******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 ) ) Triax Midwest Associates, L.P. ) CUID No. MN0555 (Savage) ) Complaints Regarding ) Cable Programming Services Tier ) Rate Increase ) ORDER Adopted: August 20, 1997 Released: August 22, 1997 By the Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints filed against the rates charged by the above-referenced Operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator has chosen to justify its CPST rates through a cost of service showing on FCC Form 1220, multiple FCC Form 1210s, and FCC Form 1240. 2. Under the Communications Act, the Federal Communications Commission ("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. 3. The first valid complaint was received by the Commission on February 28, 1994 against Operator's September 1, 1993 CPST rate. Cable operators with valid CPST complaints filed prior to May 15, 1994 must demonstrate that their CPST rates complied with the Commission's initial rules from the time the complaint was filed through May 14, 1994. Their rates must also comply with the revised rules from May 15, 1994 forward. Cable operators attempting to justify their rates through a cost of service showing must complete and file FCC Form 1220. Cable operators may file an FCC Form 1210 to justify rate increases based on the addition and deletion of channels, changes in certain external costs and inflation. In addition, Operators must file a Form 1210 at least 30 days before new rates are scheduled to go into effect, where there is a pending complaint against the CPST rate. 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. The "true-up" requires operators to decrease their rates or alternatively permits them to increase their rates to make an adjustment for over or under estimations of these cost changes. 4. Operator's FCC Form 1220, FCC Form 1210s, and FCC Form 1240 filings seek to establish that its initial CPST rates, and subsequent increases on February 1, 1995 and February 1, 1996 are below the maximum permitted rates and are justified based on its cost of providing regulated cable service. According to information provided by Operator in its cost of service showing, the franchise area comprised approximately 2,450 subscribers and Operator provided 24 CPST channels at the time of its cost of service filing. In this review process, we analyzed Operator's CPST cost of service showing, FCC Form 1210s and FCC Form 1240 filings to ensure that the initial CPST rate and subsequent rate increases were reasonable and to determine any refund liability. 5. In reviewing Operator's FCC Form 1220 cost of service showing, we evaluated Operator's rate base and expense elements to determine whether Operator should be permitted to recover those items. Where a certain rate base or expense element was not justified under our rules, such cost was disallowed in whole or in part. Where reported costs were disallowed, we have made appropriate adjustments. Specifically, we excluded 34 percent of Operator's actual system purchase price reducing Operator's gross intangible assets and accumulated amortization. Next, we eliminated Plant Under Construction and Allowance for Funds Used During Construction because at the time of filing, the amount of Plant Under Construction claimed was not used and useful for subscriber benefit. Our reduction in Operator's net rate base also resulted in a reduction in Operator's interest expenses charges. We also included additional commission revenue per Operator's supplemental filing. These adjustments resulted in a revised maximum permitted rate ("MPR") of $15.30, effective September 1, 1993, rather than Operator's MPR of $17.27. Because Operator's actual CPST rate of $11.97 does not exceed its revised MPR of $15.30, we find Operator's actual CPST rate of $11.97, effective September 1, 1993 through January 31, 1995, to be reasonable. 6. Upon review of Operator's FCC Form 1210 for the period April 1, 1994 through December 31, 1994, we adjusted the permitted charge on Line A2 to match the revised MPR of $15.30 from the previous filing. We disallowed Operator's inflation adjustment for this period because Operator is not entitled to take an inflation adjustment until October 1, 1995. These adjustments resulted in a revised MPR of $15.78, effective January 1, 1995, rather than Operator's MPR of $18.06. Because Operator's actual CPST rate of $13.77 does not exceed its revised MPR of $15.78, we find Operator's actual CPST rate of $13.77, effective February 1, 1995 through June 30, 1995, to be reasonable. 7. Upon review of Operator's FCC Form 1210 for the period January 1, 1995 through June 30, 1995, we adjusted the permitted charge on Line A2 to match the revised MPR of $15.78 from the previous FCC Form 1210. We disallowed Operator's inflation adjustment for this period because Operator is not entitled to take an inflation adjustment until October 1, 1995. These adjustments resulted in a revised MPR of $17.26, effective July 1, 1995, rather than Operator's MPR of $20.00. Because Operator's actual CPST rate of $13.77 does not exceed its revised MPR of $17.26, we find Operator's actual CPST rate of $13.77, effective July 1, 1995 through January 31, 1996, to be reasonable. 8. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1996 through December 31, 1996, we adjusted the MPR on Line A1 to match the revised MPR of $17.26 from the previous FCC Form 1210. We also changed Line I10 to $14.96 based on Operator's supplemental filing. These adjustments resulted in a revised MPR of $18.90 for the projected period rather than Operator's MPR of $20.00 for the projected period. Because Operator's actual CPST rate of $14.96 does not exceed its revised MPR of $18.90, we find Operator's actual CPST rate of $14.96, effective February 1, 1996 through December 31, 1996, to be reasonable. 9. 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 $11.97 charged by Operator in the community referenced above for the period September 1, 1993 through January 31, 1995, IS REASONABLE. 10. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $13.77 charged by Operator in the community referenced above for the period February 1, 1995 through January 31, 1996, IS REASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $14.96 charged by Operator in the community referenced above for the period February 1, 1996 through December 31, 1996, IS REASONABLE. 12. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaints against the CPST rates charged by Operator in the community referenced above, ARE DENIED. 13. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator take into account our FCC Form 1240 adjustments when calculating its maximum permitted rate and performing the true-up calculation on its next FCC Form 1240. FEDERAL COMMUNICATIONS COMMISSION Margaret M. Egler Acting Chief, Financial Analysis and Compliance Division Cable Servcies Bureau