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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 CABLEVISION ) ) Appeal of Rate Order of ) the City of Warrensburg, Missouri ) MEMORANDUM OPINION AND ORDER Adopted: March 24, 1997 Released: March 26, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Falcon Cablevision ("Falcon"), the franchised operator of a cable television system serving the City of Warrensburg, Missouri ("Warrensburg"), has filed a petition for review of a local rate order issued by Warrensburg, which directed Falcon to reduce its hourly service charge ("HSC") from $45 to $30. Falcon challenges the local rate order on the grounds that Warrensburg failed to explain the reasons for the reduction and failed to act within the time constraints of the Commission's rules. Warrensburg filed no opposition. II. BACKGROUND 2. Under the Commission's 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. 3. FCC Form 1200 is the official form used to determine whether an operator's initial regulated programming rates are reasonable under the revised benchmark rules which apply to operators beginning May 15, 1994, or upon expiration of the deferral period provided under our rules for operators to comply with the revisions to our rules. In Form 1200, an operator calculates its provisional rates and its full reduction rates. An operator uses FCC Form 1240 to justify annual adjustments to the initial rates it computed on its FCC Form 1200. These rate adjustments reflect changes in certain external costs, including programming costs, channel additions and deletions, and inflation. External costs include the following categories of costs: state and local taxes specifically applicable to the provision of cable television service; franchise fees; costs of complying with franchise requirements; retransmission consent fees and copyright fees incurred for the carriage of broadcast signals; other programming costs; and Commission regulatory fees. 4. FCC Form 1205 is the official form used to determine the costs of regulated cable equipment and installation. Form 1205 has two distinct uses. First, Form 1205 is submitted along with Form 1200 and is used to establish equipment and installation costs in determining initial rates for regulated cable services. These equipment and installation costs are converted to a monthly per subscriber cost that is subtracted from figures derived from programming and equipment revenues in the Form 1200 in order to determine maximum permitted programming service rates. In following the mathematical principles embodied in these calculations, lower equipment costs lead to higher programming rates, while higher equipment costs lead to lower programming rates. The second use for Form 1205 is to update permitted regulated equipment and installation charges based on equipment costs. Higher equipment costs on Form 1205 (resulting in lower programming rates on Form 1200) correlate with higher equipment and installation rates. Conversely, lower equipment costs on Form 1205 (resulting in higher programming rates on Form 1200) correlate with lower equipment and installation rates. 5. An operator that wants to increase its basic service tier rate has the burden of demonstrating that the increase is in conformance with our rules. In determining whether the operator's proposed increase is in conformance with our rules, a franchising authority has the right to direct the operator to provide supporting information. After reviewing an operator's FCC Forms 1200, 1240, and any other additional information submitted, the franchising authority may either approve the operator's requested rate increase, or it may issue a written decision explaining the factors it considered in denying the increase requested. III. SUFFICIENCY OF THE CITY'S DECISION A. Falcon's contention 6. Falcon states that Warrensburg has never disputed the validity of its figures or the accuracy of its calculations in its FCC Form 1205. Falcon further states that, even though Commission rules require a franchising authority to explain why it found an operator's rates unreasonable, Warrensburg has not explained how it recomputed Falcon's hourly service charge and reduced it to $30.00 and why it rejected the $45.00 figure actually charged by Falcon. Instead, Falcon notes that Warrensburg simply issued a one page order dated August 17, 1995, which contained the following conclusions: On Monday, August 14, 1995 the Warrensburg City Council accepted Falcon's FCC Form 1205 dated February 24, 1995 excluding the hourly service charge. The City Council ordered that the permitted hourly service charge be set at $30.00. This letter is to serve as notice of Council's decision. * * * * Starting August 21, 1995, any revenues derived from an hourly service charge exceeding $30.00 per hour must be placed in an escrow account. The City must be provided monthly account statements from the institution where the account exists. Falcon contends that these statements are not sufficient to meet the Commission's requirement that franchising authorities issue written decisions which affirmatively demonstrate why a proposed rate is unreasonable and why the prescribed rate is reasonable. B. Discussion 7. We have addressed the need for local franchising authorities to explain the bases of their decisions previously. In the Rate Order, the Commission stated: "[w]e will thus require that a franchising authority issue a written decision to the public and give public notice of such decision whenever it disapproves, in whole or in part, either initial rates for the basic service tier and accompanying equipment, or a request for an increase in those rates, or approves a proposed rate over the objections of interested parties." In several subsequent decisions, including Chillicothe Cablevision, Inc., the Bureau held that Commission rules require local franchising authorities to issue written decisions, and that those decisions must affirmatively demonstrate why an operator's proposed rates are unreasonable. Warrensburg did not comport with this requirement, as it did not affirmatively demonstrate why Falcon's proposed rate was unreasonable or why the recomputed rate was reasonable. Therefore, we will remand this case for further proceedings not inconsistent with this decision. IV. TIMELINESS OF THE CITY'S DECISION A. Falcon's contention 8. Falcon also contends that, under the Commission's rules, an operator's rates will be allowed to go into effect if, 30 days after their submission to the city, the city neither issues an order nor extends the allotted time. Falcon further states that, if the city extends the review period, but fails to take any action within such extended time period, the cable operator's new rates will go into effect at the conclusion of the review period. Falcon states that it submitted its FCC Form 1205 to Warrensburg on March 9, 1995, and that on March 29, 1995 Warrensburg requested 90 additional days for review. Falcon maintains that the city had until July 10, 1995 to issue a written decision disapproving Falcon's rates for equipment and installation costs, but that it merely issued the one page order over a month later on August 17, 1995. Falcon argues that its HSC should not be reduced to $30 or be subject to further review by Warrensburg. B. Discussion 9. Falcon's current HSC is $45.00, but it states that it submitted an FCC Form 1205 to Warrensburg on March 9, 1995 which justified an HSC as high as $80.56. Section 76.933(a) of the Commission's rules provides, that after a cable operator has submitted its rates for the basic service tier and associated equipment for review, the proposed rates will go into effect 30 days from the date of their submission to the franchising authority, unless the franchising authority issues an opinion finding them excessive, or issues a written order within that time period tolling the effective date of the rates for 90 days. Section 76.933(b) of the rules further provides that, absent an order finding the rates excessive within that period, these rates become effective after the additional 90 day period has passed. The franchising authority may order refunds of any portion of the rates later found to be unreasonable or not sufficiently justified if, during that 90 day period, it issues a brief written order directing the cable operator to keep an accurate account of all amounts received by reason of the rate at issue. In the instant case, we find that Falcon is correct that its $45.00 HSC rate should be allowed to remain in effect. Neither Warrensburg's rate order nor its accounting order, which was a part of the rate order, was issued within 30 days of the initial date Falcon submitted its FCC Form 1205 to the city on March 9, 1995, or within 90 days after that date. Therefore, we remand this case to the local franchising authority for resolution consistent with this decision. V. ORDERING CLAUSES 10. Accordingly, IT IS ORDERED that the petition for review filed by Falcon Cablevision IS GRANTED and the rate decision announced by letter dated August 17, 1995 IS REMANDED to the City of Warrensburg, Missouri for proceedings consistent with the terms of this Order. 11. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's Rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau