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See Cable Television Consumer Protection and Competition Act, Pub. L. No. 102385, 106 Stat. 1460 (1992); Communications Act, 623(b), 47 U.S.C. 543(b); 47 C.F.R. 76.922.  The Communities also ordered MGC to issue refunds or credits to subscribers for those charges   {collected prior to July 14, 1994 that were in excess of MGC's maximum permitted equipment and"H,))[[_"  S-  installation rates.V yOh-  ԍEffective July 15, 1994, MGC reduced its equipment and installation rates to the levels found permissible in   [the local orders. This reduction resulted from MGC's deduction of interest expenses in its recalculation of its   equipment and installation rates on the Commission's new Form 1205. MGC stated that it agrees with the   Communities that its new equipment and installation rates are appropriate on a going forward basis. November 3, 1994 Appeal of Local Cable Rate Ordinance at 2.V On March 3, 1995, the Communities filed a joint opposition to MGC's petition. MGC  S-filed a reply on March 13, 1995.tx yO-  ԍOther pleadings filed include an August 18, 1995 supplemental filing by the Communities and a September 13,   1995 Supplemental Submission by MGC. On February 16, 1995, MGC also filed a request for stay pending review  {O -  of the Bureau Order. We granted MGC's request to stay the effectiveness of the refund portions of the local orders  {OJ -  xpending review of the Bureau's underlying ruling. See Media General Cable of Fairfax County, Inc. (Fairfax, VA), 10 FCC Rcd 5081 (1995). t  S- II.BACKGROUND   S8-  }2.` ` The Communications Act establishes a dual structure for regulating the rates of those cable   systems that are not subject to effective competition. While the Commission has the jurisdiction to   yregulate cable programming services tier ("CPST") rates, local franchising authorities have the jurisdiction   [to regulate the basic service tier ("BST") and associated equipment and installation rates, consistent with  S-  =Commission regulations and subject to Commission review.X,  yOd-ԍCommunications Act  623, 47 U.S.C.  543.X The goal expressed in Section 623(b)(1) of   the Act is that BST rates be reasonable so that subscribers will be protected from rates "exceed[ing] the   rates that would be charged for the basic service tier if such system were subject to effective  S -  competition."  {O|-ԍCommunications Act  623(b)(1), 47 U.S.C.  543(b)(1); see 47 U.S.C.  76.922. The Commission developed regulations for establishing and adjusting both BST and CPST  S -  rates consistent with this goal.H N  {O-ԍSee 47 C.F.R.  76.922.H The Commission also developed standards for establishing the rate for  S -  the operator's equipment and installation charges "on the basis of actual cost."  {OP-ԍCommunications Act  623(b)(3), 47 U.S.C.  543(b)(3); see 47 C.F.R.  76.923. Once certified to regulate   BST and associated equipment rates by the Commission, local franchising authorities could review existing   rates or proposed rate increases and, if disapproving a rate in whole or in part, issue a written decision  SX-  >prescribing a reasonable rate and ordering refunds.t Xr {Oj -ԍSee 47 C.F.R.  76.910, 76.930, 76.936, 76.940, 76.941, 76.942.t Any appeals of local rate orders are made to the  S0-  Commission.= 0 yO"-ԍ47 C.F.R  76.944.= Appeals not raising novel or unusual issues are reviewed by the Bureau under delegated  S-authority.=  yO<%-ԍ47 C.F.R.  0.321.= "$ ,,(,([["Ԍ S-  3.` ` In reviewing a local rate order, the Commission will not conduct a de novo review but   instead will sustain the franchising authority's decision as long as there is a reasonable basis for that  S-  decision.  yO-  ԍImplementation of Sections of the Cable Television Consumer Protection and Competition Act: Rate Regulation,   iMM Docket No. 92266, and BuyThrough Prohibition, MM Docket No. 92262, Report and Order and Further  {O-  Notice of Proposed Rulemaking in MM Docket No. 92266, 8 FCC Rcd 5631, 5731 (1993) ("Rate Order") and   Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate   Regulation, MM Docket No. 92266 and BuyThrough Prohibition, MM Docket No. 92262, Third Order on  {O-Reconsideration in MM Docket No. 92266, 9 FCC Rcd 4316, 4346 (1994) ("Third Recon. Order"). If the Commission reverses a franchising authority's decision, it will not substitute its own   decision but instead will remand the issue to the franchising authority with instructions to resolve the case  Sb-consistent with the Commission's directions.1bD {OF -ԍId.1  S-  4.` ` The Commission has concluded that a benchmark approach should serve as the primary   method for regulation of both BST and CPST rates. The benchmark methodology is based on an analysis   of the rates of operators that are subject to competition. It is intended to produce maximum permitted   rates for operators not subject to competition which approximate the rates of operators that are subject to  Sr-  competition.Zr yO-  ,ԍImplementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate   Regulation, MM Docket No. 92266, Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice  {Ox-of Proposed Rulemaking, 9 FCC Rcd 4119, 4145 (1994). ("Second Recon. Order")Ą The benchmark methodology has the advantage of protecting subscribers from excessive  SJ -  yrates and also keeping the costs of administration and compliance low.LJ  {O-ԍRate Order, 8 FCC Rcd at 5755.L FCC Form 393 is the form used   by the Commission and by local franchising authorities to determine whether an operator's regulated rates   for programming, equipment, and installations were reasonable during the period from September 1, 1993   lto May 15, 1994. FCC Form 1200 and FCC Form 1205 are the forms used to determine whether   regulated rates for programming, equipment, and installations were reasonable for the period beginning  S -on May 15, 1994.  yO-  hԍIf a cable operator took advantage of the refund deferral period, the Form 1200 period may not begin until July  {Ot-15, 1994. Second Recon. Order, 9 FCC Rcd at 4119 (1994).  S2-  $5.` ` Although the Commission adopted a benchmark mechanism as the primary regulatory   mechanism for setting initial regulated rates, it acknowledged that this mechanism might not produce fully   compensatory rates in all cases. Where the benchmark mechanism was inadequate, the Commission   authorized an operator to choose to establish rates based on the reasonable costs of providing regulated   cable service through a costofservice proceeding. Until the Commission could adopt accounting and cost   allocation requirements for costofservice proceedings, the showings were governed by general accounting"j,,(,([["  S-  principles.V {Oh-ԍSee Rate Order, 8 FCC Rcd at 5795.V Subsequently, the Commission adopted costofservice standards for application to such  S-operators.vZZ yO-  ,ԍImplementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate   <Regulation, MM Docket No. 93215, Report and Order and Further Notice of Proposed Rulemaking, 9 FCC Rcd  {Ob-4527 (1993). See 47 C.F.R.  76.922(g)(k), 76.924.v  S-   Q* yO#X\  P6G;P#Q 6.` ` Because equipment and installation rates are subject to regulation on an actual cost basis   \in both benchmark and costofservice proceedings, an operator's maximum permitted equipment and   =installation rates are the same under both methodologies. To justify equipment rates in effect during the   Lperiod from September 1, 1993 to May 15, 1994, an operator used FCC Form 393, Part III. Thereafter, the operator would use FCC Form 1205, which replaced the equipmentrelated portion of Form 393.  S-  7.` ` To establish its equipment and installation costs on Part III of Form 393, an operator   calculates (1) the capital costs of leased customer equipment; (2) the capital costs associated with service   installations and the maintenance of customer equipment; (3) the annual operating expenses for   [installations and maintenance of equipment; and (4) the average installation charges for the various types   -of installations which the operator performs. As part of an operator's calculation of its annual capital costs   (for both its customer equipment and for items associated with the installation of cable service and the   maintenance of customer equipment), the operator must include in Schedules A and C any federal and  S -  Lstate income taxes payable by the cable entity. | yO-  -ԍFCC Form 393 at 3334. The instructions to FCC Form 393 do not discuss any adjustments that should be made to income tax figures to reflect the deductibility of certain items. The operator then adds these income tax obligations to   =its return on investment and its annual depreciation expense in order to determine its total capital costs.   The higher an operator's state and federal income tax liability, the higher its annual capital costs and its  S-maximum permitted equipment and installation rates.X yO|-  ԍThe other bases upon which an operator determines its maximum permitted equipment charges are the   following: total maintenance/service hours for the type of equipment in question; the operator's hourly service charge; and the number of units of the type of equipment in question which the operator currently has in service.   S- III.ORIGINAL ORDER  Sh-  q8.` ` In local rate orders, each of the Communities found that MGC's BST rates were   /reasonable because the rates were less than the maximum permitted rates justified by MGC's cost of   service showing. However, each of the local franchising authorities reduced MGC's equipment and   installation costs by adjusting MGC's income tax rates to reflect deductible interest not included in MGC's   calculations. They then ordered MGC to refund all equipment and installation overcharges collected prior to July 14, 1994.  SP-  9.` ` MGC appealed these adjustments to the Bureau arguing that it relied upon the instructions   \accompanying the Commission's Form 393, which do not specifically require a deduction for interest"( ,,(,([[{"  S-  expenses." yOh-  ԍWhile the instructions accompanying FCC Form 1205, a successor form to FCC Form 393, require that interest   expenses be deducted from income taxes, the instructions accompanying FCC Form 393 do not contain such a  {O-  directive. FCC Form 1205 at 89; FCC Form 393 at 3334. As noted infra, MGC did deduct its interest expenses  yO-when it recalculated its income tax obligations on FCC Form 1205.  The Communities responded that the tax deductibility of interest is obvious. According to   =the Communities, because MGC did not adjust its income tax figures in Schedules A and C to reflect the   deductibility of interest expenses from any state and federal income taxes owing or paid, the amount of   income tax included in MGC's equipment and installation rates was inflated, causing its equipment and installation rates to be artificially high.  S-  10.` ` MGC also argued that it should not be required to refund the disputed overcharges because   =had it been adequately advised as to what was required in the FCC Form 393 equipment and installation   Lcalculations it would have increased slightly its BST rates in order to compensate for reduced equipment   and installation rates. The Communities opposed this refund offset. They argued that, when MGC   adjusted its equipment and installation rates pursuant to the local rate orders on July 14, 1994, it could   jhave, but did not, change its BST rates. In their view, MGC was not entitled to a refund offset for a rate it set voluntarily.  S -  11.` ` The Bureau sustained the Communities' orders, noting that the Commission will sustain  S -  [a franchising authority's decision as long as there is a reasonable basis for that decision. The Bureau held   Othat given the accepted principle that tax interest is a deductible expense for tax purposes, the   ]Communities' local rate orders were based upon a reasonable interpretation and application of the  S0-  Commission's rules and forms. The Bureau also found that the Communities had effectively rebutted MC's offset argument.  S- IV.MGC'S PETITION FOR RECONSIDERATION  Sj-  212.` ` In its petition for reconsideration of the Bureau order, MGC argues that it should have no  SB-  0refund liability for two reasons. According to MGC, we erred in holding that regulators have the   discretion to interpret FCC Form 393 as requiring treatment of deductible interest and in allowing that   -interpretation to stand. MGC also argues that refunds are inappropriate even if the treatment of deductible   jinterest stands, because the aggregate rates it charged for BST and equipment and installation were below the aggregate rates it justified using in its cost of service filing and Form 393 presentation.  SR- A.` ` Income Tax Adjustments for Interest Expenses  S-  13.` ` MGC advocates that the methodology for calculations required by the Commission's rate   [regulations should be uniform nationwide, not a matter of local franchising authority discretion. Further,   .because FCC Form 393, unlike FCC Form 1205, does not explicitly call for an adjustment to income tax   rates to reflect deductible interest, and neither the Commission's instructions for FCC Form 393 nor its   -video workshops explaining the form address the issue of interest deductibility, MGC properly determined   Mthat it should not apply a deductible interest adjustment to its rate of return calculation in Form 393. ":,,(,([[ "   .MGC concludes that it should have no refund liability for completing FCC Form 393 as required by the  S-Commission. Nor should it have refund liability arising from any perceived ambiguities in the form.`Z yO@-  ԍIn support of its argument, MGC cites Warner Cable Communications of Milwaukee (Milwaukee, WI), 9 FCC  {O-  7777 (Cab. Serv. Bur. 1994) ("Warner Cable). (Lack of clarity in a la carte guidelines makes imposition of refunds due to a la carte overcharges inequitable.) `  S-  }14.` ` In opposition, the Communities argue that the instructions for Part III, Schedule A in FCC   .Form 393 unambiguously require the listing of taxes that the operator is required to pay, and that MGC  S8-  would only be required to pay taxes on income after all allowable deductions have been taken.G8 yO -ԍOpposition to Application at 4.G Its   -failure to make adjustments for interest deductions, the Communities assert, resulted in rates that recovered  S-income tax expenses that MGC never actually incurred.  S-   15.` ` We are denying MGC's petition on this issue. Congress granted the local franchising   authorities primary responsibility for regulating BST rates and the rates for all equipment and installation   costs associated with the BST. In developing regulations to be followed by the local franchising  S -  authorities, as required by Section 623(b) of the Communications Act,@ z yO:-ԍ47 U..S.C.  543(b). @ the Commission could not address   \all possible aspects of rate regulation and necessarily left some discretion to local governments. That discretion was exercised reasonably here.  S -  16.` ` The Commission has explained previously the scope of review of local franchising authority rate decisions:    ` ` X` hp x (#%'0*,.8135@8:)Z  yO-ԍ47 U.S.C.  543(b).>   the Commission is required to prescribe regulations for enforcement by local franchising authorities to   ensure that rates for the basic cable service tier are reasonable and do not exceed the rates that would be   charged for the basic service tier if the cable system were subject to effective competition. Cable services   rates are not filed as tariffs and are not subject to the provisions governing common carrier tariffs under   federal, state or local law. Although costofservice requirements are designed to be consistent with the   ratebase and rateofreturn formula traditionally used in public utility regulation, they are implemented in   a manner that is simpler and easier to administer than the telephone model and are designed to produce  S\-  rates that approach as closely as possible those that would evolve in a competitive market.L*\  {O-ԍCost Order, 9 FCC Rcd at 4436.L If a local   franchising authority finds that cable rates are not reasonable, it can remedy the problem prospectively  S -  with rate reductions or rate prescriptions.v+ |  {O(-ԍSee Rate Order, 8 FCC Rcd at 572025; 47 C.F.R.  76.940, 76.941.v It can remedy the problem retrospectively through refunds for  S-  all subscribers.j, {O -ԍSee Rate Order, 8 FCC Rcd at 572527; 47 C.F.R.  76.942.j In addition, section 76.942 of the Commission's rules authorizing local franchising  S-  authorities to order refunds specifically provides for refund offsets at the basic level.>- yO"-ԍ47 C.F.R.  76.942.> This further  S-  jdistinguishes the instant proceeding from MCI, which found the offsets for individual ratepayers at issue   there to be inconsistent with Commission precedent concerning common carrier rates and the   Commission's rateofreturn regime as promulgated for common carriers. We do not believe that the   Commission's broad discretion under the statute to establish procedures for reviewing rates and making   retroactive adjustments precludes the Commission from allowing refund offsets when reviewing the" 0-,,(,([[R"   reasonableness of a local rate order addressing a cable operator's initial BST and equipment and  L Pinstallation rates at the onset of rate regulation.  S`- V.  ORDERING CLAUSES  S-  B26.` ` Accordingly, IT IS ORDERED that the petition for reconsideration filed by Media   zGeneral Cable of Fairfax County, Inc. regarding the issue of the calculation of Media General Cable of  S-Fairfax County, Inc.'s income tax allowance is DENIED.  Sp-  27.` ` IT IS FURTHER ORDERED that the petition for reconsideration filed by Media General   >Cable of Fairfax County, Inc. regarding the issue of the calculation of Media General Cable of Fairfax  S -  County, Inc.'s refund liability is GRANTED and IS REMANDED FOR FURTHER  S -  CONSIDERATION in accordance with the terms of this Orderto the communities of Fairfax County, City of Fairfax, City of Falls Church, Town of Herndon, and Town of Vienna, Virginia.  S -  #28.` ` IT IS FURTHER ORDERED that the stay of the Bureau's order, which was granted  SX-pending the resolution of this petition, is hereby VACATED . ` `  hh,FEDERAL COMMUNICATIONS COMMISSION ` `  hh,Meredith J. Jones ` `  hh,Chief, Cable Services Bureau  X-#Xj\  P6G;9XP#