. 8. Suburban states that it restructured its rates prior to the Commission's rate regulations becoming effective on September 1, 1993. Suburban's restructured rates, which were calculated in July and processed in August, were reflected in subscribers' September bills. Suburban states that at the time it restructured its rates, it used the latest available inflation figure for the third quarter of 1992, which was 121.8. Although this preliminary figure was subsequently revised upward to 122.5 by the Department of Commerce, Suburban contends that the Board erred in adjusting Suburban's inflation figure for the third quarter of 1992. It is Suburban's position that the relevant inflation figure is the one available at the time at which the operator finalizes its benchmark rate calculations and advises its subscribers of any rate changes. Suburban further contends that the fact that inflation figures may be revised before the operator submits its rate justification form or before the franchising authority acts on the submission does not mean the operator, who otherwise accurately set its rates, must revise those rates. Finally, Suburban claims that the Commission, in its Third Order on Reconsideration, allowed cable operators to rely on the original 121.8 inflation number. 9. The Commission has indicated previously that an operator should use for its inflation adjustment calculation the most recent publicly available data applicable to the period in which the operator submits its FCC Form 393 to the local franchising authority. However, we have also stated that, where an operator accurately justifies its rates using data which were current at the time it restructured its rates (i.e., "then-current" data), we will not require that operator to change its rates to reflect the most recently available data. This exception cannot be used, however, if the local authority requires recalculation of an operator's rates for reasons other than the use of then-current data. In such a case, the operator must make the recalculations required by the local authority, and must use the most recent publicly available data applicable to the period in which it submitted its FCC Form 393. 10. As both parties have acknowledged, the U.S. Department of Commerce published an updated GNP-PI of 122.5 for the third quarter of 1992 on August 31, 1993, which replaced the Department's earlier GNP-PI estimate of 121.8 for that period. A review of Suburban's FCC Form 393 indicates that Suburban entered this 121.8 figure for the third quarter 1992 GNP-PI on Line 123. Suburban claims that this was a valid use of then-current data. However, Suburban also used figures on Lines 122 and 124 (125.6 and 13 months, respectively), which reflected data which were more recently available than the then- current data which it used on Line 123. 11. We are unpersuaded by Suburban's argument that its use of the then-current inflation figure of 121.8 for the third quarter of 1992 is justified by the Commission's policy that the use of then-current inflation and other data will not be deemed unreasonable solely on account of subsequent changes in that data. That policy is not determinative in this case because the data which Suburban used in Lines 122-127 were not consistent. The Line 122 GNP-PI figure of 125.6 which Suburban used did not become available until mid-September 1993. That figure was the most recently available figure at the time Suburban submitted its FCC Form 393. On the other hand, the Line 123 GNP-PI figure which Suburban used was not the most recently available, for it had been revised to 125.6 on August 31, 1993. It was a then-current figure at the time Suburban restructured its rates. Since Suburban used the most recently available number of 125.6 on Line 122, it should have used the most recently available 122.5 figure for Line 123, for both numbers were published together in the August 1993 Survey of Current Business. Suburban is not permitted to rely partially upon then- current data and partially upon most recently available data. In computing its inflation adjustment factor, Suburban should have used either then-current data on each of Lines 122- 127, or the most recently available data for each line; it cannot use a combination of both. Accordingly, we find that the Board acted reasonably in adjusting Suburban's inflation calculations. IV. Ordering Clause 12. Accordingly, IT IS ORDERED that the Appeal filed by Suburban Cablevision is DENIED. 13. 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