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TCI Cablevision of Oregon, Inc. Appeal of Local Rate Order of Clackamas County, Oregon OR0157

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Released: January 19, 1996



Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554


DA 95-2472






In the Matter of:
)








)



TCI CABLEVISION OF
)

OREGON, INC.
)



)


Appeal of Local Rate Order of
)
Clackamas County, Oregon OR0157



)






MEMORANDUM OPINION AND ORDER




Adopted
: December 12, 1995



Released

: January 19, 1996

By the Chief, Cable Services Bureau:

I. INTRODUCTION




1.
On January 3, 1995, TCI Cablevision of Oregon, Inc. ("TCI"), the franchisee in
the above matter, filed an appeal of the local cable rate order ("rate order") adopted on December
1, 1994 by its franchising authority, Clackamas County, Oregon ("the County").1 The County
filed an opposition on January 19, 1995. TCI filed a reply on January 30, 1995. The rate order
establishes a new regulated rate schedule for TCI's equipment and installation for the basic
service tier.2 Specifically, the County's rate order requires TCI to implement certain rate

1
Along with its appeal, TCI also filed a "Request for Emergency Stay" on January 3,
1995. The County did not oppose the stay request. See Opposition at 1. Because we are
resolving this dispute on the merits presented in the appeal, the request for emergency stay has
been rendered moot.
2
Under the Cable Television Consumer Protection and Competition Act of 1992 ("1992
Cable Act") and the Commission's implementing regulations, local franchising authorities may
regulate rates for basic cable service and associated equipment. See Cable Television Consumer
Protection and Competition Act, Pub. L. No. 102-385, 106 Stat. 1460 (1992); Communications
Act, § 623(b), 47 U.S.C. § 543(b).



reductions and proposes a corresponding refund dating back to July 14, 1994.3


2.
TCI raises three issues on appeal. First, TCI argues that the County improperly
rejected its entry for additional outlets on Form 1200, Line C6, simply because the additional
charge was bundled with the monthly basic programming service tier fee, rather than separately
assessed. Second, TCI argues that it was improper for the County to deny it the ability to offset
any refund liability with intervening upward rate adjustments otherwise permitted under the
Commission's regulations. Third, TCI argues that the County improperly denied it the ability to
increase existing rates up to the maximum permitted level. We address each of these issues in
turn.

II. DISCUSSION




3.
Under our rules, rate orders made by local franchising authorities may be
appealed to the Commission.4 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.5 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.6 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.7


4.
The local rate order issued by the County was based on its review of TCI's FCC
Form 1200. Form 1200 is the official form used to determine whether initial regulated rates for
programming are reasonable under the revised benchmark rules which apply to operators
beginning May 15, 1994 or upon the expiration of the deferral period provided under our rules
for operators to comply with the revisions to our rules.8 Through the use of Form 1200, an

3 See County Rate Order at 1.
4 See 47 C.F.R. § 76.944.
5 See Report and Order and Further Notice of Proposed Rulemaking in MM Docket 92-
266, 8 FCC Rcd 5631, 5731(1993) ("Report and Order"); Third Order on Reconsideration in
MM Docket 92-266, 9 FCC Rcd 4316, 4345 (1994) ("Third Recon. Order").
6 Id.
7 Id.
8 See
Second Order on Reconsideration, Fourth Report and Order, Fifth Notice of
Proposed Rulemaking in MM Docket 92-266, 9 FCC Rcd 4119 (1994) ("Second Recon. Order").




2


operator generally calculates three sets of figures: (1) the operator's actual March 31, 1994 rate
level; (2) the operator's March 31, 1994 benchmark rate level; and (3) the operator's "full
reduction" rate level. These figures are used to derive an operator's maximum initial permitted
rates.


5.
The operator first completes Module A of the Form 1200 to calculate its March
31, 1994 per subscriber monthly regulated revenue. Next, the operator completes Module B to
calculate changes in external costs which the operator is entitled to reflect in its rates but have
not yet been passed through to its subscribers. In Module C the operator enters its data with
respect to a number of variables to calculate its March 31, 1994 benchmark rate level on a per
subscriber, per month basis. The operator's March 31, 1994 actual rate level (Module A plus
external costs calculated in Module B) is then compared to the benchmark rate level derived in
Module C, with the operator carrying forward the smaller of the two. If the March 31, 1994
actual rate level is smaller, the operator completes Module D, subtracting the monthly per
subscriber equipment cost calculated in Form 1205 and adding external costs calculated from
Module B. If the benchmark rate level is smaller, the operator completes Module E, subtracting
the monthly per subscriber equipment cost taken from Form 1205. Depending on which is used,
either Module D or E establishes per-tier rates, which the operator carries forward into Module
F, as its so-called provisional rates.9


6.
In the second part of Form 1200, the operator derives its full reduction rate based
on its September 30, 1992 rates. To compute this rate, in Module G, the operator calculates its
September 30, 1992 total monthly regulated revenues per subscriber, reduces that amount by
17%, and adjusts upward by 3% to reflect the inflation from September 30, 1992 until September
30, 1993. In Module H, the operator then adjusts the results from Module G for changes since
September 30, 1992 with respect to subscribers, regulated channels, and satellite channels. In
Module I, the operator subtracts a monthly per subscriber equipment cost amount from Form
1205, establishes per-tier rates, and adjusts for changes in external costs. In Module J, the
operator compares its aggregate provisional rate with its aggregate full reduction rate. The
maximum permitted rates an operator is actually allowed to charge are either the provisional
rates (Module F) or the full reduction rates (Module I), depending on whether the aggregate

9
At the time of the local rate order, a so-called "small operator" could elect "transition
relief," which allowed it to keep its regulated revenue at its March 31, 1994 levels, and so was
not required to complete its benchmark in Module C and its provisional rates were determined
by completion of Module D. Pursuant to the Commission's Sixth Report and Order and Eleventh
Order on Reconsideration in MM Docket Nos. 92-266 and 93-215, FCC 95-196, at ¶¶ 40-42
(released June 5, 1995) ("Small Systems Order"), small systems eventually will have to convert
to some other form of regulation, i.e., by establishing rates in accordance with our benchmark or
cost-of-service rules (the latter of which include the small system cost-of-service regulations
adopted in the Small Systems Order).




3


provisional rate is greater or less than the aggregate full reduction rate, and are entered into
Module K. In addition to Form 1200, an operator may file Form 1210, up to quarterly, to claim
changes in external costs and inflation that justify rate increases.




A.

Line C6 of Form 1200 -- Number of Additional Outlets




7.
In computing its benchmark rate level in Module C, an operator is required to
provide entries for the various benchmark variables. The benchmark formula is intended to
derive a rate level which approximates the level a similarly situated operator subject to
competition would charge. The benchmark rate level is determined by considering several
variables, such as the number of subscribers, the number of channels, and the number of
additional outlets charged, all of which affect the benchmark rate level.10 The benchmark
formula's only function in the new system is to identify "low-priced" systems subject to
transition relief which are not required to set their rates based on their full reduction rates.11 An
operator with (i) a current (i.e., March 31, 1994) rate level below the benchmark rate level or (ii)
a current rate level above the benchmark rate level but with a full reduction rate level below the
benchmark, is a low-priced system.12 The low-priced system with a current rate level below the
benchmark generally does not have to reduce its rate level, and the low-priced system with a
current rate level above the benchmark rate level but with a full reduction rate level below the
benchmark is required to reduce its rate level only to the benchmark.13


8.
Included among the variables used in the benchmark formula is the number of
additional outlets in fiscal year 1993, which is entered on Line C6. TCI provided an entry of
10,060 for additional outlets in its 1200 filing, which was disallowed by the County because TCI
did not charge subscribers for the additional outlets.14 The County recalculated TCI's benchmark
by entering zero for the number of outlets on Line C6, which TCI argues results in a reduction in
the operator's maximum permitted basic tier rate. TCI argues that there was a cost of providing
additional outlets even though no charge was made, and that an operator such as itself that
"bundled" its additional outlet costs into its other rates cannot charge as high a rate as an
otherwise identical operator that separately itemized its additional outlets.

10 See Second Recon. Order, 9 FCC Rcd at 4177-4178.
11 See 47 C.F.R. § 76.922.
12 Id.
13 Id.
14 See County Rate Order at 2.




4




9.
Our instructions for Line C6 of Form 1200 ask the operator to provide the average
monthly number of additional outlets for which there was a charge to subscribers in fiscal year
1993, and to compute the average number of additional outlets over only those months in the
year for which there was a charge for additional outlets.15 A Benchmark Fact Sheet further
explaining our instructions for calculating an operator's benchmark rate restates this
instruction.16 Neither our rules, nor our instructions for completing Form 1200, permit operators
to include additional outlets for which no charge is assessed on Line C6 as a benchmark variable.



10.
We note that the revised benchmark formula is designed to approximate the rate
level of a similarly situated operator facing competition. The Commission's rate survey upon
which the benchmark formula was based requested data on additional outlets for which a fee was
charged.17 The benchmark formula includes the rate survey data on charged additional outlets
because we determined that this variable was statistically significant in approximating the rate
level of similarly situated operators facing competition.18 To ensure consistency in the
application of the benchmark formula, we must disallow consideration of additional outlets for
which there was no charge.19 We find that the County's decision to disallow TCI's entry of
additional outlets on Line C6 of Form 1200 was in accordance with the instruction to the Form
1200 and reasonable. Accordingly, we deny TCI's appeal on this issue.20

15 Instructions for FCC Form 1200, Setting Maximum Initial Permitted Rates for Regulated
Cable Services Pursuant to Rules Adopted February 22, 1994, at 17.
16 "Enter the average monthly number of additional outlets charged to subscribers in your
fiscal year 1993. Include all additional residential outlets for each subscriber, other than the
primary outlet. This average should be computed over just those months for which there was a
charge for additional outlets." Fact Sheet, Benchmark Fact Sheet at 3 (April 29, 1994).
17 See FCC Cable TV Rate Survey, Schedules 7 and 12, Line 14 (December 1992).
18 Second. Recon. Order, Appendix C, 9 FCC Rcd at 4278.
19 Operators who are dissatisfied with the rates they are permitted to charge under the
benchmark rules have the option to submit a cost of service showing using Form 1220 or Form
1225. See 47 C.F.R. § 76.922(b).
20 See
TCI Cablevision of Oregon, Inc. (Mt. Hood Cable Regulatory Commission of
Multnomah County and Portland, Oregon), DA 95-2269, at ¶¶ 8-11 (Cab. Serv. Bur., released
November 14, 1995) ("Mt. Hood Appeal") (held that local franchising authority's decision to
disallow entry of additional outlets for which there was no charge on Line C6 of Form 1200 was
reasonable); TCI Cablevision of Washington, Inc. (Aberdeen, Washington), DA 95-1495, at ¶¶
8-12 (Cab. Serv. Bur., released July 10, 1995) ("Aberdeen Appeal") (same); TCI Cablevision of




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B.

Refund

Liability




11.
TCI argues that the County's rate order fails to account for any intervening
upward rate adjustments to which TCI would be entitled under our rules. The relevant language
that TCI challenges states: "The refund shall apply to charges in effect from the period
beginning July 14, 1994 until TCI's rate reductions pursuant to this order become effective."21
TCI asserts that, to properly calculate refund liability over an extended time period, it is essential
that maximum permitted rates be updated.22 Thus, TCI claims, the operator must be credited for
increases to its maximum permitted rates, even if the operator has not yet requested and/or
implemented specific rate adjustments. If such credit is denied, TCI argues, operators effectively
will be encouraged to file and implement every Form 1210 adjustment "as quickly as possible."23
TCI also asserts that the reasoning that led the Commission to conclude that offsetting is
required where an operator had priced some rate components too high and some rate components
too low is applicable here. Finally, TCI argues that, if the Commission affirms the County's
treatment of Form 1200, Line C6, TCI must, at a minimum, be allowed to calculate refunds by
claiming credit for any intervening increases justified under an appropriate Form 1210.


12.
The County asserts that TCI's reliance upon Commission decisions that
considered the relationship between basic service rates and equipment charges is misplaced. In
those decisions, the County notes, the Commission allowed cable operators to offset refund
liability for basic service overcharges with undercharges for equipment and installation charges.
The County asserts that, in this case, there are no offsetting credits for equipment and installation
charges. The County further asserts that TCI is already charging at the maximum permitted level
for all service and installation charges. The County states that TCI has not filed a Form 1210
with the County seeking to increase its maximum permitted rates. The County argues that while
TCI is allowed to file a Form 1210, and the Commission's rules allow for prospective application
for any adjustments which are justified, such adjustments cannot be made retroactively.


13.
Under our rules, a rate adjustment with respect to basic rates only becomes
effective once it has been approved by the regulator or once the review period for such approval

Washington, Inc. (Lacey and Olympia, Washington), DA 95-631, at ¶ 7-10 (Cab. Serv. Bur.,
released March 29, 1995) ("Lacey Appeal") (same).
21 County Rate Order at 2.
22 TCI states that, during the period of review, its maximum permitted rates rose due to
inflation and "certain external cost increases." Appeal at 4.
23 Id. at 5-6.




6


has lapsed.24 An operator's per month refund liability, i.e., the difference between the amount
actually charged and the permitted rate, continues at the same level until the operator reduces its
actual rate or the operator, in accordance with our rules, obtains increases in its maximum
permitted rate. The per month refund liability does not decrease just because the operator might
be able to propose an increase in its rates but did not do so.25 Operators, however, may not set
programming service rates at higher than permitted maximum rates to recover lost equipment
revenues when they voluntarily price equipment rates below their maximum permitted levels.
To permit operators to do so would undermine Congress's intention to create a competitive
market of cable equipment providers.26


14.
TCI's reference to our offsetting cases, in which we have held that refund liability
is computed by comparing the operator's aggregate revenues to revenues that would have been
realized from maximum permitted rates, is misplaced. Those decisions hold that the franchising
authority must offset any undercharges in rates against overcharges in other rates. This is
unrelated to the situation TCI poses here, where subsequent cost increases have allegedly
occurred which it claims reduce its refund liability. Our current rules do not authorize rate
increases or recognize an increase in permitted rates until reviewed and approved by the local
franchising authority.27 Accordingly, we find that the County's rate order with respect to
calculation of TCI's refunds are reasonable, and therefore TCI's appeal on this issue is denied.28

C.

Increasing

Rates




15.
TCI argues that the County's rate order denies it the right to increase existing rates
to maximum permitted levels and potentially subjects such rate increases to a "second round of

24 47 C.F.R. § 76.933.
25 See TCI Cablevision of North Central Kentucky, 10 FCC Rcd 926 (1994). See also Third
Recon. Order
, 9 FCC Rcd at 4353.
26 United Cable Television of California, Inc., d/b/a TCI Cablevision of Davis (Davis,
California), DA 95-784, ¶ 7 n.12 (Cab. Serv. Bur., released Apr. 12, 1995). See
Communications Act, § 624A(c)(2)(C), 47 U.S.C. § 544A(c)(2)(C); Implementation of Section
17 of the Cable Television Consumer Protection and Competition Act of 1992: Compatibility
Between Cable Systems and Consumer Electronics Equipment, First Report and Order, 9 FCC
Rcd 1981, 1982 (1994).
27 47 C.F.R. § 76.933.
28 See Mt. Hood Appeal at ¶¶ 24-27 (held that offsets of potential rate increases cannot be
effective until authorized by the local authority); Lacey Appeal at ¶¶ 11-14 (same); Aberdeen
Appeal
at ¶¶ 13-16 (same).




7


local review."29 The challenged provision of the rate order states:


The County is authorized under FCC Rules to review and establish rates for basic

service and associated equipment and installation charges. This order does not

authorize TCI to increase any rates or charges under the jurisdiction of the County,

even where the maximum permitted rate may exceed the actual rate charged by TCI.

Pursuant to applicable federal law, TCI shall not increase any basic rates or associated

equipment and installation charges to any subscriber or group of subscribers without

prior review and approval by the County.[30]

TCI asserts that this provision contravenes the Commission's previous decisions permitting
operators to increase "actual" rates to "maximum permitted levels."


16.
In response, the County asserts (and TCI does not dispute) that TCI has no
existing rates for basic services or charges for equipment and installation which are below
maximum permitted levels.31 The County states that the rate order does not prevent TCI from
seeking rate increases under a Form 1210 filing, or as otherwise provided under by the
Commission's rules.32 In its Opposition, the County notes that no such filing has been made by
TCI.33 When and if such a prospective filing is made, the County states that it would of course
allow TCI to charge the maximum permitted rate prospectively.


17.
In reply, TCI asserts that the County misinterpreted its objections to the
challenged provision.34 TCI states that it "simply objects to the suggestion that a sub-benchmark
rate (were it to exist) could not be increased without another round of local review, if at all.
[TCI] is asking here only for the Commission to clarify that cable operators retain the right to
increase any rate component determined through regulatory review to have been set below the
applicable benchmark level."35

29 Appeal at 6-7.
30 County Rate Order at 3. We note that the challenged provision here is strikingly similar
to the provision at issue in the Mt. Hood Appeal. See Mt. Hood Appeal at ¶ 15.
31 See Opposition at 7-8.
32 Id.

33 Id. at 8.
34 Reply at 7.
35 Id.




8




18.
The challenged provision in the County's rate order appears to be simply a
savings clause, intended to preserve the County's regulatory authority.36 We are satisfied with
the County's statements in its Opposition that the challenged provision is not intended to prevent
TCI from increasing its rates, nor does it require TCI to keep any existing rates below maximum
permitted rates.37 Furthermore, because TCI has no existing rates below maximum permitted
levels, and in light of the County's statements on this point, TCI's appeal of this issue presents no
controversy. Accordingly, we will deny TCI's appeal on this issue.

III. ORDERING

CLAUSES



19.
Accordingly, IT IS ORDERED that TCI's appeal of the County's rate order, with
respect to the issue of additional outlets, IS DENIED.

20.

IT IS FURTHER ORDERED

that TCI's appeal of the County's rate order, with
respect to the refund liability issue,

IS DENIED.



21.

IT IS FURTHER ORDERED

that TCI's appeal of the County's rate order,
regarding the issue of increasing rates,

IS DENIED.



22.

IT IS FURTHER ORDERED

that TCI's request for a stay of the County's rate
order pending the resolution of this appeal is

DISMISSED

as moot.


23.
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

36 See Mt. Hood Appeal at ¶¶ 28-31 (addressing the same issue, which the Commission
dismissed as moot).
37 See Opposition at 20-21.




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