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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) In the Matter of ) CUID No. MI0640 (Farmington) ) MI0641 (Farmington Hills) Time Warner Cable ) MI0642 (Novi) ) Complaint Regarding ) Cable Programming Services Tier Rates ) ) ) ORDER Adopted: May 16, 1997 Released: May 20, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider a complaint against the January 1, 1997 rate increase of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. We have already issued a separate order in which we found that Operator's rates in effect prior to May 15, 1994 were unreasonable. Subsequently, we issued an Order approving a Social Contract which Operator entered into with the Federal Communications Commission ("Commission"). That Order resolved all complaints then pending against the Operator. Accordingly, this Order addresses only the reasonableness of Operator's January 1, 1997 CPST rate increase. 2. Under the Communications Act, the Commission is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation ("Interim Rules"), require that complaints against the CPST rates be filed with the Commission by a local franchising authority ("LFA") that has received more than one subscriber complaint. 3. The LFA for the franchise areas referenced above, filed a complaint with the Commission on March 14, 1997. The LFA verified that it received more than one subscriber complaint for the franchise areas. The first valid complaints for each of the franchise areas were received by the LFA on the dates set forth in Appendix A. The filing of a complete and timely LFA complaint triggers an obligation upon the cable operator to file a justification of its CPST rates. Operator has the burden of demonstrating that the CPST prices complained about are reasonable. 4. To justify rates for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. Operators may alternatively justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. 5. The Commission has allowed Operator to use a modified format of FCC Form 1240 to reflect the adjustments required under Operator's Social Contract. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1996 through December 31, 1996, we corrected the interest calculation at Line H4. This adjustment resulted in a revised maximum permitted rate ("MPR") of $14.40 for the projected period rather than Operator's MPR of $14.41 for the projected period. 6. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1997 through December 31, 1997, we find that Operator has not correctly calculated its MPR. Initially, we adjusted the beginning rates on Line A1 to conform with the previous revised FCC Form 1240 rates. Next, we disallowed three months of Operator's true-up period. In particular, Operator made true-up adjustments through to the effective date of the rate increase. This is incorrect. The annual adjustment afforded by FCC Form 1240 allows operators to project changes in external costs, inflation, and the number of regulated channels. This structure avoids the delay some operators experienced in recouping costs through multiple rate adjustments throughout the year. Because projections will not reflect the costs that actually occur, the Commission provided, as part of the annual adjustment, a "true-up" mechanism to correct projected cost changes with the actual cost changes. However, the Commission has noted that, as FCC Form 1240 must be filed 90 days before an increase is to take effect, the period for the true-up will not coincide with the previous year's projections. The true-up data is intended to indicate real, not projected data. This policy is reflected in the instructions accompanying FCC Form 1240. 7. Based on this instruction and considering evidence in the filing, reasonable time for closing accounts and completing forms, we have adjusted Operator's true-up period from 12 months to 9 months. This adjustment required that we refresh Operator's inflation factors to 2.22 for the second quarter of 1996 and to 2.21 for the third quarter of 1996 and adjust Worksheet 1 accordingly. As a result, the true-up inflation factor in Module C, Line C1 for the 9 month period was corrected to 1.0171 instead of the 1.0239 used by the Operator for a 12 month period. We have adjusted Module E, and have corrected the number of months on Line E2 to 9 months and Line E3 to 3 months. We have also adjusted the inflation segment in Module F, Line F5 to reflect the corrections made to Line C1. This has resulted in a corresponding adjustment to Line F9 (MPR for True-Up Period 1). 8. The reduction in the length of the true-up period also results in a reduction of Line H2 (Revenue From MPR for Period 1). This results in a corresponding reduction of Line I8 (True- Up Segment for the Projected Period). Finally, we adjusted Lines D6, D7 and F8 to conform to the previously filed FCC Form 1240, in accordance with the FCC Form 1240 instructions. These adjustments resulted in a revised MPR of $15.47 for the projected period rather than Operator's MPR of $16.12 for the projected period. Operator's actual CPST rate of $16.12 exceeds its revised MPR of $15.47. Thus, we find Operator's actual CPST rate of $16.12, effective January 1, 1997, to be unreasonable. 9. To the extent that external costs from the three months disallowed from Operator's true-up period have been averaged into the rates charged in the nine months allowed in Operator's true-up period, and have not been removed by our adjustments, we will order Operator to make a month-by-month accounting of such external costs. Such accounting shall allow a comparison of the actual external costs for the permitted nine-month true-up period with the recovery of external costs afforded by the external cost segment for that period as calculated on Worksheet 7. We will order the removal of any over-recovery, plus interest, identified thereby in Operator's next FCC Form 1240 filed with the Commission. Any such over-recovery of external costs shall be added to the amount otherwise reportable on Line H1 of Operator's next FCC Form 1240 rate calculation. 10. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $16.12, charged by Operator in the franchise areas referenced above, effective January 1, 1997, IS UNREASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the franchise areas referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $15.47 per month (plus franchise fees), plus interest to the date of the refund, for the period from the filing of the earliest complaint in each franchise area (as set forth in Appendix A) through the day before Operator implements the maximum permitted CPST rate of $15.47. 12. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, and shall within 30 days of the release of this Order, file a report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of Commission approval of the plan. 13. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator revise the calculation of its maximum permitted CPST rate in its next FCC Form 1240 filing in accordance with our findings in this order and, in addition, that Operator attach to its next FCC Form 1240 filing a month-by-month accounting of its external costs from Operator's nine-month true-up period as found on Operator's Worksheets, and that Operator adjust its rates in its next FCC Form 1240 filing for any over-recovery of external costs, plus interest, identified thereby. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the referenced complaint IS GRANTED TO THE EXTENT DISCUSSED HEREIN. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau APPENDIX A CUID NO. DATE FIRST COMPLAINT FILED WITH LFA MI0640 2/11/97 MI0641 1/6/97 MI0642 1/8/97