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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $//Appeal ORDER, TCI Cablevision, Clackamas, OR, DA 95-2472//$ $/76.922 Rates for the basic service tier/$ $/76.933 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-2472 In the Matter of: ) ) TCI CABLEVISION OF ) OREGON, INC. ) ) Appeal of Local Rate Order of ) Clackamas County, Oregon OR0157 ) MEMORANDUM OPINION AND ORDER Adopted: December 12, 1995 Released: January 19, 1996 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On January 3, 1995, TCI Cablevision of Oregon, Inc. ("TCI"), the franchisee in the above matter, filed an appeal of the local cable rate order ("rate order") adopted on December 1, 1994 by its franchising authority, Clackamas County, Oregon ("the County"). The County filed an opposition on January 19, 1995. TCI filed a reply on January 30, 1995. The rate order establishes a new regulated rate schedule for TCI's equipment and installation for the basic service tier. Specifically, the County's rate order requires TCI to implement certain rate reductions and proposes a corresponding refund dating back to July 14, 1994. 2. TCI raises three issues on appeal. First, TCI argues that the County improperly rejected its entry for additional outlets on Form 1200, Line C6, simply because the additional charge was bundled with the monthly basic programming service tier fee, rather than separately assessed. Second, TCI argues that it was improper for the County to deny it the ability to offset any refund liability with intervening upward rate adjustments otherwise permitted under the Commission's regulations. Third, TCI argues that the County improperly denied it the ability to increase existing rates up to the maximum permitted level. We address each of these issues in turn. II. DISCUSSION 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. The local rate order issued by the County was based on its review of TCI's FCC Form 1200. Form 1200 is the official form used to determine whether initial regulated rates for programming 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. Through the use of Form 1200, an operator generally calculates three sets of figures: (1) the operator's actual March 31, 1994 rate level; (2) the operator's March 31, 1994 benchmark rate level; and (3) the operator's "full reduction" rate level. These figures are used to derive an operator's maximum initial permitted rates. 5. The operator first completes Module A of the Form 1200 to calculate its March 31, 1994 per subscriber monthly regulated revenue. Next, the operator completes Module B to calculate changes in external costs which the operator is entitled to reflect in its rates but have not yet been passed through to its subscribers. In Module C the operator enters its data with respect to a number of variables to calculate its March 31, 1994 benchmark rate level on a per subscriber, per month basis. The operator's March 31, 1994 actual rate level (Module A plus external costs calculated in Module B) is then compared to the benchmark rate level derived in Module C, with the operator carrying forward the smaller of the two. If the March 31, 1994 actual rate level is smaller, the operator completes Module D, subtracting the monthly per subscriber equipment cost calculated in Form 1205 and adding external costs calculated from Module B. If the benchmark rate level is smaller, the operator completes Module E, subtracting the monthly per subscriber equipment cost taken from Form 1205. Depending on which is used, either Module D or E establishes per-tier rates, which the operator carries forward into Module F, as its so-called provisional rates. 6. In the second part of Form 1200, the operator derives its full reduction rate based on its September 30, 1992 rates. To compute this rate, in Module G, the operator calculates its September 30, 1992 total monthly regulated revenues per subscriber, reduces that amount by 17%, and adjusts upward by 3% to reflect the inflation from September 30, 1992 until September 30, 1993. In Module H, the operator then adjusts the results from Module G for changes since September 30, 1992 with respect to subscribers, regulated channels, and satellite channels. In Module I, the operator subtracts a monthly per subscriber equipment cost amount from Form 1205, establishes per-tier rates, and adjusts for changes in external costs. In Module J, the operator compares its aggregate provisional rate with its aggregate full reduction rate. The maximum permitted rates an operator is actually allowed to charge are either the provisional rates (Module F) or the full reduction rates (Module I), depending on whether the aggregate provisional rate is greater or less than the aggregate full reduction rate, and are entered into Module K. In addition to Form 1200, an operator may file Form 1210, up to quarterly, to claim changes in external costs and inflation that justify rate increases. A. Line C6 of Form 1200 -- Number of Additional Outlets 7. In computing its benchmark rate level in Module C, an operator is required to provide entries for the various benchmark variables. The benchmark formula is intended to derive a rate level which approximates the level a similarly situated operator subject to competition would charge. The benchmark rate level is determined by considering several variables, such as the number of subscribers, the number of channels, and the number of additional outlets charged, all of which affect the benchmark rate level. The benchmark formula's only function in the new system is to identify "low-priced" systems subject to transition relief which are not required to set their rates based on their full reduction rates. An operator with (i) a current (i.e., March 31, 1994) rate level below the benchmark rate level or (ii) a current rate level above the benchmark rate level but with a full reduction rate level below the benchmark, is a low-priced system. The low-priced system with a current rate level below the benchmark generally does not have to reduce its rate level, and the low-priced system with a current rate level above the benchmark rate level but with a full reduction rate level below the benchmark is required to reduce its rate level only to the benchmark. 8. Included among the variables used in the benchmark formula is the number of additional outlets in fiscal year 1993, which is entered on Line C6. TCI provided an entry of 10,060 for additional outlets in its 1200 filing, which was disallowed by the County because TCI did not charge subscribers for the additional outlets. The County recalculated TCI's benchmark by entering zero for the number of outlets on Line C6, which TCI argues results in a reduction in the operator's maximum permitted basic tier rate. TCI argues that there was a cost of providing additional outlets even though no charge was made, and that an operator such as itself that "bundled" its additional outlet costs into its other rates cannot charge as high a rate as an otherwise identical operator that separately itemized its additional outlets. 9. Our instructions for Line C6 of Form 1200 ask the operator to provide the average monthly number of additional outlets for which there was a charge to subscribers in fiscal year 1993, and to compute the average number of additional outlets over only those months in the year for which there was a charge for additional outlets. A Benchmark Fact Sheet further explaining our instructions for calculating an operator's benchmark rate restates this instruction. Neither our rules, nor our instructions for completing Form 1200, permit operators to include additional outlets for which no charge is assessed on Line C6 as a benchmark variable. 10. We note that the revised benchmark formula is designed to approximate the rate level of a similarly situated operator facing competition. The Commission's rate survey upon which the benchmark formula was based requested data on additional outlets for which a fee was charged. The benchmark formula includes the rate survey data on charged additional outlets because we determined that this variable was statistically significant in approximating the rate level of similarly situated operators facing competition. To ensure consistency in the application of the benchmark formula, we must disallow consideration of additional outlets for which there was no charge. We find that the County's decision to disallow TCI's entry of additional outlets on Line C6 of Form 1200 was in accordance with the instruction to the Form 1200 and reasonable. Accordingly, we deny TCI's appeal on this issue. B. Refund Liability 11. TCI argues that the County's rate order fails to account for any intervening upward rate adjustments to which TCI would be entitled under our rules. The relevant language that TCI challenges states: "The refund shall apply to charges in effect from the period beginning July 14, 1994 until TCI's rate reductions pursuant to this order become effective." TCI asserts that, to properly calculate refund liability over an extended time period, it is essential that maximum permitted rates be updated. Thus, TCI claims, the operator must be credited for increases to its maximum permitted rates, even if the operator has not yet requested and/or implemented specific rate adjustments. If such credit is denied, TCI argues, operators effectively will be encouraged to file and implement every Form 1210 adjustment "as quickly as possible." TCI also asserts that the reasoning that led the Commission to conclude that offsetting is required where an operator had priced some rate components too high and some rate components too low is applicable here. Finally, TCI argues that, if the Commission affirms the County's treatment of Form 1200, Line C6, TCI must, at a minimum, be allowed to calculate refunds by claiming credit for any intervening increases justified under an appropriate Form 1210. 12. The County asserts that TCI's reliance upon Commission decisions that considered the relationship between basic service rates and equipment charges is misplaced. In those decisions, the County notes, the Commission allowed cable operators to offset refund liability for basic service overcharges with undercharges for equipment and installation charges. The County asserts that, in this case, there are no offsetting credits for equipment and installation charges. The County further asserts that TCI is already charging at the maximum permitted level for all service and installation charges. The County states that TCI has not filed a Form 1210 with the County seeking to increase its maximum permitted rates. The County argues that while TCI is allowed to file a Form 1210, and the Commission's rules allow for prospective application for any adjustments which are justified, such adjustments cannot be made retroactively. 13. Under our rules, a rate adjustment with respect to basic rates only becomes effective once it has been approved by the regulator or once the review period for such approval has lapsed. An operator's per month refund liability, i.e., the difference between the amount actually charged and the permitted rate, continues at the same level until the operator reduces its actual rate or the operator, in accordance with our rules, obtains increases in its maximum permitted rate. The per month refund liability does not decrease just because the operator might be able to propose an increase in its rates but did not do so. Operators, however, may not set programming service rates at higher than permitted maximum rates to recover lost equipment revenues when they voluntarily price equipment rates below their maximum permitted levels. To permit operators to do so would undermine Congress's intention to create a competitive market of cable equipment providers. 14. TCI's reference to our offsetting cases, in which we have held that refund liability is computed by comparing the operator's aggregate revenues to revenues that would have been realized from maximum permitted rates, is misplaced. Those decisions hold that the franchising authority must offset any undercharges in rates against overcharges in other rates. This is unrelated to the situation TCI poses here, where subsequent cost increases have allegedly occurred which it claims reduce its refund liability. Our current rules do not authorize rate increases or recognize an increase in permitted rates until reviewed and approved by the local franchising authority. Accordingly, we find that the County's rate order with respect to calculation of TCI's refunds are reasonable, and therefore TCI's appeal on this issue is denied. C. Increasing Rates 15. TCI argues that the County's rate order denies it the right to increase existing rates to maximum permitted levels and potentially subjects such rate increases to a "second round of local review." The challenged provision of the rate order states: The County is authorized under FCC Rules to review and establish rates for basic service and associated equipment and installation charges. This order does not authorize TCI to increase any rates or charges under the jurisdiction of the County, even where the maximum permitted rate may exceed the actual rate charged by TCI. Pursuant to applicable federal law, TCI shall not increase any basic rates or associated equipment and installation charges to any subscriber or group of subscribers without prior review and approval by the County.[] TCI asserts that this provision contravenes the Commission's previous decisions permitting operators to increase "actual" rates to "maximum permitted levels." 16. In response, the County asserts (and TCI does not dispute) that TCI has no existing rates for basic services or charges for equipment and installation which are below maximum permitted levels. The County states that the rate order does not prevent TCI from seeking rate increases under a Form 1210 filing, or as otherwise provided under by the Commission's rules. In its Opposition, the County notes that no such filing has been made by TCI. When and if such a prospective filing is made, the County states that it would of course allow TCI to charge the maximum permitted rate prospectively. 17. In reply, TCI asserts that the County misinterpreted its objections to the challenged provision. TCI states that it "simply objects to the suggestion that a sub- benchmark rate (were it to exist) could not be increased without another round of local review, if at all. [TCI] is asking here only for the Commission to clarify that cable operators retain the right to increase any rate component determined through regulatory review to have been set below the applicable benchmark level." 18. The challenged provision in the County's rate order appears to be simply a savings clause, intended to preserve the County's regulatory authority. We are satisfied with the County's statements in its Opposition that the challenged provision is not intended to prevent TCI from increasing its rates, nor does it require TCI to keep any existing rates below maximum permitted rates. Furthermore, because TCI has no existing rates below maximum permitted levels, and in light of the County's statements on this point, TCI's appeal of this issue presents no controversy. Accordingly, we will deny TCI's appeal on this issue. III. ORDERING CLAUSES 19. Accordingly, IT IS ORDERED that TCI's appeal of the County's rate order, with respect to the issue of additional outlets, IS DENIED. 20. IT IS FURTHER ORDERED that TCI's appeal of the County's rate order, with respect to the refund liability issue, IS DENIED. 21. IT IS FURTHER ORDERED that TCI's appeal of the County's rate order, regarding the issue of increasing rates, IS DENIED. 22. IT IS FURTHER ORDERED that TCI's request for a stay of the County's rate order pending the resolution of this appeal is DISMISSED as moot. 23. 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