******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 ) ) ) Charter Communications Entertainment I, L.P.) CUID No. MO0324 (St. Louis) ) Complaints Regarding ) Cable Programming Services Tier ) Rate Increase ) ORDER Adopted: February 25, 1997 Released: February 26, 1997 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints concerning the rate increases the Operator in the caption above ("Operator") implemented for its cable programming services tier ("CPST") in the community set forth above. This Order addresses the reasonableness of Operator's rate increases in November 1995 and April 1996. We conclude that Operator's November 1995 CPST rate increase, and April 1996 CPST rate increase are not unreasonable. 2. The Communications Act authorizes the Federal Communications Commission ("Commission") to review the CPST rates of cable systems not subject to effective competition. This is to ensure that rates charged are not unreasonable. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation, Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 ("Interim Rules) require that complaints against the CPST rates be filed with the Commission by a local franchising authority ("LFA") that has received subscriber complaints. An LFA may not file a CPST rate complaint unless it receives more than one subscriber complaint within 90 days after such increase becomes effective. If the Commission finds the rate unreasonable, it shall determine the correct rate and any refund liability. 3. To justify rates for the period beginning May 15, 1994 through a benchmark or cost of service showing, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. Operators may alternatively justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. If actual and projected costs are different during the rate year a "true-up" mechanism is available to correct estimated costs with actual cost changes. The "true-up" requires operators to decrease their rates or alternatively permits them to increase their rates to make an adjustment for over or under estimations of these cost changes. 4. On November 7, 1995, November 13, 1995 and November 16, 1995, four valid CPST rate complaints were filed by subscribers against a CPST rate increase implemented by Operator in November 1995 in the community set forth above. In addition, pursuant to the 1996 Act, on October 24, 1996 a valid CPST rate complaint was filed by the local franchise authority ("LFA") against the rate implemented by Operator in April 1996, in the community set forth above. The LFA has certified that it has received subscriber complaints and has complied with the Interim Rules. Operator submitted a cost of service FCC Form 1220 and FCC Forms 1210 for the community set forth above to justify the rate increases. 5. On January 17, 1996, Operator filed Motions to Dismiss ("Motions") three of the four subscriber complaints dated November 7, 1995 and November 13, 1995. In its Motions, Operator requests that the Commission dismiss the complaints on the grounds that the subscribers completed Line 7 of FCC Form 329 incorrectly. Operator states that the subscribers inserted the total amount of subscribers' bills into Line 7 instead of the monthly rate for CPST. Consequently, Operator argues that it "is unable to determine the specifics of the complaint and thus cannot formulate an appropriate response." Operator further requests that the Commission dismiss the complaints filed on November 13, 1995 on the grounds that the subscribers completed Line 4 of FCC Form 329 incorrectly. Operator states that these subscriber complaints do not include the Community Unit Identification Number ("CUID") on Line 4 and therefore the Operator "cannot be certain that the information provided herein is for the appropriate franchise area." In general, we will find valid any complaint that states a claim on which relief can be granted and provides adequate information to allow us to process the complaint, despite minor flaws or inaccuracies. We believe this approach best implements the mandate of the 1992 Cable Act and the 1996 Act. Because the rates listed on Line 7 and on the subscribers' attached bills indicate that the subscribers received CPST, we find it reasonable to conclude that the subscribers objected to the CPST rate. Because the two subscriber complaints in question have correctly identified the community as the community set forth above, and because the bills attached to their complaints give the CUID number for the community set forth above, we conclude that the subscribers objected to the CPST rate increase in the community set forth above. We therefore find the complaints dated November 7, 1995, November 13, 1995 and November 16, 1995 valid and deny Operator's Motion to Dismiss. 6. FCC Forms 1220 and 1210 filings: In response to the five post-May 15, 1994 complaints filed for the community set forth above, Operator filed an FCC Form 1220 dated January 8, 1996 which was accompanied by five FCC Forms 1210 that covered the time period from July 1994 through December 1995. A revised FCC Form 1220, based on a 1995 test year with annualized data for the final quarter, was filed with the Commission on January 7, 1997, along with responses to FCC staff inquiries for additional accounting information made in November 1996. Because the revised FCC Form 1220 test year overlapped the periods covered by the FCC Forms 1210, the latter were redundant and, therefore, not considered for rate setting purposes. 7. On January 17, 1997, the LFA filed a "Response to Operator's revised FCC Form 1220 and a Response and Request" ("LFA Response") to amend its rate complaint on FCC Form 329 with the Commission. On February 3, 1996, a Response was filed by Operator ("Operator Response") with the Commission in response to arguments raised by the LFA in LFA Response. After evaluation of the Operator's revised Form 1220 and LFA and Operator's Responses, we made three adjustments to Operator's calculations. 8. First, because our analysis revealed that none of the intangibles reported by Operator was necessary for justifying the rate under review we did not consider the claim for intangibles by Operator. Accordingly, we excluded all intangibles recorded on Worksheet A of Form 1220 from the rate base. 9. Second, the LFA observed that amortization of Operator's acquisition costs should not be permitted since the underlying assets are not allowable in the rate base. Operator dismissed this observation in its Response as baseless, arguing that the underlying assets were permissible. We excluded Operator's intangible assets from rate base for the reason given above. Similarly, we excluded all related amortization expenses, noting that this exclusion does not cause Operator to fall short of justifying the rate under review. 10. Third, the LFA suggested that Operator improperly allocated advertising and home shopping revenues. In particular, the LFA indicated that these revenues should have been apportioned as offsets to both the basic tier and CPST. Operator responded that it directly assigned advertising revenues to the CPST. We concur with this treatment of advertising revenues because nearly all of the advertising time sold by operators is on the CPST and the advertising time available on each tier is the appropriate cost driver. However, based on Operator's responses to staff inquiries in November 1996, we determined that revenue and income adjustments should have totaled $1,722,706, whereas only $861,646 was reported on Form 1220. We revised Operator's calculations to reflect the shortfall. In the aggregate, our adjustments reduced Operator's maximum permitted rate from $21.61 to $16.75. Still, the adjusted maximum permitted rate of $16.75 exceeds Operator's April 1996 rate of $15.98 by $0.77, and its November 1995 rate of $14.62 by $2.13. Therefore, Operator's CPST increases are justified. 11. Upon review of the record before us, we find that Operator has provided sufficient evidence to support a CPST rate increase of $1.47 in November 1995, for the community set forth above. We conclude, therefore, that Operator's CPST rate increase which went into effect in November 1995, is justified. 12. Upon review of the record before us, we find that Operator has provided sufficient evidence to support a CPST rate increase of $1.36 in April 1996, for the community set forth above. We conclude, therefore, that Operator's CPST rate increase which went into effect in April 1996, is justified. 13. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's rate increase of $1.36 in the community set forth above, which went into effect in April 1996, IS NOT UNREASONABLE. 14. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's rate increase of $1.47 in the community set forth above, which went into effect in November 1995, IS NOT UNREASONABLE. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaints referenced herein against the April 1996 CPST rate increase charged by Operator in the community set forth above ARE DENIED. 16. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaints referenced herein against the November 1995 CPST rate increase charged by Operator in the community set forth above ARE DENIED. 17. IT IS FURTHER ORDERED that Operator's Motions to Dismiss ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau