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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $//ORDER Remanding Appeal in Auburn Hills, MI, DA 96-0222//$ $//76.944 Commission Review of Franchising Authority Decisions//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 ) DA 96-222 ) In the Matter of: ) Auburn Hills, MI ) Berkley, MI TCI CABLEVISION OF ) Clawson, MI OAKLAND COUNTY, INC. ) Ferndale, MI ) Huntington Woods, MI Appeal of Local Rate Order ) Oakland Township, MI of the Intergovernmental Cable ) Pleasant Ridge, MI Communications Authority ) Rochester, MI ) Rochester Hills, MI ) Royal Oaks, MI ) Troy, MI MEMORANDUM OPINION AND ORDER Adopted: February 22, 1996 Released: March 1, 1996 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On January 20, 1995, TCI Cablevision of Oakland County, Inc. ("TCI"), the franchisee in the above matter, filed an appeal of the local cable rate order ("rate order"), which TCI asserts was adopted on December 21, 1994 by its franchising authority, the Intergovernmental Cable Communications Authority ("the ICCA"), and served on TCI on January 12, 1995. The ICCA did not file an opposition. The rate order establishes a new regulated rate schedule for TCI's equipment and installation for the basic service tier. Specifically, the ICCA's rate order requires TCI to implement certain rate reductions and proposes a corresponding refund. 2. TCI charges that the ICCA's rate order is substantively and procedurally flawed. Specifically, TCI raises two issues on appeal. First, TCI argues that the ICCA failed to issue its rate order in a timely fashion, in violation of the Commission's rules, and therefore lacked the authority to prescribe rates and order a refund. Second, TCI argues that the ICCA erred by concluding in its rate order that TCI's Form 1205 filing was "incomplete" and that TCI wrongly failed to implement Form 1205 equipment and installation rates at the same time it implemented Form 1200 basic service rates in July 1994. We discuss 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 ICCA was based on its review of TCI's FCC Forms 1200, 1205, and 1215. 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. Tolling Order 7. TCI filed its Form 1200 and Form 1205 with the ICCA on August 15, 1994. TCI contends that the ICCA did not comply with Commission rules because it failed either to issue a rate decision within 30 days of TCI's rate submission (i.e., by September 14, 1995) or to issue a tolling order within 30 days of its rate submission which explained that it needed additional time to review TCI's filings. TCI asserts that the local rate order was not adopted until December 21, 1995, and that TCI was not served with a copy of the local rate order until January 12, 1995. TCI argues that because the ICCA failed to issue its rate order in a timely fashion and failed to comply with our tolling rules, the ICCA lacked the authority to prescribe rates and order a refund. 8. The ICCA's rate order appears to suggest that the ICCA had the right to delay the resolution of TCI's filings because TCI did not provide a "completed" Form 1205. The ICCA's rate order cites to the Third Order on Reconsideration for the proposition that if an operator files a "facially incomplete" rate justification, then deadlines for the franchising authority to rule on the reasonableness of the operator's rates are automatically tolled. In response, TCI contends that the rate order misconstrues governing law, arguing that the section in the Third Order on Reconsideration relied upon by the ICCA to justify its failure to act in a timely fashion is not applicable here because that section addresses a situation where the franchising authority had formally requested information from the operator and was awaiting its delivery. In this case, TCI asserts, the ICCA made no request to TCI for additional Form 1205 information prior to the expiration of the ICCA's 30-day review period. In support of its assertion, TCI has enclosed a letter that it received from the ICCA Chairman conceding that the issue of the "missing" Form 1205 information did not arise until the ICCA's November 1994 meeting, two months after the initial 30-day review period closed. Therefore, TCI states, "the ICCA cannot seriously claim that delay in securing that data affected its initial review period and somehow excused its failure to adopt the necessary tolling order." 9. When a cable operator files either a benchmark or cost-of-service rate justification, the Commission's rules provide a franchising authority 30 days in which to review the rate filing before the proposed rates become effective. In cases involving benchmark filings (i.e., filings based on FCC Forms 393, 1200, 1205 and 1210), a franchising authority may issue an order tolling the 30-day deadline for an additional 90 days if it needs more time to review the filing, giving the franchising authority a total of 120 days to issue a rate order before the proposed rates go into effect. At the end of the 120-day period, the proposed rates will go into effect if the franchising authority has not issued a rate decision. The franchising authority, however, may still preserve its authority to order subscriber refunds based on the new rates by issuing an accounting order, directing the cable operator to keep an accurate account of its financial records. If a franchising authority has not rendered a decision within the available 120-day review period and has not issued an accounting order before that period has expired, the franchising authority may not later order subscriber refunds under our rules. Our rules provide that the issuance of an accounting order is necessary only to preserve refund authority. A franchising authority that does not issue an accounting order before its allowable period of review expires may still prescribe rates and order a prospective rate reduction. 10. We note that we received no response from the ICCA to contradict any of TCI's allegations here. Accepting TCI's factual allegations, as we must in these circumstances, we find that the ICCA did not take appropriate action during the period of review and therefore lost the authority to order refunds. As TCI suggests, it appears that the ICCA assumed that, because it determined that TCI's Form 1205 was "incomplete," its 30-day review period was automatically tolled. Under our rules, the automatic tolling period is not effective if the franchising authority, as here, fails to inform the operator during the 30-day period that its rate filing is "facially incomplete." While we find that the City did lose its authority to require subscriber refunds as part of its rate order, we do not agree with TCI that the ICCA, by failing to issue a tolling order during the initial 30-day review period, ceded its general authority to subsequently issue any rate order with respect to the subject rates. As stated above, a franchising authority's failure to issue a tolling order or an accounting order does not result in a loss of its general authority to regulate rates. We remand this issue back to the ICCA for proceedings consistent with our findings. B. Form 1205--Resetting Equipment Rates 11. TCI argues that the ICCA erred by concluding in its rate order that TCI should have reset its equipment and installation rates pursuant to a Form 1205 at the same time it implemented Form 1200 basic service rates on July 14, 1994. The pertinent provision in the rate order states: TCI submitted incomplete information on FCC Form 1205, the "Equipment Form." TCI completed only enough of Form 1205 to arrive at its "monthly equipment cost per subscriber," which was needed to complete Form 1200. The rest of Form 1205 should have been completed to justify the rates being charged as of July 14, 1994, but it was not.[] TCI points out that, in completing Form 1200, cable operators are required to input data from a companion Form 1205. However, TCI argues, that does not mean that equipment rates were to be reset in July 1994 based on the Form 1205. TCI asserts that Form 1205 instructions indicate that operators need only update equipment and installation charges once a year. TCI argues that because it had, in fact, unbundled equipment and installation charges on September 1, 1993, it complied with the Form 1205 instructions by leaving its existing equipment and installation charges in place at the time it filed Form 1200. Furthermore, TCI points out that the instructions to Form 1205 make a distinction between calculating equipment costs for purposes of Form 1200 program service rates and calculating equipment charges when it is time to reprice equipment. TCI notes that this matter was discussed by Commission staff during a 1994 satellite video tutorial on the new rules. According to TCI, "[Commission staff] explained at that time that equipment rates unbundled at cost on September 1, 1993 could not be repriced until a full year had run." TCI asserts that the appropriate time at which equipment must be repriced is after the close of the operator's fiscal year. TCI asserts that, in its case, that would be sometime after September 1, 1994. 12. TCI then raises the issue of how soon should the equipment price change occur and on what basis should the new rates be calculated. TCI believes that this question has been answered by the following Form 1205 instruction: "You must file a Form 1205 with your local franchising authority . . . within 60 days after the end of your fiscal year." Based on its interpretation of this instruction, TCI argues that operators could elect to delay any change in their equipment rates until their current fiscal year came to a close. Otherwise, TCI asserts, an operator, like itself, whose fiscal year runs on a calendar year basis, may be forced to implement two equipment rate changes in quick successions-- implementing initial Form 1205 rates in September, 1994, then implementing Form 1205 rates based on fiscal year 1994 data early in 1995. TCI further argues that, in the event the Commission determines that equipment rates should have been implemented in July 1994, it should be permitted to file an amended Form 1205 because it "submitted its initial Form 1205 for the sole purpose of unbundling equipment costs, rather than for establishing specific equipment rates." 13. FCC Form 1205 is the official form used to determine the costs of regulated cable equipment and installation. Form 1205 has two distinct uses. First, Form 1205 is submitted along with a Form 1200 and is used to establish equipment and installation costs in determining initial rates for regulated cable services. These equipment and installation costs are converted to a monthly per subscriber cost that is subtracted from figures derived from programming and equipment revenues in the Form 1200 in order to determine maximum permitted programming service rates. In following the mathematical principles embodied in these calculations, lower equipment basket costs lead to higher programming rates, while higher equipment basket costs lead to lower programming rates. The second use for Form 1205 is to update permitted regulated equipment and installation charges based on equipment basket costs. Higher equipment basket costs on Form 1205 (resulting in lower programming rates on Form 1200) correlate with higher equipment and installation rates. Conversely, lower equipment basket costs on Form 1205 (resulting in higher programming rates on Form 1200) correlate with lower equipment and installation rates. 14. Forms 1200 and 1205 establish a direct linkage between programming service rates and equipment and installation costs and charges. When setting rates or calculating refund liability, a franchising authority should normally adhere to the mathematical principles underlying the benchmark methodology, thereby assuring that an operator is allowed to earn neither more nor less than its maximum permitted revenues. Therefore, Form 1205 calculations resulting in lower equipment basket costs should normally lead to higher programming service rates and correspondingly lower equipment and installation rates. However, when the Commission initially promulgated FCC Forms 1200 and 1205 it created an exception to this direct linkage. The instructions to Form 1205 state that, if an operator has already unbundled equipment and installation charges at cost, the operator must wait one year from the date on which it unbundled equipment and installation charges before changing these charges. The instructions go on to state that an operator does not even need to complete the Worksheet for Calculating Permitted Equipment and Installation Charges or Schedule D, which lists the averages hours by type of installation, if the operator is filing Form 1205 only as part of establishing its initial maximum permitted rates for programming services. These instructions comport with our recent determination that equipment rates can only be changed annually. Since TCI had restructured its rates on September 1, 1993, we find that TCI could not change its equipment and installation rates before September 1, 1994. Therefore, contrary to the ICCA's decision, TCI did not have to reset its equipment and installation rates pursuant to a Form 1205 at the same time it implemented Form 1200 basic service rates on July 14, 1994. This issue is therefore remanded to the ICCA for further proceedings consistent with these findings. III. ORDERING CLAUSES 15. Accordingly, IT IS ORDERED that TCI Cablevision of Oakland County, Inc.'s appeal is REMANDED to the Intergovernmental Cable Communications Authority for resolution in accordance with the terms of this order. 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