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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//Appeal ORDER, TCI CABLEVISION OF SAN JOSE, DA 95-2270/$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-2270 In the Matter of: ) ) TCI Cablevision of San Jose, ) ) Petitioner ) ) v. ) ) City of Sunnyvale, CA, ) ) Respondent ) ) Appeal of Local Rate Order of ) Sunnyvale CA ) MEMORANDUM OPINION AND ORDER Adopted: October 30, 1995 Released: November 15, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On April 24, 1995, TCI Cablevision of San Jose ("TCI"), filed an appeal of a local rate order of the City of Sunnyvale, California (the "City"), which was adopted on March 22, 1995. The City filed an opposition to TCI's appeal on May 12, 1995. TCI filed a reply to the City's opposition on May 22, 1995. In its local rate order, the City denied a $0.21 rate increase for TCI's basic cable service that TCI had proposed in its FCC Form 1210 rate filing on September 29, 1994. Of that amount, $0.02 was for increases in the number of basic tier channels and $0.19 was for increases in programming costs from April 1, 1994 through September 30, 1994. The City's rejection of TCI's proposed rate increase was based upon TCI's failure to substantiate its increased programming costs. 2. The record shows the following facts. Prior to the adoption of its local rate order, the City twice requested "credible documentation" from TCI regarding its basic tier programming costs, although it did not specifically ask to see TCI's programming contracts. TCI's first response was a brief letter explaining that the $0.19 increase in programming costs was related to the movement of four channels from the expanded to the basic tier. Its second response was another letter to the City, which again emphasized that most of the increased programming costs were related to the movement of four channels from the expanded to the basic tier. Because the City did not find that these responses sufficiently addressed its concerns regarding the validity of the increase in TCI's basic tier programming costs, the City requested further documentation regarding TCI's basic tier programming costs. TCI refused to comply with this request because it claimed that providing details of the actual programming costs would require the release of proprietary information from its programming contracts. TCI then offered to have an independent accounting firm review its programming contracts to certify the accuracy of the data contained in its FCC Form 1210 submission. At the time, the City declined this offer. 3. In its local rate order, the City denied TCI's proposed basic rate increase until the programming cost data contained in TCI's FCC Form 1210 submission could be substantiated. However, in its rate order, the City also agreed to adopt TCI's proposal to have an independent accounting firm review TCI's programming contracts to certify the accuracy of the data regarding TCI's programming costs. The City set forth the following two conditions for such a process: (a) TCI must bear the cost of the process and (b) the City would formulate the questions to be used in the certification process. The City's rate order stated that, once TCI's programming cost data could be verified, the City would rule upon TCI's proposed $0.21 basic rate increase. 4. TCI's appeal raises two separate issues. The first issue is whether the supplementary information requested by the City in this case is reasonably necessary to verify the basic tier programming costs contained in TCI's FCC Form 1210. It is TCI's position that the supplementary information requested by the City is not reasonably necessary for the City's FCC Form 1210 review and, thus, impermissibly threatens the confidentiality of proprietary information. TCI contends that a franchising authority is only entitled to request information that is reasonably necessary for it to review an operator's rates and to prepare a local rate order. It is TCI's position that the City's request for information regarding TCI's programming costs is neither reasonable nor necessary. TCI states that the City's request threatens the confidentiality of critical proprietary information because making that information available to individual franchising authorities will ensure that the information will become public at some point. 5. The second issue raised in TCI's appeal involves the certification of TCI's programming costs by an independent accounting firm. TCI contends that the review of its programming cost information by the City is unnecessary because the certification of its programming data by an independent accounting firm, or, alternatively, in camera review by the Commission, would ensure the validity of the information provided and avoid the unnecessary disclosure of confidential programming information. While TCI notes the City's willingness to attempt to avoid confidentiality problems by allowing certification of the data by an independent accounting firm, it states that the conditions required by the City may make the data certification process unworkable. TCI contends that it is unnecessary for the City to have total control over the formulation of the questions used in the certification process because accounting firms have strict rules regarding the manner in which they operate and the efficacy of TCI's certification proposal depends upon the accounting firm following its predesignated procedures. Accordingly, TCI asks that the local rate order be remanded to the City with instructions that the City's rejection of TCI's FCC Form 1210 be reversed and, at a minimum, that the City be required either to accept a reasonable cost certification from an independent accounting firm or to ask for Commission review of TCI's programming contracts. 6. In its opposition, the City argues that it would be virtually impossible for it to make an informed evaluation of TCI's proposed rate increase without information about the increase in TCI's basic tier programming costs. The City states that while it has proposed pursuing a modified form of the data certification method proposed by TCI, the City believes that the Commission's regulations support its right to request, and to receive, any information that it needs to make a rate determination, including proprietary information. Although the City emphasizes in its opposition that it did not ask to review TCI's programming contracts, but rather asked for credible information to substantiate the programming costs that formed the basis for the proposed rate increase, it does believe that it has the authority to request additional information from TCI, including information of a proprietary nature such as programming contracts. The City also states that it not only has the administrative ability to maintain confidential information, but also a legal obligation to do so under the franchise agreement between the City and TCI. Finally, the City contends that its proposed modified data certification method is necessary to prevent the accounting firm performing the certification of TCI's programming costs from simply serving as an "expert witness" that will certify whatever TCI requests. 7. In its reply, TCI states that by proposing a modified method of data certification, the City has effectively concluded that the disclosure of all proprietary information is not reasonably necessary. TCI asks that the Commission reject the City's efforts to deny TCI's proposed rate increase based on a failure to produce proprietary programming contracts, when other means, such as an accounting firm's certification, are available to give the franchising authority a reasonable degree of comfort concerning the legitimacy of the request for a rate increase. II. STANDARD OF REVIEW 8. 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. 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 9. FCC Form 1200 is the official form used to determine whether an operator's initial regulated programming rates are reasonable under the revised benchmark rules which apply to operators beginning May 15, 1994 or upon the expiration of the deferral period provided under our rules for operators to comply with the revisions to our rules. In the Form 1200, an operator calculates its provisional rates and its full reduction rates. An operator uses FCC Form 1210 to justify adjustments to the initial rates it computed on its FCC Form 1200. An operator may adjust its rates to reflect changes in certain external costs, including programming costs, channel additions and deletions, and inflation. 10. A cable operator that wishes to increase its basic service tier rate has the burden of demonstrating that the increase is in conformance with our rules. In determining whether the operator's increase is in conformance with our rules, a franchising authority has the right to direct that the operator provide supporting information. Where appropriate, the franchising authority, in reviewing a rate justification, may require that the operator provide proprietary information. In so doing, the franchising authority should state the justification for each item of information requested, and should state the section of the form to which the request relates. 11. In response to a request for clarification, we recently addressed the issue of whether operators are required to provide franchising authorities with copies of programming contracts, which the operators maintain are confidential, to support rate increases based on increases in programming costs. We stated that Commission rules require that, upon proper request by the franchising authority, an operator must disclose to the franchising authority material, even proprietary information, determined by the franchising authority to be reasonably necessary in making a determination regarding the operator's maximum permitted rates. At that time, we declined to address the merits of an alternative proposal contained in the request which is similar to the request presented by TCI in the present appeal. We concluded that adopting an alternative would require a change in our rules and that we could not change our rules in the absence of a rulemaking proceeding. 12. In the instant case, the City has concluded that the review of TCI's programming costs may be reasonably necessary if the modified data certification process does not produce the necessary substantiation of programming cost increases. It is the City's position that it cannot properly evaluate TCI's FCC Form 1210 filing without verifying the increased basic tier programming costs which account for $0.19 of TCI's proposed $0.21 rate increase. We believe it is reasonable for the City to conclude that further substantiation of TCI's increased programming costs is necessary. We emphasize, however, that franchising authorities should be judicious in their requests for proprietary data, make sure that such information is needed, and narrow their requests, if appropriate, to permit cable operators to submit only the specific information requested. In light of the City's stated need for verification of TCI's programming costs, as well as the specificity of the information requested by the City and the City's pledge to maintain the confidentiality of this information, we conclude that the City's request for supplementary information was reasonable. 13. As noted in paragraphs 11 and 12, supra, the City has the right to examine supplemental information regarding TCI's programming costs since this information is reasonably necessary to its review of TCI's FCC Form 1210. However, in the instant case, although the City has the right to examine proprietary information, it has proposed a modified data certification method under which it is willing to have an independent accounting firm verify the accuracy of TCI's programming cost data, as well as the methodology by which this data was derived. Thus, the City may require TCI to provide the supplementary information which it has requested, or, if an agreement can be reached between it and TCI, permit TCI to proceed under the terms of the modified data certification process proposed by the City. 14. As noted in paragraph 12, supra, it is our determination that it was reasonable for the City to conclude that it could not properly evaluate TCI's FCC Form 1210 filing without verifying the increased basic tier programming costs which account for $0.19 of TCI's proposed $0.21 rate increase. Accordingly, in light of this finding, as well as the fact that the City will revisit TCI's proposed $0.21 basic rate increase once its programming costs are verified, we find that the City acted reasonably in denying TCI's proposed rate increase until its increased programming costs could be verified. IV. ORDERING CLAUSE 15. Accordingly, IT IS ORDERED that the appeal by TCI Cablevision of San Jose is DENIED. 16. 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