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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 ) ) TCI of Arlington, Inc. ) TCI of Plano, Inc. ) TCI of Richardson, Inc. ) ) ) Petition for Stay of Local Rate Orders of) City of Arlington,Texas ) CUID TX0826 City of Plano, Texas ) CUID TX1255 City of Richardson, Texas ) CUID TX1228 ORDER Adopted: June 1, 1999 Released: June 1, 1999 By the Deputy Chief, Cable Services Bureau: 1. On May 26, 1999, TCI of Arlington, Inc., TCI of Plano, Inc., and TCI of Richardson, Inc. (collectively "TCI") jointly filed a Request for Emergency Stay of Local Rate Orders issued by the Cities of Arlington, Plano, and Richardson, Texas ("Cities"), their local franchising authorities. The local rate orders address TCI's proposed rates for its basic service tier ("BST") in each community and for equipment and installation activities, which TCI states it filed with the Cities on or about March 1, 1999 in conjunction with rate adjustments scheduled for implementation on June 1, 1999. Although taking issue with the Cities' actions regarding both the BST rates and certain installation rates, TCI asks for a stay only of the basic service component of the orders. The Cities oppose granting a stay. 2. Section 1.45 of the Commission's rules provides that oppositions to requests for stays and other temporary relief may be filed within seven days after a request is filed but also provides in paragraph (e) that, as a matter of discretion, the Commission may rule ex parte on requests for stay or other temporary relief without waiting for the filing of oppositions or replies. TCI and the Cities state that the Cities of Arlington and Plano agreed that TCI could proceed with its proposed rate adjustment in its June 1, 1999 billing cycle but must come into compliance with the rate orders and issue refunds in its July 1, 1999 billing cycle absent a stay. The City of Richardson did not agree to a grace period. In light of the requirement in the City of Richardson rate order that the cable operator come into compliance with the rate order by June 1, 1999, Cable Services Bureau ("Bureau") staff advised counsel for the Cities that any oppositions should be filed with the Commission by noon on May 28, 1999. 3. 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. 4. Each of the Cities concluded that TCI calculated its BST rates improperly because its "gap" period adjustments were not made correctly in an earlier true up of its tier rate, which carries through to the current rate. Each of the Cities ordered TCI to reduce its proposed BST rates accordingly. Cable operators like TCI using the Commission's annual rate adjustment methodology on FCC Form 1240 adjust their BST rates by projecting expected changes in external costs, inflation, and channels for the coming year and correcting for differences between past projections and actual costs during the previous year. Before changing to the annual methodology, cable operators used the quarterly rate adjustment methodology, which based rates on past costs actually incurred, but did not allow projections of expected cost changes. Cable operators interested in changing to the annual methodology sought a waiver of the requirement that only actual costs could be used in the initial true up period, arguing that the "gap" in cost recovery due to the transition would discourage operators from switching to the annual methodology. The Cable Services Bureau granted TCI a waiver so that, when filing its first Form 1240 for calculating rates pursuant to the annual methodology, it could include projected changes in costs, inflation, channels, and subscriber information attributable to the period between the last full month for which actual cost data was available and the effective date of the new rates, subject to a subsequent true up of these projections on the basis of actual costs. The operator was instructed to include in its initial FCC Form 1240 filings certain calculations, which were to be performed on FCC Form 1240, or off FCC Form 1240 in an alternative showing done pursuant to the Waiver Order's "General Guidelines." Many of these calculations concerned the gap period in the operator's initial FCC Form 1240 filings. True ups in subsequent filings were to be based on actual cost data. The dispute regarding these local rate orders is whether the projected changes have been handled correctly in the true up process in the operator's second Form 1240 filing. 5. TCI argues that the methodology used by the Cities in reviewing its second 1240 filing, the filing for 1997, is at odds with repeated decisions issued by the Commission with respect to its cable programming service tiers ("CPSTs"), including TCI of Plano, Inc. ("Plano") and Margate Video Systems, Inc. d/b/a TCI of North Broward, Inc. ("Margate"). According to TCI, the Cities developed a hybrid approach for determining the gap period adjustment that was inconsistent with Commission precedent. It argues it will be irreparably harmed because it will be unable successfully to recapture lost revenue later through a surcharge, that it will track revenue and make appropriate refunds (with interest) if required to do so under a final disposition of this case, and that a stay would serve the public interest by protecting an operator from an erroneous rate order. 6. The Cities oppose a stay, arguing that TCI had notice since April 1999 that resolution of this gap issue was not achievable and, therefore, knew well before the effective date of the rate orders that the proposed service rates would be reduced. Although stating they do not dispute the applicability of Margate to TCI's 1998 and 1999 rate filings, they claim that TCI's expected appeal is not likely to be granted because TCI did not properly follow the gap true up instructions when it carried over adjusted projected 1996 costs in its 1997 Form 1240, and its failure to do so results in a double recovery for the operator. They further argue that their approach is consistent with the finding in TCI of Richardson, Inc. that TCI's rate filing did not properly carry the gap period adjustment through the form. 7. The Cable Services Bureau has had the opportunity to review TCI's gap period filings for the Plano and Arlington cable programming services tiers, which were filed in response to complaints to the Commission about those tiers. Upon review of the operator's Form 1240 filings for 1997, the Bureau determined that the operator's first and second FCC Form 1240s did not produce rates identical to the rates that would have been produced had the operator used the Waiver Order's on-form method. To rectify the results, the operator refiled its Forms 1240 using the Waiver Order's on-form method. Like the City consultant's report attached to TCI's stay request, we found that Line F8 of the refiled 1997 Form 1240 did not appear to be precisely calculated in accordance with the form instructions. We found that TCI has calculated line F8 by taking line H14 of its 1996 Form 1240 less its 1996 gap adjustment, which is found on lines H7 and H8 of the 1996 Form 1240. Instead of removing the gap adjustment from Module H in the 1997 Form 1240 as would be expected, TCI removed the gap adjustment in one step from the number brought forward from line H14 of the 1996 Form 1240. The effect on the tier rate should be the same, and there should not be any double recovery for the gap adjustment. We found that the maximum permitted rates calculated in this way were correct. TCI of Richardson, which is the subject of a pending petition for reconsideration, addressed TCI's calculation of its gap period adjustment using its original methodology and the City of Richardson's treatment of this adjustment. 8. In light of the Cities' reliance on TCI of Richardson, and the possibility that the Cities have misconstrued the operator's gap adjustment, we find that a stay of the local rate order pending review and a determination of the Operator's appeal is in the public interest. In order to protect the interests of subscribers and ensure that refunds will be paid if Operator does not prevail on the merits, we will grant operator's request that the local rate orders be stayed pending a resolution of these cases on the merits on condition that Operator create an escrow account. During the period of this stay, Operator must deposit in an interest-bearing escrow account the total refund amount due under each City's local rate order as of the date the account is opened and on an ongoing basis must accumulate in the escrow account the difference between the rates ordered by each City and the rates charged customers during the pendency of the underlying petition for review of each City's local rate order. Alternatively, Operator may elect to post a bond for the benefit of each City. 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 each City and the rates charged customers until Operator's next annual rate adjustment is scheduled to take effect for each City, plus interest. The amount of the bond for estimated additional amounts shall be based on Operator's subscriber counts at the time the bond is posted. The bond shall provide that, if operator is unable to fulfill its refund obligation for any reason, then the surety will fulfill that obligation to each of the Cities on behalf of Operator's subscribers. 9. Accordingly, IT IS ORDERED that the Request for Emergency Stay of Local Rate Orders filed by TCI of Arlington, Inc., TCI of Plano, Inc, and TCI of Richardson, Inc. IS GRANTED pending the resolution of Operator's appeal on the merits. This stay WILL TERMINATE with respect to any of the Cities for which the operator does not file an appeal of the local rate order within the time provided by the Commission's rules or such additional time as may be authorized. 10. IT IS FURTHER ORDERED that Operator SHALL PLACE in an interest bearing escrow account the refund amounts due under each of the Cities' local rate orders at the time the account is opened and SHALL ACCUMULATE in this account on an ongoing basis the difference between the rates ordered by each City and the rates charged customers during the pendency of the underlying appeal. Alternatively, Operator SHALL SECURE this amount by posting a bond for the benefit of each City for the total refund amount ordered by the City 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 each City and the rates charged customers until Operator's next annual rate adjustment for each City 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 Operator's compliance with this Order SHALL BE FILED with the Commission within thirty (30) days of the release of this Order. 11. 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