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A. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a)x1.` ` In this Order we consider a complaint against the January 1, 1997 rate increase that  X- xthe abovecaptioned operator ("Operator") yOT- x#X\  P6G;IP#э On October 17, 1995, pursuant to 47 C.F.R.  76.400, the Federal Communications Commission received  {O- xnotification of a change in operator to Time Warner Entertainment Company, L.P. (See letter from John R. Wilner  xwto the Federal Communications Commission, dated October 17, 1995). The system was previously owned by a TCI  xaffiliated cable operator, Daniels Communications Partners Limited, d/b/a Hawaiian Cablevision. As required by context, the term "Operator" refers to Time Warner and all of its predecessorsininterest. implemented for its cable programming services tier  xz("CPST") in the community set forth above. Operator has attempted to justify its CPST rate  x=increase through a benchmark showing on FCC Forms 1240. We have already issued an order  xwhich resolved complaints filed from September 1, 1993 through September 15, 1995 against the  X- xOperator in the community referenced above ("Final Resolution").z X- xЍ#X\  P6G;IP# See In the Matter of TCI Communications, Inc., Final Resolution of Cable Programming Service Rate Complaints, 11 FCC Rcd 14696 (1996). Accordingly, this Order addresses the reasonableness of the Operator's CPST rate of $16.46 effective January 1, 1997.  X:- ` x2.` ` The Communications Act: X"-Ѝ#X\  P6G;IP# Section 623(c) of the Communications Act of 1934, as amended, 47 U.S.C. Section 543(c) (1996). authorizes the Federal Communications Commission  xy("Commission") to review the CPST rates of cable systems not subject to effective competition  xxto ensure that rates charged are not unreasonable. If the Commission finds the rate unreasonable,  X- xit shall determine the correct rate and any refund liability.~  XJ'-Ѝ #X\  P6G;IP#See 47 C.F.R. Section 76.957.~ The Telecommunications Act of 1996"U ,))ZZ]"  X- xz("1996 Act")Ԡ Xy-Ѝ#X\  P6G;IP# Pub. L. No. 104104, 110 Stat. 56 (1996). and our rules implementing the new legislation ("Interim Rules"),yԠ X*- xЍ#X\  P6G;IP# See Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 5937 (1996). require that  xcomplaints against the CPST rates be filed with the Commission by a local franchising authority  x("LFA") that has received subscriber complaints. An LFA may not file a CPST rate complaint  xZunless, within 90 days after such increase becomes effective, it receives more than one subscriber complaint.  Xv- ` x3.` ` The Commission's original rate regulations took effect on September 1, 1993.vԠ X - xЍ #X\  P6G;IP#Order in MM Docket No. 92266, Implementation of Sections of the Cable Consumer Protection and Competition Act of 1992: Rate Regulation, FCC 93372, 58 Fed. Reg. 41042 (Aug. 2, 1993).  X_- x-The Commission revised its rate regulations effective May 15, 1994.}_kԠ X{- xЍ #X\  P6G;IP#47 C.F.R. Section 76.922(b); see also Second Order on Reconsideration, Fourth Report and Order, and Fifth  {Od- xKNotice of Proposed Rulemaking, MM Docket No. 92266, FCC 9438, 9 FCC Rcd 4119, 4190 (1994) ("Second  {O.-Order on Reconsideration"). Cable operators may justify  xadjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain  xand quantifiable changes in external costs, inflation, and the number of regulated channels that  X - xare projected for the twelve months following the rate change. { Ԡ X{- xЍ#X\  P6G;IP# See 47 C.F.R. Section 76.960; see also In the Matter of Implementation of Sections of the Cable Television  xConsumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92266, Thirteenth Order on  {O,-Reconsideration, ("Thirteenth Reconsideration Order") 11 FCC Rcd 388, 391 (1995). Any incurred cost that is not  X - x<projected may be accrued with interest and added to rates at a later time.  