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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. 20554 In the Matter of ) ) TCI CABLEVISION OF OHIO, INC. ) File No. CSB-A-0512 ) File No. CSB-A-0526 Appeal of Local Rate Orders Issued by) Fairfield and Hamilton, Ohio ) (Fairfield / OH0250, Hamilton / OH0251)) MEMORANDUM OPINION AND ORDER Adopted: May 21, 1998 Released: May 27, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Pursuant to Section 76.944(b) of the Commission's rules, TCI Cablevision of Ohio, Inc. ("TCI"), a franchised cable operator serving Fairfield and Hamilton, Ohio ("Cities"), has appealed two local rate orders ("Orders") issued by the Cities as local franchising authorities ("LFAs"). The issue is whether the Cities could update TCI's Form 1240 inflation figure after TCI filed its rate forms. Neither of the LFAs has filed an opposition to the Appeals. We resolve both Appeals in this Order in the interest of administrative efficiency and because they raise the same issue. II. DISCUSSION 2. Under the Communications Act, the Commission reviews appeals of rate orders issued by LFAs. When considering an appeal, the Commission will not conduct a de novo review, but instead will sustain an LFA's decision as long as it did not act unreasonably in applying Commission regulations. If the Commission reverses an LFA's decision, it will not substitute its own judgment, but will remand the case to the franchising authority with instructions to resolve it consistent with the decision. 3. Once initial basic service tier ("BST") rates are established, cable operators may adjust their rates for inflation, changes in external costs, and changes in the number of regulated channels. Operators may elect the annual rate adjustment methodology, using FCC Form 1240, to project changes occurring in the twelve months after their rate changes are scheduled to go into effect and to true up their projected charges to correct for differences between actual and projected costs occurring during the past rate year. Because the true-up period examines only costs actually incurred, it can only include costs incurred before the Form 1240 is filed and will not coincide exactly with the previous year's projected period. 4. The inflation adjustment applies to the non-external, or residual, cost portion of an operator's rates. Operators filing FCC Form 1240 must base the inflation adjustment on quarterly figures based on changes in the Gross National Product Price Index ("GNP-PI") as published by the Bureau of Economic Analysis of the United States Department of Commerce. The Commission develops an annualized inflation factor for each quarter of a calendar year from the GNP-PI and publishes it shortly after the quarterly GNP-PI is released, usually between three and four months after the end of the quarter, depending on the schedule of the Commerce Department. Operators calculating the inflation factor for a true-up period or periods use the appropriate quarterly figure for each month in the true-up period to calculate an average inflation factor. If the Commerce Department or the Commission has not yet published an inflation adjustment factor for some months in a true-up period, operators may use the most recently available quarterly adjustment factor for those months. Operators calculating projected period inflation use both the inflation factor for each true-up period and the inflation factor current at the time the rate form is prepared and filed with the LFA. 5. On March 1, 1997, TCI filed an FCC Form 1240 with the Cities to justify its basic service tier ("BST") rates for the projected period beginning June 1, 1997 and for the true-up period extending from December 1, 1995 to November 30, 1996. As Commission rules permit, TCI adjusted the residual component of its true-up period charges to reflect inflation. Because TCI did not have a final inflation figure for the last two months of the true-up period, it used 2.21%, the official inflation figure for the previous quarter, in its calculations. In their Orders, the Cities rejected TCI's use of the 2.21% figure and substituted 1.83%, a figure the Commission announced on April 8. TCI contends that the substitution was improper, because the 1.83% figure was not available until a month after TCI submitted its Form 1240s. Citing Commission precedent, TCI argues that, "Where a filing is otherwise accurate, the relevant date for selecting inflation data is when the operator completes its Form 1240 calculation, not when the franchising authority completes its review." 6. We agree with TCI. The Cities incorrectly updated TCI's Form 1240 inflation figure. An LFA should not find a rate unreasonable solely because more accurate inflation data has become available by the time it reviews a cable operator's rate submission. Because a cable operator must give its LFA 90 days notice before implementing rate adjustments, allowing an LFA to refresh a cable operator's inflation calculation with new quarterly inflation data released during the review period would result in adjustments for most, if not all, BST rate changes. This could delay otherwise permissible rate changes or require changes in already-implemented rate changes, causing needless confusion to subscribers and increased administrative costs for the cable operator. On the other hand, if a rate is unreasonable on its face or has to be adjusted for reasons other than the availability of a more current inflation figure, e.g., because the operator failed to provide correct information in its rate justification or failed to complete its rate justification form correctly, the LFA may recalculate the maximum permitted BST rate using the most accurate inflation information available at the time of its review. In their Orders, the Cities do not state that TCI's rates required adjustment for any reason other than the announcement of the new, lower inflation figure. The Cities, therefore, should not have changed TCI's inflation figure. 7. The Orders cite Section 76.922(b)(9)(ii) to support the conclusion that inflation must be accurate on the date of the rate change, not the date of an operator's rate filing. Section 76.922(b)(9)(ii) states, "Notwithstanding the above, any subsequent changes in a cable operator's rates must be made from rate levels derived from data [that was current as of the date of the rate change]." That section is properly read only in relation to Section 76.922(b)(9)(i), which discusses the accuracy of an operator's rate calculations before it becomes subject to rate regulation. Section 76.922(b)(9)(ii) refers to rate changes following calculations made at the initial regulation stage, so it does not apply to this case. III. ORDERING CLAUSES 8. Accordingly, IT IS ORDERED that TCI's Appeals ARE GRANTED. 9. IT IS FURTHER ORDERED that this case IS REMANDED to the local franchise authorities for proceedings consistent with this Order. 10. IT IS FURTHER ORDERED that the Requests for Emergency Stay of Local Rate Order ARE DISMISSED. 11. This action is taken by the Acting Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau