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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 Matters of ) ) TCI CABLEVISION OF WASHINGTON, INC.) ) Appeal of Local Rate Order of ) DA 95-1495 Aberdeen, Washington ) WA0012; CSB-A-0214 ) Appeal of Local Rate Order of ) DA 95-1496 Issaquah, Washington ) WA0122; CSB-A-0215 ) TCI CABLEVISION OF AUBURN, INC. ) DA 98-57 TCI CABLEVISION OF TACOMA, INC. ) ) Appeals of Local Rate Orders of:) Pierce County, Washington ) WA0062, WA0420; CSB-A-0223 Orting, Washington ) WA0060; CSB-A-0218 Ruston, Washington ) WA0306; CSB-A-0218 Wilkeson, Washington ) WA0383; CSB-A-0218 ) CONSOLIDATED ORDER ON RECONSIDERATION Adopted: September 14, 1998 Released: September 16, 1998 By the Deputy Chief, Cable Services Bureau: I. INTRODUCTION 1. By this Order, we consolidate the above captioned proceedings on reconsideration involving TCI Cablevision of Washington, Inc., TCI Cablevision of Auburn, Inc., and TCI Cablevision of Tacoma, Inc. (TCI) and rule on the merits in each proceeding. We have determined that the proceedings are sufficiently similar to justify the resolution of all the issues raised by each of the parties in one consolidated proceeding. Specifically, the Bureau resolves in this Consolidated Order on Reconsideration three separate petitions for reconsideration of orders in which the Bureau denied TCI's appeals of local rate orders issued by the local franchising authorities (LFAs). 2. In each matter, the LFAs issued rate orders which established new regulated rate schedules for TCI's basic service tier rates and required TCI to implement certain rate reductions and to issue refunds to subscribers. TCI argued in its appeals of these orders that the LFAs improperly disallowed TCI's entry on Line C6 of FCC Form 1200 for the number of additional outlets on its systems. TCI stated that the disallowance by the LFAs affected its Form 1200 calculations and produced lower maximum permitted rates. TCI also contended that the LFAs impermissibly required TCI to calculate refunds until TCI complied with the local rate orders without any consideration being given for intervening cost increases which could be reflected in higher maximum permitted rates. In each matter, the Bureau denied TCI's appeals regarding TCI's entry on Line C6 of Form 1200 and the LFAs method for determining TCI's refund liability. The Bureau found in each matter that the LFA's decisions to disallow consideration of additional outlets for which there was no charge were reasonable, and that the LFA's were also reasonable in determining TCI's refund liabilities. TCI contends that the Bureau reached erroneous conclusions of law in the above-captioned orders, and seeks reconsideration pursuant to Section 1.106 of the Commission's Rules. II. DISCUSSION 3. TCI argues on reconsideration that it charged for providing additional outlets by bundling its additional outlet costs into its other rates, even though no separate charge was made, and that an operator such as itself that bundled its charges cannot charge as high a rate as an otherwise identical operator that separately itemized its additional outlets. Also according to TCI, the Bureau misconstrued the underlying data upon which the benchmark rates were based. Although the Commission's initial rate survey used in setting the benchmark rates asks about the number of additional outlets "charged for," TCI argues that the statistical relationship identified in the Commission's benchmark formula logically was based on the number of outlets provided rather than charged. Thus, in TCI's view, use of the word "charged" in the Form 1200 instructions should not preclude counting additional outlets in Line C6, whether or not TCI imposed a separate charge for the outlets. 4. We disagree. In developing a rate regulation system, the Commission determined that the principal means of setting regulated rates at reasonable levels should be the rates of systems facing effective competition. The Commission collected price information from a sampling of cable systems, including information on additional outlets for which a fee was charged, and used statistical analysis of this information to develop a prediction of what price a noncompetitive system with certain characteristics would charge if it were subject to effective competition. The Commission's initial benchmark analysis reflected in FCC Form 393 considered only a small number of variables. When it revised the benchmark analysis, the Commission concluded that it should measure rates as the monthly revenue per subscriber. In order to ensure that the competitive differential between competitive and noncompetitive systems reflected price differences rather than differences in the level of service consumed, the Commission incorporated variables that were not considered in the original benchmark regressions. 