******************************************************** 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. MI0101 (Bay City) Bresnan Communications Company ) MI0102 (Essexville) ) MI0118 (Hampton) Complaint Regarding ) MI0122 (Midland) Cable Programming Services Tier ) and ) Petition for Reconsideration ) ORDER ON RECONSIDERATION and RATE ORDER Adopted: September 16, 1998 Released: September 18, 1998 By the Deputy Chief, Cable Services Bureau: 1. In this Order we consider a complaint against the April 1, 1998 rate increase of the above- referenced operator ("Operator") for its cable programming services tier ("CPST") in the City of Midland (CUID No. MI0122), referenced above. On June 28, 1995, we issued an Order addressing the reasonableness of Operator's CPST rates in effect through May 14, 1994 in all of the communities referenced above ("1995 Order"). Operator filed a petition for reconsideration of the 1995 Order ("1995 Petition"). On September 22, 1997, we issued an Order which addressed Operator's 1995 Petition and Operator's CPST rates in effect from May 15, 1994 through March 31, 1998 in the City of Midland ("1997 Order"). On October 22, 1997, Operator filed an application for review of our 1997 Order ("Application"). On November 10, 1997, the City of Midland filed its Opposition to the Application ("Opposition"). Operator subsequently requested that we accept its Application as a petition for reconsideration ("1997 Petition"), and review its appeal at the Cable Services Bureau level. In this Order we will review Operator's 1997 Petition as well as the above-referenced complaint. 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 Telecommunications Act of 1996 ("1996 Act") and our rules implementing the legislation ("Interim Rules"), require that a complaint against the CPST rate be filed with the Commission by a local franchising authority ("LFA") that has received more than one subscriber complaint. 3. The LFA for the City of Midland filed a complaint with the Commission on June 22, 1998 against Operator's April 1, 1998 CPST rate increase from $16.85 to $18.39. The LFA verified that it received more than one subscriber complaint and that the first valid complaint was received by the LFA on April 2, 1998. The filing of a complete and timely complaint triggers an obligation upon the cable operator to file a justification of its CPST rates. The Operator has the burden of demonstrating that the CPST rates complained about are reasonable. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. 4. Operators with complete and timely 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 CPST rates were in compliance with the revised rules from May 15, 1994 forward. Operators attempting to justify CPST rates for the period prior to May 15, 1994 through a benchmark showing must complete and file FCC Form 393. To justify rates for the period beginning May 15, 1994, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. Operators may justify 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. Additionally, an Operator may file an FCC Form 1235 (Abbreviated Cost of Service Filing for Cable Network Upgrades). The FCC Form 1235 allows cable operators to justify rate increases related to significant capital expenditures used to improve rate-regulated services. This option is extended only in cases of significant upgrades requiring added capital investment, such as bandwidth capacity and conversion to fiber optics, and for system rebuilds. Normal improvements and expansions of service remain subject to the usual rate adjustments allowed by filing FCC Form 1210s, 1220s and 1240s. Cable operators that incur increases in operating costs associated with a significant network upgrade will be permitted to charge additional rates as justified by their FCC Form 1235 filing. 5. In its 1997 Petition, Operator raises one issue concerning our treatment of its 1995 Petition and several issues concerning our treatment of its FCC Form 1200 series filings. Operator argues that it is entitled to offset its refund liability from the 1995 Order for overcharges on the CPST against undercharges for its basic services tier ("BST"). As we determined in our 1997 Order, Operator's arguments are not persuasive. The Commission's jurisdiction to regulate cable rates has been limited to the review of CPST rates. In order to accomplish this review, the Commission has promulgated rules which allow the Commission to fairly review and establish reasonable CPST rates. The Commission has already addressed this issue in Cencom Cable Income Partners ("Cencom"). In Cencom, the Commission determined that such inter-tier offsets are "inconsistent with the Commission's conclusion in the [Implementation of Sections of the Consumer Protection and Competition Act of 1992, Rate Regulation, MM Docket 92-266, Report and Order and Further Notice of Proposed Rulemaking] that cable operators should not balance low BST rates with CPST rates that exceed the maximum permitted rate for the tier." More recently, the Commission affirmed its decision in Cencom by rejecting a cable operator's request to offset its overcharges on its BST with its undercharges on its CPST. We reject Operator's contention with regard to this issue. 6. Operator also argues that our 1997 Order did not correctly calculate its maximum permitted rate ("MPR") for its CPST. Specifically, Operator argues that 1) Operator was entitled to file two FCC Form 1210s for the first quarter of 1995; 2) Operator was entitled to claim a 5.21 percent inflation adjustment in its FCC Form 1210 for the first quarter of 1995; and 3) Operator was entitled to claim a $0.20 adjustment for a seventh "going forward" channel as of January 1, 1997 and unlimited associated license fees as of January 1, 1998. 7. We reject Operator's argument that it is entitled to file multiple FCC Form 1210s for a single quarter. Even if we had accepted Operator's filing, it would not have changed our calculation. Operator received full credit for its increase in external costs for the first quarter of 1995. Operator claimed an increase of $0.08 in its February 1995 filing and an increase of $0.02 in its later filing for the same quarter. Our revised FCC Form 1210 for the first quarter of 1995 gave Operator an increase in external costs of $0.10. Therefore, Operator's argument is without merit. 8. Operator claims it is entitled to an inflation rate of 5.21 percent for unclaimed inflation for the October 1, 1993 to June 30, 1994 period, pursuant to the Ninth Reconsideration Order. Operator had until March 31, 1996 to implement this inflation adjustment. Because Operator had taken a three percent inflation adjustment in its FCC Form 1200 filing, it was not entitled to take the three 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 will allow the full 5.21 percent inflation adjustment through March 31, 1996. The Commission's rules require the removal of Operator's excess three percent inflation adjustment in the next rate adjustment after November 9, 1995 or by April 1, 1996, whichever is earlier. We will also allow Operator to claim a $0.20 adjustment for a seventh "going forward" channel as of January 1, 1997 and unlimited associated license fees as of January 1, 1998. 9. Therefore, we modify our findings in the 1997 Order beginning with operator's third FCC Form 1210 filing, which covered the first quarter of 1995. Upon review of Operator's FCC Form 1210, covering the period January 1, 1995 to March 31, 1995, we modify our previous revised FCC Form 1210 to allow Operator to claim an inflation factor of 1.0521. This adjustment resulted in a revised MPR of $12.15, effective April 1, 1995, rather than $11.74 from the 1997 Order. Upon review of Operator's FCC Form 1210, covering the period April 1, 1995 through June 30, 1995, we adjusted Operator's Line A1 to reflect the revised MPR from its previous FCC Form 1210. This adjustment resulted in a revised MPR of $12.38, effective July 1, 1995, rather than $11.97 from the 1997 Order. Upon review of Operator's FCC Form 1240 for the projected period April 1, 1996 through March 31, 1997, we adjusted Operator's Line A1 to reflect the revised MPR from its previous FCC Form 1210 and we allowed Operator to remove the excess 3 percent inflation previously claimed. This adjustment resulted in a revised MPR of $13.38, effective April 1, 1996, rather than $12.91 from the 1997 Order. Upon review of Operator's FCC Form 1240 for the projected period April 1, 1997 through March 31, 1998, we adjusted Operator's Line A1 to reflect the revised MPR from its previous FCC Form 1240. We allowed Operator to claim $0.20 for a channel addition and $0.32 for license fees. This adjustment resulted in a revised FCC Form 1240 MPR of $16.09, effective April 1, 1997, rather than $15.00 from the 1997 Order. When Operator's FCC Form 1235 add-on of $1.46 is considered, Operator's MPR is $17.55, effective April 1, 1997. Because Operator's actual CPST rate of $16.85, effective April 1, 1997, does not exceed its revised MPR, we find Operator's actual CPST rate of $16.85, effective April 1, 1997, to be reasonable. We will amend our 1997 Order and grant Operator's 1997 Petition to the extent that it concerns Operator's MPRs, effective April 1, 1995 through March 31, 1998. 10. In response to the LFA's complaint against its April 1, 1998 CPST rate increase, Operator filed an FCC Form 1240 for the projected period April 1, 1998 through March 31, 1999. Upon review of Operator's FCC Form 1240 for the projected period April 1, 1998 through March 31, 1999, we adjusted Operator's Line A1 (Current Maximum Permitted Rate), Line D6 (Current True-Up Segment), Line D7 (Current Inflation Segment) and Line F8 (True-Up Segment for True-Up Period 1) to conform to the prior revised FCC Form 1240. We moved $0.28 from Line 202 to Line 203 of Operator's Worksheet 2 (CAPS Method True-Up Period) because Operator could not claim any additional license fees until January 1, 1997. We adjusted Lines 806 through 812 of Operator's Worksheet 8 (True-Up Rate Charged) to $16.09, the revised MPR from Operator's prior revised FCC Form 1240, exclusive of the FCC Form 1235 $1.46 add-on. The FCC Form 1235 add-on is a yearly amount based on Operator's actual costs for upgrading its system. It is not a projected amount and is therefore not subject to true-up through the FCC Form 1240. Operator cannot increase its yearly FCC Form 1235 add-on through the true-up process, nor is Operator required to reduce its FCC Form 1235 add-on through the true-up process. Therefore, we require Operator to use all of its FCC Form 1240 MPR for purposes of determining Operator's actual CPST rate on Worksheet 8, even if Operator has not fully implemented its combined MPR from both its FCC Form 1240 and FCC Form 1235. This allows the FCC Form 1235 add-on to have a neutral effect on Operator's FCC Form 1240 calculations. We also revised Worksheet 1 (True-Up Period Inflation) of the FCC Form 1240, which adjusted Line C3 (Inflation Factor for True-Up Period 1) to 1.0187. We also revised Line C5 (Current FCC Inflation Factor) to 1.0114. These adjustments resulted in a revised FCC Form 1240 MPR of $16.17, which combined with the FCC Form 1235 MPR of $1.46, yields a total MPR of $17.63, effective April 1, 1998. Because Operator's actual CPST rate of $18.39, effective April 1, 1998, exceeds its revised MPR, we find Operator's actual CPST rate of $18.39, effective April 1, 1998, to be unreasonable. 11. Accordingly, IT IS ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. 0.321, that operator's request that its Application for Review of In the Matter of Bresnan Communications Company, DA 97-2033 (released September 22, 1997) be considered as a Petition for Reconsideration IS GRANTED. 12. IT IS FURTHER ORDERED, pursuant to Section 1.106 of the Commission's rules, 47 C.F.R. 1.106, that Operator's Petition for Reconsideration IS GRANTED IN PART AND DENIED IN PART TO THE EXTENT INDICATED HEREIN. 13. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. 0.321, that In the Matter of Bresnan Communications Company, DA 97-2033 (released September 22, 1997), IS AFFIRMED IN PART AND VACATED IN PART TO THE EXTENT INDICATED HEREIN. 14. 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 Midland, Michigan, CUID No. MI0122, from May 15, 1994 through March 31, 1997 ARE 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 $16.85, charged by Operator in the franchise area referenced above, effective April 1, 1997 through March 31, 1998, IS REASONABLE. 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 $18.39, charged by Operator in the franchise area referenced above, effective April 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 and DA 97-2033, that Operator shall refund to subscribers in Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $10.83 per month (plus franchise fees), plus interest to the date of the refund, for the period May 15, 1994 through November 7, 1994. 18. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. 76.961 and DA 97-2033, that Operator shall refund to subscribers in Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $11.43 per month (plus franchise fees), plus interest to the date of the refund, for the period November 8, 1994 through March 7, 1995. 19. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. 76.961 and DA 97-2033, that Operator shall refund to subscribers in Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $11.64 per month (plus franchise fees), plus interest to the date of the refund, for the period March 8, 1995 through July 7, 1995. 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 Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $12.15 per month (plus franchise fees), plus interest to the date of the refund, for the period July 8, 1995 through September 30, 1995. 21. 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 Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $12.38 per month (plus franchise fees), plus interest to the date of the refund, for the period from October 1, 1995 to March 31, 1996. 22. 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 Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $13.38 per month (plus franchise fees), plus interest to the date of the refund, for the period April 1, 1996 through March 31, 1997. 23. 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 Midland, Michigan, CUID No. MI0122 that portion of the amount paid in excess of the maximum permitted CPST rate of $17.63 per month (plus franchise fees), plus interest to the date of the refund, for the period April 1, 1998 through the day before Operator implements the maximum permitted CPST rate of $17.63. 24. 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. 25. 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. 26. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. 0.321, that the complaint against Operator's April 1, 1998 CPST rate increase in Midland, Michigan, CUID No. MI0122, IS GRANTED. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Deputy Chief, Cable Services Bureau