Ԡ X-Ѝ#X\  P6G;IP# See Thirteenth Reconsideration Order at 392. If actual and projected  x.costs are different during the rate year a "trueup" mechanism is available to correct estimated  X -costs with actual cost changes.d Ԡ X*-Ѝ #X\  P6G;IP# Id.d   X -  X - ` `x4.` ` On March 25, 1997, the LFA filed a complaint against the Operator's January 1,  X- xL1997 CPST rate increase. UԠ X!-Ѝ#X\  P6G;IP# The LFA received its first subscriber complaint against the CPST rate increase on January 3, 1997. In its complaint, the LFA asserts that it has received more than one  xsubscriber complaint against Operator's CPST rate increase, thereby triggering the Commission's  xjurisdiction to review this complaint The valid complaint from the LFA triggers an obligation  XK- xon the cable operator to file a justification of its CPST rate with the LFA.u KԠ X&-Ѝ #X\  P6G;IP#47 C.F.R. Section 76.1402.u Thus, Operator is  xMrequired to justify the increase in its CPST rate which is the subject of the LFA's complaint. "4 ,-(-(ZZ"  xOperator submitted modified FCC Forms 1240 pursuant to the terms of the Social Contract  X- xy("Social Contract") between Time Warner Cable ("Time Warner") and the CommissionԠ Xb-Ѝ #X\  P6G;IP#See Social Contract for Time Warner, 11 FCC Rcd 2788 (1996). for the  X-community set forth above to justify the rate increase that went into effect on January 1, 1997.yԠ X- xЍ #X\  P6G;IP# In a letter dated March 12, 1997, Operator submitted its FCC Form 1240 and channel line up information to the LFA to justify its January 1, 1997 CPST rate increase.   X- ` Qx5.` ` The Social Contract covers all of Time Warner's systems as of August 3, 1995,  X- xexcept under limited circumstances. Ԡ X0 - xYЍ #X\  P6G;IP# The Social Contract states "except as otherwise provided for herein, this Contract covers all of TWC's (Time  xWarner Cable) cable systems as of the Publication Date." Social Contract, Sec 1. The Publication Date is defined  xKas "the date on which the Commission released its initial Public Notice relating to [the Social] Contract." Social  xxContract, Sec. II.J. The Publication Date of the Time Warner Social Contract is August 3, 1995. (Public Notice, "Social Contract for Time Warner Cable Available for Comment," DA 95336, August 3, 1995.) Because Operator acquired the cable television system  xserving the community referenced above in October, 1995, the community was not part of the Social Contract when Operator implemented its January 1, 1997 CPST rate increase.  X1- ` x6.` ` Subject to Commission approval, Time Warner may include systems acquired after  X - xAugust 3, 1995 within the Social Contract.%C Ԡ X- xЍ #X\  P6G;IP#See Social Contract, Sec. III.F.6.a. The Cable Services Bureau has already granted Time Warner's request  yOw- xto include certain acquired systems within the Social Contract. However, the abovereferenced community was not  {O?- xincluded among those systems. See In the Matter of Time Warner Cable Social Contract, DA 962192 (Cab. Serv. Bur., released December 27, 1996).% On May 15, 1997, Operator requested the  X - xretroactive inclusion of the community referenced above within the Social Contract. Ԡ X- xЍ  #X\  P6G;IP#See letter from Arthur Harding, Esquire to William F. Caton, Acting Secretary, Federal Communications Commission, dated May 15, 1997. Operator  x!maintains that upon acquisition of the system, Operator inadvertently failed to seek the  X - xlCommission's approval to include the system within the Social Contract.d IԠ X-Ѝ #X\  P6G;IP#Id.d According to  xNOperator, the system was treated as if it were initially included in the Social Contract. In  x<accordance with the Social Contract, Operator afforded the LFA the opportunity to opt out of the  xcreation of a low cost lifeline basic service tier ("Lifeline Tier") along with a corresponding  Xy- xCPST rate adjustment.yԠ X$#-Ѝ  #X\  P6G;IP#Id.,  see also Social Contract, Sec. III.A. In addition, Operator implemented the annual CPST rate increase  xmallowed by the Social Contract on January 1, 1996 and January 1, 1997. Operator also  XK- ximplemented an equipment rate structure consistent with the Social Contract.KԠ X&-Ѝ #X\  P6G;IP#Id., see also Social Contract, Sec. III.A.3.B. Operator asserts"K^,-(-(ZZ"  xthat it has substantially upgraded the system plant for the community referenced above and  X- xyanticipates that it will complete the system rebuild by the end of the year 1998.Ԡ Xb-Ѝ #X\  P6G;IP#Id., see also Social Contract, Sec. III.F.1. Operator also  xasserts that it has provided notice to subscribers regarding the home wiring provisions of the  xLSocial Contract and it has provided the LFA with Operator's first annual Social Contract report  X-as required by the Social Contract.yԠ X-Ѝ  #X\  P6G;IP#Id., See also Social Contract, Sec. III.H.2 and Sec. III.F.3.  Xv- ` a x7.` ` Under the terms of the Social Contract, Time Warner may request that Time  xWarner Cable systems which were not originally included in the Social Contract be included,  XH- xsubject to Commission approval.H,Ԡ X% -Ѝ #X\  P6G;IP# See Social Contract, Sec. III.F.6.a. The Social Contract further provides that the Commission's  xapproval to such a request will be decided expeditiously and approval will not be unreasonably  X - xwithheld.d Ԡ X-Ѝ #X\  P6G;IP#Id.d The Commission has delegated to the Cable Services Bureau the authority to  X -implement the Social Contract. Ԡ XB-Ѝ #X\  P6G;IP#See Social Contract for Time Warner, 11 FCC 2788, 2828 (1996).  X - ` x8.` ` Our review of the record reveals that the subscribers in the community set forth  xabove have already received the benefits afforded by the Social Contract such as the capping of  xregulated rates, the creation of a low cost Lifeline Tier and a system upgrade which is anticipated  xto be completed by the end of 1998. The LFA has not objected to Operator's request that the  xfranchise area set forth above be included in the Social Contract. In addition, the LFA was given  xthe opportunity to optout of the creation of a low cost BST, which it declined. Furthermore,  xOperator provided the LFA with an annual report detailing the upgrades made to the system.  x<Because Operator implemented the terms of the Social Contract after it acquired the cable system,  x[and because Operator's request is unopposed, we find that it would be in the public interest to  xretroactively include the community referenced above within the Social Contract. Accordingly, we will allow Operator to add the community referenced above to the Social Contract.  X- ` Bx9. ` ` To justify its CPST rate, effective January 1, 1997, Operator has submitted two  xFCC Forms 1240. Upon review of Operator's FCC Form 1240, for the projected period January  x1, 1996 to December 31, 1996, we find that Operator has justified a maximum permitted rate ("MPR") of $16.68, effective January 1, 1996.  XN- ` x10.` ` Upon review of Operator's FCC Form 1240 for the projected period January 1,  x!1997 to December 31, 1997, we find that Operator has incorrectly calculated its MPR. In  xparticular, Operator has made trueup adjustments through to the effective date of the rate" ? ,-(-(ZZ"  xincrease. This is incorrect. The annual adjustment afforded by FCC Form 1240 allows operators  xto project changes in external costs, inflation, and the number of regulated channels. This  xstructure avoids the delay some operators experienced in recouping costs through multiple rate  xadjustments throughout the year. Because projections will not reflect the costs that actually  xoccur, the Commission provided, as part of the annual adjustment, a "trueup" to correct projected  x.cost changes with the actual cost changes. However, the Commission has noted that, as FCC  xForm 1240 must be filed 90 days before an increase is to take effect, the period for the trueup  X_- xwill not coincide with the previous year's projections._Ԡ X-Ѝ #X\  P6G;IP#Thirteenth Reconsideration Order, 11 FCC Rcd 388, 420 fn 151 (1995). The trueup data is intended to indicate  XH- x=real, not projected data.dHyԠ Xr -Ѝ #X\  P6G;IP# Id.d This policy is reflected in the instructions accompanying FCC Form  X1-1240.1*Ԡ X -Ѝ  #X\  P6G;IP#See FCC Form 1240 Instructions for Timing at 34.  X - ` x11. ` ` Based on this instruction and considering evidence in the filing, Ԡ X- xyЍ #X\  P6G;IP#Operator, for instance, did not reflect in its trueup the inflation factor for the second quarter of 1996  {Oz- xreleased by the Commission in November 1996. See Public Notice, "Inflation Adjustment Figures for Cable  xKOperators Using FCC Form 1210 and 1240 Now Available," DA 961986, (November 27, 1996). Had this been  x;available to Operator at time of filing, Operator would have been required to include the factor released (2.22%) for  xall months after March 1996 and for its projection period. Instead, Operator used the previous factor (2.39%) for  xall inflation adjustments and projections. It is evident, therefore, that Operator did not have November 1996 data available at the time it completed its FCC Form 1240. reasonable time  xfor closing accounts and completing forms, we have adjusted Operator's trueup period from 12  xmonths to 9 months. This adjustment required that we refresh Operator's inflation factors to 2.22  x.for the second quarter of 1996 and to 2.21 for the third quarter of 1996 and adjust Worksheet 1  xaccordingly. As a result, the trueup inflation factor in Module C, Line C1 for the 9 month  xperiod was corrected to 1.0171 instead of the 1.0239 used by the Operator for a 12 month period.  xWe have adjusted Module E, and have corrected the number of months on Line E2 to 9 months  x[and Line E3 to 3 months. We have also adjusted the inflation segment in Module F, Line F5 to  xreflect the corrections made in Line C1. This has resulted in a corresponding adjustment on Line F9 (MPR for TrueUp Period 1).  X- ` x12. ` ` The reduction in the length of the trueup period also results in a reduction in Line  xH2 (Revenue From MPR for Period 1). This results in a corresponding reduction in Line I8  x(TrueUp Segment for the Projected Period). In total, our adjustments to Operator's FCC Form  X- x_1240 result in a reduction of the MPR for the Projected Period to $19.44 (Line I9).A@ Ԡ X$- xKЍ#X\  P6G;IP# Information regarding the specific adjustments made to Operator's FCC Form 1240 filings can be found in  x,the public file for the community referenced above which is available in the Cable Services Bureau's public reference  xI room, or through the Commission's copy contractor, International Transcription Services (ITS), 1919 M Street, N.W., Washington, DC 20554, or by calling ITS at (202) 8573800. "I,-(-(ZZq"  xNotwithstanding our adjustments, Operator's actual CPST rate of $16.46 is justified and is not  x<unreasonable. To the extent that external costs from the three months disallowed from Operator's  X- xtrueup period Ԡ XK-Ѝ #X\  P6G;IP#As found on Operator's Worksheets 7 and 8. have been averaged into the rates charged in the nine months allowed in  xKOperator's trueup period, and have not been removed by our adjustments, we will order Operator  xto make a monthbymonth accounting of such external costs. Such accounting shall allow a  xcomparison of the actual external costs for the permitted ninemonth trueup period with the  xrecovery of external costs afforded by the external cost segment for that period as calculated on  xLWorksheet 7. We will order the removal of any overrecovery, plus interest, identified thereby  xin Operator's next FCC Form 1240 filed with the Commission. Any such overrecovery of  xLexternal costs shall be added to the amount otherwise reportable on Line H1 of Operator's next FCC Form 1240 rate calculation.  X - `   X` hp x (#%'0*,.8135@8: