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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** I.$//APPEAL ORDER in San Luis Obispo, CA, DA 95-1136//$ $/76.922 Rates for basic service tier/$ $/76.942 Refunds/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1136 In the Matter of ) ) Los Osos, CA (CA0680) FALCON CABLE SYSTEMS COMPANY ) Garden Farms, CA (CA0706) ) Santa Margarita, CA (CA0707) Appeal of Local Rate Order of ) Cambria, CA (CA0709) San Luis Obispo County, CA ) Templeton, CA (CA0927) ORDER Adopted: May 19, 1995 Released: May 23, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On February 23, 1995, Falcon Cable Systems Company ("Falcon"), the franchisee in the above matter filed an appeal of a local rate order adopted on January 24, 1995 by its franchising authority, San Luis Obispo County, California (the "County"). The local order established regulated rates for Falcon's basic cable service, associated equipment and installation charges, and required Falcon to issue refunds for the period July 14, 1994 to November 30, 1994. The County submitted an opposition to the appeal on March 8, 1995, and Falcon filed a reply on March 22, 1995. 2. In its review of Falcon's Forms 1200, 1205, 1215, and 1210, the County approved Falcon's permitted rates for its basic service tier, but found that Falcon could not implement the rate increase justified by Falcon's Form 1210 until December 1, 1994. Consequently, the County ordered a refund of the amount of the difference between the basic tier rate justified under Falcon's Form 1200, $14.17, and the amount it charged prior to approval of the Form 1210, $15.72, for the period July 14, 1994 until November 30, 1994. Falcon argues that it restructured its rates on July 14, 1994 and that the Commission's rules permitted an operator to do so at that time without prior approval, and that these rates were subsequently justified in Falcon's Form 1210 filing. In its opposition, the County contends the issue is not whether prior approval was necessary, but whether Falcon's July 14, 1994 rates could reflect cost increases that did not occur until after June 30, 1994. The County argues that since the cost increases for which Falcon filed did not take place until after June 30, 1994, Falcon was not permitted to file for those cost increases until after September 30, 1994 under the Commission's procedures. The County further argues that Falcon was not permitted to implement the rate increase until it was approved. II. BACKGROUND 3. 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. 4. FCC Form 1210 is the official form an operator uses to justify adjustments in the rates it computed on its FCC Form 1200, which is used to establish an operator's initial maximum permitted rates, or on a previously filed Form 1210. In the Form 1200, an operator calculates its provisional rates and its full reduction rates. An operator's initial maximum permitted rates are the higher of the two. An operator may file a Form 1210 to adjust its rates to reflect changes in external costs, channel additions and deletions, and inflation. External costs include the following categories of costs: state and local taxes specifically applicable to the provision of cable television service; franchise fees; costs of complying with franchise requirements; retransmission consent fees and copyright fees incurred for the carriage of broadcast signals; other programming costs; and Commission regulatory fees. An operator may file for changes in external costs for the period beginning at the end of the last quarter for which an adjustment was previously made through the end of the quarter that has most recently closed preceding the filing of the Form 1210. An operator may file a Form 1210 up to quarterly, but must file in the quarter following a decrease in costs due to channel deletions and within a year following a decrease in other costs. An operator must file for a rate increase within a year of the cost increase in order to recover those costs in its rates. III. DISCUSSION 5. Prior to July 14, 1994, Falcon offered 15 channels on its basic tier for a monthly charge of $23.09. On that date, Falcon increased the total number of channels offered on its basic service tier to 19, and reduced its rate for the tier to $15.72, which Falcon claims complied with the Commission's revised rate regulations. On August 12, 1994, Falcon filed its Forms 1200, 1205 and 1215 with the County for review. The Form 1200 established a maximum permitted rate of $14.17 for the 15 basic service channels which Falcon offered on March 31, 1994, the date for which information is sought under Form 1200. Prior to a ruling on the rates justified by Falcon's Forms 1200, 1205, and 1215, on October 31, 1994, Falcon submitted a Form 1210, which reflected the channel additions Falcon made to the basic tier made on July 14, 1994 and which justified a rate increase to $15.69. The rate increase justified by the Form 1210 was due to the cost of providing the four additional channels, increases in external costs for existing channels, and an inflation adjustment. In its rate order, the County approved Falcon's Forms 1200, 1205, 1215, and 1210. However, the County found that the effective date of Falcon's Form 1210 rate increase was December 1, 1994, and ordered refunds for the period July 14, 1994 through November 30, 1994. 6. Falcon cites one of our public notices to support its contention that the rates it set on July 14, 1994, which were higher than those justified by its Form 1200 and which reflected the cost increases discussed above, were its "existing" rates under Section 76.933(a) of our rules, and so prior approval was not required. Falcon states that the reasonableness of its July 14, 1994 rates cannot be evaluated using Form 1200 alone, since that form is based on the rate structure in place on March 31, 1994, and its costs then were materially different from its costs on July 14, 1994. Thus, Falcon claims that the County was obligated to consider the Form 1210 it filed on October 31, 1994 in determining Falcon's maximum permitted rates as of July 14, 1994. Finally, Falcon contends that Commission rules only require an operator to receive prior approval before a rate increase, and that on July 14, 1994, it decreased its rates from $23.09 to $15.72. 7. Under our rules, an operator must obtain prior approval for rate increases. Falcon's argument, that its July 14, 1994 rates could be justified by combining data from its Form 1200 and Form 1210, is erroneous. Falcon's rates on July 14, 1994 were considerably higher than the $14.17 rate justified by its Form 1200. On October 31, 1994, Falcon submitted its Form 1210 and attempted to justify its "existing" rates with data from that submission. In effect, Falcon sought an increase from the rate justified by its Form 1200. However, such an increase requires prior approval or a failure by the local franchising authority to act. Falcon cannot now bolster its July 14, 1994 rates with cost increases that occurred after March 31, 1994. Falcon's reliance on the Public Notice issued on July 27, 1994 is not on point. That Public Notice refers only to Forms 1200, 1220 and 1225, which are the forms used to establish basic tier rates, as not requiring prior approval. Form 1210 is not included among them, because the other forms are the only forms by which an operator establishes its initial rates under the revised benchmark regulations. Form 1210 is used to reflect adjustments to those rates. 8. Moreover, even if the Public Notice provided that prior approval was not required for rate increases that occurred prior to May 15, 1994, Falcon has indicated no changes in costs or service to justify a rate increase prior to that time, or even in the second quarter of 1994. As we stated on the Form 1210, "The Form 1200 includes changes in external costs through March 31, 1994 (the first quarter of 1994) that may be included in your maximum permitted rates. You may begin using Form 1210 on July 1, 1994 to update your rates to reflect changes that occurred during the second quarter of 1994." Falcon's channel additions did not occur until the third quarter of 1994. Under our rules, Falcon could not claim the inflation adjustment which it included in its Form 1210 until October 1, 1994. 9. The fact that an operator availed itself of the optional deferral period, which permitted an operator to file its Forms 1200, 1205 and 1215 on July 14, 1994, does not have any impact on what constitutes an operator's "existing" rates. Indeed, the Commission established the deferral period because it recognized that operators might not be able to implement their revised rates by May 15, 1994, and so it wanted to give operators an opportunity to implement their rates under Forms 1200 and 1205 without accruing refund liability for the period from May 15, 1994 to July 14, 1994. The purpose of the deferral period was not to permit operators to make last-minute adjustments to their tier structure or rates. The initial maximum permitted rates for operators that used the deferral period were the same as those who did not, because in both instances the rates are calculated based on rates, revenues, and costs in effect on March 31, 1994. In this case Falcon's initial maximum permitted rate for the basic service tier was $14.17. That rate was in effect until the County approved a rate increase in the subsequently filed Form 1210. Falcon did not file its Form 1210 until October 31, 1994. The County approved the increase in that filing, effective December 1, 1994. For the period July 14, 1994 through November 30, 1994, the difference between $15.72, the rate Falcon charged, and $14.17, Falcon's permitted rate, constitutes Falcon's refund liability. Because the County defined Falcon's refund liability in this manner in its rate order, we find its decision reasonable. 10. Accordingly, IT IS ORDERED that Falcon Cable Systems Company's appeal of the local rate order of San Luis Obispo County, California, regarding its maximum permitted rates for its basic service tier for the period July 14, 1994 through November 30, 1994, is DENIED. 11. 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