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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 ) ) Cox Communications Pensacola, Inc. ) CUID No. FL0002 (City of Pensacola) ) ) Complaint Regarding ) Cable Programming Services Tier Rates ) ORDER Adopted: May 27, 1997 Released: May 30, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider complaints against the November 1, 1995 and November 15, 1996 rate increases that the above-captioned operator ("Operator") implemented for its cable programming services tier ("CPST") in the community set forth above. Operator has attempted to justify its CPST rate increases through benchmark showings on FCC Forms 1210 and 1240. We have already issued an order which resolved complaints filed against Operator from September 1, 1993 through June 30, 1995 ("Settlement Order"). Accordingly, this Order addresses the reasonableness of the Operator's CPST rate increases of $1.80, effective November 1, 1995, and $1.51, effective November 15, 1996. 2. The Communications Act authorizes the Federal Communications Commission ("Commission") 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 the rate unreasonable, it shall determine the correct rate and any refund liability. The Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") requires the Commission to review CPST rates upon the filing of a valid complaint by a subscriber or local franchise authority ("LFA"). The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation ("Interim Rules"), require that complaints against CPST rates be filed with the Commission by a franchising authority that has received subscriber complaints. A franchising authority may not file a CPST rate complaint unless, within 90 days after such increase becomes effective, it receives more than one subscriber complaint. 3. The Commission's original rate regulations took effect on September 1, 1993. The Commission revised its rate regulations effective May 15, 1994. Cable operators attempting to justify rates for the period beginning May 15, 1994 through a benchmark showing must use the FCC Form 1200 series. Cable operators may also justify rate increases based on the addition and deletion of channels, changes in certain external costs, and inflation, by filing FCC Form 1210. FCC Form 1210 must be filed at least 30 days before new rates are scheduled to go into effect where the Commission has found the CPST rate to be unreasonable less than one year prior to the filing, or where there is a pending complaint against the CPST rate. 4. Cable operators may 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. If actual and projected costs are different during the rate year a "true-up" mechanism is available to correct estimated costs with actual cost changes. 5. On January 22, 1996, the Commission received valid complaints against Operator's November 1, 1995 CPST rate increase. On March 18, 1997 the local franchising authority ("LFA") filed a complaint against Operator's November 15, 1996 CPST rate increase. The LFA has certified that it has complied with the Interim Rules. Operator submitted FCC Forms 1210 and 1240 for the community set forth above to justify the rate increases that went into effect on November 1, 1995 and November 15, 1996. Therefore, we have jurisdiction to review the CPST rate increases pursuant to the 1992 Cable Act and the 1996 Act. 6. Upon review of Operator's amended FCC Form 1240 filed to justify its November 15, 1995 CPST rate of $14.64, we have corrected Operator's starting rate on Line A1 to reflect the correct transitional rate pursuant to the Settlement Order. Because Operator's transition rate contains excess inflation, we have adjusted Operator's amended FCC Form 1240 to reflect the correct inflation figure for Operator's CPST rate consistent with our Public Notice of November 9, 1995. This results in a corrected maximum permitted rate ("MPR") of $14.64. Therefore, Operator's CPST rate of $14.64, effective November 1, 1995, is justified and is not unreasonable. 7. Our review of Operator's FCC Form 1240 to justify its CPST rate of $16.15, effective November 15, 1996, indicates that Operator has miscalculated its MPR. We have corrected Operator's starting rate on Line A1 to reflect the MPR of $14.64 that was calculated on Operator's prior FCC Form 1240. In addition, 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" 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. 8. 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 1.0232 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 in Line C1. This has resulted in a corresponding adjustment on Line F9 (MPR for True-Up Period 1). 9. The reduction in the length of the true-up period also results in a reduction in Line H2 (Revenue From MPR for Period 1). This results in a corresponding reduction in Line I8 (True- Up Segment for the Projected Period). In total, our adjustments to Operator's FCC Form 1240 result in a reduction of the MPR for the Projected Period to $15.55 (Line I9). Thus, Operator has failed to demonstrate that its November 15, 1996 rate of $16.15 was not unreasonable. 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 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $14.64, effective November 1, 1995, in the community set forth above, IS REASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $16.15, effective November 15, 1996, in the community set forth above, IS UNREASONABLE. 12. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321, that the complaints referenced herein against the rate increase effective November 1, 1995 charged by Operator in the community set forth above, ARE DENIED. 13. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321 that the complaint referenced herein against the rate increase effective November 15, 1996 charged by Operator in the community set forth above, IS GRANTED. 14. 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 community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $15.55 per month (plus franchise fee) plus interest during the period from November 15, 1996 to the day before Operator reduces its CPST rate to $15.55. 15. 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. 16. 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 amounts so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of the Commission approval of the plan. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau