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(1) (a) (i) 1) a)D )DDDFrfQq "i~'^#)0<8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNNormalf$ Xx  @ Headerg2hi\dFootnotehÍ/y.X80,IX\  P6G;P7jC:,+Xj\  P6G;XP7nC:,Xn4  pG;XW!@(#,9h@\  P6G;hPH5!,,5\  P6G;,P\{,W80,%W*f9 xr G;Xy.\80, {\4  pG;\5hC:,%Xh*f9 xr G;XX<?xxx,<>Fx6X@`7X@ ?xxx,DNx6Nhez7XH X- X   K X-w  Federal Communications Commission`)(# DA 971260 ă  yxdddy Պv3 #X\  P6G;IP#Before the Federal Communications Commission  yO} Washington, D.C. 20554 #Xj\  P6G;+XP#у  Xy-  Xb-T#Xj\  P6G;+XP#у R) R) In the Matter ofR) R) TCI CABLEVISION OF OREGON, INC.R) R) Appeal of Local Rate OrderR) of the Mt. Hood CableR) Regulatory CommissionR) R) Multnomah County, OregonR) R) R)  X-  MEMORANDUM OPINION AND ORDER TP  X-X` hp x (#%'0*,.8135@8: {Ok%-ԍId.1 " D>,-(-(ZZE"Ԍ X- ` x15.` ` In its opposition to TCI's appeal, the MHCRC restates the five reasons it provided  x[in its rate order for disallowing TCI's capital costs. The MHCRC argues that Commission rules  X- xonly allow for capitalization of costs that are incidental to annual purchase costs.|? {OK-ԍSee MHCRC's Opposition to TCI's Appeal at 9 (citing 47 C.F.R.  76.923(f)).| Citing 47  xC.F.R.  76.923(f), the MHCRC claims that the costs that TCI capitalized are not among those  X- xcosts that the Commission defines as incidental to converter purchase costs.7@Z {O-ԍId. at 9.7 The MHCRC  xargues that the costs at issue are, instead, operating costs recovered through a separate noncapital  Xv- xprocedure in Schedule B of Form 1205.1Av {O -ԍId.1 The MHCRC notes TCI's admission that capitalizing  X_- x[these converter costs amounts to a deviation from GAAP.9B_~ {O -ԍId. at 10. 9 The MHCRC argues that TCI has  xnot adequately justified its departure from GAAP, especially in light of the fact that the  xinstructions for Form 1205 expressly direct operators to complete the Form "using financial data  X - xZ. . . maintained in accordance with generally accepted accounting principles."OC  {O-ԍId. (citing FCC Form 1205 at 3). O The MHCRC also  xargues that TCI is attempting to recover costs that it has already recovered through other  X - xregulated rates and charges.8D  {O?-ԍId. at 12.8 The MHCRC asserts that TCI already recovers labor costs of  x<installing and retrieving converters, costs of managing converter inventory and material costs for  xconverters through direct installation charges and programming service rates, and that these costs,  X - xtherefore, cannot be included in Schedule C of Form 1205.=E 4  {O-ԍId. at 5.= In response to TCI's claim that the  x?MHCRC has failed to identify where these costs are already included, the MHCRC cites  xCommission rules which place the burden of proof in demonstrating the reasonableness of rates  Xb- xon the operator, and not on the local franchising authority.UFb  {O-ԍId. at 12 (citing 47 C.F.R. 76.937(a)).U Finally, arguing both that TCI is  x-seeking double recovery for the costs at issue, and that the operator has not offered any system xspecific justification for its proposed costs, the MHCRC maintains that TCI did not provide the  x/MHCRC with any evidence indicating that the operator actually incurs an additional $20 of  X-capital costs per converter.7GX  {O#-ԍId. at 6.7  X- ` _x16.` ` The Commission rule defining the "equipment basket" states that the basket shall  xinclude all "direct and indirect material and labor costs of providing, leasing, installing, repairing," G,-(-(ZZ"  X- xand servicing customer equipment."HH {Oy-ԍSee 47 C.F.R.  76.923.H Pursuant to the 1992 Cable Act, material and labor costs  X- xincluded in the equipment basket must be recoverable by the operator.I$Z {O- xԍSee Communications Act,  623(b), 47 U.S.C.  543(b). Section 623(b)(3) of the Communications Act requires  {O- xthat rates for equipment and installation reflect their actual costs. See also First Order on Reconsideration, Second  xReport and Order, and Third Notice of Proposed Rulemaking, MM Docket 92266, 9 FCC Rcd 1164, 11901201 (1993). The costs of installing  xand retrieving converters, the costs of managing the converter inventory, and the material costs  x<of converters are clearly related to providing and installing equipment, and are properly classified  x/as part of the equipment basket. Thus, TCI must be permitted to recover the labor costs of  xinstalling and retrieving converters, the costs of managing converter inventory, and the material costs of converters.  XH- ` x17.` ` TCI does not adequately justify its reasons for treating the labor costs of installing  x.and retrieving converter costs as capital costs and including them in Schedule C. Indeed, TCI  xdoes not clearly distinguish these costs from the operating expenses and labor costs that are  xMordinarily included in Schedule B. Instead, TCI argues that it should include these costs in  x^Schedule C because it has not listed them elsewhere in Form 1205. The Commission's  xinstructions for completing Schedule B specifically provide that operators include "all annual  X -operating expenses . . . for installation and maintenance of all cable facilities" on Schedule B.<J F yO-ԍFCC Form 1205 at 11.<  xyMoreover, operating expenses incurred specifically to maintain and install customer equipment  X- xare referenced expressly.1K {O-ԍId.1 Thus, the Commission's instructions for Form 1205 clearly indicate  xthat TCI should include the labor costs of installing and retrieving converters on Schedule B  Xb- xrather than on Schedule C.Lbh  {O{- x<ԍThe issue raised in this case is analogous to one discussed in ML Media Partners L.P., trading as Multivision  {OE- xCable TV (Fairfield, CA), 11 FCC Rcd 1017 (Cab. Serv. Bur., 1995) ("Multivision"), where the operator sought to  {O- xcapitalize the labor costs associated with inside wiring in its preparation of FCC Form 393. In Multivision, we held  xKthat, "Cable operators may not capitalize labor costs associated with inside wiring . . . . [Such costs] are properly  {O-included in the charges for the installation of inside wiring." Multivision at 1024.  Such costs are thereby included in installation charges or in the  xmaintenance element of the equipment lease charges. They may not be included on Schedule C  X4-which is used only to "compute the annual capital costs of equipment leased to customers."FM4  {O"-ԍSee FCC Form 1205 at 12.F  X- ` _x18.` ` TCI states that certain costs in question are related to inventory management and  xclaims that such costs are incidental costs that may be included as annual purchase costs. We  xagree that certain costs of managing converter inventory may be capitalized and therefore  xincluded on Schedule C as converter costs. Pursuant to Commission rules, purchase costs that" M,-(-(ZZ"  xjare capitalized and reported on Schedule C as converter costs would include "acquisition price and incidental costs such as sales tax, financing, and storage up to the time [the converter] is  X- xprovided to the customer.KN {OK-ԍSee 47 C.F.R.  76.923(f).K While the list of incidental costs in 76.923(f) is not exhaustive, the  X- xcosts at issue, i.e., labor costs of retrieval and reinstallation of converters, the cost of inventorying  xsuch items, and the material supplies associated with their reinstallation, are not incidental to the  xactivities associated with placing new converters into service. The rules define incidental costs  xas costs incurred up to the time the equipment is provided to the customer. The converter  x[installation and retrieval costs that TCI seeks to capitalize appear to be incurred after the initial  xconverter installation. The rules do not provide for the capitalization of the costs of retrieval, reinstallation and reinventorying of converters.  X - ` x19.` ` Further, TCI does not clearly explain the basis for including the material and  x>equipment costs in question on Schedule C. Certain materials and supplies associated with  xlequipment installations may be capitalized. Where such material and supplies have been  xcapitalized as part of the converter cost, it would be proper to include such costs on Schedule C  xyand recover them in the converter lease charge. Alternatively, incidental material and supplies  x could be expensed, included on Schedule B, and recovered in installation charges or in the  xjmaintenance element of the appropriate lease charge. The accounting treatment, under GAAP,  xwould determine which schedule is used. If Schedule C is appropriate, the accounting would  XM- xdetermine which asset group it should be included with on this schedule.EOMZ {OX-ԍSee FCC Form 1205 at 3.E Thus, if the operator  xcapitalizes certain converter installation materials and supplies in the converter account, it would  xbe proper to report the costs on Schedule C for converters. It is not clear from the record in this  xKcase, however, where all of the materials and supplies in question have been recorded. It appears  xkthat the costs involved are material and supplies that either are not capitalized or have been  xkcapitalized in accounts for equipment for which TCI is not establishing a separate regulated  xjcharge. In either case, we find nothing in the record to indicate that they may be included with the converter costs on Schedule C.  X~- ` 3x20.` ` We find that TCI has not provided any support for its $20 figure for converter  xcapital costs, aside from its assertion that the figure is based on a national survey. Therefore,  x[TCI failed to meet its burden under Commission rules to demonstrate the reasonableness of its  X9- xrates.cP9 {O!-ԍSee supra para. 11 (citing 47 C.F.R.  76.937(a)).c We conclude, therefore, that, TCI's appeal with respect to the costs of installing and  x>retrieving converters, the material costs of converters and the costs of managing converter inventory is denied. " ~P,-(-(ZZ<"  X-  III. ORDERING CLAUSES ă  X- ` x 21.` ` Accordingly, IT IS ORDERED that the appeal by TCI Cablevision of Oregon,  X- xInc., of the local rate order of the MHCRC, with respect to the proposed increase in rates, IS  X-GRANTED .  Xv- ` x22.` ` IT IS FURTHER ORDERED that the appeal by TCI Cablevision of Oregon, Inc.,  xwith respect to the capitalization of the labor costs of installing and retrieving converters, the  XH-operating costs of managing converter inventory, and material costs of converters, IS DENIED .  X - ` Ax23.` ` IT IS FURTHER ORDERED that within 60 days of the date of this Order , TCI  X - x\is directed to revise and refile its rate forms with the MHCRC and, subject to the MHCRC's  xright to review the rate filings, implement revised rates to reflect the rulings discussed herein and  X - xin the TCI Remand Order or in the MHCRC's order in response to the TCI Remand Order if it  X -has issued one.  X- ` ox24.` ` This action is taken by the Chief, Cable Services Bureau, pursuant to authority  X{-delegated by  0.321 of the Commission's rules.=Q{ yO-ԍ47 C.F.R.  0.321.= x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhMeredith J. Jones x` `  hhChief, Cable Services Bureau