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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 ) ) Prime Cable of Alaska, L.P. ) CUID No. AK0028 (Anchorage) ) ) Complaints Regarding ) Cable Programming Services Tier Rates) ORDER Adopted: August 5, 1998 Released: August 7, 1998 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints concerning the rates of the above-captioned operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator's response includes cost-of-service justifications filed on FCC Form 1220. This Order addresses the reasonableness of Operator's rates for the period after May 14, 1994. We have already issued a separate order finding that Operator's rates prior to that date were reasonable. 2. Under the Communications Act, the Federal Communications Commission ("Commission") is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. The Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), and our rules in effect at the time the complaints were filed, required the Commission to review CPST rates upon the filing of a valid complaint by a subscriber. The filing of a valid complaint triggers an obligation on behalf of the cable operator to file a justification of its CPST rates. If the Commission finds the rate to be unreasonable, it shall determine the correct rate and any refund liability. 3. The Commission's original rate regulations took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Cable operators with valid CPST complaints filed against them prior to May 15, 1994 must demonstrate that their CPST rates were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their rates were in compliance with the revised rules from May 15, 1994 forward. Cable operators attempting to justify their rates for the period prior to May 15, 1994 using a benchmark showing must complete and file FCC Form 393. Operators seeking to justify their rates for the period beginning May 15, 1994 using a cost-of service showing must use the FCC Form 1220. 4. Operator asserts that its monthly CPST rates are not unreasonable. Upon review of Operator's FCC Form 1220, we have made the following adjustments. The Plant Under Construction costs reported on Form 1220, Worksheet A, line 11 related to capital assets to be placed into service after the filing date. Since the assets were not yet serviceable for subscriber benefit, these costs were excluded from rate base as prescribed in paragraph 31 of the Final Cost Rules. 5. Operator claimed acquisition-related intangible assets valued at $91.9 million in rate base, and $39.4 million in corresponding amortization expenses. However, for pre-May 15, 1994 acquisitions, the Final Cost Rules prescribe that acquisition-related intangible assets shall be limited to 66% of a system's purchase price. Amortization expenses should be limited similarly. Accordingly, we reduced net intangible assets by $43.7 million and amortization expenses by $5.6 million. 6. Operator also claimed Capitalized Start-Up Losses valued at $102.7 million in rate base, and corresponding amortization expenses valued at $6.8 million. Because the system under review was acquired in 1989, it does not qualify as a "start up" and is not entitled to claim start up losses or related amortization expenses. Therefore, both of these valuations were excluded entirely from our calculations. 7. The Final Cost Rules at paragraphs 119-123 prescribe that common costs should be allocated to the service tiers based on cost causative relationships. We found that Operator relied extensively on a weighted channel methodology, i.e., a ratio of the number of channels on a tier times the number of tier subscribers to total channels times total subscribers. As outlined in paragraph 123 of the Final Cost Rules, we find this methodology unsuitable for distributing asset costs, for which the number of channels is the preferred cost driver. Similarly, expenses related to asset maintenance should be allocated based on channel ratios to accord with the matching principle under generally accepted accounting principles ("GAAP"). Therefore, we generally rejected Operator's allocation scheme and redistributed reported costs in conformity with the Final Cost Rules. 8. Operator's income tax allowance calculations were modified consistent with the adjustments above. Ultimately, our adjustments reduced Operator's maximum permitted rate, effective May 15, 1994, from $57.59 to $21.36. Therefore, we find that Operator has justified its CPST rate of $15.22, for the period beginning May 15, 1994. 9. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the monthly CPST rate of $15.22 charged by Operator in the community referenced above, during the period following May 14, 1994, IS REASONABLE. 10. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaints referenced herein against the CPST rates charged by Operator in the communities referenced above ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau