******************************************************** 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) ) MI0102 (Essexville) Bresnan Communications Company ) MI0118 (Hampton) ) MI0122 (Midland) Petition for Reconsideration ) ORDER ON RECONSIDERATION Adopted: August 31, 1999 Released: September 7, 1999 By the Deputy Chief, Cable Services Bureau: 1. In this Order we consider a petition for reconsideration of a rate order concerning the April 1, 1998 rate increase of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. On September 18, 1998, we released a rate order concerning Operator's April 1, 1998 CPST rate increase ("Prior Order"). On October 19, 1998, Operator filed a petition for reconsideration of our Prior Order ("Petition"). On November 24, 1998, Operator filed a request for emergency stay of the Prior Order. Because we are addressing Operator's Petition for Reconsideration, we will dismiss Operator's request for stay as moot. 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 the Commission's 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 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. 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 our Prior Order, we adjusted Lines 806 through 812 of Operator's Worksheet 8 (True-Up Rate Charged) to $16.09, to equal the maximum permitted rate ("MPR") from Operator's prior revised FCC Form 1240. We excluded the add-on amount of $1.46, calculated from Operator's FCC Form 1235, from Worksheet 8 of the FCC Form 1240. We stated that [t]he 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. (footnotes in original) This adjustment, along with other adjustments which Operator did not appeal, resulted in a revised FCC Form 1240 MPR of $16.17, which combined with the FCC Form 1235 MPR of $1.46, yielded a total MPR of $17.63, effective April 1, 1998. Because Operator's actual CPST rate of $18.39, effective April 1, 1998, exceeded its revised MPR, we found Operator's actual CPST rate of $18.39, effective April 1, 1998, to be unreasonable and ordered Operator to pay refunds. 6. In its Petition, Operator argues that it should be allowed to use its actual total rate charged less the amount of its FCC Form 1235 add-on as its actual rate on Worksheet 8 of the FCC Form 1240. Operator states that the FCC Form 1240 instruction that allows recovery of upgrade costs to the extent the costs would not be recovered under the benchmark approach means that it "is undisputed that, absent the Form 1235, the upgrade cost at issue `would not be recovered under [a standard benchmark] approach.'" Operator claims that our methodology prevents Operator from fully recovering its network upgrade costs. 7. In Implementation of Sections of the Cable Television Consumer Protection and Competition act of 1992: Rate Regulation, FCC 94-39, we provided for streamlined filing and review of rate changes due to network upgrades. We stated that "the costs of the upgrade would then be added to the rates permitted under the benchmark and price cap approach to the extent these costs could not be recovered under that approach." Contrary to Operator's assertions, we stated that the option of a network upgrade add-on would be unnecessary or inapplicable for many systems, because "the benchmark/price cap mechanism is already based on the rates of competitive systems, including those with upgraded networks." In the case where the benchmark rate does not provide sufficient revenue to attract capital for upgrades because of unusual costs associated with capital improvement, the network upgrade add-on would provide the ability to attract the capital needed for the upgrade. In our Prior Order, we allowed Operator to fully recover its network upgrade add-on to the extent its costs are not recoverable through the benchmark rate calculated using the FCC Form 1240. Our requirement that Operator fully use its benchmark rate prior to recovering the network upgrade add-on is consistent with our views and reasoning in developing the FCC Form 1235. It is only to be used if the benchmark rate alone is insufficient. The only way to calculate this is to use the full benchmark MPR as that portion of the actual rate to be applied on Worksheet 8 of the FCC Form 1240. Therefore, we affirm our Prior Order establishing refund liability based on the Operator's April 1, 1998 CPST rate increase. We also dismiss Operator's request for emergency stay as moot. 8. Accordingly, IT IS ORDERED, pursuant to Section 1.106 of the Commission's rules, 47 C.F.R.  1.106, that Operator's Petition for Reconsideration IS DENIED. 9. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that In the Matter of Bresnan Communications Company, DA 98-1877, 13 FCC Rcd 19615 (1998) IS AFFIRMED. 10. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's Request for Emergency Stay is DISMISSED AS MOOT. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau