FOR RECORD ONLY $// ORDER Remanding local rate order to Novato, California, DA 95-629//$ $/ 76.922 Basic Tier Rates/$ $/ 76.923 Equipment and Installation Rates/$ $/ 76.944 Commission Review of Franchising Authority Rate Decisions/$$/1.45(d)Request for Stay/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) ) DA 95-629 NOVATO CABLE COMPANY d/b/a ) CHAMBERS CABLE OF NOVATO ) ) Appeal of Local Rate ) Order of City of ) Novato, California ) ORDER Adopted: March 27, 1995 Released: March 28, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On January 10, 1995, Novato Cable Company d/b/a Chambers Cable of Novato ("Chambers"), the franchisee in the above matter, filed an Appeal of Local Rate Order. The rate order was adopted on December 13, 1994 by Chambers' local franchising authority, the City of Novato, California ("the City"). The City opposes Chambers' appeal. The Rate Order establishes a new regulated rate schedule for Chambers' basic service tier rates and associated equipment. 2. In its rate order, the City requires Chambers to establish a new rate schedule for its basic service tier and associated equipment and installations and to issue refunds to subscribers for all payments made in excess of the rates set forth in the local order for the period September 1, 1993 through May 14, 1994. Specifically, the City disallowed all of Chambers' installation rates, effectively setting those rates at zero for the period under review. Chambers argues that because of this misapplication of the Commission's rate regulations, the City has improperly reduced Chambers' regulated revenues by setting its rates for installations below the levels permitted under the benchmark regime and has imposed a refund liability that is greater than the level allowed under our rules. The City counters that it set Chambers' installation rates as a punitive measure because Chambers was uncooperative during the City's rate regulation process. Chambers also contends that the City exceeded its authority by including language in its rate order that requires prior approval by the City before Chambers may increase any of its rates in the future. We address each issue in turn. II. DISCUSSION 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. A. Installation Rates/Refunds 4. Under the 1992 Cable Act and the Commission's rules, cable operators are required to set their rates for regulated customer equipment and installations using a cost- based method. In effect, the cable operator must supply customer equipment, such as converters and remotes, and make installations at rates based on its own costs including a reasonable rate of return. In this case, Chambers contends that the City's setting of Chambers' installation rates at zero clearly violates the Commission's rate regulations because it has no basis under the Commission's rules. Chambers has decided to offer installations based on a rate determined by the hourly service charge, as it is entitled to by Form 393, rather than compute a flat rate for each type of installation. Because it has made this choice, Chambers contends that it does not have to provide the City with the information required under Part III, Schedule D, which, it argues, is only applicable to operators that choose to offer flat rates for installations. 5. The City, on the other hand, argues that Chambers' conduct during the City's period of review of Chambers' proposed rates left the City with few options regarding Chambers' installation rates. After initially reviewing Chambers' Form 393 submitted to the City on May 11, 1994, and extending its evaluation period by an additional ninety (90) days on June 2, 1994, the City sent a data request on July 8, 1994. On August 4, 1995, Chambers responded to the data request by submitting a revised Form 393 and a letter of explanation. The City and Chambers also exchanged several letters and phone calls from the time Chambers submitted its first Form 393 until the City adopted its rate order on December 13, 1994. The City contends Chambers never provided the installation rates it charged during the time period under review, information required under Part III, Schedule D of Form 393. Without that information, the City continues, it was unable to calculate Chambers' refund lability and therefore, the City set the installation rates at zero, and ordered Chambers to refund all installation revenue from September 1, 1993 through May 14, 1994. 6. The City further contends, and Chambers does not dispute the contention, that Chambers had been charging its (pre-rate regulation) flat rates for installations, not an hourly service charge, until November 1, 1994. Even if Chambers does switch to an hourly service charge from a flat rate system, the City asserts that Chambers still must justify the rates it charged to subscribers for installations from September 1, 1993 to May 14, 1994 in order for the City to compute Chambers' refund liability. Without the data required in Part III, Schedule D of Form 393, which includes the flat installation rates that Chambers charges during the time period under review, the City asserts that it is unable to determine whether Chambers' installation rates were reasonable. 7. Generally, the Commission leaves regulation of basic tier service to the sound discretion of certified local franchising authorities. Although local franchising authorities have broad authority to encourage compliance with their requests for information, including setting rates, they must exercise that authority in accordance with the Commission's rules. In fact, under Commission rules, local franchising authorities ". . . have the authority to deem a non-responsive operator in default and enter an order finding the operator's rates unreasonable and mandating appropriate relief. This relief could include, for example, ordering a prospective rate reduction and a refund. Such a refund would be based on the best information available." For example, a franchising authority could set rates for a nonresponsive operator by using financial data from cable operators in neighboring communities, if available. A franchising authority could also use industry financial data from the National Cable Television Association or another entity which makes such information available to set an uncooperative operator's rates based on industry averages. Moreover, if a franchising authority has the power under state or local law, it may impose forfeitures or fines for violations of its rules, orders, or decisions, including filing deadlines and orders to provide information. 8. Setting Chambers' installations rates at zero, however, was not in accordance with our rules and was therefore unreasonable. Chambers' refusal to provide the City with its installation rates from the Form 393 refund liability period was also not in accordance with our rules and cannot be condoned. This issue is therefore remanded to the City with instructions that Chambers provide the City, within ten (10) days of the release of this order, with its installation rates during the Form 393 refund liability period (September 1, 1993 through May 14, 1994), so that the City may calculate Chambers' refund liability, if any. B. Prior Approval for Future Rate Increases 9. Chambers next contends that the City exceeded its authority by including language in its rate order that requires prior approval by the City before Chambers may increase any of its rates in the future, notwithstanding the fact that, under Commission rules, operators may increase certain pass-through rates without prior approval from the City. In its opposition, the City states that it understands it may not preempt Commission rules. The City further states that it will insert language which acknowledges that certain rate increases do not need prior City approval. In express reliance on the City's representation on this point, the issue is dismissed as moot. IV. ORDERING CLAUSES 10. Accordingly, IT IS ORDERED that Chambers' appeal of the City's local Rate Order, regarding installation rates and refund liability, IS REMANDED to the local franchising authority for resolution in accordance with the terms of this Order. 11. IT IS FURTHER ORDERED that Chambers MUST SUBMIT to the City a completed Part III, Schedule D of Form 393, containing Chambers' installation rates for the time period under review, within ten (10) days of the release of this order. 12. IT IS FURTHER ORDERED that Chambers' appeal of the City's local Rate Order, regarding prior approval of future rate increases, IS DISMISSED as moot. 13. IT IS FURTHER ORDERED that the Emergency Petition for Stay filed by Chambers Cable of Novato IS DISMISSED as moot. 14. 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 (1993). FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau