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CSBA0204, CSBA0205,  S'` `  hhCq)CSBA0246, CSBA0395, CSBA0396,  S'Appeals of Local Rate OrdershhCq)CSBA0411, CSBA0484  S'of the City of Marshall, TexashhCq)  Sp'(CUID TX0209) hhCq)  S '  MEMORANDUM OPINION AND ORDER ă  S 'X` hp x (#%'0*,.8135@8:X yO'ԍ47 U.S.C.  154(j).>  ST' II.BACKGROUND  S' e WԊ2. ` ` Under the Commission's rules, rate orders issued by local franchising authorities may be  S' xMappealed to the Commission.@H yOd!'ԍ47 C. F. R.  76.944.@ In ruling on an appeal of a local rate order, the Commission will sustain  xthe franchising authority's decision provided there is a reasonable basis for that decision, and will reverse  S' xa franchising authority's decision only if the franchising authority unreasonably applied the Commission's  Sd' xrules in its local rate order.dxH {O|%' x  See Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992, 8  {OF&'FCC Rcd 5631, 5731 (1993) ("Rate Order"), also at 9 FCC Rcd 4316, 4346 (1994). If the Commission reverses a franchising authority's decision, it will not"d,**88"  x*substitute its own decision but instead will remand the issue to the franchising authority with instructions  S'to resolve the case consistent with the Commission's decision on appeal.G;S {O@'ԍRate Order at 5732.G  S' e 3.` ` An operator proposing to increase its basic service tier ("BST") or equipment rates bears  S`' xthe burden of demonstrating that the increase conforms with our rules.A`Z;S yOZ'ԍ47 C.F.R.  76.937(a).A In determining whether the  xoperator's proposed increase conforms with our rules, a franchising authority may direct the operator to  S' x}provide supporting information._;S {O 'ԍSee Rate Order, 8 FCC Rcd at 571819._ After reviewing an operator's rate forms, and any other additional  xinformation submitted, the franchising authority may approve the operator's requested rate increase or issue  S' x}a written decision explaining why the operator's rate is not reasonable.|;S {O 'ԍ47 C.F.R.  76.936; see Ultracom of Marple Inc., 10 FCC Rcd 6640, 664142 (CSB 1995). If the franchising authority  S' xdetermines that the operator's proposed rate exceeds the maximum permitted rate as determined by the  xQCommission's rules, it may prescribe a rate different from the proposed rate provided that it explains why the operator's rate is unreasonable and the prescribed rate is reasonable.  S ' III.DISCUSSION AND ANALYSIS  S '  A.` ` The Petition for Partial Reconsideration; CSBA0204, CSBA0205,  S '` ` CSBA0246  S0' e =4.` ` Of several issues addressed in the Falcon Order, Falcon's petition seeks reconsideration  xZonly of the conclusion that the City reasonably rejected the method Falcon used for allocating monthly  xVleased equipment costs per subscriber on FCC Forms 1205 submitted to the City. Because Falcon  xmaintains relevant cost accounts on a regional basis, an allocation of equipment costs to the franchise level  xDof rate review involved here was required in unbundling equipment costs on its initial Form 1205. Falcon  xused the ratio of regional subscribers to city subscribers to allocate leased equipment, maintenance and  xinstallation costs on its Forms 1205. The City noted that on an earlier filed FCC Form 393 Falcon used  xthe subscriber ratio to allocate maintenance and installation costs but used the ratio of equipment units in  x}the region to equipment units in the city for allocating equipment costs. The City refused to accept  xDFalcon's use of the subscriber ratio for allocating equipment costs as reasonable, noting that Falcon failed  xto demonstrate that its accounting records meet the Commission's requirement that, in order to use the  xZsubscriber ratio, the franchise areas covered by the accounting records must reflect similar equipment  SR' xprofiles as set forth in the instruction to Form 1205. R;S {O"'ԍFalcon Order, 11 FCC Rcd at 920506. See FCC Form 1205 instructions at 22, Line 8. The Falcon Order declined to overturn the City's findings and use of the equipment ratio for allocating equipment costs.  S'  S' e 5.` ` We deny Falcon's petition for partial reconsideration and affirm the Falcon Order. Falcon  xcontends that the City's refusal to allow use of the subscriber ratio for allocating equipment costs will keep  xit from recovering 100% of its actual costs for providing subscriber equipment, contrary to the mandate" ,`(`(88"  S' xof Section 623(b)(3) of the Communications Act.} ;S yOh'ԍ47 U.S.C.  543(b)(3) (Rates for subscriber equipment to be based on actual cost).} This cost recovery failure allegedly would occur  xbecause Falcon allocates equipment costs in all other franchises in the region using the subscriber ratio.  xgFalcon contends that the resulting $0.70 decrease in basic service rates in Marshall, Texas will cost an  xestimated $35,061 in revenues for 1996 alone, and create a liability for approximately $81,000 in  S`' xkrefunds.e \`X;S {OX' x ԍThe Falcon Order noted that the City found that the rejected subscriber ratio would allocate a significantly  xk smaller amount of costs from the basic service rates than would the equipment unit ratio Falcon used in its earlier  {O'filed Form 393. Id at 9205.e Falcon contends further that there should be no concern for cross subsidization of subscribers  xin other franchise areas from use of the subscriber ratio, because cross subsidies are embedded in virtually  S' xany method of rate regulation. We reject these arguments as providing grounds for overturning the Falcon  S' xOrder. First, Falcon fails to substantiate its claim that the reduction in revenues and refund liability that  x&may flow from the City's rejection of the subscriber ratio for allocating equipment costs will preclude  xtrecovery of actual costs. Falcon's recitation of revenue reductions and refund liabilities alone does not  xestablish that revenues from permitted rates fail to cover costs. Moreover, Falcon's petition provides  xnothing to demonstrate that its accounting records meet the Commission's requirement that, in order to use  xkthe subscriber ratio, the franchise areas covered by the accounting records must reflect similar equipment  xprofiles, as set forth in the instruction to Form 1205. The City is not required to accept an unsupported  xallocation methodology simply because Falcon has used it in other franchise areas. On this record we find  x7the City's use of the equipment ratio for allocating equipment costs to be reasonable, deny the petition for  S 'reconsideration, and affirm the Falcon Order.  S6' B.` ` October 10, 1996 Local Rate Order; CSBA0396  S' e 6.` ` The City's October 10, 1996 local rate order ("101096 Rate Order") considered Falcon's  xZFCC Form 393 filing for the period September 1, 1993 to July 14, 1994, found net overcharges above  xpermitted rates, and ordered refunds. On November 6, 1996, Falcon informed the City by letter that its  xDForm 393 erroneously reported that its BST contained 27 channels when in fact it contained 30 channels,  xand provided the City with a corrected Form 393. Falcon emphasized the fact that a channel lineup  xexhibit included with the original Form 393 correctly depicted 30 channels on the BST. Falcon further  xinformed the City that the corrected Form 393 established that a net overcharge did not exist as found in  xthe 101096 Rate order and therefore no refunds were due. In a March 12, 1997 letter ruling, the City  xhowever, noted that Falcon had not filed an appeal with this Commission within the time allowed under  xSection 76.944 of our rules, refused to recognize Falcon's letter as an appeal or request for reconsideration  SV' xof the 101096 Rate Order, and ordered Falcon to comply with the refund requirement by a date certain.U V|;S yOr 'ԍFalcon April 11, 1997 Petition, Attachment A.U Falcon filed its appeal on April 11, 1997.  S' e ~7.` ` Falcon's Petition for Review of the 101096 Rate Order raises only the issue of whether  xthe City properly refused to consider the corrected Form 393. Falcon points out that neither it nor the City  xdiscovered the factual error before adoption of the 101096 Rate Order. Falcon states that the 101096  xRate Order was not appealed, because the City had acted on the erroneous Form 393 without an  xopportunity to consider the corrected Form 393. Falcon argues that providing the City an opportunity to  xconsider the corrected Form 393 was consistent with the doctrine of exhaustion of administrative remedies"   ,`(`(88"  S' x^and for that reason the City should not have rejected the corrected Form 393. ;S {Oh' xt ԍCiting 47 U.S.C.  405. (Questions of fact or law will not normally be considered on appeal if not raised at lower administrative level). Falcon contends it would  xbe fundamentally unfair to require refunds when the City is now aware that the corrected Form 393 establishes that refunds are not due.  S`' e 8.` ` The City contends that it accurately calculated Falcon's lawful rate based on the Form 393  xsubmitted by Falcon, noting that it initially considered the Form 393 in a September 29, 1994 rate order,  S' x@which the Cable Service Bureau reviewed and remanded to the City in Falcon Telecable, 10 FCC Rcd  x10366 (CSB 1995). The City points out that the 101096 Rate Order is the City's response to that remand  xorder. City also notes that Falcon complied on October 25, 1996, with a requirement of the 101096 Rate  xOrder for submitting a refund plan. The City contends that under Section 76.944 of the Commission's  Sr' xrules,>r";S yO4 'ԍ47 C.F.R.  944(b).> Falcon had thirty days from the issuance of the initial rate order within which to raise the incorrect  xchannel count issue in its appeal of that earlier order but failed to do so. The City reiterates that Falcon  x}again filed to raise that issue with a timely appeal of the 101096 Rate Order. The City argues that  x@Falcon's failure to submit timely appeals to the Commission cannot be resurrected by its November 6,  xx1996 letter. Finally, the City argues that Falcon is required to justify the rates in issue with Form 393 data and cannot rely on data provided in other materials such as a channel lineup card.  SZ' e 9.` ` We will remand this matter to the City. The City rejected Falcon's corrected information  xgwithout reference to any established procedures other than Section 76.944 of this Commission's rules.  xSection 76.944(b) provides a thirty day period in which an appeal of a local rate order may be filed with  xthe Commission. Nothing in Section 76.944 precludes a cable operator from making an effort to correct  x*factual errors in a record before a local rate authority in a manner consistent with appropriate procedures  x/established by that authority. In this regard, we agree with Falcon that principles of exhaustion of  Sj' xadministrative remedies indicate that the City should be given an appropriate opportunity under local  xgprocedures to consider the correct channel count contained in the corrected Form 393. Correcting an  xadministrative record promptly after error discovery, as Falcon attempted to do here, normally facilitates  S' xadministrative efficiency.^X;S yOD' x& ԍTo the extent that Section 76.944 provides any guide as to timeliness, we note that Falcon submitted the  x/ corrected Form 393 on November 6, 1996, well within the thirty days provided by Section 76.944(b) of the Commission's rules for filing an appeal of the 101096 Rate Order. ^ In this connection, we observe that the City cited no established local  xprocedures as the basis for its rejection of the corrected Form 393, nor did it claim that consideration of  S'the corrected Form would be unduly burdensome.  SR' e 10.` ` Although local franchise authorities are normally entitled to rely on information submitted  xon the FCC 393 and on the best information available when cable operators are not forthcoming with  xrequested information, we cannot ignore the fact that correct channel information was made available to  xcthe City by means of Falcon's rate card attached to the initially submitted Form 393. Only through  S' xoversight by the City as well as by Falcon did the channel count inconsistency remain unnoticed until after  xtadoption of the 101096 Rate Order. The corrected Form 393 is based on the supporting information  xprovided to the City with the initial Form 393. We instruct the City to consider the corrected Form 393,"b,`(`(88g"  x*unless such consideration would violate appropriate established local procedures or impose undue burden on the City.  S' C.` ` May 6, 1997 Local Rate Order; CSBA0411  S8' e 11.` ` The City's May 6, 1997 local rate order ("5697 Rate Order") addressed issues remanded  S' xtto the City in the Falcon Order that were not raised in the reconsideration petition denied above.";S yOx' x ԍFalcon's appeal of the City's February 27 local rate order (CSBA0395) is rendered moot by the City's 5697  {O@' x Rate Order, which repaired certain deficiencies of the February Order. See Falcon's Petition for Review of Rate  xg Order filed June 9, 1997 at 1, n. 1. Accordingly, Falcon's Petition for Review of Rate Order, dated April 4, 1997 will be dismissed. The  x5697 Rate Order also addressed Falcon's 1996 Forms 1240 and 1205, and prescribed BST, equipment  xand installation rates for the periods under consideration in the remanded orders as well as that covered  xby the 1996 Forms 1240 and 1205. Falcon's Petition for Review raises two issues stemming from the 56 x&97 Rate Order. First, Falcon objects to the City's further use in this order of the equipment allocation  x7methodology contested in the reconsideration petition, and notes that the outcome of that issue rests with  x3the Commission's action on that petition. In view of our denial of the reconsideration petition and our  S ' xxaffirmance of the Falcon Order, Falcon's appeal of the City's 5697 Rate Order with respect to the City's use of the equipment unit ratio for allocating equipment costs is denied.  S ' e ~12.` ` Secondly, Falcon objects to the City's recalculation of the hourly service charge ("HSC")  xin Falcon's 1995 and 1996 Forms 1205, and more particularly to the number of labor hours used in the  S4' xHSC calculation. The Falcon Order held that an optional inside wiring maintenance plan for subscriber xowned wiring is a regulated service, the charge for which is subject to the Commission's equipment basket  S' xregulations.U;S {O8'ԍFalcon Order, 11 FCC Rcd at 9214.U Falcon was required to provide the City with detailed information necessary to justify the  xxcalculation of the inside wire maintenance charge, in order to identify what hours and costs were included  S' xMin the calculation of the HSC and for calculating the average charge.SZD;S {Oz' x ԍId. Operators may bill actual time for installation and maintenance activities based on the HSC or may use  x average installation and maintenance charges based on the HSC times the average time for the installation activity. FCC Form 1205 Instructions at 1617.S The City requested information  xregarding inside wire maintenance, and Falcon responded with an attachment it represented to be an  SF' xestimate of the hours related to the conduct of inside wire maintenance and repair.EXFf ;S yOL' x ԍLetter from C2 Consulting Services, Inc. to J.C. Hughes, Jr., Assistant City Manager (Nov. 8, 1996) at 4, 89  x ("Consultant's Report"), found at Falcon June 9, 1997 Petition, Attachment E. The attachment at issue is Exhibit B to the Consultant's Report.E Based on the  xinformation provided in Falcon's attachment and its accompanying narrative, the City concluded that the  S' x7attachment accounted for additional regulated hours, although it overestimated the number of these hours  S' x^that should be used for computing the appropriate inside wire maintenance rate.H ;S yO$'ԍConsultant's Report at 45, 89.H The City found that the  x2,342 hours attributed to wire maintenance for "Reconnect" and "Restart" transactions in the attachment",`(`(88"  S' xwere related to installation activities, not inside wire maintenance.A;S yOh'ԍConsultant's Report at 4.A Because the attachment stated those  S' xhours were "Incremental to original HSC hours,":X;S yO'ԍAttachment at n.3.: the City added them to the hours used to compute the  S' xHSC in Falcon's 1995 Form 1205. It also added the 468 hours undisputedly related to inside wire  xmaintenance to the HSC hours. It did not include hours attributed to "Prewired new installs" in the  S`' xattachment, because the attachment stated the hours were "already included in original HSC hours."`;S yO' x ԍReview of Petition for Review of Rate Order at 2, attached to City June 24, 1997 Opposition ("Review of Petition"); Attachment at n.2. This  xadjustment raised the number of total installation and maintenance hours to 5,680 from the 2,870 Falcon  S' xhad originally proposed in its HSC calculation and resulted in a lower HSC.C@;S yO 'ԍConsultant's Report at 45.C According to the  x^Consultant's Report at 5, "Each adjustment was discussed in detail with Falcon representatives who orally  x*agreed to positions being taken with respect to the HSC calculation." The City made a similar adjustment  S'to Falcon's 1996 HSC and inside wire maintenance rate.D;S yO'ԍConsultant's Report at 910.D  SH ' e d13.` ` Falcon challenges the City's treatment of the hours for reconnects and restarts shown in  x!its attachment. The attachment estimated the number of reconnect and restart hours as the number of these  xMtransactions multiplied by Falcon's estimate of the average time per transaction. In its petition, Falcon  xMstates without qualification that "approximately 65% of these reconnects and restarts involved no wire  xmaintenance at all," because transactions involving addressable converters included in its estimate would  xnot require a visit to the subscriber's premises and about 65% of the wired homes are served by  SX' xaddressable converters.JX` ;S yOX'ԍFalcon June 9, 1997 Petition at 4.J It further argues its estimated average wire maintenance time per transaction may  xbe overstated for nonaddressable converters. While stating its estimate includes hours not attributable to  xinside wire maintenance, it argues that the problem with its attachment lies in its failure to distinguish  x7between gross hours associated with inside wiring installation and maintenance, which could be billed for  S' xZinside wire activities, and the direct hours relevant to the HSC.y ;S yOH'ԍFalcon June 9, 1997 Petition at 45; Falcon July 3, 1997 Reply at 2 & n.3.y According to Falcon, it includes only  x&billable direct labor hours in its HSC, not indirect hours such as drive time or supervisory time, but all  Sh' xof the "gross wire maintenance activities" would be relevant in developing a wire maintenance charge.Mh ;S yO!'ԍFalcon July 3, 1997 Reply at 2 & n.3.M  S@' xIt complains that it believed it submitted the hours associated with the installation and maintenance of  S' xinside wiring for a different purpose than the use made of them by the City.j;S yO$'ԍFalcon June 9, 1997 Petition at 4; Falcon July 3, 1997 Reply at 3.j It admits fault for not  S'adequately explaining what its attachment meant.j;S yO0''ԍFalcon June 9, 1997 Petition at 4; Falcon July 3, 1997 Reply at 3.j"0,`(`(88"Ԍ S' e ԙ14.` ` The City opposes Falcon's petition, arguing that Falcon's attempt to rehabilitate its  xattachment is both too late and incorrect for reasons developed in an attachment from the City's consultant.  xThe City questions why the Company submitted time for wire maintenance activities if it knew that a large  xpercent of the reconnects and restarts did not involve wire maintenance and why the Company provided  S`' x3its estimate of the average time per transaction if it did not believe the average was appropriate.`;S yO'ԍReview of Petition for Review of Rate Order at 2, attached to City June 24, 1997 Opposition. The  xCity explains that the HSC computation is based on the hours Falcon originally filed plus both the  x8additional installer time Falcon showed and the reconnect and restart hours Falcon identified as  S'incremental to the original HSC hours.@ X;S yO 'ԍReview of Petition at 3.@  S' e 15.` ` The HSC is designed to recover the costs of service installation and maintenance of  Sp' xcustomer equipment.!p;S {O ' x* ԍSee FCC Form 1205 Instructions for Determining Costs of Regulated Cable Equipment and Installation, at 14 (June 1996) ("Form 1205 Instructions). To compute the HSC, an operator computes the annual capital costs plus expenses  xZfor maintaining customer equipment and installing the basic service tier. The operator then divides the  x*total costs and expenses by the total number of personhours spent on those activities over the past year.  x7The total number of person hours for Line A6 of the Worksheet for Calculating Permitted Equipment and  xInstallation Charges, the entry in dispute here, is the total number of personhours spent on maintenance  S ' xof customer equipment and service installation in the past year.;" B;S {O'ԍId. at 1516.; Where the operator imposes a charge  x^for inside wire maintenance, the HSC should include the hours spent on inside wire maintenance and used  xin the calculation of the inside wire maintenance rate as well as the hours spent on other installation and  S0' xmaintenance activities.r#Z0;S {O' x^ ԍSee Falcon Order, 11 FCC Rcd at 9214. The calculation of an average wire maintenance rate would be based  x on the HSC times the average hours for the wire maintenance activity. Form 1205 Instructions at 1617 and Worksheet for Calculating Permitted Equipment and Installation Charges, Step B.r Neither the Commission's rules nor Form 1205 specify any particular method  xfor counting labor hours. What is required, however, is that an operator use the same method for counting  xQlabor hours in calculating the HSC as it does in calculating the specific charges for its various installations  xand equipment, so that recoverable costs are allocated to the labor hours through which they are  S' xrecovered.$ ;S {O&' x3 ԍFalcon First Communications, L.P. (Whitfield County, GA), 14 FCC Rcd 7277, 7287 para. 26 (CSB 1999);  {O'see Falcon Cablevision (Thousand Oaks, CA), 10 FCC Rcd 9424, 9426 para. 9 (CSB 1995). In this way, an operator's choice about how to handle indirect as well as direct costs is revenue neutral.  S' e 16.` ` Based on the record before us, the City had no reason to take Falcon's attachment at other  S' x than face value. After the Falcon Order remand, the City repeatedly sought information from Falcon  S' xabout inside wire maintenance activities and costs.%R ;S yO%' x ԍConsultant's Report at 4 & n.5, 8. According to the consultant, Falcon quickly retracted the information it had initially provided as flawed. Falcon responded with an attachment that identified  xgdifferent activities, distinguished between those prewired new installation activities already included in"%,`(`(88"  xthe HSC hours and those reconnects and restarts that were incremental to the original HSC hours. It  S' xexplained when transmitting the attachment, "`The preponderance of inside wire maintenance occurs at  xythe time of service installation. Installers must ensure the quality of all wiring of prewired new  S' xinstallations. . . as well as the inside wiring on all reconnects and restarts where the drop already exists.'"&;S yO' x ԍConsultant's Report at 4, quoting from Falcon's October 25, 1996 response to the City's written request for information (emphasis added).  Sb' x*Falcon states that the City knew it calculates its HSC using actual billable hours,G'b ;S yO"'ԍFalcon July 3, 1997 Reply at 2.G so presumably the City  xtwould assume that the prewire new installation hours already included in the HSC would be billable or  xdirect hours. Nothing in the attachment or Falcon's explanation to the City suggests that the hours given  xfor reconnects and restarts would not also be billable or direct hours. The City accepted Falcon's  xrepresentation that it had spent 2,342 hours in maintenance activities associated with reconnects and  xreinstalls that were not reflected in the HSC and noted that Falcon included the costs of those activities  Sr' xin the HSC.A(r;S yO'ԍConsultant's Report at 4.A Because Falcon had stated these activities occur at the time of service installation, the City  xDtreated these as installation rather than ongoing maintenance activities for the purpose of setting the inside  x}wire maintenance rate. Whether these activities were installation or ongoing maintenance activities,  xthowever, the City was not unreasonable in including the associated labor hours in the HSC calculation,  xalong with the labor hours it accepted as wire maintenance hours. The instructions to FCC Form 1205  xprovide that the HSC should reflect total costs and total labor hours, and from the record before us, the  xCity had no reason to think that the hours Falcon represented as attributable labor hours for rate making  SZ' xMpurposes were not.)Z@;S {O:' x* ԍSee Sammons Communications of New Jersey, Inc., 11 FCC Rcd 17238, 17243 para. 10 (CSB 1996) (State was reasonable in relying on data supplied by operator while record was open). Hours attributable to ongoing inside wire maintenance would also be reflected in  x^the calculation of the wire maintenance charge on FCC Form 1205. Falcon bears the burden of justifying  x^its rates. Falcon's arguments as to why the City erred in its treatment of labor hours used to calculate the HSC are inconsistent with the record before us and are unsupported. Its petition on this issue is denied.  S' D. November 13, 1997 Local Rate Order; CSBA0484  SB' e 17.` ` The City's November 13, 1997 rate order ("111397 Rate Order") addressed Falcon's  xkForms 1240 and 1205 for the period October 1, 1997 through September 30, 1998. This rate order made  xfour adjustments to the Form 1240, the net result of which was a decrease in the permitted BST rate from  x$25.17 to $22.76. With respect to the Form 1205, the City questioned certain underlying data and ordered  xreductions in the HSC and the lease rate for nonaddressable converters while permitting increased rates for addressable converters and remote control devices.  S*' e 18.` ` Falcon objects to the City's use of a BST rate of $23.35 as a "starting rate" on Line A1  xof Form 1240, in place of the $24.77 rate Falcon submitted. Falcon asserts that its principal difference  xwith the City with respect to the rate permitted in the 111397 Rate Order stems from the City's selection  xof the "starting rate." Falcon notes that the City's use of the $23.35 starting rate is based on results  xreached in the City's 5697 Rate Order on appeal and addressed in this consolidated order. Falcon again  xnotes that the City's 5697 Rate Order utilized the equipment ratio for allocating equipment costs"b),`(`(88"  S' xcontested in the reconsideration petition, and that the correct starting rate on Line A1 of the 1997 Form  x1240 depends on the outcome of that petition. In view of our denial of the reconsideration petition and  S' xZaffirmance of the Falcon Order, Falcon's appeal of the City's 111397 Rate Order with respect to the  S'City's use of a "starting rate" is denied.  S:' e 19.` ` Falcon's first objection to the 1997 Form 1205 adjustments concerns the City's treatment  xof the contract labor expense figure in Schedule B. The City had previously determined that Falcon had  xxnot unbundled $42,385 in contract labor expenses from programming rates and had adjusted the 1995 and  x1996 Forms 1205 accordingly. The City made the same adjustment to Schedule B of Falcon's 1997 Form  xg1205. Falcon contends that the amount on Schedule B of its 1997 Form 1205 reflects $40,708 of that  xreduction, which is all but $1,677 of the amount it had not unbundled, and the City's adjustment reflects  xka double reduction. The City claims it does not. The City contends Falcon, in response to an information  x7request, submitted a contract labor expense amount from its general ledger in the same manner as for the  S ' xg1995 and 1996 Form 1205 reviews,* ;S yOb 'ԍThe City states that Falcon agreed to the $40,708 reduction on the 1995 and 1996 Forms 1205. but despite requests for clarification, never provided information  S ' xshowing modification of the general ledger to reflect the reduced labor contract expense this time around.+ X;S yO' x ԍFalcon states it never had a chance to clear this up with the City's consultant, because the report was not forwarded to Falcon until three days before the City adopted the rate order. Falcon Reply at 3 n.3.  x7Therefore, the City declined to accept Falcon's figure for contract labor on Schedule B of the 1997 Form  x1205. In Attachment A to its Reply, Falcon provided a Contractor Installation Analysis showing the net  xcontract labor expenses for 1996 to be $40,708, the amount by which it had reduced the contract labor  S2' xtexpenses in its original Form 1205., 2;S yO' x  ԍThe Contractor Installation Analysis shows for Marshall, Texas a sum of $156,473 in "total payments to  x contractors for installations" from which an amount of $40,708 has been subtracted for "total contractor reconnects  x & disconnect payments," giving a remainder of $115,765, the amount to which Falcon stated it had reduced its contract labor expenses in its original Form 1205. In Attachment D to its petition, Falcon submitted a revised Form  x1205 reflecting the full $42,385 reduction. In light of Falcon's showing that the Form 1205 it submitted  xto the City already reflected reduction of substantially all of the contract labor expenses it had not  xpreviously unbundled, the City's further reduction of the contract labor expenses by this same amount does  x*not appear to be reasonable. Because the City should review this information in the first instance, we are remanding this matter for further consideration by the City.  S' e  20.` ` Falcon next objects to the City's action limiting the inventory of nonaddressable converters  S' x7reflected in the gross book value to 10% of the number of units in service. The City had ascertained that  xthe nonaddressable converter inventory for both Marshall and Comanche, Texas represented 28% of non S' xaddressable converters in service and in inventory combined.-B;S yO!' x ԍBased on information submitted by Falcon, the City determined that the number of nonaddressable converters  x in Marshall had remained constant at 1,023 in service and none in inventory, and that in Comanche there were 402  x in service and 568 in inventory, for a total of 1993 converters. The 568 converters in inventory represented 28%  x7 of total converters, which the City found excessive. After subtracting 10%, or 199 converters from this total, the  {O$' x City utilized the remaining 1,794 converters in its rate calculation. See Consultant's Oct. 10, 1997 report at 45 &  x n.6, found at Falcon's January 5, 1998 Petition for Review of Rate Order, Attach. C. In this connection, we observe  xM that reducing total units in service and in inventory by 10% does not produce a 10% inventory allowance, as suggested by the City. Based on this inventory adjustment, the" -,`(`(88"  xCity adopted a $1.80 monthly rate for nonaddressable converters in place of the $3.15 rate proposed by  xFalcon. Falcon argues on appeal that the number of converters currently warehoused and not in service  x3is not relevant to the calculation of rates. Falcon's petition states that the original depreciation of non S' xaddressable converters, $36,779, is erroneous and that the correct amount should have been $24,968.N.;S yO'ԍFalcon January 20, 1998 Petition at 5.N  xApplying this correction, Falcon submits that the nonaddressable converter rate should be $1.58. Because  x<this rate is lower than the City's $1.80 rate, Falcon contends that no adjustment should be made to  xpinventory. The City in opposition argues that Falcon fails to address the issue of passing excessive  xQinventory costs on to subscribers when these costs are due to combining two systems. According to the  xCity, if Falcon had disclosed its depreciation error in a timely fashion, the City could have corrected the  xgdepreciation expense, set the inventory to a 10 percent level, and prescribed a more appropriate rate of  x$1.25. In reply, Falcon states that its actual nonaddressable converter net investment, using the corrected  xdepreciation amount and adding a net investment after depreciation of $3,412 to the Marshall investment  xamount, represents 479 converters in service and 30 converters in inventory, for a total of 509 converters.  x*Using these numbers, Falcon contends that no excess inventory existed for the City to adjust downward,  xthat these numbers produce a $1.56 rate, and that the resulting difference from $1.58 rate Falcon recalculated is merely pennies, suggesting again that no inventory adjustment should be made.  SX' e 21.` ` We remand this matter along with other remanded matters. On remand, any inventory  xlimitation adopted by the City must be rationally supported by relevant factual information, taking into  xconsideration the makeup of the inventory. The City provided no information or rationale in support of  xZthe 10% inventory allowance it imposed, other than to state flatly that Falcon's 28% inventory appears  xexcessive. The fact that an operator aggregates costs is not, by itself, a sufficient reason to disallow  S' xelements of the costs./X;S {O' x ԍSee 76.923(c)(1); see also TCI of Richardson, Inc. (Richardson, TX), DA 991408 para. 18 (CSB released July 20, 1999). In this respect the City's 111397 Rate Order is arbitrary and not shown to be  xreasonable. Moreover, the supplemental corrected depreciation and net investment data provided by  x*Falcon shows that the assumptions underlying the City's adjustments may contain an error of fact. While  xFalcon is to be faulted for providing corrected information for the first time at the appeal stage of the proceeding, on remand accurate information should be used in determining the rate.  S' e 22.` ` We further note that the 479 nonaddressable converters in service in Comanche identified  xin Falcon's Reply, when added to the 1,023 nonaddressable converters in service in Marshall, produces  xan apparent total of 1,501 converters in service, rather than the 1,425 converters in service suggested by  S(' x Falcon and reflected in the Consultant's Report.a0(;S {Oz 'ԍSee Consultant's Report (Oct. 10, 1997) at 4 & n.6.a On remand, a correct count of converters must be  xutilized by the City, along with the corrected depreciation figure not available to the City at the adoption of the rate order.  S' e 23.` ` Finally, Falcon points out that the Form 1205 showed no video control units in service  xand therefore no lease rate was proposed. Falcon states that on further review, it has discovered that there  xare 15 video control units in service in the Marshall region and asserts that, when these control units are  x7incorporated into the Form 1205 calculations, a lease rate of $0.24 is established. The City objects to the  xestablishment of any rate for video control units on the grounds of untimeliness and argues that Falcon" D0,`(`(88"  xshould not be allowed to continue charging any rate in the event the $0.00 rate was approved by the  S' xCity.H1;S yO@'ԍCity Jan. 20, 1998 Reply at 89.H Operators are entitled under the Communications Act and the Commission's rules to recover their  S' xDactual costs for equipment and installation, plus a reasonable profit.2X;S {O'ԍSee 47 U.S.C  543(b)(3)(A); 47 C.F.R.  76.923(c); see also Falcon Order, 11 FCC Rcd at 9209 para. 27. In view of the uncertainty reflected  xin the City's Opposition as to whether the City has approved a rate of $0.00 for video control units in its 111397 Rate Order, the appropriate rate for video control units should also be considered on remand.  S' IV.ORDERING CLAUSES  S' e  24.` ` For the foregoing reasons, IT IS HEREBY ORDERED that the Memorandum Opinion  S'and Order adopted in Falcon Cable, 11 FCC Rcd 9197 (CSB 1996), IS AFFIRMED .  SJ ' e  25.` ` IT IS FURTHER ORDERED that the Petition for Review of Local Rate Order filed by  S" 'Falcon Telecable on April 4, 1997 (CSBA0395) IS DISMISSED.  S ' e  26.` ` IT IS FURTHER ORDERED that the Petition for Review filed by Falcon Telecable on  S ' xApril 11, 1997 (CSBA0396) IS GRANTED and the October 10, 1996 local rate order of the City of  S ' xMarshall, Texas IS REMANDED for further consideration and resolution in accordance with this  SZ'Memorandum Opinion and Order.  S ' e  27.` ` IT IS FURTHER ORDERED that the Petition for Review filed by Falcon Telecable on  S'June 9, 1997 (CSBA0411) IS DENIED .  S' e h28.` ` IT IS FURTHER ORDERED that the Petition for Review of Rate Order filed by Falcon  Sj' xTelecable on December 19, 1997 (CSBA0484) IS GRANTED IN PART AND DENIED IN PART and  SB' xthe November 13, 1997 local rate order of the City of Marshall, Texas IS REMANDED to the City for further consideration and resolution in accordance with this Memorandum Opinion and Order.  S' e  29.` ` IT IS FURTHER ORDERED that the Petition for Review of Local Rate Order filed by  S'Falcon Telecable on April 4, 1997 (CSBA0395) IS DISMISSED.  SR' e A30.` ` IT IS FURTHER ORDERED that the City of Marshall, Texas may not enforce matters remanded for further consideration herein pending further action by the City on these matters.  S' e 31.` ` This action is taken pursuant to authority delegated by Section 0.321 of the Commission's rules. 47 C.F.R.  0.321. ` `  hhCqFEDERAL COMMUNICATIONS COMMISSION ` `  hhCqWilliam H. Johnson, Deputy Chief ` `  hhCqCable Services Bureau