WPC~{ 2MB%RK Z3|jTimes New RomanTimes New Roman Bold P6G;P"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+99999999S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN K<3|j"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDDDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxdTimes New RomanTimes New Roman BoldTimes New Roman Italic P6G;\!P23 pXEX K  X- I. A. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)#Xj\  P6G;+XP#Times New RomanTimes New Roman BoldTimes New Roman ItalicTimes New Roman Bold Italic7jC:,+Xj\  P6G;XP7nC:,Xn4  pG;XW!@(#,9h@\  P6G;hPd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxdTimes New RomanTimes New Roman BoldTimes New Roman ItalicTimes New Roman Bold Italic"i~'^:DpddȨDDDdp4D48ddddddddddDDpppd|Ld|pȐD8DtdDdpXpXDdp8Dp8pdppXLDpdddXP,PhD4htDDD4DDDDDDdDp8dddddȐXXXXXJ8J8J8J8pddddppppddpddddzpdddXXhXXXXXdddhdptL8LpLDLpphhp8ZDP8pppddƐXXXpLpLpLphfDtppppppȐhXXXpDppLDd4ddC6CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxHjdDdddddd8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN-@.CRight Par 3Right Par 3+` hp x (#X` P hp x (#X` P hp x (#` hp x (#Right Par 4Right Par 4,` hp x (#X` hp x (#0X` hp x (#0` hp x (#Right Par 5Right Par 5-` hp x (#X` hp x (#X` hp x (#` hp x (#Right Par 6Right Par 6.` hp x (#X` hp x (#0X` hp x (#0` hp x (#2M/SE0qG1(I2$KRight Par 7Right Par 7/` hp x (#X` hp x (#X` hp x (#` hp x (#Right Par 8Right Par 80` hp x (#X` hp x (#0X` hp x (#0` hp x (#Document 1Document 11` hp x (#X` hp x (#X` hp x (#` hp x (#Technical 5Technical 52` hp x (#X` hp x (# X` hp x (#` hp x (#2-S3$ N4l1P5lP6$ QTechnical 6Technical 63` hp x (#X` hp x (# X` hp x (#` hp x (#Technical 2Technical 24 Technical 3Technical 35 Technical 4Technical 46` hp x (#X` hp x (# X` hp x (#` hp x (#21Z7l_S8$S9$U:XTechnical 1Technical 17 Technical 7Technical 78` hp x (#X` hp x (# X` hp x (#` hp x (#Technical 8Technical 89` hp x (#X` hp x (# X` hp x (#` hp x (#toc 1toc 1:` hp x (#!(#B!(#B` hp x (#2b;cZ<\=^>`toc 2toc 2;` hp x (#` !(#B` !(#B` hp x (#toc 3toc 3<` hp x (#` !(# ` !(# ` hp x (#toc 4toc 4=` hp x (# !(#  !(# ` hp x (#toc 5toc 5>` hp x (#h!(# h!(# ` hp x (#2i? c@v+eAeBgtoc 6toc 6?` hp x (#!(#!(#` hp x (#toc 7toc 7@ toc 8toc 8A` hp x (#!(#!(#` hp x (#toc 9toc 9B` hp x (#!(#B!(#B` hp x (#2pCjD-lEKnFvipindex 1index 1C` hp x (#` !(# ` !(# ` hp x (#index 2index 2D` hp x (#` !(#B` !(#B` hp x (#toatoaE` hp x (#!(# !(# ` hp x (#captioncaptionF 2rGlqHr}qIqJ}nr_Equation Caption_Equation CaptionG endnote referenceendnote referenceH head1 #I'd#2p}wC@ #a1Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfJ$ 2uKsLsM8tNta2Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfK/` ` ` a3Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfL:` ` `  a4Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfME` ` `  a5Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfNP  ` ` ` hhh 2wOuPevQ$wa6Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfO[   a7Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfPf  a8Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfQq 2\ xY|{y.X80,IX\  P6G;P7jC:,+Xj\  P6G;XP7nC:,Xn4  pG;XW!@(#,9h@\  P6G;hP H5!,,5\  P6G;,P!y.\80, {\4  pG;\#{,W80,%W*f9 xr G;X\$5hC:,%Xh*f9 xr G;XX6jC:,<LXj9 xOG;X X- X   K X-w  Federal Communications Commission`(# DA 962105 ă  yxdddy v3 #X\  P6G;IP#Before the Federal Communications Commission  yO} Washington, D.C. 20554 ă  Xy-#Xj\  P6G;+XP# R#Xj\  P6G;+XP#) In the Matter of R) TCI TKR of Houston, Inc.R) R) Appeal of Local Rate Order of City of:R) R) Alvin, TexasR) El Lago, TexasR) Friendswood, TexasR) La Marque, TexasR)  X| -League City, TexasR)hpp Nassau Bay, TexasR) Seabrook, TexasR) Taylor Lake Village, TexasR) Texas City, TexasR)  X -Webster, TexasR)h  X-  CONSOLIDATED MEMORANDUM AND ORDER TP  X-X` hp x (#%'0*,.8135@8:on May 13, 1996, and the third appeal involves two local rate orders adopted by the City of  xFriendswood, Texas on June 3, 1996. The fourth appeal concerns two local rate orders adopted  x by the City of La Marque, Texas on June 10, 1996. The fifth appeal concerns two local rate  xorders adopted by the League City, Texas on June 15, 1996. The six and seventh appeals  xjconcern two orders adopted by the City of Nassau Bay, Texas on June 10, 1996 and the City of  xTaylor Lake Village, Texas on May 15, 1996. The remaining appeals involve single rate orders  xof the Cities of Seabrook, Texas, Texas City, Texas and Webster, Texas, adopted respectively on  X%- x1June 18, 1996, May 27, 1996, and May 28, 1996.!%ȗ yO'- xY#X\  PG;IP# The local franchising authorities are hereafter collectively referred to as "the Cities." Each of the rate orders incorporates reports prepared by the consultant to the Cities, ReedStowe & Co.! The Bureau has determined that the"% ,))ZZ#"  xproceedings are sufficiently similar to justify the joint resolution of all the issues raised by each  xZparty in a consolidated order. Seven of these appeals address the same five identical issues. The  xyremaining three appeals, concerning the orders adopted by the Cities of La Marque, Seabrook,  xand Texas City, address only the first four of these issues. We find that this consolidation will  X-not prejudice any of the parties and will serve the interests of administrative efficiency.} yO- x 1. 1. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)#Xj\  PG;+XP#X` hp x (#%'0*,.8135@8:rate base (investment in property, plant, and equipment used for regulated services) by the  X - xjdeferred tax balance associated with the investment.H } {Or- See FCC Form 1205 at 7.H The requirement to reduce the rate base  xby this amount is premised on the assumption that the operator has included the tax expense in  x-its rates even though the amount was not payable to taxing authorities. In these instances, since  xthe operator has use of these "no cost funds" provided by the ratepayer, an adjustment is made  xLto the rate base for an appropriate reduction to the revenue requirement. TCI claims, however,  x<that it did not recover these amounts from ratepayers, and consequently, the deferred tax balance  xis unfunded. TCI therefore included an amortization of the amount in its depreciation provision on the Form 1205.  X- ` x8.` ` Previously, we required operators to reduce the regulated rate base by the total  xdeferred taxes associated with the rate base investment. Subsequently, we modified this rule to  xirequire the reduction of the rate base by associated deferred taxes accrued only since the date the  X- x?operator became subject to regulation.\~} {O- xh#X\  P6G;IP# See Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992,  xMM Docket No. 92266, Second Report and Order, First Order on Reconsideration, and Further Notice of Proposed  {O-Rulemaking, 11 FCC Rcd 2220 (1996) ("Second Report and Order") at  62. We believe that this action by the Commission  xadequately addresses TCI's concern. Under our current rules, TCI may reduce its deferred tax  xibalance by any preregulation amounts before reducing the rate base for deferred taxes. Our rules  xdo not provide for the amortization that TCI included in its depreciation expenses on FCC Form  x1205. Because TCI's methodology was improper, we find that the Cities were correct in  x[disallowing that amount in TCI's equipment rates. The computation proposed by TCI allows it  x-to recover more than its acquisition costs of the assets providing regulated services. TCI should  X - xbe allowed to defer taxes but as provided in our Second Report and Order, and only as of its  xeffective date. Accordingly, we remand this issue for resolution consistent with the terms of this" ,-(-(ZZy" Order.  X-x B.` ` State Income Tax  X- ` x9.` ` On Schedule A of its Form 1205, TCI included the Texas corporate franchise tax  xin its grossup calculation, stating this tax is essentially an income tax. TCI argues that since  xTexas has no state income tax, the corporate franchise tax is functionally equivalent to the state  X_- xlincome tax and was properly included in its grossup calculation._} {O- 1. 1. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)#Xj\  PG;+XP#X` hp x (#%'0*,.8135@8:installation and maintenance activities. TCI calculated the number at 54,758, and the Cities'  xcalculation was 55,394. TCI states the Cities' increase was apparently based on the premise that  xTCI did not include work performed as overtime. TCI maintains, however, that its calculation  X - xdid account for overtime hours. Z} {O% - 1. 1. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)#Xj\  P#G;+XP#X` hp x (#%'0*,.8135@8:calculation is similar, however, the Cities were correct in rejecting TCI's calculations for not  xcomplying with Commission rules. The determination of whether the cable operator's proposed  xHSC is reasonable is an issue left to the discretion of the local franchising authority. We will  xnot disturb the local franchising authority's finding if there is a reasonable basis for its decision.  xBased on the record before us, we find it was reasonable for the Cities to calculate the HSC in  x.accordance with Commission guidelines. Accordingly, we affirm the Cities' rate orders on this issue.  XN-x D.` ` Inside Wiring Maintenance Plans  X - ` x14.` ` TCI argues that the Cities erred in subjecting its optional inside wiring maintenance  xplan to rate regulation. TCI relies on two factors in favor of assigning its wiring maintenance  xplan unregulated status. First, TCI maintains that a comparable related offering is available to  xall customers and the wiring maintenance plan is entirely optional. Second, TCI claims that  X - xKadditional competitive sources of inside wiring maintenance are available to all cable customers.m } {Oa&- #X\  P6G;IP#See TCI Appeals at 9.m  xTCI asserts that the Commission has relied on both of these points to justify leaving other cable"!~,-(-(ZZ "  X- xofferings unregulated.} {Oy- x #X\  P6G;IP#Id., citing Implementation of Sections of the Cable Television Consumer Protection and Competition Act  xof 1992, MM Docket No. 92266, First Order on Reconsideration, Second Report and Order and Third Notice of  {O - xzProposed Rulemaking, 9 FCC Rcd 1164, 1192 ("First Order on Recon.") at  51 ("equipment rates will be  {O- x<unregulated where the operator offers subscribers the same equipment under regulated leased rates"); SBC Media  {O- xVentures, 9 FCC Rcd 7175 (Cab. Serv. Bur. 1994) (A/B switches will be unregulated because competitive sources for such switches exist). In asserting regulatory control over TCI's wiring maintenance plan, TCI  xargues the Cities have forgotten that rate regulation was created to substitute for market forces,  xand was to be eliminated as competition emerged. Because TCI's customers have alternatives to its wiring maintenance plan, TCI concludes that the City erred in asserting regulatory control.  X- ` ax15.` ` The Cities reply that Commission opinions clearly determine that the wiring  xmaintenance plan is a regulated service, with the question being which method is appropriate in  x/determining the regulated rate for such service, not whether the wiring maintenance plan is  xregulated. The Cities cite to Commission decisions holding that the appropriate method in  X1- xidetermining regulated rates depends on whether the operator or the subscriber owns the wiring.Q\1H} {O*- x See Cities Oppositions at 78, citing TCI of Southeast Mississippi, 10 FCC Rcd 8728, 8731 (Cab. Serv. Bur.  {O- xy1995); M.L. Media Partners, L.P. Trading As Multivision Cable TV, 11 FCC Rcd 1017, 1025 (Cab. Serv. Bur. 1995).Q  xIn the first instance, if the operator retains ownership of the wiring after installation, the rate for  xthe lease of the equipment must be justified. If the subscriber owns the wiring, the operator may  xrecover the cost of providing the maintenance and repair through a service contract by charging  x-a rate based on the operator's hourly service charge for installation activities properly unbundled  X - xfrom its programming rates.[ l } {O- #X\  P6G;IP#Id.[ The Cities state there was no error in asserting regulatory control  xover the wiring maintenance plan and assigning a reasonable rate because TCI's subscribers  X-within the franchise area own the inside wiring. h  Xb- ` x16.` ` The Cable Television Consumer Protection and Competition Act ("1992 Cable  xAct") provides that where competition is absent, cable rates are to be regulated to protect the  X4- xZinterest of subscribers.K4 } yO- Communications Act  623(a).K Congress charged the Commission with the task of developing the rules  X- x=to be used by local franchising authorities and the Commission to implement rate regulation.  } {O\!- x See Cable Television Consumer Protection and Competition Act, Pub. L. No. 1002385, 106 Stat. 1460  {O&"- x(1992); Communications Act  623(b) and (c), as amended, 47 U.S.C.  543(b) and (c) (1992). Subsequently,  xCongress adopted the Telecommunications Act of 1996 limiting the Commission's regulation of the cable  {O#- xprogramming service tier to those services provided before April 1, 1999. See  Telecommunications Act of 1996,  {O$-Pub L. No. 104104, 110 Stat. 56; Communications Act  623 (c)(4), as amended, 47 U.S.C.  543(c)(4) (1996).  xIn developing the rules regarding rate regulation, the Commission was concerned that operators  xwhen faced with a mandate to reduce rates by the 17% competitive differential would simply"F ,-(-(ZZ"  X- xreduce subscriber services to offset losses in revenues due to the reduction in rates.!Z} yOy- x, The 17% competitive differential represents the average difference that the Commission determined existed  {OA- xYbetween the rates of competitive and noncompetitive cable systems. See Second Order on Reconsideration, Fourth Report and Order, Fifth Notice of Proposed Rulemaking in MM Docket 92266, 9 FCC Rcd 4119, 4124 (1994). Instead, the  xCommission desired that operators provide the same level of services that they provided during  x<the preregulation period, but at rates no higher than the maximum permitted levels as established  X- xby their benchmark filings."} {OV- xw See Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992:  x,Rate Regulation, MM Docket No. 92266, and BuyThrough Prohibition, MM Docket No. 92262, Third Order on  xReconsideration, 9 FCC Rcd 4316, 4365 (1994). "For instance, operators cannot now charge for services previously  {O - xxprovided without extra charge (e.g.,routine service calls, program guides) unless the value of that service, as now  xxreflected in the new charges, was removed from the base rate when calculating the reduction in rates necessary to  {OB -establish reasonable rates."  The 1992 Cable Act and the Commission's rules require that  xregulated equipment and installations be offered to subscribers at rate levels reflecting the  X- xoperator's actual costs.#h } yO- Communications Act,  623(b)(3), 47 U.S.C.  543(b)(3); 47C.F.R.  76.923. To establish these charges, the Commission's rules direct an operator  x{to "unbundle" its charges for equipment and installations from its rates for programming  X_- xservices.D$_ } yO- 47 C.F.R.  76.923(b).D Therefore, charges that were bundled with programming rates prior to rate regulation  XH- x.may now appear as separately calculated and itemized charges.%H } yO- x Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate  {OI-Regulation, 8 FCC Rcd 5631, 581417 (1993) ("Rate Order"). Inside wiring is one example of such charges.  X - ` x17.