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(1) (a) (i) 1) a)D )DDDFrfQq "i~'^"(22TN"""28"2222222222888,\HBBH>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""%7777777777>>>0eOIIOD>OO%*ODaOO>OI>DOOgOOD%%37%07070%777V7777%*77O77055;%;3%%%%%%%%%%%7O0O0O0O0O0aHI0D0D0D0D0%%%%O7O7O7O7O7O7O7O7O7O7O0O7O6O7O7O7>7O0O0O0I0I0I;I0OED0D0D0D0O7O7O7O;O7O;O7%%7%%%7M>;;O7DD,D%D%DO7AO7O7O7O7aOI%I%I%>*>*>*>;D.DD3O7O7O7O7O7O7gOO;D0D0D0O7D%O7>*D%O7E77%%WMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN(BB(37%07777j7#TT7!#TT7T!%%007n&&Bn77lCTn(nBB(A\\>>n%07\n!"IIIITTenn7TnB@;7>lBBn77nC:,|Xn4  pG;X\5hC:,%2Xh*f9 xr G;XX<?xxx,<ix6X@`7X@2\~K} K^5y.X80,X\  P6G;P7jC:,9Xj\  P6G;XP2a=5,&a\  P6G;&P 2e=5,&e4  pG;&W!@(#,h@\  P6G;hPH5!,i,5\  P6G;,P\{,W80,%0W*f9 xr G;X7nC:,|Xn4  pG;X\5hC:,%2Xh*f9 xr G;XXP:% ,J:\  P6G;JP"i~'^5>M\\>>>\}0>03\\\\\\\\\\>>}}}\rryrr>Qygyrr\grrggF3FM\>\\Q\Q3\\33Q3\\\\FF3\QyQQFI3Ic>0cM>>>0>>>>>>\>\3r\r\r\r\r\yyQrQrQrQrQ>3>3>3>3y\\\\\\\\\gQr\\\\gQ\r\r\r\r\yQyQycyQnrQrQrQrQ\\\c\c\>3>\>>>\\ccyQg3gBg>g;g3y\jy\y\\\yrFrFrF\F\F\FccgBg3gM\\\\\\ygcgFgFgF\g>y\\Fg>g\n0\\=(=WddddddddddddddddddddddddddddddddddddddddNBnnB_\F\\\\\\3;\7;\7>>gg\??n\\pBnnBb\\>g\7"yyyy\njc\}nn\y.X80,X\  P6G;P7jC:,9Xj\  P6G;XP2a=5,&a\  P6G;&P 2e=5,&e4  pG;&W!@(#,h@\  P6G;hPH5!,i,5\  P6G;,P\{,W80,%0W*f9 xr G;X7nC:,|Xn4  pG;X\5hC:,%2Xh*f9 xr G;XXP:% ,J:\  P6G;JP\0_=5,%&_*f9 xr G;&X<?xxx,<ix6X@`7X@       2ň S- X    S-  Federal Communications Commission`(# DA 98208 ă  yxdddy  D$2o Ԋ D$2o P3 Before the Federal Communications Commission  S-" Washington, D.C. 20554 ă In the Matter ofR) R)  S-TCI OF AUBURN, INC.R)hPierce County, WA. WA0420 WA0062(#(#X S-TCI OF TACOMA, INC.R)hOrting, WA. WA0060   xx 0(#(#X S-R)hWilkeson, WA. WA0383  S-Appeals of Local Rate Orders of theR)hRuston, WA. A0306 Rainier Cable Commission R) x` `  hh@  S -  MEMORANDUM OPINION AND ORDER TP  S -X` hp x (#%'0*,.8135@8: -ԍId.1 If the Commission reverses a franchising authority's decision, it will not substitute its own  xdecision but instead will remand the issue to the franchising authority with instructions to resolve the case  S-consistent with the Commission's decision on appeal.ZF] X-ԍId. #Xj\  P6G;9XP# Z   SJ - I II. DISCUSSION  S" -  S - ` x4. ` ` Pursuant to the Cable Television Consumer Protection and Competition Act of 1992  x("1992 Cable Act"), the Commission established standards for setting, on the basis of actual cost, the rates  S - xfor installation and lease of equipment used by subscribers to receive the basic service tier.f ] yOA-ԍCommunications Act,  623(b)(3), 47 U.S.C.  543 (b)(3).f Under  xCommission rules, cable operators have the burden of proof in demonstrating the reasonableness of  SZ- xMexisting or proposed rates for their basic service tier and associated equipment.K Z ] {O-ԍSee 47 C.F.R.  76.937(a).K Equipment rates are  xderived from total capital and maintenance costs per unit of equipment. Installation rates are derived from  x^a calculation of an hourly service charge and an application of that charge to different types of  S- xinstallations.  ] yO- xiԍTo calculate the hourly service charge (HSC), an operator adds its expenses for equipment necessary for the  xmaintenance of customer equipment and for the installation of basic tier service to its annual capital costs, excluding  xthe capital costs of customer equipment. The operator then divides the total by the total number of personhours  xspent in those activities over the past year. The HSC is used as a factor in developing charges for installation and  {O -monthly lease of individual pieces of equipment. See Form 1205 at 14. Form 1205 is the official form used by regulators to determine whether an operator's  xregulated rates for equipment and installations are reasonable under the revised benchmark rules which  S- xapply to operators beginning May 15, 1994. ] {O#- xԍSee Second Order on Reconsideration, Fourth Report and Order, Fifth Notice of Proposed Rulemaking in MM  {O$-Docket 92266, 9 FCC Rcd. 4119 (1994) ("Second Order on Recon."). Schedule B of Form 1205 is the schedule operators are  xjrequired to use for their annual operating expenses for service installation and maintenance of equipment.  xkD$2o Schedule C of Form 1205 is the schedule operators are required to use for their capital costs of leased  xcustomer equipment. Maximum permitted rates for installation and lease of equipment properly calculated"' ,`(`(88q"  xpursuant to Commission regulations and Form 1205 are deemed to be reasonable, and are, therefore,  S-lawful under the 1992 Cable Act.j ] {O@-ԍSee Communications Act,  623(b), 47 U.S.C.  543 (b).j  S-  S- ` x5. ` ` Form 1205 may be submitted along with Form 1200, which is used to establish initial  xprogramming service rates to determine initial rates for regulated cable services. Alternatively, Form 1205  xmay be used to update permitted regulated equipment and installation charges based on equipment basket  xycosts. Forms 1200 and 1205 establish a direct linkage between programming service rates and equipment  xand installation costs and charges. Using Form 1200, the operator calculates its total revenue requirement  xper subscriber for all regulated services. The operator then subtracts or "unbundles" costs associated with  xthe equipment basket. The result is that the costs of providing regulated services that are not included  xin the equipment basket are included in the rates for programming services. Therefore, for example, Form  x1205 calculations resulting in lower equipment basket costs should lead to higher programming service  x rates and correspondingly lower equipment and installation rates. Similarly, calculations resulting in  xhigher equipment basket costs should lead to lower programming rates and correspondingly higher equipment and installation rates.  S -  S - `  x6. ` ` In its appeals, TCIWA raises several arguments concerning the treatment, in Form 1205,  xof labor costs of installing and retrieving converters, operating costs of managing converter inventory, and  x/material costs for converters. TCIWA included $20 in capital costs per converter in its Form 1205,  x>Schedule C to account for all of these costs. TCIWA derived the $20 figure by adding the following  xcapital costs: $7 per converter for the labor costs of installation, $7 per converter for the labor costs of  xretrieving a unit from a customer's home, $3 per converter for inventory management costs, and $3 per  xconverter for material costs, including cable jumpers, fittings and splitters. The RCC disallowed TCI xWA's capitalization of converter costs for the following five reasons: (1) the costs are inconsistent with  xthe Commission's definition of "annual purchase costs;" (2) capitalization of the costs is inconsistent with  xgenerally accepted accounting principles; (3) material and labor costs associated with installation of  xconverters are already incorporated by TCIWA in its installation charges in Schedule B of Form 1205;  x(4) labor or other operating costs associated with converter disconnects and converter inventory  xymanagement are already incorporated by TCIWA in its programming service rates; and (5) the proposed  xlcapital costs for converters are not based on the books and records of the local system. The RCC  xexcluded the installation, disconnect, and administrative costs added to the annual capital cost of  x!converters from Form 1205, thereby reducing TCIWA's lease rates for addressable and standard  xconverters. In its appeal, TCIWA challenges each of the RCC's reasons for disallowing its inclusion of $20 of capital costs per converter.  S- ` x7. ` ` In TCIWA's challenge of the RCC's finding that the converter costs cannot be included  xas annual purchase costs, TCIWA cites Commission rules which allow for recovery of incidental costs  S8- xas part of annual purchase costs.% 8Z] {O2#-ԍSee 47 C.F.R.  76.923(f)). Section 76.923(f) states: x   !xMonthly charges for rental of a . . . unit shall consist of the average annual unit purchase costs . . .  xincluding acquisition price and incidental costs such as sales tax, financing and storage up to the time it is provided to the customer. . . . "' ,`(`(['"Ԍ {O-xSection 76.923(f) applies to converter boxes. Id.% TCIWA acknowledges that none of the costs at issue are among those"8Z ,`(`(88 "  xlisted in the rule describing incidental costs of annual purchase costs, but the operator argues that this list  xis not exclusive. TCIWA contends that its $20 of "overhead" costs per converter are incidental costs that  xjmust be included in Schedule C in order to ensure that converters are priced at actual cost. TCIWA also  xLcontests the RCC's claim that TCIWA should not be permitted to capitalize its converter costs because  S`- xsuch costs are not capitalized under GAAP. According to TCIWA, the Commission should focus on  xwhether an operator's accounting treatment meets the Commission's regulatory objective of establishing  x=actual costs for converters rather than on whether the operator is adhering to GAAP. In support of this  xclaim, TCIWA cites a Commission rule that states that the Commission's accounting rules are based on  S- xKGAAP only "to the extent regulatory considerations permit."LZ] {O -ԍSee 47 C.F.R.  32.1.L Contending that the converter costs at issue  xare actual costs, TCIWA maintains that regulatory considerations of establishing converter rates at actual  xcost outweigh the importance of adhering to GAAP in this instance. Thus, TCIWA claims that it should  xbe allowed to recover these costs. Finally, TCIWA challenges the RCC's assertion that the $20 in capital  xcosts per converter should be rejected because the $20 figure was not based on the records of the local  xsystem. TCIWA admits that the $20 figure is based on national, rather than systemspecific information.  xHowever, TCIWA contends that, because of the discrepancy between TCIWA's accounting system and  xthe regulatory demands now placed upon that accounting system, it made more sense for TCIWA to derive cost figures based on a national cost survey rather than to develop systemspecific figures.  S0- ` x8. ` ` The Commission rule defining the "equipment basket" states that the basket shall include  xzall "direct and indirect material and labor costs of providing, leasing, installing, repairing, and servicing  S- x!customer equipment."H] {Ol-ԍSee 47 C.F.R.  76.923.H Pursuant to the 1992 Cable Act, material and labor costs included in the  S- xequipment basket must be recoverable by the operator.$~] {O- xwԍSee 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 and retrieving converters,  xthe costs of managing the converter inventory, and the material costs of converters are clearly related to  xproviding and installing equipment, and are properly classified as part of the equipment basket. Thus,  x[TCIWA must be permitted to recover the labor costs of installing and retrieving converters, the costs of managing converter inventory, and the material costs of converters.  S- ` x9. ` ` TCIWA, however, does not adequately justify its reasons for treating the labor costs of  xinstalling and retrieving converters as capital costs and including them in Schedule C of Form 1205.  Sx- xIndeed, TCIWA does not clearly distinguish these costs from the operating expenses and labor costs that  xare ordinarily included in Schedule B. Instead, TCIWA argues that it should include these costs in  xSchedule C because it has not listed them elsewhere in Form 1205. The Commission's instructions for  xcompleting Schedule B specifically provide that operators include "all annual operating expenses . . . for  S- x{installation and maintenance of all cable facilities" on Schedule B.<j ] yO&-ԍFCC Form 1205 at 11.< Moreover, operating expenses" ,`(`(88."  xincurred specifically to maintain and install customer equipment are referenced expressly in the  S- xzinstructions for completing Schedule B.] {O@-#X\  P6G;P#эId.#X\  P6G;P# Thus, the Commission's instructions for Form 1205 clearly  xindicate that TCIWA should include the labor costs of installing and retrieving converters on Schedule  S- x^B rather than on Schedule C.Z] {O- x-#X\  P6G;P#эThe issue raised in this case is analogous to one discussed in ML Media Partners L.P., trading as Multivision  {OL- xCable TV (Fairfield, CA), 11 FCC Rcd. 1017 (1995) ("Multivision"), where the operator sought to capitalize the labor  {O- xcosts associated with inside wiring in its preparation of FCC Form 393. In Multivision, we held that, "Cable  xoperators may not capitalize labor costs associated with inside wiring . . . . [Such costs] are properly included in the  {O -charges for the installation of inside wiring." Multivision at 1024. #X\  P6G;P# 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, which  S8-is used only to "compute the annual capital costs of equipment leased to customers."8] {O -#X\  P6G;P#эSee FCC Form 1205 at 12.#X\  P6G;P#є  S- ` 3x10. ` ` TCIWA 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 agree that  xcertain costs of managing converter inventory may be capitalized and therefore included on Schedule C  xas converter costs. Pursuant to Commission rules, purchase costs that are capitalized and reported on  x Schedule C as converter costs would include "acquisition price and incidental costs such as sales tax,  S - xfinancing, and storage up to the time [the converter] is provided to the customer.K ] {Od-ԍSee 47 C.F.R.  76.923(f).K Although the list of  x!incidental costs in 76.923(f) is not exhaustive, the costs at issue, i.e., labor costs of retrieval and  xreinstallation of converters, the cost of inventorying such items, and the material supplies associated with  xytheir reinstallation, are not incidental to the activities associated with placing new converters into service.  xlThe rules define incidental costs as costs incurred up to the time the equipment is provided to the  xLcustomer. The converter installation and retrieval costs that TCIWA seeks to capitalize appear to have  xybeen incurred after the initial converter installation. The rules do not provide for the capitalization of the costs of retrieval, reinstallation and reinventorying of converters.  S- ` x11. ` ` Further, TCIWA does not clearly explain the basis for including the material and  xequipment costs in question on Schedule C. Certain materials and supplies associated with equipment  xinstallations may be capitalized. Where such material and supplies have been capitalized as part of the  x[converter cost, it would be proper to include such costs on Schedule C and recover them in the converter  xlease charge. Alternatively, incidental material and supplies could be expensed, included on Schedule B,  xand recovered in installation charges or in the maintenance element of the appropriate lease charge. The  x|accounting treatment, under GAAP, would determine which schedule is used. If Schedule C is  xlappropriate, the accounting would determine which asset group it should be included with on this  Sx- xschedule.Ex6 ] {ON$-ԍSee FCC Form 1205 at 3.E Thus, if the operator capitalizes certain converter installation materials and supplies in the  xzconverter account, it would be proper to report the costs on Schedule C for converters. It is not clear  xfrom the record in this case, however, where all of the materials and supplies in question have been  xrecorded. It appears that the costs involved either are not capitalized or have been capitalized in accounts" ,`(`(88k"  xjfor equipment for which TCIWA has not established a separate regulated charge. In either case, we find nothing in the record to indicate that they may be included with the converter costs on Schedule C.  S- ` x12. ` ` We find that TCIWA has not provided any support for its $20 figure for converter capital  xcosts, aside from its assertion that the figure is based on a national survey. The instructions to Form 1205  xstate, in part, that "data may be identified at the level of organization at which the records are kept, e.g.,  S- xsystemwide."E] {Ox-ԍSee FCC Form 1205 at 4.E As noted above, although TCIWA concedes that the RCC correctly notes that it "relied  xon national, rather than systemspecific, information to calculate the $20 figure," it contends that because  x0of conflicts between its bookkeeping and regulatory demands, "it made far more sense to derive a  x>conservative figure based on a national cost survey than trying to develop numerous systemspecific  xfigures." Moreover, TCIWA continues, the $20 figure is at the lowest end of its sampled range. The onus  xis not upon the RCC to accept TCIWA's proposed $20 figure and reasons in support thereof, but rather,  x\on TCIWA to provide the RCC with data collected and maintained on the same organization level at  xwhich TCIWA keeps its other records. We are not persuaded by TCIWA's justifications to deviate from  xthat requirement. We find, therefore, that TCIWA has failed to meet its burden under Commission rules  S - xto demonstrate the reasonableness of its rates.n Z] yO-ԍ47 C.F.R.  76.937(a).#x6X@`7 iX@#n Accordingly, we deny TCIWA's appeal with respect to  xthe labor costs of installing and retrieving converters, the operating costs of managing converter inventory,  SX-and the material costs of converters.X] {O- xԍOur decision with respect to this issue is consistent with that reached in In re TCI Cablevision of Nevada, Inc., 11 FCC Rcd. 14378, 1438384  1213 (1996), which is currently on reconsideration.  S- V. ORDERING CLAUSES  S- ` ~x 13. ` ` Accordingly, IT IS ORDERED that the appeals by TCI of Auburn, Inc. and TCI of  S- xTacoma, Inc., of the local rate orders of the RCC, with respect to the capitalization of the labor costs of  xinstalling and retrieving converters, the operating costs of managing converter inventory, and material costs  S@-of converters, ARE DENIED .  S- ` x14. ` ` This action is taken by the Deputy Chief, Cable Services Bureau, pursuant to authority  S-delegated by  0.321 of the Commission's rules.=D] yO-ԍ47 C.F.R.  0.321.=  x` `  hhFEDERAL COMMUNICATIONS COMMISSION  S-x` `  hhJohn E. Logan x` `  hhDeputy Chief, Cable Services Bureau  X`-#Xj\  P6G;9XP#T #&a\  P6G;&P# ă