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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//Appeal ORDER, in Chino, California, DA 95-2308//$ $/76.922 Rates for the Basic Service Tier/$ $/76.936 Written Decision/$ $/76.942 Refunds/$ $/76.944 Commission Review of Franchising Authority Decision/$ $/1.45(d) Request for Stay/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-2308 ) AMERICAN CABLE T.V. ) INVESTORS, LTD d/b/a ) CHINO VALLEY CABLEVISION ) ) Appeal of Local Rate Order of ) the City of Chino, California ) MEMORANDUM OPINION AND ORDER Adopted: November 6, 1995 Released: November 15, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On February 24, 1995, American Cable T.V. Investors, Ltd d/b/a Chino Valley Cablevision ("Cablevision"), filed an appeal of the local rate order adopted on October 4, 1994 by the its franchising authority, the City of Chino (the "City"). The City filed an opposition to Cablevision's appeal on March 10, 1995. Cablevision filed a reply to the City's opposition on March 20, 1995. In the local rate order, the City established regulated rates for Cablevision's basic cable service and associated equipment, pursuant to the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"). The City also ordered Cablevision to issue refunds or credits to subscribers for those charges collected between September 1, 1993 and July 14, 1994, which were in excess of Cablevision's maximum permitted rates. 2. In its appeal, Cablevision challenges only the City's decision to prohibit Cablevision from offsetting its refund liability with undercharges in equipment charges. Cablevision contends that our decisions have explicitly permitted operators to offset such undercharges, and that the City erred when it did not allow Cablevision to do so. Cablevision explains the apparent lateness of its appeal by contending that the rate order did not indicate that offsetting would be prohibited, and that the first written indication provided by the City that offsets would not be permitted was by letter from the City to Cablevision dated January 25, 1995. Cablevision argues that its appeal was filed within 30 days of that date. In its opposition, the City submits that Cablevision's appeal should be considered untimely filed since it was not filed with the Commission within 30 days of the release of the local rate order adopted by the City on October 4, 1994. II. DISCUSSION 3. Under our rules, rate orders issued 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. A. Timeliness of Appeal 4. On October 4, 1994, the City adopted a local rate order disapproving in part certain rates and charges for Cablevision's basic service tier and associated equipment in effect from September 1, 1993 to July 14, 1994. The rate order establishes a new regulated rate schedule for Cablevision's basic service tier and associated equipment. The City ordered Cablevision to issue refunds or credits to subscribers for those charges collected between September 1, 1993 and July 14, 1994, which were in excess of Cablevision's maximum permitted rates. Section 4 of the City's rate order states as follows: The Operator is hereby directed and ordered to provide refunds with interest as provided by law to subscribers for any accounts collected since September 1, 1993 to July 14, 1994 in excess of the rates prescribed herein in a manner consistent with Section 76.942(d) of the FCC's Rules and Regulations within sixty (60) days of the date of this Resolution and to provide the City with written evidence of compliance within ninety (90) days of the adoption of this Resolution. On December 2, 1994, Cablevison submitted its refund plan to the City, and sought to demonstrate that it had no refund liability after offsetting equipment and installation undercharges against programming overcharges. On or about December 12, 1994, William M. Marticorena, Special Counsel for the City, telephoned Thomas Prevette, a representative of Cablevision, to indicate that the City disputed Cablevision's conclusion in its refund plan that it had no refund liability, since Cablevision, during the September 5, 1994 City Council meeting, had "acquiesced" to the payment of refunds for programming overcharges without consideration of equipment and installation undercharges. In a letter submitted to the City, dated December 16, 1994, Mr. Prevette reasserted Cablevision's right to offset refunds against undercharges. The City, however, continued to refuse to accept Cablevision's refund plan which resulted in no refund liability. Thus, by letter dated January 25, 1995, the City gave "formal notice" to Cablevision that it was in breach of the rate order by failing to implement a refund plan consistent with the City's October 4, 1994 order. The City also determined that Cablevision could not offset past overcharges with past undercharges, since Cablevision had "waived" that right. Cablevision filed its appeal within 30 days of the January 25, 1995 letter. 5. Under the Commission's rules, any participant in a ratemaking proceeding at the franchising authority level may file an appeal of the franchising authority's rate decision with the Commission within 30 days of the release of the text of the franchising authority's decision. Cablevision asserts that, had the October 4, 1994 rate order been clearer on the issue of offsetting, it would have appealed the rate order within 30 days of that date. Cablevision contends that, given the rate order's failure to address offsetting, Cablevision could not have been aware that it had an issue to appeal. Cablevision therefore argues that the applicable decision for it to appeal is the January 25, 1995 letter it received from the City, which Cablevision asserts was the City's first written decision addressing the City's position on offsetting. 6. We agree. At the time the City issued its rate order, we had already examined the issue of offsets, stating: [R]efund liability should be calculated based on the difference between the old bundled rates and the sum of the new unbundled program service charge(s) and the new unbundled equipment charge(s). The intent of the refund mechanism is to place subscribers in the same position they would be had they been subject to "reasonable" rates. To not allow cable operators to factor in equipment charges could result in an operator being required to make a rate reduction that is greater than the maximum reduction required under application of the benchmark approach. In addition, at the time we issued the Third Order on Reconsideration, we incorporated offsetting into our rate regulations. At that time, we had also interpreted this provision in issuing several stays of local rate decisions. In sum, we had clearly stated that operators were to use offsetting in calculating their refund liability. Cablevision had the right to expect that the City's rate order would comply with the Commission's decisions on using offsets in calculating refund liability. 7. The City argues that its position regarding offsets was provided in its rate order in that its order references 47 C.F.R.  76.942(d), the method by which an operator may implement a refund, and not 47 C.F.R.  76.942(a), which contains the references to net offsets. We cannot agree with the City. By becoming certified, a franchising authority agrees to adopt and administer regulations that are consistent with all of the Commission's regulations. A franchising authority may not choose to disregard a Commission rule simply because the franchising authority fails to cite the rule in its rate order. The City also argues that its rate order required that Cablevision implement its refunds within 60 days rather than submit a proposed refund plan in that period. The City claims that Cablevision cannot create a legally significant event for which it can now appeal by submitting a refund plan. We disagree. Cablevison's appeal is based on a new written decision by the City, subsequent to the rate order, to reject offsetting. The City's rate order does not expressly prohibit Cablevision from offsetting, nor would Cablevision have any reason to believe that the order implicitly did so. It was the City's action (not Cablevision's), by its January 25, 1995 letter actually prohibiting Cablevision from offsetting its refund liability with undercharges in equipment charges, which triggered the second review period. 8. Finally, the City asserts that Cablevision was aware that the City would not accept offsetting at the time Mr. Prevette wrote to Mr. Marticorena on December 16, 1994, reasserting Cablevision's right to offset. Therefore, even accepting Cablevision's other arguments, the City contends that Cablevision nevertheless filed its appeal more than 30 days after it knew the City's position on offsets. Regardless of whether the City is correct in this assertion, an operator must base its appeal on an official written decision. The City's first written statement indicating that it would not allow Cablevision to offset was not issued until the City's January 25, 1995 letter to Cablevision. An appeal of that January 25, 1995 decision would have been due no later than February 24, 1995. Cablevision filed its appeal with the Commission on February 24, 1995. Accordingly, we find that Cablevision's appeal is timely. B. Calculating Refund Liability 9. 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. 10. 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. 11. If a franchising authority does not dispute the bases for the figures presented in a cable operator's Form 393 or has not discovered any mathematical errors in the form, the franchising authority should then approve the operator's maximum permitted rates, as derived by the form. A franchising authority should not require the operator to set a particular rate for programming, equipment or installations at any rate less than its maximum permitted rate, even if its current or actual rate is below its maximum permitted rate. Instead, the franchising authority should allow the operator to charge up to its maximum permitted rates, as derived by Form 393. 12. After setting the various regulated rates that an operator is permitted to charge on a prospective basis, a franchising authority should then determine if the operator is liable for any subscriber refunds. A refund liability can be imposed when an operator's actual charges exceed maximum permitted levels during the applicable period of review. If an operator's aggregate revenues computed from its actual rates exceed its revenues computed from its permitted rates during the period of review, the operator must refund the difference to subscribers. If the operator's aggregate revenues computed from its permitted rates exceeded its aggregate revenues computed from its actual rates, the operator will not be required to issue any refunds for that period of review. In this proceeding, any refunds to be paid by Cablevision should be calculated based on this method. 13. While the Commission will sustain the decisions of franchising authorities if there is a reasonable basis for doing so, we expect franchising authorities to adhere to the mathematical principles underlying the benchmark methodology, particularly when calculating an operator's refund liability. Thus, the City must offset or reduce any refunds it may order by the difference between the actual equipment rates that Cablevision charged and the maximum permitted rates that it could have charged during the applicable period of review. III. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED that American Cable T.V. Investors, Ltd d/b/a Chino Valley Cablevision's appeal of the local rate order of the City of Chino, California is REMANDED to the City of Chino for further proceedings consistent with the terms of this Order. 15. IT IS FURTHER ORDERED that the Request for Emergency Stay filed by American Cable T.V. Investors, Ltd d/b/a Chino Valley Cablevision is DISMISSED as moot. 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