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                            Before the
                Federal Communications Commission
                      Washington, D.C. 20554

In the Matter of:               )
                                )
PARAGON COMMUNICATIONS          )  CUID No. TX0011
d/b/a PARAGON CABLE             )  File No. CSB-A-0498
                                )
Appeal of Local Rate Order      )
of the City of Palestine, TX    )


                   MEMORANDUM OPINION AND ORDER

   Adopted:  September 11, 1998         Released:  September 14, 1998

By the Deputy Chief, Cable Services Bureau:

     1.   Paragon Communications d/b/a Paragon Cable ("Paragon"), the franchised operator of a cable
television system serving the City of Palestine, Texas ("City") has petition for review of the City's December
22, 1997 decision to reject Paragon's rate increase request submitted on FCC Form 1240.  The City has not
filed an opposition.

                            BACKGROUND

     2.   Under the Commission's rules, rate orders issued by local franchising authorities may be
appealed to the Commission.  In ruling on an appeal of a local rate order, the Commission will not conduct
a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable
basis for that decision.  Therefore, the Commission will reverse a franchising authority's decision only if it
determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering
its local rate order.  If the Commission reverses a franchising authority's decision, it will not substitute its own
decision but instead will remand the issue to the franchising authority with instructions to resolve the case
consistent with the Commission's decision on appeal.

     3.    An operator that wants to increase its basic service tier "BST" rate has the burden of
demonstrating that the increase is in conformance with our rules.  In determining whether the operator's
proposed increase is in conformance with our rules, a franchising authority may direct the operator to provide
supporting information.  After reviewing an operator's rate forms, and any other additional information
submitted, the franchising authority may either approve the operator's requested rate increase or issue a written
decision explaining why the operator's rate is not reasonable.  If the franchising authority determines that the
operator's proposed rate exceeds the maximum permitted rate as determined by the Commission's rules, it may
prescribe a rate different from the proposed rate provided that it explains why the operator's rate is
unreasonable and the prescribed rate is reasonable.

                            DISCUSSION

     4.   Paragon submitted FCC Form 1240 on September 30, 1997 to justify an increase in its basic
service tier rate for the period beginning January 1, 1998.  By letter of December 23, 1997, the City Attorney
advised Paragon that the City Council voted to reject Paragon's rate increase, stating:  "The Council's rejection
is based on your less than adequate performance."  The City Attorney's letter offers no further explanation
about the Council's decision and, according to Paragon, there does not appear to be an actual written decision
by the Council.  The City did not rely on a report submitted by its consultant, which found that "the rates as
submitted on FCC Form 1240 dated September 30, 1997 by Paragon appear to be reasonable."

     5.   The City acted unreasonably in rejecting Paragon's proposed rate increase.  Commission rules
require that a franchising authority issue a written decision in a ratemaking proceeding and give public notice
of that decision whenever it disapproves a request for a rate increase. This decision must affirmatively
demonstrate why the rate is not reasonable.  The Commission explained when adopting this rule that a
publicly available decision is necessary to protect the due process rights of the cable operator, so that it can
know why the rate was disapproved and can appeal the decision to the Commission if it believes the decision
is unfair or contrary to law.

     6.   The City's authority is to review the reasonableness of the cable operator's rates on the basis
of regulations adopted by the Commission.  The Commission's rules allow periodic rate adjustments for
inflation, changes in external costs, and changes in the number of regulated channels for adjustments made
by either the quarterly or annual adjustment method.  The rules do not provide any other basis for rate
decisions.  The cable operator submits calculations made on Commission forms.  If the franchising authority
does not dispute the bases for the figures presented in the cable operator's rate form and has not discovered any
mathematical errors in the form, it should approve the operator's rates as derived from the form.  A cable
operator must be allowed to charge up to the maximum permitted rates derived from its rate form.  The
franchising authority may not arbitrarily deny a justified rate increase in an effort to address non-rate matters. 
Instead, non-rate matters should be addressed pursuant to the Commission's rules on technical standards, the
Commission's rules on customer service obligations, the franchising authority's own cable regulations, or the
franchise agreement.

     7.   The explanation in the City Attorney's letter, that the decision is based on Paragon's
performance, does not meet the standards for a written decision and is not based on the Commission's
regulations governing rates.  The City acted unreasonably in denying Paragon's requested rate increase.  The
City's rate order is remanded for further consideration consistent with this opinion.

                         ORDERING CLAUSE

     8.   Accordingly, IT IS ORDERED that the petition for review filed by Paragon Communications
d/b/a Paragon Cable IS GRANTED and the rate decision of the City of Palestine, Texas is remanded to the
City for further consideration consistent with the terms of this Memorandum Opinion and Order.

     9.   This action is taken by the Deputy Chief, Cable Services Bureau pursuant to authority
delegated by section 0.321 of the Commission's Rules.  47 C.F.R.  321.

                              FEDERAL COMMUNICATIONS COMMISSION


                              John E. Logan
                              Deputy Chief, Cable Services Bureau