NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file how2ftp. File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//ORDER Remanding Appeal in West Columbia, SC, DA 95-1999//$ $//76.944 Commission Review of Franchising Authority Decisions//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) ) Cablevision Industries Corporation ) DA 95-1999 ) Appeal from a Rate Order of ) the City of West Columbia, ) South Carolina ) MEMORANDUM OPINION AND ORDER Adopted: September 18, 1995 Released: September 25, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On March 31, 1994, Cablevision Industries Corporation ("CVI"), the franchisee in the above-referenced matter, filed a "petition to appeal" with the Commission of a rate order adopted by the City of West Columbia, South Carolina ("the City"). Because neither CVI's petition to appeal nor the City's April 25, 1994 opposition provided the Commission with sufficient information to determine the merits of the appeal, we allowed the parties to supplement their pleadings. CVI supplemented its appeal on January 23, 1995. The City supplemented its opposition on February 7, 1995. In its local order, the City established CVI's rates for basic cable service, equipment, installations and hourly service charges. The City ordered CVI to refund or credit subscribers for all payments made in excess of the rates set forth in the local order for the period covered by FCC Form 393, September 1, 1993 to May 14, 1994. 2. CVI raises several issues on appeal involving calculations in CVI's FCC Form 393. Specifically, it alleges that: (1) while discussions between the City and CVI were still underway regarding an impending cost-of-service filing, the City prematurely prescribed CVI's rates based on information contained in its FCC Form 393; (2) the City improperly ordered the operator to refund all charges designated as an "FCC Mandated Adjustment;" and (3) the City did not have the jurisdiction to order CVI to refund its late payment charges. In response, the City contends that though CVI promised to provide a cost-of- service showing, it did not do so until five months after the City issued its rate order. It further argues that the "FCC Mandated Adjustment" should be disallowed by the Commission because CVI did not comply with the Commission's rules and regulations regarding the timing of the adjustment. The City also contends that the late fees charged by the operator should be disallowed by the Commission under the customer service standards of the 1992 Cable Act. 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. 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 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 A. FCC Form 393 4. FCC Form 393 is the official form used by regulators to determine whether an operator's regulated rates were reasonable during the time period from September 1, 1993 until May 14, 1994 by utilizing a benchmark and price cap approach. For this approach, the Commission established a formula to derive a rate that would be used to measure the reasonableness of a cable system's per channel rate. The Commission recognized that in some cases the benchmark/price cap approach of the FCC Form 393 might not produce fully compensatory rates and accordingly decided to permit cable systems to establish rates based on costs pursuant to individual cost-of-service showings. Thus, the cost-of-service approach was designed to serve as a backup mechanism which a cable operator could use if it concluded that the maximum permitted rate under the benchmark/price cap formula did not allow full recovery of costs reasonably incurred in the provision of regulated cable service. Under the cost-of-service approach, a cable system's rates for the period September 1, 1993 through May 14, 1994 would be reviewed using the established standards of cost-of-service regulation traditionally applied to public utilities. 5. On January 11, 1994, the City notified CVI of the City's certification and requested that CVI justify its rates within 30 days. CVI responded to the notification on February 10, 1994 by stating its intention to justify its rates with a cost-of-service showing, which CVI promised in two weeks. At that time, CVI also stated that it reserved the right to justify its rates using the Commission's benchmark method. Approximately 30 days later, on March 1, 1994, the City issued its rate order based on CVI's Form 393, which the City, as well as the Commission, had received in response to the City's cable programming service (CPS) tier complaint filed with the Commission. CVI did not provide the City with its cost-of-service justification for its basic rates until August 12, 1994, five months after the City's rate order was issued. 6. CVI primarily attributes its delay in providing the City with its cost-of-service showing to then pending negotiations between the parties. At the time of initial rate regulation, CVI states that it was in the midst of a major multi-year rebuild of its cable system. CVI alleges that it commenced negotiations with the City and surrounding communities served by its cable system in hopes of maintaining a uniform system-wide rate which it intended to support with a cost-of-service showing. CVI asserts that it notified the City that it intended to justify its rates using a cost-of-service analysis after the Commission adopted final cost-of-service rules and regulations regarding a cable operator's use of inconsistent methods for determining rates across all service tiers. It contends that the City informally agreed to CVI's delay in filing the submission. The City responds that it never denied CVI the opportunity to file a cost-of-service showing. Instead, the City continues, since CVI failed to file a cost-of-service showing within the allotted time, the City was left with no choice but to base its rate order on the Form 393 which CVI prepared in response to the City's CPS complaint to the Commission. The City disputes the excuse that CVI was waiting for final Commission rules regarding cost of service and notes that the lack of final rules did not prevent CVI from ultimately presenting a cost-of-service analysis to the City in an attempt to justify higher rates. Finally, the City concludes that its actions were necessary in order to protect the interest of its citizens given the fact that CVI did not provide a cost- of-service showing until August 12, 1994, five months after its rate justification was due. 7. CVI's explanation for its delay in providing the City a cost-of-service rate justification is unpersuasive. A cable operator is required to file with the local franchising authority its initial rate justification, including its FCC Form 393 or cost-of-service showing, within 30 days of receipt of notification that the franchising authority has been certified and has adopted the necessary regulations. The franchising authority then has 30 days in which to review the rate justification and adopt a rate order, otherwise, the operator's proposed rates go into effect. In addition, if the franchising authority does not act before the deadline passes, it may also lose the ability to order refunds based on Form 393. Rather than lose its authority to order refunds from the Form 393 review period, the City used CVI's Form 393 which it had received because of the CPS tier rate complaint it filed with the Commission. 8. Moreover, by filing a FCC Form 393 to justify its CPS tier rates with the Commission, CVI precluded itself from filing a cost-of-service showing with the City. Since operators facing regulation of both the basic and cable programming services tiers, as CVI was, must use the same method of initial rate regulation for both tiers, 47 C.F.R.  76.922, CVI could not have used a cost-of-service showing to justify its rates with the City, once having filed the Form 393 with the Commission and thereby committing itself to the benchmark method. Based on the facts presented here, the City's action was therefore reasonable. We note, however, that although CVI's rates from September 1, 1993 until May 15, 1994 will be determined by use of Form 393, this order does not prevent CVI from justifying future rates with a cost-of-service showing, subject to the limitations in our rules. B. Billing Adjustments 9. When the Commission adopted rate regulations, pursuant to the 1992 Cable Act, it initially selected June 21, 1993 as the effective date. On June 18, 1993, however, the implementation date was changed to October 1, 1993 to provide the Commission an opportunity to obtain a supplemental appropriation deemed necessary to carry out its obligations regarding rate regulation and to allow cable operators and local authorities additional time to implement rate regulation. Subsequently, the Commission obtained the needed appropriation, and on July 27, 1993, the effective date of regulation was moved up to September 1, 1993. Accordingly, by September 1, 1993, cable operators were required to restructure their rates and make revisions to service offerings that were necessary to be in compliance with our rules. When the Commission moved the effective date of regulation to September 1, 1993, it recognized that, due to centralized billing practices, some cable operators would not be able to begin billing subscribers for new, restructured rates by September 1, 1993. Therefore, in order to have the restructured rates of such operators deemed to be "in effect" as of September 1, 1993, the Commission allowed those operators to begin billing the restructured rates as soon as practically possible after September 1, 1993, but no later than October 1, 1993. The Commission directed those operators that could not begin billing the restructured rates by September 1, 1993 to make a one-time correction on a subsequent bill to adjust for any subscriber overcharges or undercharges, which were to be calculated as the difference between the billed rate and the restructured rate. This one-time adjustment would place subscribers in the same position as if they had been paying the restructured rates since September 1, 1993. We stated that this adjustment must be implemented in a reasonable manner, but did not specify a time period. 10. CVI states that the City has ordered CVI to refund all such charges, which CVI had designated as an "FCC Mandated Adjustment." CVI contends that when the Commission changed the effective date of rate regulation from October 1, 1993 to September 1, 1993, CVI was unable to meet the new deadline. However, CVI began to bill subscribers in accordance with its restructured rates prior to October 1, 1993. Subsequently, in October and November, CVI added the authorized adjustments to subscribers' bills to reflect refunds of overcharges and surcharges of undercharges. The City argues that the adjustments should be disallowed in this case because it was not until December, 1993 that CVI began to bill the adjustments. 11. Although the Commission did not specify a deadline by which operators must actually make the adjustments, the City has construed the Commission's order to require CVI to bill the adjustments, as well as the restructured rates, by October 1, 1993. This is an incorrect interpretation of the Commission's order. CVI was required to restructure its rates and begin billing the correct rates by October 1, 1993 in order to be able to make subsequent adjustments and to implement the adjustment in a reasonable manner. CVI did so. Subscribers ultimately paid what they would have paid had CVI been able to fully implement its restructured rates prior to September 1, 1993. We find that CVI complied with the time limits set forth in our order. We are not presented with anything in the record which causes us to conclude that CVI's handling of the adjustments was inappropriate. We remand this issue to the City so that it can enter a ruling consistent with these findings. C. Late payment fees 12. The City states that due to CVI's practice of billing subscribers in advance of the service period, subscribers who do not pay their bills before the end of the time allotted by CVI for them to do so could be assessed late payment fees prior to the receipt of all of the service for which they had been billed. The City ordered CVI to cease assessing late fees in those situations. CVI asserts that it advised the City that late payment fees are not subject to regulation under the 1992 Cable Act. CVI requests that the Commission instruct the City that it may not prohibit or otherwise regulate CVI's late payment charges and related billing practices. It further contends that the issue is moot because it has voluntarily agreed to modify its billing methods so that a subscriber is not obligated to pay a late charge until the completion of the service period for which the initial bill was imposed. The City does not contest the fact that late fees are not specifically mentioned under the 1992 Cable Act or Commission regulations, but argues that the fees can be disallowed by the Commission under the customer service standards of the 1992 Cable Act. Additionally, the City rejects the operator's claim that the issue is moot. 13. The Commission declined to adopt late fee regulations and has previously stated that late payment fees are not per se subject to regulation under the 1992 Cable Act. Instead, the Commission concluded that late fees are more appropriately dealt with at the local level through negotiation between the franchising authority and operator or through application of local or state consumer protection laws. Although the 1992 Cable Act contained no provision granting either the Commission or local franchising authorities the authority to regulate late fee charges, neither did the Act preempt any applicable state or local law. Therefore, if the City seeks to regulate late charges, it must do so pursuant to such other authority. Because the resolution of this issue must rest with an interpretation of applicable state or local law and not federal law, a state or local court is the appropriate forum to hear this matter. III. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED that Cablevision Industries Corporation's appeal of the rate order adopted by the City of West Columbia, South Carolina regarding the issue of the City's reliance on CVI's FCC Form 393 in adopting the local rate order is DENIED. 15. IT IS FURTHER ORDERED that Cablevision Industries Corporation's appeal of the rate order adopted by the City of West Columbia, South Carolina regarding the issues of CVI's pass-through of franchise fees and late payment charges is DISMISSED. 16. IT IS FURTHER ORDERED that Cablevision Industries Corporation's appeal of the rate order adopted by the City of West Columbia, South Carolina regarding the issue of CVI's billing adjustment is REMANDED to the City for further proceedings consistent with this order. 17. 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