` ` There is no dispute, however, that the regulatory treatment of inside wiring and  X - xcosts associated with its maintenance depends on who owns the wiring.q& } {O- See Continental Cablevision of Ohio, 8 FCC Rcd at 581417.q An operator is not likely  xto be the owner of a subscriber's inside wiring if it did not install the wiring in the subscriber's  x]premises. Similarly, the operator is not the owner if it installed the wiring but transferred  x/ownership to the subscriber. If an operator installs wiring and retains ownership, our rules  X- xspecifically provide that the rate for the lease of the equipment must be justified on Form 1205. Q't} {O - See 47 C.F.R.  76.923(a)(4).Q  xxThe rate for operatorowned wiring includes a component for maintenance costs. In this instance,  xhowever, the inside wiring is owned by TCI's subscribers. Under these circumstances, no lease  x/rate applies, but TCI's costs of providing any maintenance and repair of that wiring may be  X4- xZrecovered through a service contract.u(4} {O%- #X\  P6G;IP#See 47 C.F.R.  76.923(i).u Our rules provide that charges for such service contracts  xmust be based on the operator's HSC multiplied by either the average number or the actual" (,-(-(ZZe"  X- xnumber of hours for maintenance and repair.[)} {Oy- #X\  P6G;IP#Id.[ The Cities' computation is based on the Cities'  xrecommended hourly service charge multiplied by the actual hours (presented by TCI) devoted  x=to inside wire maintenance and repair. Therefore, the Cities' conclusion regarding TCI's wiring maintenance plan is correct, and we deny TCI's appeal on this issue.  X-x E.` ` Inflation Adjustment @  X_- ` ox18.` ` In its final issue in seven of the appeals addressed in this order, TCI claims the  xCities incorrectly reduced TCI's rates by wrongly rejecting TCI's inflation adjustment. TCI states  xthat when it completed its Form 1240, the inflation factor most recently released by the  x>Commission was 2.96% but TCI elected to use a lower 2.61% inflation factor. According to  xxTCI, the Cities opine that TCI should adjust its computation to use a subsequently released figure  xof 2.22%. TCI states the relevant date for selecting inflation data is when the operator completes its Form 1240 calculation, not when the franchising authority completes its review.  X - ` 3x19.` ` Although the Cities' consultant recommended that the Cities limit the inflation  xfactor to 2.22%, the Cities did not adopt this recommendation. The Cities rejected the  xconsultant's finding regarding the inflation factor because 1) the rate chosen by TCI was  xreasonable, and 2) there was no legal basis upon which the Cities could require TCI to use an  xjinflation factor of 2.22%. The Cities state that although this rejection is not clearly reflected in  xthe Cities' Orders setting the basic service rates, there is no basis for TCI to allege the Cities set  x forth this requirement. The Cities conclude that TCI's argument that the Orders should be overruled on this ground is without merit.  X- ` nx20.` ` We need not address this issue because the Cities did not premise their decisions  xon various inflation factors. The reductions ordered emanate from other circumstances. As no controversy appears to exist, we dismiss this portion of TCI's appeal.  X|- xIII.` ` ORDERING CLAUSES  XN- ` x21.` ` Accordingly, IT IS ORDERED that the appeals by TCI TKR of Houston, Inc. of  xthe local orders adopted by the Cities of Alvin, El Lago, Friendswood, La Marque, League City,  xNassau Bay, Seabrook, Taylor Lake Village, Texas City, and Webster, Texas, with respect to  X - xTCI's inclusion of unfunded deferred taxes ARE REMANDED to the Cities for resolution in  X-accordance with the terms of this Order.  X - ` Ax22.` ` IT IS FURTHER ORDERED that the appeals by TCI TKR of Houston, Inc. of  xthe local orders adopted by the Cities of Alvin, El Lago, Friendswood, League City, Nassau  x Bay, Taylor Lake Village, and Webster City, Texas with respect to TCI's proposed inflation  X#-adjustment ARE DISMISSED . "h$ Z),-(-(ZZF#"Ԍ X- ` x23.` ` IT IS FURTHER ORDERED  that the remaining issues raised by TCI TKR of  xHouston, Inc. in these appeals with respect to TCI's proposed equipment and basic service rates  X- ARE DENIED .  X- ` ox24.` ` This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's rules. 47 C.F.R.  0.321 (1995). x` ` !N   hh@FEDERAL COMMUNICATIONS COMMISSION x` `  hh@Meredith J. Jones x` `  hh@Chief, Cable Services Bureau