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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: ) ) FALCON CLASSIC CABLE ) v. ) McCREARY COUNTY, KY ) ) Appeal of Rate Order of ) McCreary County, KY ) MEMORANDUM OPINION AND ORDER Adopted: March 6, 1998 Released: March 11, 1998 By the Deputy Chief, Cable Services Bureau: I. INTRODUCTION 1. Pursuant to Section 76.944 of the Commission's rules, Falcon Classic Cable ("Falcon"), the franchised operator of a cable television system serving McCreary County, Kentucky ("County"), has appealed a rate order adopted by the County as the local franchising authority ("LFA"). Falcon argues that the County: (1) did not properly establish jurisdiction over the operator; (2) lost its right to regulate because it failed to enforce its regulations; and (3) prematurely ordered Falcon to rescind a rate increase before completing the rate review process. The County filed an Opposition and Falcon submitted a Reply. Falcon also filed a petition for a stay of the local rate order. II. BACKGROUND 2. Under the Communications Act, the Commission reviews appeals of rate orders issued by LFAs. When considering appeals, the Commission will not conduct a de novo review, but instead will sustain the LFA's decision as long as it did not act unreasonably in applying the Commission's rules. If the Commission reverses a decision, it will not substitute its own judgment, but will remand the case to the LFA with instructions to resolve it consistent with the reversal. 3. Both an LFA and a cable operator have rights and obligations under rate regulation law. An LFA has the right to regulate the rates for a cable operator's basic service tier (BST), equipment, and installation. To exercise this right, an LFA must file Form 328 with the Commission. Form 328 requires an LFA to certify (a) it will adopt regulations within 120 days of certification, (b) it has the authority and resources to administer the regulations, (c) it will afford a reasonable opportunity to consider the views of interested parties in rate proceedings, (d) that the operator is not subject to effective competition, and (e) it has served a copy of Form 328 on all affected cable systems. Unless the Commission notifies the LFA otherwise, certification becomes effective 30 days after Form 328 is filed. 4. When cable operators do not face effective competition, they must justify their rates. For the period from September 1, 1993 to May 14, 1994, operators use FCC Form 393. For the period beginning May 15, 1994, operators use the FCC Form 1200 series. In Form 1200, operators calculate their initial maximum permitted rates. In Form 1205, operators determine the costs of regulated cable equipment and installation. Operators may change their maximum permitted rates annually, using Form 1240, or quarterly, using Form 1210. Forms 1240 and 1210, the latter relevant in this case, adjust an operator's maximum permitted rate to reflect changes in external costs, channel additions and deletions, and inflation. 5. A cable operator must first file the appropriate forms within 30 days of receiving written notice from its LFA that the LFA has become certified. For quarterly filers, the appropriate documents are Forms 1200, 1205, and 1210. After the initial filing, a cable operator may raise its rates only after giving 30 days written notice to subscribers and filing an updated Form 1210 with its LFA. 6. An operator has the burden of proving that any rate increases conform with Commission rules. This requires submitting forms and responding to requests for supporting information. The LFA, after reviewing an operator's forms and any additional information, may either approve the operator's requested rate increase or issue a written decision explaining the factors it considered in denying the increase. The LFA has only a limited time to complete its review before an operator's rates automatically take effect. III. CHRONOLOGY 7. On October 12, 1993, the County submitted FCC Form 328 to certify its authority to regulate Falcon's cable system. On July 12, 1994, the County passed its cable regulations. 8. On October 24, 1995, Falcon advised the County that its rates would rise because of franchise fee increases and admitted that it mistakenly began collecting the increase before the 30-day subscriber notice period ended. Falcon promised to correct the error by giving refunds to its subscribers. Falcon did not submit rate forms to the County justifying its rate increase. 9. On February 23, 1996, Falcon announced a rate increase effective April 1. On March 25, the County requested that Falcon submit forms justifying it proposed rates. On April 1, before responding to the County's request, Falcon raised its basic service and addressable converter rates. Three weeks later, in an April 24 letter to Falcon, the County stated that it was certified to regulate Falcon's rates, that Falcon had proper notice of the County's regulations, and that the County expected Falcon "to meet the FCC's and the County's requirements in connection with Falcon's recent rate increases." The County included a copy of its 1994 cable franchise regulations. 10. The next day, April 25, 1996, Falcon submitted forms justifying both its 1995 and 1996 rates. On May 14, before completing its review of Falcon's forms, the County rejected the 1996 rate increase by formal resolution because Falcon "failed to submit first to the [County] a rate filing to justify that increase." The County also tolled its 30-day review for an additional 90 days, as Commission rules permit, but had not issued a final order regarding Falcon's rate forms prior to the filing of Falcon's appeal. IV. PLEADINGS A. Jurisdiction 11. Falcon asserts that the County lacks jurisdiction over cable rates because the County did not pass cable regulations within 120 days of certification, as Section 76.910(e) requires. "If that time limit is to have any meaning at all," Falcon argues, "it must mean that a local franchising authority which does not meet this deadline must begin the certification process again." Falcon states that this also voids the County's resolution rescinding the rate increase. 12. McCreary County responds that the Commission has never found an untimely ordinance to preclude an LFA from regulating rates. The County adds that nothing in Section 76.910(e) supports Falcon's interpretation, and Falcon's position that the County must re-certify makes no sense. According to the LFA, a better interpretation is that it could not regulate rates until enactment of its ordinance. The County reasons that the failure to enact regulations within the 120-day period only amounts to a "minor nonconformance." B. "Use or lose" the regulations 13. Falcon argues that the burden is on local franchising authorities to ask operators for the appropriate forms and justification for their rates. Therefore, Falcon asserts that the County's failure to make such a request in the past means that Falcon did not have to submit paperwork in 1996, regardless of the County's request. Nonetheless, Falcon states that as soon as it discovered that the County was "actively regulating," it submitted the appropriate forms. 14. The County characterizes this "use or lose" approach as false and unfair. By arguing that the County has no right to enforce its regulations because it has not done so in the past, "Falcon is seeking to take advantage of the lack of resources of a rural government like McCreary County's." C. Procedural 15. Falcon believes that the County improperly rescinded the rate increase before completing its review. Falcon argues that the County should have waited until after the review to reject the increase, especially since the County has the right to demand that Falcon keep an accounting of the rate increases and refund the money if the increase is ultimately rejected. Under this scenario, Falcon states, "The end result for subscribers should be the same." 16. McCreary County does not respond directly to this argument, but instead says that Falcon challenged the County on the wrong theory. The County suggests that Falcon should have asked for reconsideration of certification under Sections 76.911 and 76.914 of the Commission's rules, not for a review of the County's rate order under Section 76.944. Even so, the County contends, a petition for reconsideration of certification would fail because its regulations are not in conflict with the Commission's. 17. In its Reply, Falcon argues that a revocation of certification is pointless if the County has never been certified in the first place. V. DISCUSSION A. Jurisdiction 18. The County has had jurisdiction over Falcon Cable since it passed its July, 1994 cable ordinance. An LFA's failure to pass cable regulations within 120 days of certification is not, by itself, determinative of the LFA's inability or unwillingness to regulate cable rates. In the Dimension Cable Services rate appeal, the LFA did not pass its rate regulations until nearly 250 days after being certified, but it did pass them before exercising jurisdiction over the operator's rates. We found that "the mere lapse of 120 days" failed to demonstrate that the LFA would not adopt rules consistent with Commission regulations or that its otherwise valid certificate should be revoked. Ruling for the LFA, we continued, "[T]he City's adoption of procedures to regulate rates cured any procedural defects that may have existed due to its tardiness in adopting those procedures." 19. As in Dimension, the County cured the "procedural defect." Moreover, Falcon was aware of the ordinance when it was passed and when the County first asked for Falcon's rate forms (the regulations had been in effect for 20 months). Falcon has not shown how the County's actions caused any disadvantage or harm. 20. The County does not have to begin the certification process again. This would be an unnecessary burden on the County, especially since Falcon was unaffected during the time between the certification filing and the ordinance's passage. Requiring franchising authorities to re-certify under such circumstances would delay implementation of local rate regulation with no resulting benefit. The County's enforcement of its powers in 1996 was legitimate because it occurred after both the certification and the regulations were in effect. B. "Use or lose" the regulations 21. Falcon incorrectly asserts that the County waived its right to regulate by delaying enforcement of its ordinance. The responsibility to seek certification and promulgate rules initially lies with the LFA. Once complete, the operator incurs responsibilities. There is no authority for Falcon's "use or lose" proposition, and Falcon offers none. Instead, Falcon argues that, by not asking for a justification of the 1995 rate increases, the County gave up the right to ask for justification in 1996. Falcon tries to shift the entire burden of rate regulation to franchising authorities. 22. The County has met its initial obligations and Falcon has not proven otherwise. First, the County warranted that it served Form 328 on Falcon by checking the appropriate box on the form. Second, the County met the Commission's and Kentucky's notice requirement regarding regulations by publishing its ordinance in a newspaper advertisement soon after passage. 23. Once the LFA has met its obligation of service and notification, responsibilities shift to the operator. Our regulations require operators to file several forms within 30 days of receiving notice that the LFA is certified. Thereafter, operators must inform subscribers of rate increases and file the necessary information with regulators. By its own admission, Falcon did not file the required information after certification or before increasing its rates in 1994 and 1995, and filed the information in 1996 only after implementing its rate increase. Falcon's advancement of a "use or lose" rule is without merit. C. Procedural 24. Falcon correctly states that our regulations permit implementation of a rate increase pending review by the County. A proposed rate increase will take effect 30 days after the operator submits its forms, unless the LFA rejects the increase or tolls the 30-day implementation deadline. The LFA may toll the deadline for an additional 90 days in cases not involving cost-of-service showings and for an additional 150 days in cases involving cost-of-service showings. If the LFA does not act by the end of this period, the increase takes effect subject to further review and possible refunds extending back one year. These limits protect the rights of cable operators as well as those of franchising authorities and subscribers. They also ensure that neither LFAs nor operators delay in starting the review process. 25. In this case, Falcon neglected to file the appropriate forms with the County after announcing its April 1, 1996 rate increase. In fact, Falcon did not file the forms until April 25, after the increase took effect and only after the County demanded them. Falcon should not have implemented the increase until it made its filing and until the County completed its review or the implementation deadline passed, whichever came first. The County, in its May 14, 1996 resolution, tolled the implementation deadline for an additional 90 days, even though the increase was already in effect. The County also rejected the increase, but failed to adequately and substantively explain why, as our regulations require. 26. Because the County did not fulfill its review obligations, we will not require Falcon to rescind its rate increase in this Order. We will instead remand this case to the County with instructions to complete the review of Falcon's rates and issue a local rate order within 60 days of the release of this Order and consistent with Commission regulations. The 60-day review period should provide the County with enough time to consider this Order, review relevant information, and issue a substantive explanation for its decision, while not lengthening Falcon's refund liability period. VI. ORDERING CLAUSES 27. Accordingly, IT IS ORDERED that Falcon Classic Cable's appeal of McCreary County's local order IS REMANDED to the County for resolution in accordance with the terms of this Memorandum and Order. 28. IT IS FURTHER ORDERED that Falcon Classic Cable's appeal of McCreary County's local order regarding the issues of the County's jurisdiction and authority to review Falcon Classic Cable's rates is DENIED. 29. IT IS FURTHER ORDERED that Falcon Classic Cable's appeal of McCreary County's local order regarding the premature rejection of Falcon Classic Cable's rate increase is GRANTED and REMANDED to the County for resolution in accordance with the terms of this Memorandum Opinion and Order. 30. IT IS FURTHER ORDERED that the Emergency Petition for a Stay IS DENIED as moot. 31. This action is taken by the Deputy Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's rules. 47 CFR  0.321. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Deputy Chief, Cable Services Bureau