Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) MARCUS CABLE PARTNERS, L.L.C. ) FILE NO. CSB-A-0627 ) CUID NO. WI0040 Appeal of a Local Rate Order of ) the City of Stevens Point, Wisconsin) MEMORANDUM OPINION AND ORDER Adopted: July 15, 1999 Released: July 19, 1999 By the Deputy Chief, Cable Services Bureau: 1. Marcus Cable Partners, L.L.C. ("Marcus"), the franchised operator of a cable system serving the City of Stevens Point, Wisconsin ("City") has appealed the rate resolution ("Resolution") of the City which denied Marcus' scheduled June 1, 1999 basic service tier ("BST") rate adjustment. Marcus had also sought adjustments to its equipment rates. The City has filed an opposition requesting that the Commission uphold the City's Resolution and deny Marcus' appeal. Marcus subsequently filed both a reply to the City's opposition and a request for emergency stay of the Resolution. The City filed an opposition to the request for an emergency stay. For the reasons stated herein, we grant the appeal and remand the Resolution to the City for further proceedings. We dismiss the request for emergency stay as moot. BACKGROUND 2. Under the Commission's rules, rate orders issued by local franchising authorities may be appealed to the Commission. In ruling on an appeal of a local rate order, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. 3. An operator that wants to increase its BST rate has the burden of demonstrating that the increase is in conformance with the Commission's rules. The local franchising authority is then to review the reasonableness of the operator's rates on the basis of regulations adopted by the Commission. In determining whether an operator's proposed increases are in conformance with the Commission's rules, a franchising authority may direct the operator to provide supporting information. After reviewing an operator's rate forms, and any other additional information submitted, the franchising authority may either approve the operator's requested rate increase or issue a written decision explaining why the operator's rate increase is unreasonable. 4. The Commission's rules allow periodic BST rate adjustments for inflation, changes in external costs, and changes in the number of regulated channels using either the quarterly or annual adjustment method. They permit operators undertaking significant network upgrades to recover the net costs of the added capital investment allocated to the BST through an increase in the BST rate. The rules also provide for periodic adjustments to equipment and installation rates based on the operator's actual costs. The rules do not provide any other basis for rate decisions. If the franchising authority does not dispute the bases for the figures presented in the cable operator's rate forms and has not discovered any mathematical errors in the forms, it should approve the operator's rates as derived from the forms. A cable operator must be allowed to charge up to the maximum permitted rates derived from its rate forms. The franchising authority may not arbitrarily deny a justified rate increase in an effort to address non-rate matters. Instead, non-rate matters should be addressed pursuant to the Commission's rules on technical standards, the Commission's rules on customer service obligations, the franchising authority's own cable regulations, or the franchise agreement. DISCUSSION 5. Marcus has appealed the City's denial of its BST rate adjustment. Marcus intended to adjust rates for the period beginning on June 1, 1999. On February 26, 1999, Marcus' transmitted to the City FCC Form 1240, the form for computing the annual BST rate adjustment, and FCC Form 1235, the form for making an abbreviated cost of service showing to justify a network upgrade add-on to the BST rate, in order to justify an increase in the basic service tier rate. On April 19, 1999, the City passed and adopted a resolution denying Marcus' proposed rate increase. The City "determined that Marcus' proposed rate increase . . . from $6.76 to $8.22 represents a nearly 21% increase in price with no justification provided by Marcus," found the increase "to be unreasonable," and therefore denied it. 6. The City's Resolution fails to meet the standards set by the Commission for a written decision. The City concluded in the Resolution that the proposed rate increase is unreasonable but did not base this conclusion on findings that are relevant under the Commission's rate regulations. Although the City acknowledges receiving the rate forms required to justify Marcus' BST rate, namely, Forms 1240 and 1235, the City does not make any findings that dispute the figures in the rate forms or point to mathematical errors in the forms. The City objects to the size of the rate increase, but "the magnitude of a rate increase alone is not determinative of its reasonableness." The City's conclusion that the rate is unjustified is not otherwise explained. 7. In its opposition to Marcus' appeal, the City argues that Marcus undertook system upgrades to better position the company in the telecommunications field, and that these upgrades were premature given that the City has not renewed its franchise with Marcus. This concern is not reflected in the Resolution. Even if it were reflected, this concern would not be a basis for disallowing a rate increase otherwise supported by Form 1240s and 1235. The Communications Act provides that a franchising authority may regulate the rates for the provision of cable television service only to the extent provided by section 623 of the Act. It further provides that the regulation of BST rates shall be pursuant to Commission regulations designed to achieve the goal of protecting subscribers from BST rates in excess of the rates that would be charged if the cable system were subject to effective competition. Franchising authorities may establish requirements for facilities and equipment through the franchising process consistent with section 624 of the Act and solicit proposals for system upgrades in the franchise renewal process pursuant to section 626 of the Act, but nothing in the Act or the Commission's rate regulations links rates permitted by the Commission's rules and forms to franchising actions. Because the City's decision to deny Marcus' proposed rate increase is not based on the Commission's rates regulations, the denial of Marcus' BST rate adjustment is not reasonable. For this reason, we are remanding this case for further proceedings consistent with this decision. ORDERING CLAUSE 8. Accordingly, IT IS ORDERED that the Petition for Review filed by Marcus Cable Partners, L.L.C., on May 21, 1999 IS GRANTED and the Resolution of the City of Stevens Point, Wisconsin is remanded to the City for further consideration consistent with the terms of this Memorandum Opinion and Order. 9. IT IS FURTHER ORDERED that the Request for Emergency Stay of Local Rate Orders by Marcus Cable Associates, L.P. on June 7, 1999 IS DISMISSED as moot. 10. This action is taken by the Deputy Chief, Cable Services Bureau 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