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Before the
Federal Communications Commission
Washington, D.C. 20554
                                     
In the Matter of:                    )
                                     )
                                     )
                                     )
TCI Cablevision of Ohio, Inc.        )
                                     )
Appeal of Local Rate Order of        )
the City of Courtland, OH            )


                      MEMORANDUM OPINION AND ORDER

        Adopted:  January 9, 1998                  Released:  January 14, 1998  

By the Deputy Chief, Cable Services Bureau:  

I.      INTRODUCTION.

  1.    TCI Cablevision of Ohio, Inc. ("TCI") has filed an appeal of the local rate order adopted
by its franchising authority, the City of Courtland, Ohio ("the City").  In its order, the City established
a new regulated rate schedule for TCI's basic service tier rates and associated equipment.  Specifically,
based on its review of TCI's Form 393, the City required TCI to implement certain rate reductions and
to issue refunds to subscribers for overcharges dating back to September 1, 1993.

  2.    In its appeal of the City's order, TCI raises three issues.  First, TCI asserts that the City
failed to specify its reasons for finding that TCI's rates were unreasonable.  Second, TCI asserts that the
City appears to have incorrectly reduced TCI's inflation adjustment thereby reducing TCI's basic
programming service tier rates.  Third, TCI asserts that the City failed to properly calculate TCI's refund
liability.  The City did not respond to TCI's appeal.  We will address each issue in turn.

II.     STANDARD OF REVIEW

  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. 

III.    DISCUSSION

  A.    Written Decision.

  4.    TCI contends that the City's rate order should be remanded because the order does not
contain an explanation for the City's recalculation of TCI's basic programming service tier ("BST") rates. 
The City's rate order merely stated that TCI's BST rate of $9.53 was unreasonable because it was higher
than the maximum permitted of $9.50 that the City had recalculated, under the FCC's regulations.  

  5.    In rate regulation proceedings, the cable operator bears the burden of proving the
reasonableness of its proposed rates.  The local franchising authority must provide the cable operator
with an opportunity to participate in the rate review proceeding and to provide documentation supporting
its proposed rates.  Thereafter, if the local franchising authority determines that the operator's proposed
rate exceeds the maximum permitted level as defined by the Commission's rate standards, it may
prescribe a rate different from the proposed rate provided that the local franchising authority affirmatively
demonstrates in a written decision why the operator's rate is unreasonable and why its prescribed rate is
reasonable.  While there is no requirement that the franchising authority embody its rate order in a single
document, our rules do require that the franchising authority's decision be publicly available and
provide a sufficient basis for its decision to allow an operator and other interested parties to know why
the rate was disapproved so that the operator may appeal the local authority's decision. Here, the local
authority's written decision contains no explanation for its recalculation of TCI's maximum permitted
rate, and no explanation of why TCI's rates were unreasonable.  Accordingly, it appears that the City's
local rate order did not comport with our rules.  Therefore, we remand this issue to the City for further
proceedings consistent with this decision.

  B.    Inflation Adjustment.    

  6.    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 time 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 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. 

  7.    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 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 exceeds the benchmark rate, the operator must then compare its September 30, 1992 per-
channel rate level to the applicable benchmark rate.  If its September 30, 1992 per-channel rate level is
above the benchmark rate, it must reduce this rate to the benchmark rate or by 10%, whichever reduction
is less.  Maximum permitted rates for equipment and installation are based on actual cost and are
calculated in Part III of the Form 393.  

  8.    TCI explains that it presumes that the City's recalculation of the BST rate was based on
the City's adjustment to TCI's inflation factor.  TCI explains that it bases this presumption on local
communications it had with the City prior to the adoption of the rate order and similar results in a
neighboring community where the rate reduction was based on an adjustment of the inflation factor.

  9.    Because the City did not articulate its reasons for reducing TCI's BST rates, we cannot
determine whether it reduced the rates due to an adjustment of TCI's inflation factor.  Generally, an
operator should use the most recent, publicly available data applicable to the period on which the operator
bases its Form 393 calculations.  TCI should be allowed to justify its rates using the most recent
publicly available data, the revised Third Quarter GNP-PI of 122.5.  We remand this issue to the local
franchising authority for resolution in accordance with the terms of this Order.    
  
  C.    Calculation of Refund Liability.

  10.   TCI contends that the City's rate order ignores the Commission's instructions for the
calculation of refunds, which it asserts require that TCI's overcharges for the basic programming service
tier rates be offset by its undercharges for equipment and installation.

  11.   Commission rules provide that, if a franchising authority does not dispute the basis for
the figures presented in the cable operator's filings and has not discovered any mathematical errors in the
forms, the franchising authority should approve the operator's maximum permitted rates as derived by
the forms.  After setting the various regulated rates that an operator is permitted to charge on a
prospective basis, a franchising authority should then determine if the operator is liable for any subscriber
refunds.  Although maximum permitted rates are always determined on an unbundled basis, i.e.,
separately for program service and equipment, refund liability may stem from bundled rates.  Refund
liability should be calculated based on the difference between old bundled rates and the sum of the new
unbundled program service charges.  The intent of the refund mechanism is to place subscribers in the
same position they would be had they been subject to reasonable rates.  In calculating an operator's
refund liability for purposes of the Forms 393 and 1200, offsets between programming and equipment
overcharges and undercharges on the same tier may be allowed.  Offsets are allowed in this context of
Form 393 and Form 1200 because the formulas for these two forms establish a direct relationship
between equipment rates and programming rates. Higher equipment costs and correspondingly higher
equipment rates result in lower programming costs and correspondingly lower programming rates. 
Similarly, lower equipment costs and correspondingly lower equipment rates result in higher
programming costs and correspondingly higher programming rates.  In this proceeding, any refunds to
be paid by TCI should be calculated based on this method.

  12.   While the Commission will sustain the decisions of franchising authorities if there is a
reasonable basis for doing so, franchising authorities should adhere to the principles underlying the
benchmark methodology, particularly when calculating an operator's refund liability.  In this case, the
City should offset or reduce any refunds it may order by the difference between the actual BST and
equipment rates that TCI charged and the maximum permitted rates that it could have charged during the
applicable period of review. We  remand this issue to the City so that it can reconsider its ruling in a
manner consistent with our findings.
IV.     ORDERING CLAUSES

  13.   Accordingly, IT IS ORDERED that TCI of Ohio, Inc.'s appeal of the City of
Courtland's local rate order, is GRANTED and the appeal IS REMANDED to the local franchising
authority for resolution in accordance with the terms of this Order.

  14.   This action is taken by the Deputy 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



        John E. Logan
        Deputy Chief, Cable Services Bureau