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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR RECORD ONLY $//APPEAL ORDER in Town of Silver City, NM, DA 95-1134//$ $/76.922 Rates for basic service tier/$ $/76.923 Rates for equipment and installation/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-1134 ) CENTURY NEW MEXICO ) CABLE CORPORATION ) ) Appeal of Local ) Rate Order of the Town of ) Silver City, New Mexico ) MEMORANDUM OPINION AND ORDER Adopted: May 19, 1995 Released: May 23, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On January 23, 1995, Century New Mexico Cable Corporation ("Century"), the franchisee in the above matter, filed an appeal of a rate order adopted on December 19, 1994 by its local franchising authority, the Town of Silver City, New Mexico (the "Town"). The Town filed an opposition, urging the Commission to deny Century's appeal, to which Century filed a reply. In its rate order, the Town established rates for basic tier service and associated equipment and installations and required Century to refund overcharges to subscribers. 2. Century challenges the Town's rate order with respect to two issues. First, Century contends that the Town arbitrarily and unreasonably increased Century's equipment basket figure by including in it 100 percent of the wages attributable to certain employees, who Century claims spend only a portion of their time performing duties related to regulated installations or the maintenance of customer equipment. Second, Century asserts that the Town inappropriately recalculated its rate for converters in Step D of Part III of Form 393 (and the parallel portion of Form 1200) to reflect an estimated converter failure rate of eight percent of the units in service, rejecting Century's own figure of five percent. 3. In response, the Town claims that Century did not cooperate with its requests for more information throughout the review process, impeding its ability to make a fully informed decision. Before issuing its rate order, the Town states that it requested that Century explain and justify certain figures relating to its equipment basket, including those figures challenged in this appeal. The Town contends that Century never provided sufficient justification for its equipment-related figures. As a result, the Town conducted its own independent analysis, which resulted in it making changes to Century's rate filing and requiring adjustments to particular rates. Therefore, the Town asserts that it made its decision based on the best information available. In its opposition, the Town also asks the Commission for authority to impose sanctions, including fines and forfeitures, against Century for its refusal to respond to the Town's information requests and orders and for Century's alleged misrepresentations and material omissions made during the review process. 4. 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. 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 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. Franchising authorities are given a certain amount of discretion in conducting their regulatory review. Cable operators have the burden of establishing the reasonableness of their rates that are subject to regulation. If a franchising authority determines that an operator has not met that burden, it may set an operator's rates based on the best information available. In reviewing a rate filing, a franchising authority may require an operator to provide a reasonable explanation for the figures contained in its rate filing and may also ask for supporting documentation to substantiate the figures. Operators are required to respond to reasonable requests from franchising authorities in a timely fashion. If a franchising authority does not receive a satisfactory response or receives no response at all, it may rely on the best information available. We must affirm the Town's decision if we find it was reasonable. To determine if the Town's decision was reasonable, we must analyze the decision in its proper context. In making the two changes to Century's rate filing that are challenged in this appeal, the Town determined that Century had not provided an adequate explanation or an appropriate justification for its own equipment-related figures. 6. The 1992 Cable Act requires that the rates for regulated installation services and leased equipment be set "based on actual cost." In Part III of Form 393 and in Form 1205, under the revised rules, an operator must calculate its permitted rates pertaining to regulated equipment and installations from an aggregate "equipment basket" figure. As part of its equipment calculations, an operator must derive an hourly service charge ("HSC") that is "computed by taking the sum of all equipment basket costs except purchase cost of all equipment, and dividing that sum by the operator's total annual person hours dedicated to leasing, installing and equipment repair service." To calculate the HSC, an operator should aggregate all of its direct costs related to the maintenance and installation of regulated service and equipment. These costs should consist of both capital costs (i.e., costs incurred over the lifetime of capital equipment) and yearly operating costs (i.e., costs that vary year to year). An operator's yearly operating costs should include the salaries and wages of personnel who contribute to regulated installations and to the maintenance of customer equipment. 7. During the review period, the Town determined that Century had undercalculated its equipment basket and, as a result, requested that Century provide it with explanations and justifications for certain figures related to its equipment basket. The Town contends that Century did not provide a sufficient response to these requests. The Town then recalculated Century's equipment basket. Specifically, the Town conducted its own analysis of Century's equipment basket, discovered discrepancies and inconsistencies in certain components of the equipment basket, and determined that some of Century's figures on its rate filing were not justifiable, including its allocation of labor hours and salaries, converter repair costs, and customer equipment percentages. In an effort to correct these discrepancies and inconsistencies and to ensure that the HSC was calculated properly, the Town, inter alia, adjusted the equipment basket by increasing the portion dedicated to the salaries of all four employees who had been designated by Century as "operating personnel." Century claims that these particular employees spent only a portion of their time on regulated activities and therefore, under the Commission's rules, only a corresponding fraction of their salaries should have been included in the total equipment basket figure. More generally, Century contends that the Town should have relied on Century's own equipment basket figure as a reasonable, good faith estimate. 8. Because the Town did not receive satisfactory explanations or justifications from Century regarding its equipment basket figure, the Town made changes to Century's rate filing to reflect what it believed to be more representative data, including data on the salary adjustment. We find this adjustment to be reasonable. Century was given numerous opportunities by the Town to provide explanations and justifications to support its own data. Although Century does contend in its reply that it was responsive to the Town's requests for further information, we will defer to the Town's judgment that Century's responses were insufficient, especially since Century provides no substantive support for the adequacy of its responses. As a result, our rules provide that the Town was entitled to base its decision on the best information available. The Town made a reasonable effort to replace Century's data with data that was both accurate and substantiated and, in fact, as part of this effort, it interviewed a former Century employee to confirm if Century had accurately allocated the number of hours spent by operating personnel on regulated activities. Century has not presented sufficient evidence to allow us to find the Town's decision to be unreasonable. Therefore, we deny Century's appeal with respect to this issue and affirm the Town's decision. 9. Century also challenges the Town's decision to adjust the figures that it used to derive a monthly leasing rate for converters. Specifically, in deriving this particular rate, Century had estimated a failure rate of five percent of the units in service. The Town questioned the basis for this estimate and then substituted a failure rate of eight percent of the units in service. Again, Century claims that the Town should not have made this adjustment to its data because it was based on a good faith estimate. In response, the Town contends that Century was given multiple opportunities to explain and justify this data. Because it did not do so, the Town made changes to Century's rate filing based on its own analysis. 10. In its appeal, Century provides no explanation or justification for its estimated converter failure rate of five percent. It only states that it is based on a good faith estimate. On November 8, 1994, the Town, in written correspondence to Century, questioned the reasonableness of this figure. It received no response from Century. From an on-site inspection of Century's Silver City facility on November 4, 1994, the Town determined that 130 converters were awaiting repair at that particular time and, from a conversation with the technician present at the facility, it further determined that the average failure rate was approximately 120 converters per quarter for the entire system. Based on an extrapolation of this data, the Town derived a revised converter failure rate of eight percent. The Town was reasonable in seeking a justification for Century's converter data. Moreover, the Town is able to provide a reasonable basis for its revised figure whereas Century only counters that its original figure was based on a good faith estimate. Century has the burden of justifying its rates. Century did not meet this burden, and, therefore, we affirm the Town's decision with respect to this issue. 11. Finally, we address the Town's request that Century be assessed fines under a local ordinance and forfeitures pursuant to Section 503(b) of the Communications Act for its "failure to respond to the franchising authority's requests for information, orders, and decisions and its misrepresentations and willful material omissions." Our rules provide that a forfeiture may be assessed against any person who has willfully or repeatedly failed to comply substantially with an order or regulation issued by the Commission or with any provision of the Communications Act. The Town fails to provide substantiation for these allegations. The fact that Century relied on estimates for certain equipment basket figures does not constitute a willful and repeated failure to comply with our rules or the Communications Act. We find insufficient evidence to suggest that Century engaged in such a willful or repeated failure to comply. Therefore, we believe that imposition of forfeitures against Century would be inappropriate. III. ORDERING CLAUSES 12. Accordingly, IT IS ORDERED that Century New Mexico Cable Corporation's appeal of the Town of Silver City, New Mexico's local rate order, regarding the Town's inclusion of 100 percent of four employees' salaries into the regulated equipment basket is DENIED. 13. IT IS FURTHER ORDERED that Century New Mexico Cable Corporation's appeal of the Town of Silver City, New Mexico's local rate order, regarding the Town's adjustment to Century's converter failure rate is DENIED. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau