******************************************************** 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: ) ) TCI CABLEVISION OF EASTERN IOWA ) File Nos. CSB-A-0424, CSB-A-0362 ) Appeal of Rate Orders Denying Basic Service ) Rates in Iowa City, Iowa (CUID IA 0090)) ORDER ON RECONSIDERATION Adopted: June 3, 1998 Released: June 8, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Pursuant to Section 1.106 of the Commission's rules, TCI Cablevision of Eastern Iowa ("TCI") has filed a Petition for Reconsideration ("Petition") of Cable Services Bureau Order DA 98-0309 ("Bureau's Order") released on February 20, 1998. The Bureau denied TCI's appeals of two rate resolutions adopted by Iowa City, Iowa, ("City") that addressed TCI's 1996 and 1997 annual basic service tier ("BST") rate filings. TCI argues that the Bureau: (1) incorrectly rejected TCI's external cost treatment of a franchise-required relocation of cable; and (2) mistakenly upheld the City's decision to "refresh" TCI's inflation figure after TCI made its initial rate filing. The City filed no opposition to the Petition. For the reasons stated below, we deny reconsideration. II. BACKGROUND AND DISCUSSION A. Required Relocation of Cable as External Cost 2. Under Commission rules, cable operators may pass through the costs of some franchise requirements to their subscribers as external costs. When determining which franchise requirements are recoverable as external costs, the Commission asks whether they are specifically enumerated in the franchise agreement, and whether they produce costs that an operator would not have incurred without a franchise requirement. The Commission has declined to extend external cost treatment to all possible circumstances. For example, the mere presence of a franchise requirement does not automatically result in a right to recover its cost as an external cost. Also, a cable operator's control over the cost of a franchise requirement is not an exclusive criterion for granting external cost treatment. The Commission has outlined some specific situations when franchise requirements are and are not recoverable as external costs. An operator may pass through increases in the costs of providing public, educational, and governmental ("PEG") access channels and programming, meeting technical and customer service standards to the extent they exceed federal standards, and providing video, voice, and data transmission to or from governmental and educational institutions. An operator may also pass through the costs of a franchise requirement that it remove aerial facilities and place them underground. In contrast, an operator may not pass through the costs of a requirement that it bury new cable underground, because the operator could have independently incurred them as part of an upgrade or rebuild of its system. Upgrades and rebuilds, even if mandatory, are not recoverable as franchise costs. 3. TCI argues that the Bureau adopted a "peculiarly narrow" interpretation of a cable operator's right to pass through the costs associated with franchise requirements. In its 1996 Form 1240 rate filing, TCI sought to recover the costs of a "forced relocation" of its cable facilities due to a municipal road project. The project caused the relocation of some utility poles on which TCI had strung cable. A City ordinance, which TCI insists is part of the franchise agreement, requires that an operator "shall, at its expense ... relocate in other public place any property of the Grantee when required by the City." The City refused to allow TCI to treat these costs as external costs. In its decision, the Bureau found that Commission regulations allow external cost recovery only for cable moved from poles to underground, while it appeared that TCI only moved its cable from pole to pole. TCI maintains that the Bureau's distinction between cable moved underground and cable moved to new poles has "no logical basis" and results in a "badly contorted approach to forced relocates." TCI asserts that the Commission included "forced relocates" in its discussion of recoverable, franchise-required expenses in the Thirteenth Reconsideration, and did not limit external cost treatment to only one type of mandatory cable relocation. 4. The City did not act unreasonably in applying Commission regulations, so TCI may not treat the costs of the cable relocation as external costs. An operator may not cite the part of its franchise agreement supporting higher rates while ignoring parts of the agreement which dictate otherwise. TCI admits that the franchise requirement to relocate property was part of the parties' franchise agreement (thereby meeting a threshold for external cost treatment), but does not acknowledge the condition that relocations would occur "at [TCI's] expense." TCI may not rely on the agreement's language favoring external cost recovery while ignoring the language that clearly precludes it. The operator freely entered into the franchise agreement and may not claim unfamiliarity with its terms. 5. Even if TCI could somehow avoid the explicit terms of the franchise agreement, TCI has failed to demonstrate that it would not have incurred the pole relocation costs in the absence of the franchise requirement. TCI would have moved its cables regardless of the franchise requirement because the pole owner needed to move its poles to accommodate the road project. TCI's alternatives were to find another way to serve its subscribers in the affected area or quit serving them altogether. Furthermore, TCI has not presented a sufficient argument for treating its pole-to-pole relocation costs as external costs, considering that such relocation does not explicitly fall within the Commission's external cost recovery rules. Although the Commission does explicitly allow external cost recovery for the mandatory relocation of cable from poles to underground, this kind of relocation creates significantly higher marginal costs than pole-to-pole relocation. TCI has not shown that its pole-to-pole relocation produced such extraordinary expenses. For these reasons, we affirm the decision to deny external cost treatment of TCI's cable relocation costs. B. Inflation Adjustment 6. TCI contends that the Bureau erred by affirming the City's 1996 decision to replace TCI's use of a 2.61% inflation figure with a more recent 2.22% number. In its initial Form 1240 filing on March 1, 1996, TCI used the 2.61% figure to calculate its rates, asserting that it was the most accurate figure available at the time. After TCI responded to the City's request for additional information, the City updated the inflation figure and recalculated the rates. The City then established TCI's maximum permitted rate ("MPR") in its 1996 and 1997 rate resolutions. The Bureau upheld the City's actions: "When an operator revises its Form 1240 for a reason other than the availability of more accurate inflation figures, it must also take the opportunity to refresh its rate calculations." TCI argues that the Bureau's Order was factually in error because TCI did not revise its Form 1240, but simply provided an unsigned, working copy in response to the City's information requests. Moreover, although admitting that it erred in computing an entry for PEG access payments, TCI states that the additional information proved that the error would not impact its rates. TCI concludes that because it committed no material error in the original filing, it should not be required to update its inflation figure. 7. In its Petition, TCI improperly limits inflation refreshing to those circumstances when an operator files a new, signed form that makes a correction having a material effect on its rates. Whether or not TCI's supplemental 1240 is considered an amended rate form, the City justifiably updated the inflation figure because TCI committed errors relating to its PEG access and pole relocation costs that required recalculation of the rate. As stated in Cencom: [I]f a rate ... has to be adjusted for reasons other than the availability of a more accurate 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] recalculates the maximum permitted rate using the most accurate inflation information available. We affirm the determination that refreshing inflation figures in this circumstance is fully consistent with Commission precedent. III. ORDERING CLAUSES 8. Accordingly, IT IS ORDERED that TCI's Petition for Reconsideration IS DENIED. 9. This action is taken by the Acting Chief, Cable Services Bureau, pursuant to authority delegated by the Commission's rules in 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau