******************************************************** 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 ) CUID Nos. MN0362 (Anoka) ) MN0363 (Andover) Meredith Cable ) MN0364 (Champlin) ) MN0365 (Ramsey) Complaints Regarding ) Cable Programming Services Tier Rates ) ) Petition for Special Relief ) CSR - 4855-R ORDER Adopted: June 15, 1998 Released: June 17, 1998 By the Acting Chief, Cable Services Bureau: 1. In this Order we consider complaints about the rates charged by the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. Operator has attempted to justify its CPST rates through benchmark justifications on FCC Form 1200, multiple FCC Form 1210s and FCC Form 1240. We have already issued a separate order in which we found Operator's rates in effect before May 15, 1994 to be reasonable. Accordingly, this Order addresses only the reasonableness of Operator's CPST rates in effect after May 14, 1994. We also consider a petition for special relief ("Petition") regarding Operator's CPST rates in the communities referenced above, as well as several other communities in Minnesota, effective January 1, 1996. 2. We will first address Operator's Petition. In its Petition, Operator requests "a waiver of the [Federal Communications Commission's ("Commission's")] rules insofar as those rules would require [Operator] to adjust its rates to reflect the movement of channels from the . . . CPST to the basic services tier ("BST") and/or prevent [Operator] from shifting certain permitted increases in BST rates to the CPST charge on a revenue-neutral basis." Effective January 1, 1996, Operator shifted channels from its CPST to its BST, but did not remove the costs of those channels from the CPST rate. Operator states that grant of its Petition will serve the public interest for two reasons. First, it enhances the value of the BST and will benefit BST-only customers. Second, Operator's decision not to raise its BST rate to include the new channels, while leaving the costs of those channels in the CPST rate, has been endorsed by the local franchising authorities ("LFAs") for the communities affected. 3. Essentially, Operator is asking us to waive Section 76.922(g)(5) of the Commission's rules. Section 76.922(g)(5) requires that "[w]hen a channel is moved from a CPST or a BST to another CPST or BST, the price of the tier from which the channel is dropped shall be reduced to reflect the decrease in programming costs and residual . . . ." We first note that while Operator received approval from the LFAs for the affected communities prior to the implementation of its new pricing plan, Operator did not file its Petition with the Commission until nine months after its new rates went into effect. In the Communications Act, Congress specifically stated that cable operators may add additional video programming signals or services to its BST and that "[a]ny such additional signals or services provided on the [BST] shall be provided to subscribers at rates determined under the regulations prescribed by the Commission . . . . The Commission's rules prescribing the proper accounting for the movement of channels, and their associated costs, between tiers were released by the Commission on November 18, 1994, more than a year before Operator implemented its new pricing plan for its BST and CPST. Operator, therefore, had ample time to adjust its rates, and move its channels, so as to comply with the Commission's rules. 4. Further, the Communications Act sets up a dual regulatory structure for cable services, giving local franchising authorities jurisdiction to regulate BST and associated equipment rates, and giving the Commission jurisdiction to regulate CPST rates upon the filing of a valid complaint. While the Commission is authorized to consider appeals from local rate orders, and has prescribed the standards and procedures for local rate regulation, the Commission is generally not involved in BST rate regulation and is not in a position to evaluate offsets between the rates charged for BST and CPST. Despite the LFAs' understandable interest in maintaining low BST rates, Operator has presented us with no compelling reason to deviate from this position, and, therefore, we deny Operator's Petition. We will now review the CPST rates charged by Operator after May 14, 1994. 5. Under the Communications Act, the Commission is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. If the Commission finds a CPST rate to be unreasonable, it shall determine the correct rate and any refund liability. 6. To justify rates for the period beginning May 15, 1994 through a benchmark or cost of service showing, operators must use the FCC Form 1200 series. Cable operators may file an FCC Form 1210 to justify rate increases based on the addition and deletion of channels, changes in certain external costs and inflation. In addition, Operators must file an FCC Form 1210 at least 30 days before new rates are scheduled to go into effect, where there is a pending complaint against the CPST rate. Operators may alternatively justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. 7. Upon review of Operator's FCC Form 1200, we find Operator's calculated maximum permitted rate ("MPR") of $12.17 to be reasonable. However, Operator's actual CPST rate in effect from May 15, 1994 through July 13, 1994 was $13.73. Because Operator's actual CPST rate exceeds its MPR, we find Operator's actual CPST rate of $13.73, effective May 15, 1994 through July 13, 1994, to be unreasonable. We find Operator's actual CPST rate of $12.17, effective July 14, 1994 through March 31, 1995 to be reasonable. 8. Upon review of Operator's FCC Form 1210 covering the period April 1, 1994 through March 31, 1995, we find Operator's MPR of $12.93 to be reasonable. Because Operator's actual CPST rate of $12.93, effective April 1, 1995 through June 30, 1995, does not exceed its MPR, we find Operator's actual CPST rate of $12.93, effective April 1, 1995 through June 30, 1995, to be reasonable. Operator subsequently filed a revised FCC Form 1210 covering the period April 1, 1994 through March 31, 1995, which included an Inflation Adjustment Factor of 1.0521 rather than the 1.0215 Operator previously claimed. Because Operator had taken a 3 percent inflation adjustment in its FCC Form 1200 filing, it was not entitled to take the 3 percent inflation adjustment again by applying the 5.21 percent inflation rate. However, because Operator used the 5.21 percent rate based on its good faith reliance on Commission instructions, we have allowed the full 5.21 percent inflation adjustment through December 31, 1995. Upon review of Operator's revised FCC Form 1210 covering the period April 1, 1994 through March 31, 1995, we find Operator's MPR of $13.18 to be reasonable. Because Operator's actual CPST rate of $13.18, effective July 1, 1995 through December 31, 1995, does not exceed its MPR, we find Operator's actual CPST rate of $13.18, effective July 1, 1995 through December 31, 1995, to be reasonable. 9. Upon review of Operator's FCC Form 1210 covering the period April 1, 1995 through December 31, 1995, we adjusted Operator's Lines A1 and A2 to coincide with Operator's previous unrevised FCC Form 1210, thereby removing the excess 3 percent inflation. This adjustment resulted in a revised MPR of $12.35 rather than Operator's MPR of $12.56. Because Operator's actual CPST rate of $14.26, effective January 1, 1996 through December 31, 1996, exceeds its revised MPR, we find Operator's actual CPST rate of $14.26, effective January 1, 1996 through December 31, 1996, to be unreasonable. 10. Upon review of Operator's FCC Form 1210 covering the period January 1, 1996 through December 31, 1996, we adjusted Operator's Lines A1 and A2 to coincide with Operator's previous revised FCC Form 1210. We also adjusted Operator's Inflation Factor to 1.0214. These adjustments resulted in a revised MPR of $14.37 rather than Operator's MPR of $14.61. Because Operator's actual CPST rate of $16.32, effective January 1, 1997 through December 31, 1997, exceeds its revised MPR, we find Operator's actual CPST rate of $16.32, effective January 1, 1997 through December 31, 1997, to be unreasonable. 11. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1998 through December 31, 1998, we adjusted Operator's Line A1 to $14.37 to coincide with the MPR from Operator's previous revised FCC Form 1210. We adjusted the Inflation Factors on Operator's Worksheet 1 and Line C1 (Unclaimed Inflation) to reflect the most accurate inflation data currently available. This resulted in an adjustment to Operator's Line C1 and Operator's Line C3 (Inflation Factor for True-Up Period 1) and Line C4 (Inflation Factor for True-Up Period 2). We also adjusted Operator's Line C5 (Current FCC Inflation Factor) to 1.0143. We adjusted Operator's Worksheet 8 (True-Up Rate Charged) to reflect the actual rate charged during the True-Up Period in accordance with the FCC Form 1240 Instructions. These adjustments resulted in a revised MPR of $14.36 rather than Operator's MPR of $16.71. Because Operator's actual CPST rate of $18.01, effective January 1, 1998, exceeds its revised MPR, we find Operator's actual CPST rate of $18.01, effective January 1, 1998, to be unreasonable. 12. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $13.73, charged by Operator in the franchise areas referenced above effective May 15, 1994 through July 13, 1994, IS UNREASONABLE. 13. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rates, charged by Operator in the franchise areas referenced above, effective July 14, 1994 through December 31, 1995, ARE REASONABLE. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $14.26, charged by Operator in the franchise areas referenced above effective January 1, 1996 through December 31, 1996, IS UNREASONABLE. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $16.32, charged by Operator in the franchise areas referenced above effective January 1, 1997 through December 31, 1997, IS UNREASONABLE. 16. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $18.01, charged by Operator in the franchise areas referenced above effective January 1, 1998, IS UNREASONABLE. 17. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the communities referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $12.17 per month (plus franchise fees), plus interest to the date of the refund, for the period May 15, 1994 through July 13, 1994. 18. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the communities referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $12.35 per month (plus franchise fees), plus interest to the date of the refund, for the period January 1, 1996 through December 31, 1996. 19. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the communities referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $14.37 per month (plus franchise fees), plus interest to the date of the refund, for the period January 1, 1997 through December 31, 1997. 20. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the communities referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $14.36 per month (plus franchise fees), plus interest to the date of the refund, for the period January 1, 1998 through the day before Operator implements the maximum permitted CPST rate of $14.36. 21. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, and shall within 30 days of the release of this Order, file a report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of Commission approval of the plan. 22. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator take into account our FCC Form 1240 adjustments when calculating its maximum permitted rate and performing the true-up calculation on its next FCC Form 1240. 23. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's Petition for Relief is DENIED and the referenced complaints ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau