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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. 2055 In the Matter of ) ) Jones Intercable, Inc. ) CUID No. GA0109 (City of Thomson) ) Cost of Service Showing to Support) Basic Service Tier ) ORDER Adopted: September 2, 1997 Released: September 4, 1997 By the Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau: I. INTRODUCTION 1. On October 3, 1994, the above-referenced operator ("Operator") serving the community referenced above, filed a cost of service showing on FCC Form 1220 with the Commission, seeking to justify its Basic Service Tier ("BST") rate. On September 13, 1994, the City petitioned the Commission to review the BST cost of service showing. The Commission granted the City's request on February 1, 1995, and agreed to review Operator's cost of service showing for the BST rate. We have already issued an order regarding the CPST complaints in this community. 2. According to information provided by Operator in its cost of service showing, the franchise area comprised approximately 15,128 BST subscribers at the time of the filings. Operator provided 15 BST channels. In this review process, pursuant to the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), we analyzed Operator's BST cost of service showing to ensure that the rates charged were not unreasonable and to determine any associated refund liability. 3. We analyzed BST rates charged for the period from September 1, 1993 to the present. Operator's FCC Form 1220 seeks to establish that its maximum permitted rate ("MPR") for its BST of $27.40 per month is justified based on its cost of providing service on its BST. Our analysis indicates that Operator's BST MPR is not justified, but that its actual BST rate of $10.59, effective September 1, 1993, is not unreasonable under the Commission's rules. II. ADJUSTMENTS 4. Rate base and expense items have been evaluated to determine whether Operator should be permitted to recover those items. Where a certain rate base or expense element was not supported, was excessive, or was unrelated to providing regulated cable service, such cost was disallowed in whole or in part. The following adjustments were made to Operator's filing: a) Operator allocated all common costs on FCC Form 1220 based on "weighted channels", i.e. a ratio of the product of tier channels times tier subscribers to the product of total channels times total subscribers. For reasons described in paragraph 123 of the Final Cost Rules, the Commission has deemed this methodology unacceptable. Therefore, we reallocated common costs reported by Operator based on channel ratios, i.e. a ratio of tier channels to total channels. b) Operator reported system-level Gross Intangible Assets valued at $21,531,000 on FCC Form 1220, Worksheet A. In accordance with our Final Costs Rules at paragraph 59, we reduced reported Gross Intangible Assets by 34% of the purchase price, or $9,479,200. Similarly, we restated Accumulated Amortization to reflect 4 years of amortization that should have been recorded from 1990, the year the system was acquired, until the end of test year 1993. Our adjustment to Accumulated Amortization reduced total net rate base by $2,785,600. c) We reduced reported Amortization Expenses consistent with our reductions to Gross Intangible Assets. This lowered total Operating Expenses by $2,338,550. d) Operator reported no revenue and income adjustments to its regulated tiers in its FCC Form 1220 filing. However, based on supplementary general ledger data in the filing, we determined that $27,060 in Home Shopping revenues should have been assigned to the basic tier, on which the Home Shopping channel is offered, and $110,623 in Advertising Revenues should have been assigned directly to the CPST, on which the majority of advertising time is available. Consistent with the latter adjustment, we reassigned all advertising expenses directly to the CPST to accord with the matching principle under GAAP. Additionally, we allocated $169,524 in Late Fees to the tiers based on channel ratios. e) Interest expenses have been restated based on the theoretical 55% debt, 45% equity capital structure and 8.5% cost of debt described under paragraph 104 of the Final Cost Rules. These adjustments reduced Operator's MPR for its BST to $14.05. However, we find that Operator's monthly BST rate of $10.59 for the periods under review has been justified. 5. Our review of Operator's BST rate included an analysis of its Equipment and Installation rates. The 1992 Act requires that cable operators base their equipment and installation rates on their actual costs. We have reviewed Operator's cost of service showing and related FCC Form 1205 (Equipment Form) and find that the equipment and installation rates Operator charged in connection with its BST for the period under review are not unreasonable. III. CONCLUSION 6. Based on our review of Operator's FCC Form 1220 filing and upon applying the Commission's most current rules, we find that, as discussed above, Operator has justified the monthly BST rate of $10.59 (plus franchise fee) for the period after September 1, 1993. 7. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the monthly BST rate and associated equipment and installation rates charged by Operator with respect to the above-referenced community, effective September 1, 1993, IS JUSTIFIED. 8. IT IS FURTHER ORDERED, pursuant to Section 76.933(d) of the Commission's rules, 47 C.F.R. Section 76.933(d), that this ruling on the rate Operator was charging for its BST is binding on the local franchising authority, the City of Thomson, and the cable operator, Jones Intercable, Inc. FEDERAL COMMUNICATIONS COMMISSION Margaret M. Egler Acting Chief, Financial Analysis and Compliance Division Cable Services Bureau