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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-0515 ) Appeal of Local Rate Orders Issued by) Warren, Ohio (OH0270) ) MEMORANDUM OPINION AND ORDER Adopted: June 12, 1998 Released: June 16, 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 Warren, Ohio ("City"), has appealed a local rate order ("Order") passed by the City as the local franchising authority ("LFA"). The issues are (1) whether TCI used the proper starting rate when it calculated its basic service tier ("BST") rates for June, 1997 through May, 1998; (2) whether the City could update TCI's inflation figure after TCI made its rate filing; and (3) whether the City improperly limited TCI's right to choose its filing date. The City has filed an Opposition and TCI has filed a Reply. The City also filed a Motion for Extension of Time and warrants that TCI has consented to the request. We will grant the extension. II. BACKGROUND 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 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 order, 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. To justify rates for the period beginning May 15, 1994, operators must use the FCC Form 1200 series. In Form 1200, operators calculate their benchmark rates. Operators may (and sometimes must) adjust their rates as often as quarterly, using FCC Form 1210, or annually, using Form 1240. Form 1240 reflects reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels for the twelve months following the rate change. Using Form 1240, operators also "true up" the previous year's rates to correct for differences between actual and projected costs. Operators must decrease their rates for overestimation and may increase their rates for underestimations. The true-up period examines only costs actually incurred, so it includes costs incurred before the Form 1240 is filed and does not coincide exactly with the previous year's projected rate period. 4. The inflation adjustment that operators may make on the Form 1240 applies to the non- external cost portion of rates. To calculate the inflation adjustment, operators must use quarterly figures based on changes in the Gross National Product Price Index ("GNP-PI") 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. Operators calculating true-up period inflation use the appropriate quarterly figure for each month of the true-up period to calculate an average inflation factor for the entire true-up period. 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. An operator that seeks to increase its maximum permitted rate ("MPR") has the burden of demonstrating that the increase conforms with our rules. The operator must submit the appropriate FCC rate form and respond to an LFA's request for relevant supplemental information. After reviewing an operator's rate filing, along with any additional information, the franchising authority may either approve the operator's requested rate increase, or it may issue a written decision explaining the factors it considered in denying the increase. III. PLEADINGS AND DISCUSSION A. Starting Rate 6. On March 3, 1997, TCI filed an FCC Form 1240 with the City to justify its BST rate for the projected period beginning June 1, 1997 and for the true-up period covering December 1, 1995 to November 30, 1996. A cable operator begins its Form 1240 rate calculations, as the instructions require, by listing the MPR that it is currently permitted to charge. An operator then adjusts this "starting rate" to determine a new MPR from which the true-up and projected rates are established. For operators like TCI who have previously submitted a Form 1240, the starting rate is found in its most recent filing. TCI listed $10.08 as the starting rate for its 1997 Form 1240, but the City claims that the starting rate should be $9.88. Each party claims that its starting rate comes from TCI's amended 1996 Form 1240. This purely factual disagreement arises from confusion over which of TCI's 1996 Form 1240s is the original version (filed in March 1996) and which is the amended copy (filed in April 1996). TCI states that it explained to the City how it arrived at a starting rate of $10.08 in letters dated June 26, 1996 and December 4, 1997, and that the amended filing does, in fact, contain the higher starting rate. The City responds that nothing on the face of the forms indicates which was first, and that it used the dates it received the forms to distinguish them. TCI admits that its forms "were not conspicuously labeled." Neither TCI nor the City has provided the version of the rate form relied on by the City, and neither has explained how the two forms differ or how those differences might help resolve the factual dispute about which is the original and which is the amended form. 7. The Commission will defer to a local franchising authority's findings of fact if there is a reasonable basis for the findings. However, the record before us is insufficient to determine the reasonableness of the City's reliance on a starting rate of $9.88. We therefore remand this issue with instructions to make reasonable efforts to resolve this matter and explain what the City relied upon to make the determination. B. Inflation 8. The true-up period in TCI's Form 1240 included two months, October and November 1996, for which there was no final inflation figure when TCI made its filing. Pursuant to Commission rules, TCI therefore used 2.21%, the Commission's final number for the third quarter of 1996. After TCI filed its Form 1240, the Commission announced a final inflation figure of 1.83% for October and November. 9. The City states that TCI must update its inflation figure, replacing 2.21% with 1.83%, when TCI amends it filing to reflect the "correct" starting rate discussed above. The City cites the Commission's decisions in Cencom and TCI Cablevision of Eastern Iowa to support its position: "[W]here an operator's rates must be adjusted, either 'because the operator failed to provide correct information in its rate justification or failed to complete its rate justification correctly, the Bureau recalculates the maximum permitted rate using the most accurate inflation available, rather than earlier estimates.'" TCI responds that the City's argument collapses under it own weight. The starting rate is not wrong, TCI states, so it will not need to revise its filing and therefore does not need to "refresh" its inflation figure. 10. The City and TCI correctly state the rule for updating inflation figures after an operator makes its rate submission. An LFA should not find a rate unreasonable solely because more current inflation data has become available by the time the LFA reviews a cable operator's rate submission. Because a cable operator must give its LFA 90 days notice before implementing rate adjustments, allowing LFAs 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 this case, TCI must update the inflation figure if it changes its $10.08 starting rate. If the parties resolve that TCI's starting rate is correct, however, and no other changes to TCI's rate calculation are required, then the inflation figure should not be refreshed. 11. Notwithstanding TCI's purported obligation to update its inflation figure, the City contends that TCI may not use an "estimated" inflation figure because it defeats the purpose of the true-up: "The problem with using estimated inflation for even a portion of the true-up is that inflation for that portion will never in fact be trued up." As noted above, however, our rules contemplate that there will be some months in a true-up period where actual inflation is not yet known. The rules, therefore, allow an operator to use the most recently available inflation figure, rather than a final figure. 12. The City also believes that using estimated inflation conflicts with Section 76.922(b)(9)(ii) of the Commission regulations. 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. C. TCI's Filing Date 13. As part of its opposition to the use of estimated inflation, the City contends that TCI should delay filing its next Form 1240 until actual inflation factors are known for all the months of the true-up period. This attempt to limit TCI's ability to choose its filing date is not a reasonable application of Commission rules. An operator may choose its filing date as long as it notifies the LFA of its choice. The LFA may reject the filing date for good cause, e.g., because of a legislative or administrative recess, but may not reject the date to delay an operator's rate adjustments. While the City did not literally "reject" TCI's filing date in its Order, it has unreasonably limited TCI's choice in the future by ordering the operator to pick a date that ensures the availability of a final inflation figure. Because the use of estimated, or non-final, inflation is proper, the City may not cite its use as "good cause" to limit TCI's filing date and delay appropriate rate adjustments. IV. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED that TCI's Appeal IS GRANTED. 15. IT IS FURTHER ORDERED that this case IS REMANDED to the local franchise authorities for further proceedings consistent with this Order. 16. IT IS FURTHER ORDERED that the City's Motion for Extension of Time IS GRANTED. 17. 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