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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 ) ) Marcus Cable Associates, L.P. ) CUID No. CA0189 (Whittier) ) Complaint Regarding ) Cable Programming Services Tier Rate) ORDER Adopted: November 12, 1998 Released: November 13, 1998 By the Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints concerning the rates the operator referenced above ("Operator") was charging for its cable programming services tier ("CPST") in the community referenced above. Operator has attempted to justify its CPST rates through benchmark showings on FCC Forms 1200, 1210, 1240 and FCC Form 1235. We have already issued a separate order which found that the Operator's rates in effect before May 15, 1994 were reasonable. Accordingly, this Order addresses the reasonableness of Operator's CPST rates in effect beginning May 15, 1994. 2. 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. 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. 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. 4. FCC Form 1235 is an abbreviated cost of service filing used in cases of network upgrades. It 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. For an operator to receive rate increases justified on an FCC Form 1235, the Commission requires: (1) that the upgrade be 'significant' and require added capital investment, such as expansion of bandwidth capacity, conversion to fiber optics or system rebuilds; (2) that the upgrade actually benefit subscribers through improvements in the regulated services subject to rate increase; (3) that the upgrade rate increase not be assessed until the upgrade is complete and providing benefits to subscribers of regulated services; (4) that the operator demonstrate its net increase in costs, taking into account current depreciation expense, projected changes in maintenance and other expenses, and changes in other revenues; and (5) that the operator allocate its costs to ensure that only costs allocable to subscribers of regulated services are imposed upon them. Normal improvements and expansions of service will remain subject to the usual rate adjustments allowed by filings of FCC Forms 1210, 1220 and 1240. 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. On August 18, 1998, the LFA filed a complaint regarding the January 1, 1998 increase in Operator's regular CPST rate in the community referenced above from $14.69 to $15.95 for its non-rebuild segment, and $18.99 to $20.25 for its rebuild segment. In its complaint, the LFA asserts that it has received more than one subscriber complaint against Operator's CPST rate increase and verified that the first complaint was received on June 11, 1998, thereby triggering the Commission's jurisdiction to review the complaint. The valid complaint from the LFA triggers an obligation by the cable operator to file a justification of its CPST rates with the LFA. Thus, in this case, Operator is required to justify the increase in its CPST rate which is the subject of the LFA's complaint. 6. In a letter filed May 18, 1994, Operator advised the Commission that it had elected, as provided in the Commission's rules, to take advantage of the refund liability deferral period from May 15, 1994 through July 13, 1994, for any overcharges resulting from the calculation of a new maximum permitted rate ("MPR") on the FCC Form 1200. Accordingly, the liability period for any CPST overcharges by Operator associated with its FCC Form 1200 filing did not begin to run until July 14, 1994. 7. Upon review of Operator's FCC Form 1200, we find that Operator has correctly calculated it's MPR of $8.17. Because Operator's actual CPST rate of $8.12, effective July 15, 1994 to December 31, 1994, is less than its MPR of $8.17, we find Operator's actual CPST rate of $8.12 to be reasonable. Operator increased its CPST rate to $9.75, effective January 1, 1995. Because Operator's MPR continued to be $8.17, we find that Operator's CPST rate of $9.75, effective January 1, 1995, to be unreasonable. Operator again raised its CPST rate to $11.26, effective April 1, 1995. Because Operator's MPR continued to be $8.17, we find Operator's CPST rate of $11.26, effective April 1, 1995, to be unreasonable. 8. Upon review of Operator's FCC Form 1210, covering the period March 31, 1994 to June 30, 1995, we find that Operator has not correctly calculated its CPST MPR. In Module G, Line G7, we disallowed Operator's $0.10 adjustment for channel additions under the "markup method" because we allowed Operator's $1.50 adjustment for channel additions under the "CAPS method". We adjusted Line I5 (Inflation Adjustment Factor) and Line J5 (Inflation Adjustment Factor) to 5.21%. These adjustments resulted in a revised CPST MPR of $11.20, effective July 1, 1995. Because Operator's actual CPST rate continued to be $11.26, we find Operator's actual CPST rate to be unreasonable, effective July 1, 1995. On November 4, 1995, Operator reduced its CPST rate to $11.25. Because Operator's actual CPST rate continued to exceed its MPR of $11.20, we find Operator's actual CPST rate, effective November 4, 1995, to be unreasonable. 9. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1996 to May 31, 1997 we find that Operator has not correctly calculated its CPST MPR. We adjusted Line A1 (Current Maximum Permitted Rate) to $11.20 to conform to Operator's previous revised FCC Form 1210. Additionally, Operator incorrectly indicated that a True-Up Period of 7.5 months. The unit of measurement used by the FCC Form 1240 is the month. Therefore, we eliminated a half-month of true-up. We adjusted Line E2 (Number of Months in the True-Up Period) to 7 months. We adjusted Worksheet 2 (Caps Method True-Up Period, Tier 2), Question 3 to 7 months. We disallowed a half-month inflation on Line 108 on Worksheet 1 (True-Up Period Inflation). We also disallowed a half-month inflation on Worksheet 8, Line 808 (True-Up Rate Charged)) and adjusted Worksheet 8, Question 1 to 7 months. We also adjusted Line C1 (Inflation Factor for True-Up Period 1) to 1.0431. These adjustments have resulted in a revised CPST MPR of $12.25. Because Operator's actual CPST rate of $12.45, effective June 1, 1996, exceeds its revised MPR of $12.25, we find Operator's actual CPST rate of $12.45 to be unreasonable. 10. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1997 to May 31, 1998 we find that Operator has not correctly calculated its CPST MPR. In particular, Operator made true-up adjustments through to the effective date of the rate increase. This is incorrect. The annual adjustment afforded by FCC Form 1240 allows operators to project changes in external costs, inflation, and the number of regulated channels. This structure avoids the delay some operators experienced in recouping costs through multiple rate adjustments throughout the year. Because projections will not reflect the costs that actually occur, the Commission provided, as part of the annual adjustment, a "true-up" to correct projected cost changes with the actual cost changes. However, the Commission has noted that, as FCC Form 1240 must be filed 90 days before an increase is to take effect, the period for the true-up will not coincide with the previous year's projections. The true-up data is intended to indicate real, not projected data. This policy is reflected in the instructions accompanying FCC Form 1240. 11. Based on this instruction and considering evidence in the filing, reasonable time for closing accounts and completing forms, we adjusted Operator's true-up period from 12 months to 11 months. This required that we adjust Worksheet 1 accordingly by disallowing one month of inflation on Worksheet 1. As a result, the true-up inflation factor in Module C, Line C1 (Inflation Factor for True-Up Period) for the 11 month period was corrected to 1.0202. We also adjusted Line C3 (Current FCC Inflation Factor) to 1.0177. We also adjusted Worksheet 2 Caps Method accordingly. As a result, Module F, Line F9 (MPR for True-Up Period 1) was corrected to $12.7747. 12. The reduction in the length of the true-up period also results in a reduction in Line H2 (Revenue From MPR for Period 1). This results in a corresponding reduction in Line I8 (True-Up Segment for the Projected Period). We also adjusted Line A1 (Current Maximum Permitted Rate) to $12.2466 to conform to Operator's previous revised FCC Form 1240. These adjustments resulted in a revised CPST MPR of $14.28. Because Operator's actual CPST rate of $14.69, effective June 1, 1997, exceeds its revised MPR of $14.28, we find Operator's actual CPST rate of $14.69, to be unreasonable. 13. To the extent that external costs from the one month disallowed from Operator's true-up period have been averaged into the rates charged in the twelve months allowed in Operator's true-up period, and have not been removed by our adjustments, we will order Operator to make a month-by-month accounting of such external costs. Such accounting shall allow a comparison of the actual external costs for the permitted eleven-month true-up period with the recovery of external costs afforded by the external cost segment for that period as calculated on Worksheet 7. We will order Operator to incorporate this accounting report into its refund plan and refund any over-recovery, plus interest, to subscribers. 14. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1998 through May 31, 1999, in the community referenced above, we find that Operator has not correctly calculated its CPST MPR. We adjusted Line A1 (Current Maximum Permitted Rate) to $14.2767, Line D6 (Current True- Up Segment) to $0.3009, Line D7 (Current Inflation Segment) to $0.1140 and Line F8 (True-Up Segment for True-Up Period 1) to $0.4272, to conform with the previous revised FCC Form 1240. We revised Worksheet 1 (True-Up Period Inflation) which adjusted Line C1 (Inflation Factor for True-Up Period 1) to 1.0105. We also revised Line C5 (Current FCC Inflation Factor) to 1.0114. These revisions reduced Operator's MPR to $15.42 for its non-rebuild segment, for the projected period June 1, 1998 to May 31, 1999. Because Operator's actual CPST rate, effective June 1, 1998, is $15.95, we find Operator's actual CPST rate in its non-build segment, effective June 1, 1998, to be unreasonable. 15. Operator's rate increase in the rebuild segment of the system reflects not only the annual increase as reported on FCC Form 1240 for the non-rebuild segment of the system, but also the recovery of costs for its network upgrade as reflected on FCC Form 1235 for the rebuild segment of the system. Operator elected to apply all of its FCC Form 1235 allowable basic service tier and CPST increases to its CPST MPR. Upon review of Operator's FCC Form 1235, dated July 23, 1998, for the rebuild segment of the system of the community referenced above, we propose no adjustments to Operator's filing. This resulted in the basic service tier and CPST upgrade increase justified by Operator to be $4.30 ($1.50 for the basic service tier and $2.80 for the CPST). 16. When the FCC Form 1240 MPR of $15.42 is combined with the FCC Form 1235 MPR of $4.30, the combined revised CPST MPR is $19.72. Operator was actually charging a combined rate of $20.25 in the rebuild segment of the system. Therefore we find that the CPST rate of $20.25, in the rebuild segment of the system, effective June 1, 1998, to be unreasonable. 17. 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 $8.12 charged by Operator in the community referenced above, effective July 15, 1994, IS REASONABLE. 18. 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 $9.75 charged by Operator in the community referenced above, effective January 1, 1995, IS UNREASONABLE. 19. 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 $11.26 charged by Operator in the community referenced above, effective April 1, 1995, IS UNREASONABLE. 20. 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 $11.25 charged by Operator in the community referenced above, effective November 4, 1995, IS UNREASONABLE. 21. 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 $12.45 charged by Operator in the community referenced above, effective June 1, 1996, IS UNREASONABLE. 22. 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 $14.69 charged by Operator in the community referenced above, effective June 1, 1997, IS UNREASONABLE. 23. 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 $15.95 charged by Operator in the non-rebuild segment of the system in the community referenced above, effective June 1, 1998, IS UNREASONABLE. 24. 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 $20.25 charged by Operator in the rebuild segment of the system in the community referenced above, effective June 1, 1998, IS UNREASONABLE. 25. 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 community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $8.17 per month (plus franchise fees), plus interest to the date of the refund, for the period from January 1, 1995 to June 30, 1995. 26. 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 non-rebuild segment of the system in the community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $15.42 per month (plus franchise fees), plus interest to the date of the refund, for the period from June 1, 1998 to the day before Operator implements the maximum permitted CPST rate of $15.42. 27. 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 rebuild segment of the community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $19.72 per month (plus franchise fees), plus interest to the date of the refund, for the period from June 1, 1998 to the day before Operator implements the maximum permitted CPST rate of $19.72. 28. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator shall conduct a month-by-month accounting of its external costs from Operator's twelve-month true-up period as found on Operator's Worksheets in its FCC Form 1240 for the projected period June 1, 1997 to May 31, 1998 and that Operator shall file, within 30 days of the release of this Order, a report detailing the over-recovery of external costs, plus interest, with the Chief, Cable Services Bureau. 29. IT IS FURTHER ORDERED, that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, including any over-recovery as detailed in its accounting report, and shall file, within 30 days of the release of this Order, a report with the Chief, Cable Services Bureau, stating the cumulative refund amounts so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of the Commission approval of the plan. 30. 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. 31. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the complaints referenced herein against the rates charged by Operator in the communities referenced above ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION Margaret M. Egler Acting Chief, Financial Analysis and Compliance Division Cable Services Bureau