******************************************************** 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 ) ) InterMedia Partners of Kentucky, L.P.) ) ) ) Petition for Stay of Local Rate Orders of ) ) File No. CUID Jefferson County, KY ) CSB-A-0616 KY0426 City of Louisville, KY ) CSB-A-0617 KY0169 City of Pewee Valley, KY ) CSB-A-0620 KY0656 Jefferson County League of Cities, KY) CSB-A-0618 KY0491, KY0490, KY0512 ) KY0628, KY0519, KY0588 ) KY0616, KY0493, KY0504 ) KY0452, KY0514, KY0445 ) KY0518, KY0501, KY0442 ORDER Adopted: April 28, 1999 Released: April 29, 1999 By the Deputy Bureau Chief, Cable Services Bureau: 1. In March 1999, InterMedia Partners of Kentucky, L.P. ("InterMedia") filed Petitions for Stay of Local Rate Orders issued by the following local franchising authorities in the state of Kentucky: Jefferson County, Jefferson County League of Cities, City of Pewee Valley, and City of Louisville. For the purpose of simplicity, these local franchising authorities shall be collectively referred to as "Communities". The stays are requested with respect to the Communities' ruling on InterMedia's FCC Form 1240 filings for its basic service tier rates. The Communities filed Oppositions to InterMedia's Petitions for Stay. 2. As an initial matter, we are consolidating action on these petitions. The stay requests are sufficiently similar to justify resolution in one consolidated order. Consolidation will not prejudice any of the parties and will serve the interest of administrative efficiency. 3. Franchising authorities may regulate rates for basic cable service and associated equipment and installation charges pursuant to section 623(a) of the Communications Act of 1934, as amended ("Communications Act") and the Commission's implementing regulations adopted pursuant to section 623(b) of the Communications Act. The Communities issued local rate orders reducing the maximum permitted rate calculated in InterMedia's FCC Form 1240 for the basic service tier. InterMedia argues that, if a stay is not granted, it will be irreparably harmed, because it will be forced to reduce its rates and refund an exorbitant amount of money which it alleges is clearly unjustified. In the event it prevails on the merits, InterMedia believes that these refunds are not recoverable in future rates due to certain marketplace constraints. InterMedia argues that, if a stay is granted, the subscribers will be fully protected by its pledge to post a bond for the contested amount and make appropriate refunds if ordered to do so under the final disposition of the case. The Communities oppose Intermedia's request, arguing that the rate reductions and refunds they ordered are justified and consistent with Commission precedent. 4. The Commission evaluates petitions for stay under well settled principles. To support a stay, a petitioner must demonstrate: (1) that it is likely to prevail on the merits; (2) that it will suffer irreparable harm if a stay is not granted; (3) that other interested parties will not be harmed if the stay is granted; and (4) that the public interest favors granting a stay. The likelihood of success on the merits is an important element in a petitioner's showing. However, the degree to which a probability of success on the merits must be found will vary according to the Commission's assessment of the other factors. When confronted with a case in which other elements strongly favor interim relief, the Commission may exercise its discretion to grant a stay. 5. The substantive issue addressed by each of the Communities concerns InterMedia's recovery of the Kentucky Public Service Corporation Tax ("KPSC tax"). The Communities' local rate orders forbid InterMedia from recovering the KPSC tax in any manner. InterMedia argues that the KPSC tax qualifies as a franchise fee that it should be able to pass through to subscribers in its entirety and list as a separate line item on subscriber bills. In the alternative, assuming that the KPSC tax is not a franchise fee, InterMedia claims that it should be permitted to adjust its rates by internalizing the KPSC tax in its September 20, 1992 initial rate calculation. InterMedia asserts that such recalculation is entirely consistent with Commission precedent. In addition, InterMedia has filed a Complaint for Declaratory Judgment in the Jefferson Circuit Court Division 10 seeking a determination, inter alia, that the City of Louisville rate order violated state law. The City of Louisville has filed a counterclaim seeking a determination that the KPSC tax is not a franchise fee or a cable- specific or discriminatory tax. Argument on this counterclaim is scheduled for mid-May, 1999. 6. In its local rate order, Ordinance No. 14, Series 1999 (February 12, 1999), the City of Louisville ordered InterMedia to make refunds of the amount collected for the KPSC tax from March 1992 forward. When a cable operator uses the annual rate adjustment method provided in 47 C.F.R. 76.922(e), the local franchising authority has 12 months from the date of the filing to issue its rate order. "In the event that the franchising authority does not act within the 12 month period, it may not at a later date order refund or a prospective rate reduction with respect to that rate filing." The City does not claim to have previously issued tolling or accounting orders concerning this charge. The City's refund order appears to exceed the City's authority to order refunds as conferred by the Commission. 7. Having considered the arguments of the parties, including InterMedia's commitment to make refunds if ordered to do so after a final disposition of the case, we conclude that a stay of the Communities' local rate orders pending our review and determination of the appropriate rate-making treatment of the KPSC tax is in the public interest. In order to protect the interests of subscribers and ensure that refunds will be paid if InterMedia does not prevail on the merits, we will grant InterMedia's Petitions for Stay on condition that InterMedia create an escrow account. During the period of this stay, InterMedia must deposit in an interest- bearing escrow account the total refund amount due under the local rate orders adopted by Jefferson County, Jefferson County League of Cities, and City of Pewee Valley, as of the date the account is opened. For the City of Louisville, InterMedia must deposit in the escrow account the total refund amount due from the date it implemented the current rates and charges addressed in the City of Louisville Ordinance No. 14, Series 1999 as of the date the account is opened. On an ongoing basis, InterMedia must accumulate in the escrow account the difference between the rates ordered by the Communities and the rates charged customers during the pendency of the underlying petition for review of the Communities' local rate orders. Alternatively, InterMedia may elect to post a bond for the benefit of each local franchising authority. The amount of the bond shall be the total refund amount due as of the date the bond is posted plus an estimate of the additional amount that will accumulate on the basis of the difference between the rates ordered by the Communities and the rates charged customers until InterMedia's next annual rate adjustment is scheduled to take effect, plus interest. For the City of Louisville, the total refund amount due as of the date the bond is posted shall be the total refund amount due as of the date InterMedia implemented the current rates and charges addressed in the City of Louisville Ordinance No. 14, Series 1999. The amount of the bond for estimated additional amounts shall be based on InterMedia's subscriber count in each of the Communities at the time the bond is posted. The bond shall provide that, if InterMedia is unable to fulfill its refund obligation for any reason, then the surety will fulfill that obligation to the Communities on behalf of InterMedia's subscribers. 8. Accordingly, IT IS ORDERED that the Motion for Extension of Time filed by the City of Louisville, KY IS GRANTED and that the Opposition to Petition for Stay IS ACCEPTED. 9. IT IS FURTHER ORDERED that 47 C.F.R.  1.45(d) IS WAIVED for the City of Pewee Valley, KY and that its Opposition to Petition for Stay IS ACCEPTED. 10. IT IS FURTHER ORDERED that the Petitions for Stay of Local Rate Orders filed by InterMedia Partners of Kentucky, L.P. for Jefferson County, Jefferson County League of Cities, City of Pewee Valley, and City of Louisville ARE GRANTED pending the resolution of the appeals on the merits. 11. IT IS FURTHER ORDERED that InterMedia Partners of Kentucky, L.P. SHALL PLACE in an interest bearing escrow account the total refund amount consistent with this Order that is due at the time the account is opened and SHALL ACCUMULATE in this account on an ongoing basis the difference between the rates ordered by the Communities and the rates charged customers during the pendency of the underlying appeal. Alternatively, InterMedia SHALL SECURE this amount by posting a bond for the benefit of the Communities for the total refund amount consistent with this Order that is due at the time the bond is posted plus an estimate of the additional amount that will accumulate on the basis of the difference between the rates ordered by the Communities and the rates charged customers until InterMedia's next annual rate adjustment is scheduled to take effect, plus interest for the period covered by this bond at the prevailing U.S. Internal Revenue Service Rate for tax refunds and additional tax payments. Proof of InterMedia's compliance with this Order SHALL BE FILED with the Commission within thirty (30) days of the release of this Order. 12. This action is taken pursuant to authority delegated by section 0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau Appendix A Filing Dates Local Rate Order Stay Petition Opposition to Stay Local Franchising Authority Issued Filed Filed 1. City of Louisville, KY 2/23/99 3/25/99 4/14/99 2. City of Pewee Valley, KY 3/1/99 3/31/99 4/12/99 3. Jefferson County, KY 2/23/99 3/25/99 4/5/99 4. Jefferson County 2/24/99 3/26/99 4/5/99 League of Cities, KY