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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//Appeal ORDER, InterMedia Partners, on behalf of Kauai Cablevision, DA 95-1745//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-1745 ) InterMedia Partners, on behalf of ) Kauai Cablevision, L.P., ) ) Petitioner, ) ) v. ) ) State of Hawaii Department of Commerce) and Consumer Affairs, Cable Television) Division, ) ) Respondent ) ) Appeal of Rate Orders ) of the State of Hawaii Department of ) Commerce and Consumer Affairs ) ) Emergency Consolidated Petition for Stay ) of Rate Orders of the State of Hawaii) Department of Commerce and Consumer ) Affairs ) CONSOLIDATED MEMORANDUM OPINION AND ORDER Adopted: August 8, 1995 Released: August 15, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. On March 16, 1995, InterMedia Partners, on behalf of Kauai Cablevision, L.P. ("InterMedia"), the franchisee in the above matters, filed an appeal of two rate orders adopted by the State of Hawaii Department of Commerce and Consumer Affairs, Cable Television Division (the "State") on February 14, 1995. On March 31, 1995, the State filed an opposition to InterMedia's appeal urging the Commission to deny InterMedia's appeal and to direct InterMedia to comply with all of the provisions of the State's rate orders. InterMedia filed a reply to the State's opposition on April 10, 1995. 2. In its rate orders, the State established rates for InterMedia's basic tier service and associated equipment and installations and required InterMedia to refund overcharges to subscribers for the period of time between January 10, 1994 and July 14, 1994. InterMedia raises three issues in its appeal. First, InterMedia contends that the State improperly adjusted Line 104 on each of its two FCC Form 393s in order to make that line equal to Line 301. This adjustment by the State reduced InterMedia's basic tier rate from $8.08 to $7.12 for its Kalaheo system and from $7.12 to $7.02 for its Princeville system, resulting in a combined refund liability in excess of $36,000.00. Second, InterMedia claims that the State acted unreasonably when it afforded InterMedia only 15 days within which to issue refunds pursuant to the rate orders. Third, InterMedia contends that the State unreasonably seeks to extend InterMedia's refund liability period beyond the one-year maximum set forth in the Commission's rules. InterMedia asks the Commission to remand the State's rate orders to the State with appropriate instructions. 3. In response, the State asserts that it acted in accordance with the Commission's rules and precedent when it adjusted InterMedia's entry on Line 104 on each of its FCC Form 393s to make that line equal to its entry on Line 301. Second, the State claims that InterMedia actually had 78 days within which to implement refunds to its subscribers, not 15 days as it asserts in its appeal. Finally, the State contends that its rate orders require InterMedia to issue refunds back to September 1, 1993 only in the event that the Commission grants the State's request for a waiver of 76.942 of the Commission's rules, as described in footnote 3, supra. As the Commission has not yet acted on this request, the State contends that InterMedia's appeal is not ripe with regard to this particular issue. II. Standard of Review 4. Under the Commission's rules, appeals of franchising authorities' rate orders are reviewed by the Commission. In ruling on appeals of franchising authorities' 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 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 A. Substitution of Line 301 For Line 104 5. InterMedia contends that the State acted improperly when it adjusted InterMedia's entry on Line 104 of its FCC Form 393s, which reflects its average monthly equipment and installation revenue earned over the last fiscal year, to make it equal to its entry on Line 301 of its FCC Form 393s, which reflects the costs it incurs in an average month for customer equipment and installations. 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. 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. 6. The operator's maximum permitted rates are derived by completing Parts II and III of the 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 the Form 393. 7. InterMedia contends that the State's adjustment of InterMedia's Line 104 entry resulted in an inappropriate reduction of its maximum permitted rate for the basic service tier. InterMedia states that because its entry on Line 104 was based upon 1992 data, it included revenues which it derived from monthly additional outlet charges. Citing instructions in FCC Form 393 relative to Line 104, as well as paragraphs 93 and 94 of the Commission's Third Recon. Order, InterMedia asserts that it was entitled to use pre- regulatory data from 1992 in Line 104. InterMedia claims that the Commission permits operators to use then-current data to justify their rates as long as that data was accurate at the time. InterMedia contends that its data was accurate at the time, and, therefore, it should be allowed to use that data. Thus, it is InterMedia's position that because it received revenues from additional outlet fees prior to rate regulation, and such revenue was included in its entry on Line 104, its entries on Lines 104 and 301 should differ by approximately the amount of the revenues received from additional outlets. Furthermore, InterMedia alleges that, simultaneous with Commission pronouncements that Lines 104 and 301 should be the same, or nearly the same for operators who restructured their rates as of September 1, 1993, the Commission has acknowledged that special circumstances may exist which produce discrepancies between lines 104 and 301. Intermedia contends that the differing treatment of additional outlet revenues prior to and subsequent to the advent of rate regulation is a special circumstance that would not only permit, but would require a discrepancy between Lines 104 and 301. 8. In response, the State argues that it properly adjusted Intermedia's Line 104 entry on its FCC Form 393s in accordance with the Commission's applicable rules and precedent. The State points out that the Commission has previously stated that, absent special circumstances, an operator's entries for Lines 104 and 301 should be the same or nearly the same for operators who restructured their rates as of September 1, 1993, as InterMedia did. The State asserts that no special circumstances exist which would justify InterMedia's Line 104 and 301 entries being substantially different. The State asserts that despite the instructions to FCC Form 393, InterMedia should have used "current" equipment revenues, rather than "prior" equipment revenues, in accordance with Commission policy as set forth in the November 10, 1993 Public Notice. The State asserts that InterMedia was not permitted to include additional outlet revenue in its Line 104 entry, because such revenue was no longer permissible after the Commission's cost-based equipment rules became effective on September 1, 1993. InterMedia's Line 104 entry was thus not representative of equipment revenues as of the initial date of regulation. Accordingly, it is the State's position that it properly equated InterMedia's entry on Line 104 with its entry on Line 301 in order to provide a more accurate representation of current revenue on Line 104. 9. InterMedia correctly points out that the instructions pertaining to Line 104 of FCC Form 393 specifically state that revenue earned over the last fiscal year, including revenue from additional outlet fees, should be used to determine an operator's monthly equipment revenue entry on Line 104. However, in the November 10, 1993 Public Notice, we discussed the issue of the relationship between Lines 104 and 301 on FCC Form 393: The instructions for completing Worksheet I Line 104 of FCC Form 393 specify that equipment revenues for the year preceding [September 1, 1993] shall be used in computations of the current rate per channel which is to be compared to the benchmark. Revenues for the previous years may not be sufficiently representative where the operator has already unbundled and instituted cost-based pricing in accordance with our requirements. This answer clarifies that in completing Line 104 operators must use equipment revenues that will be representative of the equipment rates that were in effect as of the initial date of regulation. Where available, actual revenues should be used. Where operators have restructured equipment rates as of September 1, 1993 in accordance with our regulations, we would anticipate that in most cases, absent special circumstances, operators will enter on Line 104 the same, or nearly the same, number as on Line 301. Line 301 is the anticipated revenues based on equipment rates derived in accordance with FCC rate regulations. Thus, because InterMedia restructured its rates on September 1, 1993, it was reasonable for the State to presume that InterMedia's entries for Lines 104 and 301 on its FCC Form 393s should be the same, or nearly the same. 10. InterMedia's assertion that its inclusion of additional outlet revenue in Line 104 amounts to a special circumstance which permits a discrepancy between its entries on Lines 104 and 301 is not convincing because the November 10, 1993 Public Notice seeks to ensure that operators did not include such revenues in Line 104. In completing Line 104, InterMedia must use equipment revenues that are representative of equipment rates in effect on the initial date of regulation. Additional outlet revenues generated from non-cost-based rates established prior to the initial date of regulation are not representative of rates in effect on the initial date of regulation. Because InterMedia's Line 104 entry included non-cost- based additional outlet revenue, it was not representative of its equipment rates in effect as of the initial date of regulation, as is required by the Commission's November 10, 1993 Public Notice. Therefore, the State acted reasonably in equating InterMedia's entry on Line 104 with its entry on Line 301. Accordingly, we deny this portion of InterMedia's appeal. B. Refund Timetable 11. InterMedia next contends that the State's requirement that InterMedia issue refunds for overcharges within 15 days from the date the rate orders were adopted violates the Commission's procedural rules. InterMedia relies on language in our rules which, in the context of cable programming service rate orders, requires operators to issue rate reductions or refunds within 60 days from the date an order is released declaring rates unreasonable and mandating a remedy. InterMedia also relies upon a recent Bureau order which held that a local franchising authority's 30-day refund implementation period was unreasonable. The State, on the other hand, contends that because InterMedia had draft copies of the State's proposed rate orders as of December 23, 1994, InterMedia actually had 78 days to implement its refund plan. According to the State, this is ample time to allow for the preparation and distribution of notices and bills and to accommodate the demands of InterMedia's billing practices. The State also argues that neither the Commission's rules, nor Times Mirror Orange County, require that franchising authorities provide operators 60 days to implement refunds for basic tier overcharges. 12. The 60-day requirement, on which InterMedia relies, was specifically applicable to cable programming service rate reductions or refunds ordered by the Commission. Our rules do not explicitly require franchising authorities to provide cable operators with 60 days to comply with local rate orders. We have stated that franchising authorities should consider the amount of time required to prepare and send notices and bills reflecting rate changes with particular attention paid to the impact of cycle billing, if applicable. This instruction to franchising authorities is based on the same rationale we used in concluding that cable operators should have 60 days to implement a Commission order requiring refunds of cable programming service tier rates. Thus we find that, while a franchising authority may, in its discretion, specify a reasonable time period for compliance with its rate order, the time specified must be sufficient to allow preparation and distribution of notices and bills, and must accommodate the time demands of cycle billing. We have found that with respect to cable programming service tier rates such a time period was at least 60 days. We have no reason to believe that implementation of a local order should be any less time-consuming than the implementation of our orders. 13. The State's 15-day time limit on issuing refunds does not give InterMedia the opportunity to provide its subscribers notice, nor does it appear from the record below that the State gave proper consideration to other issues, such as whether InterMedia uses cycle billing. The State's argument that InterMedia actually had 78 days to comply because it had received drafts of the proposed rate orders on December 23, 1994 is not compelling. We have previously stated that draft local rate orders do not have the force of law. Because a draft rate order does not have the force of law, and because such an order may be modified prior to the adoption of a final order, it would be inequitable to expect a cable operator to rely upon such a draft rate order. The State's rate orders, which do carry with them the force of law, provided that InterMedia had only 15 days within which to implement the refunds ordered by the State's rate orders. This portion of InterMedia's appeal is remanded to the State for resolution in accordance with the terms of this order. C. Refund Liability 14. InterMedia's refund liability period, as set forth in the rate orders, runs from January 10, 1994 to July 14, 1994. However, as noted in footnote 3, supra, the State's rate orders also allow for additional refunds to be ordered for the period of time between September 1, 1993 and January 9, 1994 in the event that the Commission grants the State's December 27, 1994 petition requesting a waiver of 76.942(b) of the Commission's rules. In its waiver request, the State requested that the Commission permit the State to extend InterMedia's refund liability back to September 1, 1993. As noted in footnote 3, supra, the State's request for waiver of 76.942 of our rules is being denied in an order to be released simultaneously herewith. 15. Because the State's waiver request is denied, InterMedia will only be required to issue refunds for the period of time from January 10, 1994 to July 14, 1994. Because InterMedia does not contest this refund liability period, this portion of its appeal is dismissed as moot. IV. Ordering Clauses 16. Accordingly, IT IS ORDERED that the appeal filed by InterMedia IS DENIED with respect to that portion of the State's rate orders adjusting InterMedia's entry on Line 104 of its FCC Form 393s. 17. IT IS FURTHER ORDERED that the appeal filed by InterMedia IS REMANDED with respect to that portion of InterMedia's appeal regarding the State's requirement that InterMedia issue refunds within 15 days from the effective date of the State's rate orders. 18. IT IS FURTHER ORDERED that that portion of InterMedia's appeal regarding the State's attempt to order InterMedia to issue refunds for a period of time greater than one year IS DISMISSED as moot. 19. IT IS FURTHER ORDERED that, in light of the decision on its appeal herein, InterMedia's Emergency Petition for Stay is DISMISSED as moot. 20. 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