5. Among these variables were "measures of the quantities of optional services purchased by consumers, including numbers of additional outlets . . . ." An increase in the percentage of customers purchasing additional outlets was associated with an increase in revenues per subscriber. Module C of Form 1200 is used to calculate the benchmark against which the operator's restructured or unbundled tier rate is measured. Thus, only additional outlets offered as a subscriber option for which a separate charge was levied are considered in Module C, Line C6 of the benchmark formula computed in Form 1200. Although TCI argues that it assessed a charge through its bundled tier rate, TCI's per subscriber revenue was unaffected by changes in the percentage of subscribers taking additional outlets, and the relief it seeks is inconsistent with the benchmark formula. TCI did not charge subscribers for additional outlets, and provides no new arguments on reconsideration that would persuade us to alter the initial decisions in these matters. The LFAs' disallowances of TCI's entry in Line C6 were in accordance with the instructions for Form 1200 and were reasonable. 6. TCI next argues on reconsideration that the LFAs improperly ordered refunds for the time period from July 14, 1994 "until such time as TCI reduces its basic service rates to the maximum permitted level." TCI contends that the Bureau's orders fail to account for any intervening upward rate adjustments to which TCI would be entitled under our rules. TCI argues that, based on our decisions concerning offsetting, it must be credited for increases that it would have been allowed to make to its maximum permitted rates, even if it had not yet requested or implemented the rate adjustments. 7. We disagree. Under our rules, a cable operator may file periodically for rate increases with respect to basic rates. A rate increase becomes effective only after proper subscriber notice, and after it has been approved by the regulator or after the review period for such approval has lapsed. An operator is not entitled to circumvent our rules with refund offsets based on rates for which it never sought advance approval. Although TCI argues that the LFA can approve the offset amount when reviewing the operator's refund plan, the effect would be to implement a rate increase without the advance notice to franchising authorities required by section 623(b)(6) of the Communications Act of 1934, as amended, or to subscribers required by section 632(c) of the Commission's rules. The per month refund liability does not decrease just because the operator might have been able to increase its rates had it properly applied to do so. The passage of time involved in giving franchising authorities an opportunity to review rate increases in advance of implementation affects all operators in the same manner. TCI's effort to circumvent the process by reducing refunds owed to subscribers is not provided for in the Commission's rules, could create a disincentive for operators to comply with local rate orders, is unfair to operators who do comply with the rules, and could delay refunds due to subscribers for past overcharges while franchising authorities consider the alleged offsets. 8. The cases on which TCI relies to support its offset argument address refund liability stemming from unbundling basic tier and equipment rates. Section 76.942(a) of the Commission's rules, which LFAs improperly applied in each of the cited cases, eased the transition to rate regulation by requiring franchising authorities to determine refund liability for the initial regulated rates within their jurisdiction on the basis of aggregated basic service tier and equipment rates. Section 76.942(a) does not contemplate offsets across time periods because of changes in basic service tier costs over time. Neither the rule nor the cases applying it have relevance to TCI's offset claims in these proceedings. The franchising authorities' disallowance of TCI's claimed offsets is reasonable. TCI has provided no new arguments on reconsideration which warrant reversal of the earlier decisions with respect to calculation of TCI's refunds. IV. ORDERING CLAUSE 9. Accordingly, IT IS ORDERED that the petitions for reconsideration filed by TCI Cablevision of Washington, Inc., TCI Cablevision of Auburn, Inc., and TCI Cablevision of Tacoma, Inc. ARE DENIED. 10. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by sections 0.321 and 1.106(a)(1) of the Commission's rules. 47 C.F.R.  0.321, 1.106(a)(1). FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau