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                            Before the
                Federal Communications Commission
                      Washington, D.C. 20554


                                )
In the Matter of:               )
                                )
SAMMONS COMMUNICATIONS OF       )
NEW JERSEY, INC.                )
                                )
Appeal of Rate Order of the     )
State of New Jersey Board of    )
Regulatory Commissioners        )
for the Communities of Dover and Morris)
New Jersey                      )
                                 

                  MEMORANDUM OPINION AND ORDER

      Adopted:  December 2, 1996  Released:  December 9, 1996  

By the Chief, Cable Services Bureau:

                           INTRODUCTION

      1.On August 15, 1994, Sammons Communications of New Jersey, Inc. ("Sammons"),
the franchisee in the above-referenced proceeding, filed with the Commission an appeal of the rate
order for the communities of Dover and Morris, New Jersey adopted by its local franchising
authority, the State of New Jersey ("the State"), on July 15, 1994.  In its rate order, the State
established new regulated rate schedules for Sammons' basic service tier rates and associated
equipment based upon Sammon's Form 393.  Specifically, the State's rate order requires Sammons
to implement certain rate reductions and to issue refunds to subscribers, dating back to September
1, 1993. 

      2.In its appeal, Sammons raises two issues involving calculations in its two FCC Form
393s.  First, Sammons contends that in recalculating its rates for addressable converters, the State
erred in substituting data current at the time Sammons filed its FCC Form 393 for data current at the
time Sammons restructured its rates.  Sammons asserts that it accurately calculated its rates when
it restructured several months before regulation and thus that it was not required to change its rates
to reflect data current as of the date of filing.  The State, in response, asserts that Sammons'
restructured converter charges were based on inaccurate data, thus the State recalculated Sammons'
rates using data current at the time Sammons filed its Form 393.  Second, Sammons argues that the
State improperly reduced the operator's regulated revenues by reducing its equipment costs without
a corresponding increase in Sammons' basic tier programming rates.  In response, the State claims
that its order is consistent with the Commission's procedures for calculating refund liability.  We
consider each of these issues in turn.

      3.Under our rules, rate orders adopted by local franchising authorities may be appealed
to the Commission.  In ruling on appeals of local rate orders, the Commission does not conduct a
de novo review, but instead will sustain the local franchising authority's order as long as there is a
reasonable basis for its decision.  The Commission will therefore reverse a local authority's decision
only if it is determined that the local authority acted unreasonably in applying the Commission's
rules in rendering its local rate order.  If the Commission reverses a local franchising authority's
decision, it will not substitute its own decision but will instead remand the issue to the local authority
with instructions to resolve the case consistent with the Commission's decision on appeal.
   
                            DISCUSSION

      A.Converter data
     
      4.FCC Form 393 is the official form used by regulators to determine whether an
operator's regulated rates for programming, equipment and installations were reasonable during the
period from September 1, 1993 until May 14, 1994.  Form 393 is divided into three separate but
interrelated parts.  In Part II, the operator calculates its maximum permitted programming rates,
while in Part III, the operator calculates its equipment and installation costs and maximum permitted
equipment and installation rates.  Part I is a cover sheet that lists the various programming,
equipment and installation rates that have been calculated in Parts II and III and compares them to
the rates the operator has actually charged during the period of review. 

      5.The operator's maximum permitted rates are derived by completing Parts II and III
of the Form 393, pursuant to which the operator calculates the actual aggregate revenues collected
by the operator for regulated programming, equipment and installation, as of the initial date of
regulation ("current rate") or as of September 30, 1992.  After calculating actual aggregate
revenues, the operator converts those revenues to a per-channel rate, and then compares the per-
channel figures to the applicable benchmark rate.  If an operator's current per-channel rate level is
at or below the applicable benchmark rate, then the operator's rate level is deemed reasonable, but
it must remain at its current level.  If its current per-channel rate level exceeds the benchmark rate,
the operator must then compare its September 30, 1992 per-channel rate level to the applicable
benchmark rate and must reduce this rate level to the benchmark rate or by 10%, whichever
reduction is less.  After computing the permitted rate level in this manner (whether based on current
rates or September, 1992 rates), monthly equipment and installation costs are removed to derive the
maximum permitted programming rates.  Maximum permitted rates for equipment and installation
are based on actual cost and are separately calculated in Part III of the Form 393.

      6.The Commission's rules generally require an operator to measure its maximum
permitted rates from data that is current as of the initial date of regulation.  However, the
Commission has created an exception to this general rule.  In the Third Recon. Order, the
Commission addressed the issue of updating rate calculations due to changes in data that are material
to determining an operator's permitted rates, after an operator has already restructured its rates in
accordance with the Commission's rules.  In the Third Recon. Order, the Commission stated that
"[o]perators should not be penalized for making good faith attempts to comply with our rules in a
timely manner."  At the same time, the Commission was cognizant of the need for regulatory
authorities to accurately verify the reasonableness of an operator's rates and to ensure that any
inaccuracies were not compounded in future rate increases or adjustments.  In order to balance
these concerns, the Commission determined,  for the purposes of initial rate setting, an operator
would not be required to adjust its rates to reflect current data, provided that the operator was able
to justify its rates.  However, if a cable operator failed to justify its rates, those rates must be
adjusted in accordance with the most accurate data available at the time of analysis.  

      7.In anticipation of rate regulation, Sammons voluntarily restructured its rates prior to
July 1993, using May 1993 data for determining the number of converters in service and annual
converter cost data from December 31, 1992.  When Sammons completed its FCC Form 393 for the
City's ratemaking proceeding in November 1993, the operator used October 1993 data for
determining the number of converters in service, but still used annual converter cost data from
December 31, 1992.   When Sammons provided the State with the underlying data used to complete
its FCC Form 393, it provided the local franchising authority only the October 1993 converter unit
data.  Sammons did not provide the State with May 1993 data regarding the number of converters
in service, which the operator used at the time it voluntarily set its rates in anticipation of regulation. 
The State reviewed the FCC Form 393s, accepted the October 1993 converter unit data contained
in the form, which differed from the data Sammons originally used to restructure its rates, and set
Sammons' rates based on the data Sammons submitted, the October 1993 converter unit data and the
December 31, 1992 annual converter cost data.  

      8. On appeal, Sammons contends that the State erred in recalculating Sammons'
maximum permitted rates for addressable converters by using the data contained in the operator's
FCC Form 393s.  First, Sammons alleges that the State erred by using "partially refreshed data"
when the State used the December 31, 1992 annual converter cost data and the more recent October
1993 data regarding the number of converters in service.  In support of its argument, Sammons cites
the Bureau's decision in the Matter of Suburban Cablevision (Livingston, NJ) 9 FCC Rcd 4073 (Cab.
Serv. Bur. 1995) ("Suburban Cablevision"), a petition for stay filed by Suburban Cablevision, in
which we held that an operator is not permitted to calculate its rates based on a mixture of data
current at the time of restructuring and data current at the time of filing its FCC Form 393. 
Sammons explains that the FCC Form 393s which it submitted to the local authority contained the
October 1993 data regarding the number of converters in service because the form instructed
operators to use the data most current at the time of filing.  According to Sammons, after submitting
its initial filing it "verbally explained" to the State that its rates set prior to regulation were
accurate.  

      9.Sammons next alleges that since its rates were accurately calculated at the time of
restructuring, it should not have to adjust those rates to reflect subsequent increases in the number
of converters in service.  In response, the State disputes Sammons' claim that the franchising
authority used "partially refreshed data."  Instead, the State asserts that the only numbers it used to
review the filing were those supplied by Sammons in its FCC Form 393.  The State does not
specifically address Sammons' claim that its rates set prior to regulation were accurate.  Rather, the
State asserts that Sammons' restructured rates were not justified because the numbers were inaccurate
at the time of the Commission's September 1, 1993 deadline for restructuring rates.  In support of
this position, the State claims that the May 1993 data regarding the number of converters in service
was compiled three months prior to the September 1, 1993 Commission deadline whereas Sammons'
October 1993 data regarding the number of converters was available only one month after the
deadline.  Accordingly, the State argues that it was correct in requiring rate changes based upon the
October 1993 data which was used in Sammons' FCC Form 393, rather than relying on some earlier,
and unsupplied, figures.    
     
      10.   With respect to Sammons' claim that the rates it set in anticipation of regulation
were accurate, under the Commission's rules the cable operator bears the burden of proving the
reasonableness of its existing or proposed rates for basic services and associated equipment.  If the
operator fails to provide the local franchising authority with the information necessary to review an
operator's rate calculations, the local franchising authority may set the operator's maximum permitted
rates based upon the best available evidence.  In the present case, although after submitting its
initial filing the operator "verbally explained" that its rates set prior to regulation were accurate,
Sammons failed to provide the State with an amended rate filing utilizing the May 1993 data. 
Having failed to provide the State with amended FCC 393s before the issuance of the rate order,
when the record was open and the State could have considered the issue, Sammons is not entitled
to have the mistake corrected by the Commission on appeal.  Moreover, Sammons has offered no
reason why it could not have provided amended FCC Form 393s earlier nor why the State should
be required to reopen the record in its proceeding.  Therefore, the State was reasonable in relying on
the data supplied by the operator in its Form 393s.  To hold otherwise would prevent local authorities
from issuing rate orders in a timely fashion, since constant revisions by operators could indefinitely
postpone final resolution.  Based upon the best available information at the time, the State acted
reasonably in issuing its rate order.

      B.Calculation of Refund Liability
     
      11.Although Sammons operates a single system in the Dover/Morris area, two separate
Form 393 filings were made based on the difference in the numbers of regulated channels offered
between the portions of the system which had been rebuilt and upgraded and those portions with
subscribers still awaiting the additional channels.  After its review of Sammons' Form 393s, the State
disapproved Sammons' permitted rates for addressable converters, Sammons' Hourly Service Charge
(HSC), and its related installation charges for both the rebuilt and non-rebuilt portions of the system. 
The State directed that those rates be reduced to the maximum permitted levels which the State had
calculated.  The State further ordered Sammons to keep its rates for its basic service in the rebuilt
portion of the system at the lower level, rather than at the higher maximum permitted levels as
justified by Sammons in its original Form 393 calculations.  The State also reduced Sammons'
basic tier rate for the non-rebuilt portion of the system from the $10.24 calculated by Sammons to
the State's maximum permitted rate of $10.17 and ordered refunds based on this reduction.  The State
did not utilize the reduced equipment rates in determining the operator's basic service tier rates for
both portions of the system.   Sammons argues that the State improperly reduced Sammons'
regulated revenues by reducing its rates for addressable converters and HSC without a corresponding
increase of Sammons' tier charges for basic service in both portions of the system.  It maintains that
if a lower charge for equipment is deducted from the base rate per channel (FCC Form 393, Line
300), the base service rate (FCC Form 393, Line 304) will increase.  The State disputes the existence
of such a correlation.

      12.Upon revising an operator's calculations, a local franchising authority must
consistently use those revisions throughout its review of the operator's FCC Form 393.  In the
present case, for both portions of the system, the State found that Sammons failed to justify the
reasonableness of an increased addressable converter cost and HSC.  Thus, the State recalculated
those two charges.  However, the State failed to recalculate Sammons' basic service rates for portions
of the system using these reduced equipment costs in Line 301.  The State must do so now.  The
1992 Cable Act required operators to unbundle programming service rates from equipment and
installation rates.  Thus, in FCC Form 393, Worksheet 3, operators are required to separate
equipment and installation rates from programming service rates.  To accomplish this objective, the
operator must divide equipment and installation costs in Line 301 by the channel factor in Line 302
to determine its cost per subscriber-channel.  This cost is then subtracted from the operator's base
rate per channel (Line 300).  Accordingly, using this formula, Sammons' base service rate per
channel should increase.  We are remanding this issue to the State for further consideration so that
it can enter a ruling consistent with these findings.

      13.We reiterate that because Sammons filed separate FCC Form 393s for the rebuilt and
non-rebuilt portions of the system, we will treat the two portions as separate and distinct systems for
refund liability purposes.   Thus, upon remand, in both the rate proceedings for the rebuilt portion
of the system and the rate proceedings for the non-rebuilt portion of the system, after recalculating
the various regulated rates that Sammons is permitted to charge on a prospective basis, the State
should then determine if the operator is liable for any subscriber refunds.  A refund liability can be
imposed when an operator's actual charges exceed maximum permitted levels during the applicable
period of review.  If an operator's aggregate revenues computed from its actual rates exceed its
revenues computed from its permitted rates during the period of review, the operator must refund
the difference to subscribers.  If the operator's aggregate revenues computed from its permitted
rates exceed its aggregate revenues computed from its actual rates, the operator will not be required
to issue any refunds for that period of review.  In this proceeding, any refunds to be paid by
Sammons should be calculated based on this method.

      14.While the Commission will sustain the decisions of franchising authorities if there
is a reasonable basis for doing so, we expect franchising authorities to adhere to the mathematical
principles underlying the benchmark methodology, particularly when calculating an operator's refund
liability.  For instance, in this case, the State may not order Sammons' to set its basic service tier
rates for the rebuilt portion of its system below maximum permitted levels for that portion of the
system.  Further, in both the rate proceedings for the rebuilt portion of the system and in the rate
proceedings for the non-rebuilt portion of the system, the State must offset or reduce any refunds it
may order by the difference between the actual basic service tier rates that Sammons' charged and
the maximum permitted rates that it could have charged during the applicable period of review.  
 
     
                         ORDERING CLAUSES

      15.Accordingly, IT IS ORDERED that Sammons Communications of New Jersey,
Inc.'s appeal of the State of New Jersey Board of Regulatory Commissioners' Rate Order for the
Communities of Dover and Morris, regarding the issue of the State's use of refreshed addressable
converter unit data is DENIED.

      16.IT IS FURTHER ORDERED that Sammons Communications of New Jersey, Inc.'s
appeal of the State of New Jersey Board of Regulatory Commissioners' Rate Order for the
Communities of Dover and Morris, regarding the issue of Sammons' permitted charge for basic
service tier rates and related refunds is REMANDED. 

      17.IT IS FURTHER ORDERED that, in light of the resolution of its appeal herein, the
request for stay filed by Sammons Communications of New Jersey, Inc. is DISMISSED as moot.

      18.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.

     FEDERAL COMMUNICATIONS COMMISSION




     Meredith J. Jones
     Chief, Cable Services Bureau