QUESTIONS AND ANSWERS ON CABLE TELEVISION RATE REGULATION June 14, 1994 The Cable Services Bureau has received questions from cable operators and other interested parties concerning the Commission's revised rules governing cable rate regulation. The following questions and answers provide guidance on a variety of issues of general interest regarding the revised rules. Previous sets of Questions and Answers were released on April 26, May 6, May 18, and June 1, 1994. Form 1200 Q1: Can Form 1200 be used for a system with more than 5 tiers? A1: A system with more than 5 tiers will not be able to use the Commission's electronic spreadsheet for Form 1200. For a system with more than five tiers, the Form 1200 must be submitted on the official FCC paper form with additional sheets attached as needed. Q2: If a cable operator raised its rates effective October 1, 1992, the first day of a monthly billing period, but the bill for that period was payable on or before September 30, 1992, what was its monthly charge per tier as of September 30, 1992 for purposes of completing line G2 of FCC Form 1200? What was its monthly charge per tier as of September 30, 1992 if it raised its rates effective September 15, 1992 and the bill for the September 15 to October 14, 1992 period was payable on or before September 30, 1992? A2: As indicated in the Instructions for Line G2 of FCC Form 1200, the operator should use the rate reflecting its "standard monthly charge for the last whole monthly billing period ending on or before September 30, 1992." The charge for the last whole monthly billing period ending on or before September 30, 1992 is the rate in effect for last whole period billed for ending on or before that date regardless of when the bill was sent. Thus, in the first example in this question, the rate for the last whole monthly billing period ending on or before September 30, 1992 would be the rate in effect for September 1 to 30, 1992 (presumably paid on or before August 31, 1992). In the second example, the rate for the last whole monthly billing period ending on or before September 30, 1992 would be the rate in effect from August 15, 1992 to September 14, 1992. External Costs Q3: The instructions for Module B of Form 1210, refer to changes in external costs that have been "incurred." Does a change in external costs actually have to have been paid during a quarter in order to be considered as incurred and included in Form 1210 for that quarter? A3: External cost increases may be claimed on Form 1210 provided that the increased external cost was recognized on the books of the operating company during the previous quarter. This would apply to expenses that were paid or accrued during that period. For example, an operator offers a new programming service in January that will increase its compulsory copyright license fees. Those fees will not actually be paid until the third quarter. If the expense for the first quarter was accrued during the period and the cost was recognized on the books of the operating company during the first quarter, then the increase can be included on the Form 1210 that can be filed in the second quarter. Q4: For what portion of a quarter must a new or increased external cost exist in order to be claimed on a Form 1210 filed during the following quarter? If an external cost increase occurs during the last month of a quarter, and as a result only a partial month's cost appears on the cable operator's books for that quarter, may the cable operator claim the full increased cost during the following quarter? A4: An external cost may be claimed on a given Form 1210 provided that the increased external cost was recognized on the books of the operating company during the previous quarter. This would apply to expenses that were paid or accrued during that period. There is no minimum portion of a quarter during which the service must be offered or the cost must be recognized. The increase in external costs may be claimed to the full extent of the monthly increase, even if the cable operator recognized on its books only a prorated portion of that increase during the final month of the previous quarter. To the extent that claimed external costs differ from the costs actually shown on the operator's books, the operator should attach to Form 1210 an explanation of the difference. Notice Q5: May cable operators use "any reasonable and feasible means" (such as on-screen programming or newspaper publication), to provide notice of rate or service changes, as well as to provide notice of subscribers' right to file complaints with the Commission and franchising authorities? A5: The Commission's rules allow cable operators to provide notice through on-screen notification, only with respect to subscribers' right to file complaints with the Commission concerning rate and associated equipment changes for cable programming services and only with respect to rate changes becoming effective before July 15, 1994. See 47 C.F.R. Section 76.964(c)(April 14, 1994 Erratum to Second Order on Reconsideration). Otherwise, written notice must be provided as specified in the Commission's rules, unless a waiver is granted. See e.g., fX Channel Letter (released May 9, 1994, by Acting Chief, Cable Services Bureau). (Waiver allowing operators launching new programs services during refund deferral period to provide on-screen or newspaper notice in certain circumstances.) Deadlines for Filing Cost-of-Service Showings Q6: If a cable operator filed a benchmark rate justification prior to May 15, 1994 and decides to change to cost-of- service regulation to justify rates in effect on or after that date, when will the operator be required to file its cost-of-service showing? A6: Rate justifications filed by cable operators prior to May 15, 1994 are used to evaluate rates from September 1, 1993 through May 14, 1994. Cable operators may correct or modify these filings, provided that they do so by June 24, 1994, in the case of benchmark justifications, or July 14, 1994, in the case of cost-of-service justifications. See the Cable Services Bureau's order released June 14, 1994. Cable operators who filed rate justifications (either benchmark or cost-of-service) prior to May 15, 1994, must file new rate justifications with the Commission or local franchising authorities for the purpose of evaluating rates in effect on or after May 15, 1994. Operators filing under benchmark regulations must file on FCC Form 1200 by June 15, 1994, or, if the refund deferral provision of 76.922(b)(2)(B) applies, by August 15, 1994. (See Question and Answer number 7 below). Operators filing under cost-of- service regulations must file on FCC Form 1220 or 1225 by July 14, 1994, or, if the refund deferral provision of 76.922(b)(2)(B) applies, by August 15, 1994. (See Question and Answer number 7 below). Q7: Does the deferral of refund liability provided for in Section 76.922(b)(6)(B) of the Commission's rules apply to cable operators who choose to justify their rates under our cost-of-service rules, as well as to operators who justify rates under the revised benchmark rules? A7: Yes. Under Section 76.922(b)(6)(B), all cable operators who are subject to rate regulation on May 15, 1994, including cable operators who are filing cost-of-service rate justifications, have until 30 days after restructuring (but no later than August 15, 1994) to file their rate justifications without incurring any refund liability, provided that they meet the conditions for refund deferral set forth in Section 76.922(b)(6)(B). The Cable Services Bureau recently granted an extension of the refund deferral period until September 1, 1994, for small operators. See the Cable Services Bureau's Order (DA 94-592) dated June 7, 1994. Spreadsheet Versions of Forms Q8: In the instructions to the paper form of Form 1220, line 50 is the total of lines 48 + 49, but in the electronic (spreadsheet) version of the Form 1220, line 50 is the sum of lines 47 + 48 + 49. Similarly, in the instructions to the paper form, line 56 is the sum of lines 52 through 55, but in the spreadsheet it appears to be the sum of lines 51 through 55. Are the instructions for the paper Form 1220 correct or is the spreadsheet correct? A8: The spreadsheet version is correct. The error is in the instructions to the paper form. In both the paper and spreadsheet versions of Form 1220, line 50 should be the sum of lines 47 through 49 and line 56 should be the sum of lines 51 through 55. See Cable Operators' Rate Justification Filings, Order, DA 94-619, dated June 14, 1994. Q9: On the spreadsheet versions of FCC form 1220 and 1225, should Depreciation, Amortization, and Deferred Taxes be entered as positive or negative numbers? A9: They should be entered as negative numbers. As stated in the coversheet included with the spreadsheets, Depreciation, Amortization and Deferred Taxes are expected to have credit balances that are to be calculated as reductions to the ratebase investment in the Schedule A calculations. To have the spreadsheets properly calculate the ratebase reductions, these items must be entered as negative numbers. They must be entered as negative numbers across all columns for which data is to be entered, except that an adjustment (in Column B of the Form 1220 and Form 1225) may require a positive entry when it is intended to reduce the credit balance. Q10: On the Lotus 1-2-3 for DOS version of the FCC Form 1210, Line B11d shows an error for any empty tiers on the spreadsheet. How can this problem be corrected? A10: This problem exists only on the Lotus 1-2-3 for DOS versions of the FCC Form 1210 spreadsheet. To correct the problem, simply enter 1 for all empty tiers in line B11c to avoid a division by zero and properly calculate the external costs in module B. - F C C -