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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) Falcon Cablevision ) ) Petitions for Review of ) Local Rate Orders of the ) City of Thousand Oaks, California ) MEMORANDUM OPINION AND ORDER Adopted: September 3, 1996 Released: September 10, 1996 By the Chief, Cable Services Bureau: INTRODUCTION 1. By this Order, upon the request of Falcon Cablevision ("Falcon"), we consolidate two proceedings into one and rule on the merits in each proceeding. In deciding this appeal, the Bureau has reviewed all of the pleadings filed in each of the separate proceedings. We have determined that the two proceedings are sufficiently similar and related to one another to justify the joint resolution of all the issues raised by each of the concerned parties in one consolidated proceeding. 2. On April 20, 1995, Falcon filed a petition for review of a local rate order adopted on March 21, 1995, by the City. In the City's rate proceedings, Falcon elected to use the cost of service approach in order to justify its rates in effect for the period beginning May 15, 1995. The City conducted a cost of service review of Falcon's August 1994 Forms 1220, 1200, 1205, and 1215 and issued an order in which it disallowed the inclusion of all of Falcon's intangible assets, and ordered Falcon to reduce its rates and refund to subscribers the overcharges levied since July 15, 1994. The March 21, 1995 order also recalculated Falcon's charges for remotes and converters, reduced Falcon's Hourly Service Charge ("HSC"), disallowed Falcon's inside wiring maintenance charge, and ordered related refunds. 3. In its April 20, 1995 appeal, Falcon raises six arguments. First, Falcon contends that the City erred when it excluded Falcon's intangible assets from the rate base. Second, the operator argues that the City improperly reduced Falcon's rate of return from 13% to 11.25%. Third, Falcon argues that the City also erred when it treated Falcon's advertising revenue as an offset against subscriber revenue requirements. Fourth, Falcon argues that the City erred by requiring Falcon to reset its equipment and hourly service charge rates less than a year after its initial unbundling. Fifth, Falcon alleges the City exceeded its authority by prescribing rates for Falcon's inside wire maintenance plan. Sixth, Falcon alleges that the City exceeded its authority by regulating charges for returned checks, late fees, converter equipment deposits, field collection fees, and account transfer fees. 4. On February 22, 1996, Falcon filed a petition for review of a local rate order adopted on January 23, 1996, by the City. The City, in its January 23, 1996 rate order, disapproved Falcon's July 15, 1995 rate increase and ordered Falcon to implement refunds retroactive to July 1, 1995. 5. In its February 22, 1996 appeal, Falcon contends that the City wrongfully decided matters beyond the local authority's jurisdiction in the review of Falcon's Form 1210. Falcon further contends that the City implicitly approved the operator's Form 1210 calculation of a $1.00 rate increase. STANDARD OF REVIEW 6. 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 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. 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. BACKGROUND 7. On May 3, 1993, the Commission released its Rate Order establishing rules to implement the cable television rate regulation provisions of the 1992 Cable Act. In the Rate Order, the Commission determined that a benchmark approach should serve as the primary method for regulating equipment and installations and basic and cable programming service tier rates. The Commission also concluded that because the benchmark methodology might not produce fully compensatory rates in all cases, it was appropriate to permit operators, as an alternative, to justify rates based on costs, using individual cost-of-service showings. The cost- of-service approach was intended to be used only if an operator believed that the maximum rate permitted under the benchmark formula would not enable the operator to recover costs reasonably incurred in providing rate regulated cable services. 8. The Commission found, however, that the record before it at the time of the adoption of the Rate Order did not provide sufficient information on which to develop detailed cost-of-service rules for the cable industry. On July 16, 1993, the Commission therefore issued a Notice of Proposed Rulemaking which proposed requirements to govern cost-of-service showings submitted by cable operators seeking to justify rates higher than those determined under the benchmark approach. The Commission indicated in the Notice, as it did in the Rate Order, that general cost-of-service principles would apply to cost-of-service filings submitted prior to the adoption of specific rules. In April 1994, the Commission adopted its Cost Order, establishing interim cost-of-service rules, effective May 15, 1994. The local rate orders on appeal in this case involved rates proposed for the post-adoption period, i.e., the time period after May 15, 1994, and are therefore governed by the interim cost of service rules established in the Cost Order. DISCUSSION A. April 20, 1995 Appeal 1. Asset Valuation 9. In its appeal, Falcon argues that the City improperly reduced the value of the assets included in its ratebase. The City reduced Falcon's net intangible assets from the operator's claimed $757,000 to zero. Falcon argues that its method of asset valuation is reasonable. Falcon claims that subsequent to its acquisition of the cable system serving the City of Thousand Oaks, the operator recorded the cost of the intangible assets acquired on the system's books as required by Generally Accepted Accounting Principles (GAAP). Falcon alleges that these intangible assets consist primarily of the franchise to serve the City and thus it is entitled to full recovery of the costs of the intangible assets. In its appeal, as in the proceedings below, Falcon did not provide specifics as to how these assets benefited the subscribers of the cable system serving the City of Thousand Oaks. Instead, Falcon provided examples of intangible asset categories, such as operating rights, licenses, and advertising interconnect agreements, and descriptions of the benefits of these categories of intangible assets to subscribers in general. 10. The City responds that Falcon failed to meet its burden of proving that the claimed intangibles should be included in the ratebase. The City states that its conclusion is consistent with the Cost Order because those intangible assets that are presumptively included in the ratebase under the Cost Order -- organizational costs, franchise costs and customer lists -- are costs that ordinarily benefit subscribers. Notwithstanding the presumption to include these items, the City found that none of Falcon's claimed intangibles met the benefit-to-subscribers standard. Falcon replies that all of its intangible costs should be included in its ratebase because they represent assets that are valuable to the company and used and useful in providing services to its subscribers. 11. The Commission's rules on asset valuation were premised on the goal of eliminating from the ratebase that portion of assets, primarily intangible assets, attributable to the expectation of monopolistic profits. In the Cost Order, the Commission distinguished between intangible assets which benefit subscribers to regulated services, including organizational costs, franchise costs and customer lists, which operators presumptively were entitled to include in their ratebase, and intangible assets associated with monopolistic profits which operators presumptively could not include in their ratebase. In its order, the City excluded all of Falcon's intangible assets, including the presumptively included ones. This action is not adequately supported by the record, and does not adhere to Commission rules. The City's decision to set Falcon's intangible assets at zero was unreasonable in the circumstances of this case. 12. The facts presented in this appeal are similar to the facts presented in a recently released local rate order appeal decision, Tele-Media Company of Western Connecticut (Derby, CA et al), DA 96-91, (Cab. Serv. Bur. Rel. February 26, 1996) ("Tele-Media"). In Tele-Media, the local authority reduced the operator's net intangible assets from $38.4 million to zero. That operator had proposed an asset valuation method based on cash flows. Because the usual ratio of revenues to cash flows for cable systems is 2 to 1, the operator urged that the same ratio be applied to determine that part of a system purchase price that might reflect an expectation of monopoly profits. Under Commission regulations, the competitive differential, i.e., the difference in rates between comparable systems facing effective competition and those not facing effective competition, is 17 percent. Under the proposal, the average 17% benchmark rate reduction would dictate a disallowance of 34% of acquisition-related intangibles. The operator, therefore, claimed that the maximum amount of acquisition intangibles attributable to monopoly profits is 34%, or conversely, that 66% of the operator's intangibles should be included in its ratebase. The Commission found that the operator's proposed method of asset valuation accomplished the Commission's goal of ensuring that cable subscribers not fund operators' expectations of monopoly profits. Accordingly, the Commission approved the operator's method of asset valuations but applied it to the entire purchase price of the cable system including tangibles, not just to the portion of the price allocable to intangibles as the operator proposed. The Commission based its reasoning on the fact that cable operators derive revenues from the use of both tangible and intangible assets. 13. Under the methodology approved in Tele-Media, 34% of the purchase price of a system is presumed to be attributable to the expectation of monopoly profits in an unregulated environment. For example, if a cable operator with an expectation of monopoly profits buys a system for $1,000, based on a system valuation of ten times cash flow, that operator anticipates an annual cash flow of $100 and annual revenues of $200, with annual revenues based on an assumption of a 2:1 ratio between revenues and cash flow. According to the Commission's benchmark survey, 17% of an operator's annual revenues reflects a system's monopoly revenues. Thus, in the example given, $34 of the $200 annual revenues would be deemed to reflect the operator's monopoly revenues. Therefore, because expenses should remain the same before and after rate regulation and because it is assumed that monopoly revenues would flow straight to cash flow, $34, or 34% of the operator's $100 annual cash flow would be comprised of monopoly revenues. Under this methodology the 34% adjustment must be applied to the entire purchase price, both tangible assets and intangible assets, because cable operators derive revenues, including monopoly revenues, from the employment of both categories of assets. Thus, had there been effective competition, the system would have been expected to generate only $66 in annual cash flow. If, the acquisition price for a system is ten times cash flow, then it can be concluded that the system in the example would have been purchased for $660 in a competitive environment, not the $1,000 paid based on its monopoly status. Therefore, $340 of the actual purchase price, or 34% is attributable to monopoly expectations. Utilization of this method greatly simplifies the asset valuation process by eliminating the need to assess the value of each individual asset. Moreover, it meets the Commission's objective of excluding the amount of the operator's investment which reflects its expectation of monopoly profits. Because the City's action in setting Falcon's intangible assets at zero was unreasonable, this issue is remanded to the City for further proceedings. On remand, the City should consider what tangible and intangible assets should be included in the ratebase, recognizing that the method for doing so, approved in Tele-Media, is reasonable when applied to the entire purchase price. 2. Rate of Return 14. Falcon next argues that the City improperly reduced Falcon's rate of return. The City set Falcon's overall weighted rate of return at 11.25%. Falcon contends that this rate is inadequate because it does not permit the company to realize its actual rate of return or to compensate its investors. Falcon argues that to maintain its financial integrity, it requires a rate of return of 13%. In support of its argument, Falcon provided a general description of its cost of capital structure in its appeal. Falcon further claims that the local authority should have used a 9.67% cost of debt rather than the Commission's recommended 8.5%. and suggested that the City should have employed a 62% debt/total capital estimate rather than the 55% estimate used in the local order. 15. In its opposition to Falcon's appeal, the City maintains that the 11.25% rate of return that it established is consistent with the Commission's presumptive rate. The City contends that it chose the Commission's presumptive 11.25% rate of return because Falcon failed to provide the local authority with an estimate of Falcon's actual cost of capital. Instead, Falcon provided the local authority with a copy of a cable industry analysis which had been prepared by the Brattle Group and submitted to the Commission by Falcon in response to the Commission's Further Notice of Proposed Rulemaking released in conjunction with its Cost of Service Order. This information was not an estimate of Falcon's actual cost of capital and did not provide any information regarding Falcon's costs for its system serving Thousand Oaks. Rather, the analysis was simply a recommended methodology for determining the cost of capital for the industry in general. The City asserts that it was not provided an estimate of the operator's actual cost of capital until Falcon submitted the instant appeal to the Commission. 16. In its opposition, the City also responds to other arguments raised by Falcon in its appeal concerning the rate of return issue. First, the City disputes Falcon's claim that the local authority should have used a 9.67% cost of debt rather than the Commission's recommended 8.5%. The City contends that it used the 8.5% cost of debt because Falcon, in its filing, used the Commission's 8.5%. Similarly, the City argues that it employed a 55% debt/total capital estimate, rather than the 62% suggested in Falcon's appeal, because the operator used the 55% estimate in its filing. 17. Under the Commission's rules and general cost-of-service principles, the rate of return is the composite, weighted cost of the various classes of capital (debt, preferred stock, and common equity) used by the company. The weighting reflects the proportion of each class of capital to total capital. The calculation of the rate of return is designed to provide a return sufficiently large to maintain the financial integrity of a company and to allow it to attract new capital when necessary. In the Cost Order, the Commission adopted a presumptive rate of return of 11.25%. Under the Commission's rules the cable operator bears a heavy burden of proving the reasonableness of a higher rate of return. 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, the record does not show that Falcon provided the City with a justification for any part of its specific capital requirement, including its 13% rate of return, while the matter was still before the local authority. Instead, the operator waited until its appeal to provide the City with this information. Having not provided the City with any justification for its specific capital requirement before the issuance of the rate order, when the record was open and the City could have considered the issue, Falcon is not entitled to have its mistake corrected by the Commission on appeal. Moreover, Falcon has offered no reason why it could not have provided an estimate of its actual cost of capital earlier nor why the City should be required to reopen the record in its proceeding. Therefore, Falcon is not permitted to raise the issue of the City's use of the presumptive rate of return of 11.25% on appeal. 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 City acted reasonably in utilizing the presumptive rate of return of 11.25%. 3. Advertising Revenue Offsets 18. Falcon argues that the City erred when it treated Falcon's advertising revenue as an offset against subscriber revenue requirements. Although Falcon admits that the Form 1220 instructs operators to treat advertising revenue as an offset against subscriber revenue requirements, the operator contends that the "offset policy is misguided and counterproductive." The operator further argues that there is no incentive for cable operators to make an effort to sell advertising because operators are required to offset their primary revenue streams, subscriber revenues, against advertising revenues. Thus, Falcon alleges that the offset deprives subscribers of local information and advertisers of a vehicle for communicating with their customers. In response, the City asserts that it treated Falcon's advertising revenue as an offset against subscriber revenue requirements because the Commission's rules required it to do so. 19. Form 1220 requires operators to list revenues earned for cable advertising operations on Worksheet A, Line 51. These revenues are included on Worksheet A Line 56, Total Revenue & Income Adjustments and then carried over to Line 5 of Part I, Revenue Requirement Computation. In calculating its Revenue Requirement for Part I, the operator adds its computed return on its rate base, income tax allowance, and total operating expenses. The operator then subtracts out its total revenue and income adjustments to calculate its total revenue requirement. The rationale behind this offset is that the operator's production of advertising does not benefit subscribers, yet revenues from subscribers help defray the operator's costs of production. Thus, revenues received from this advertising must offset subscriber revenue to prevent subscribers from funding an activity from which they do not receive a benefit. Falcon alleges that subscribers do, in fact, receive a benefit from advertising-- local information-- thus the Commission should change its offset policy. However, this appeal is not the appropriate forum for Falcon to present its arguments. If Falcon disagrees with the Commission's rules regarding advertising offsets, it should submit its arguments in the context of a rulemaking. We find that the City acted reasonably in applying the Commission's rules regarding advertising offsets. Accordingly, we deny Falcon's appeal with respect to the issue of the City's use of Falcon's advertising revenue as an offset against subscriber revenue requirements. 4. Form 1205--Resetting Equipment and Installation Rates 20. Falcon argues that the City erred by concluding that Falcon should have reset its equipment and installation rates, including its HSC, pursuant to its Form 1205 at the same time it initially implemented basic service rates pursuant to its Form 1220 on July 15, 1994. Falcon asserts that, to properly complete their initial Forms 1200 and 1220, cable operators were required to input data from a companion Form 1205. Falcon asserts that it complied with the requirement by completing the portion of the Form 1205 necessary to complete Forms 1220 and 1200. However, Falcon argues, that does not mean that equipment rates were to be reset in July 1994 based on the Form 1205 nor does it mean that the entire Form 1205 had to be completed at the time of its Form 1220 filing. In support of its contention, Falcon relies on the following Form 1205 instruction, which states: "You must use this form to update regulated equipment and installation charges on an annual basis. . . . If you have already unbundled equipment and installation charges at cost, however, you must wait one year from the date on which you unbundled equipment and installation charges before changing these charges." Falcon contends that because it had, in fact, unbundled equipment and installation charges in September 1993, it complied with the Form 1205 instruction by not changing its existing equipment and installation charges at the time it filed Form 1220 in July 1994. 21. In response, the City maintains that its rate order rationally applied the mathematical principles underlying the Commission's formulas. Specifically, the City argues, it applied these mathematical principles in determining that Falcon should adjust its equipment charges to the levels calculated in Form 1205, as of July 15, 1994. Under the 1992 Cable Act, equipment and installation charges are to be based on actual costs. The City asserts that Forms 1220 and 1205 establish a "direct linkage" between equipment and installation charges, costs, and programming service rates whereby, for example, lower equipment costs lead to higher programming service rates, and lower equipment and installation charges. This linkage, the City explains, dictates that equipment and installation charges must be set as calculated in Form 1205 using the data for the same year as used in the Forms 1220. The City further alleges that Falcon filed an incomplete Form 1205. According to the City, Falcon used data from 1992 rather than from 1993 (the test year used for the Form 1220) to partially complete the Form 1205. The City also alleges that Falcon entirely omitted calculations for its remote control units, converter boxes, and HSC. Thus, the City states its consultant completed the calculations for the remote control units, converter boxes, and HSC using the best available evidence. 22. 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 Forms 1200/1220 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 basket costs lead to higher programming rates, while higher equipment basket costs lead to lower programming rates. In a cost of service proceeding, an operator's total costs included in the equipment basket category must be the equivalent of the amounts used to compute the installation and equipment rates on the Form 1205. 23. The second use for Form 1205 is to update permitted regulated equipment and installation charges based on equipment basket costs. Higher equipment basket costs on Form 1205 (resulting in lower programming rates on Forms 1200) correlate with higher equipment and installation rates. Conversely, lower equipment basket costs on Form 1205 (resulting in higher programming rates on Form 1200) correlate with lower equipment and installation rates. In its appeal, Falcon is contending that, even though the data in its Form 1205 affects its Form 1200 maximum permitted basic service tier rates, it is not required to make concomitant adjustments to its equipment and installation rates until after it files a new Form 1205 following the close of its next fiscal year. We agree with Falcon on this issue. 24. The City is correct in asserting that Forms 1220 and 1205 establish a direct linkage between programming service rates and equipment and installation costs and charges. When setting rates or calculating refund liability, a franchising authority should normally adhere to the mathematical principles underlying the cost of service methodology described above, thereby assuring that an operator is allowed to earn neither more nor less than its maximum permitted revenues. However, when the Commission initially promulgated FCC Forms 1220, 1200 and 1205 it created an exception to this direct linkage. The instructions to Form 1205 state that, if an operator has already unbundled equipment and installation charges at cost, the operator must wait one year from the date on which it unbundled equipment and installation charges before changing these charges. The instructions go on to state that an operator does not even need to complete the Worksheet for Calculating Permitted Equipment and Installation Charges or Schedule D, which lists the average hours by type of installation, if the operator is filing Form 1205 only as part of establishing its initial maximum permitted rates for programming services. These instructions comport with our previous determination that equipment rates can only be changed annually. Since Falcon had restructured its rates on September 1, 1993, we find that Falcon could not change its equipment and installation rates before September 1, 1994 and therefore did not need to provide the additional information requested by City. 25. Finally, we find that the postponement of equipment and installation rates changes until the filing of the first fiscal year Form 1205, which takes place at least one year after the operator unbundled its equipment and installation rates, is permissible because it could serve to limit administrative expenses for the operators and limit confusion for consumers. We find that Falcon reasonably relied on the form instructions and is not required to file its next Form 1205 until after the close of its fiscal year on December 31, 1994. At that time that Falcon should change its equipment and installation rates if its filing indicates a change in its maximum permitted rates. This issue is therefore remanded to the City for further proceedings consistent with these findings. 5. Inside Wire Maintenance Charge 26. Falcon contends that the City erred in finding that Falcon's inside wire maintenance charge was a regulated charge and by ordering Falcon to provide a cost justification for this charge within 60 days of the date of the local order. Instead, Falcon argues that its inside wire maintenance charge is not subject to regulation because customers have the option of declining the program and choosing to pay for any internal wiring service calls at Falcon's regulated HSC rates. According to Falcon, at the time of restructuring, it chose to turn over the ownership of the wiring inside its subscribers' homes. At the same time it offered subscribers the option of purchasing an inside wire maintenance program, paying for any internal wiring service calls at Falcon's regulated HSC rates, or obtaining the services of a third party contractor to make any needed home wiring repairs. 27. The City does not dispute Falcon's transfer of ownership of the inside wiring to its subscribers. The City also does not specifically address Falcon's contentions regarding the inside wire maintenance charge. Rather, the City argues that the Commission intended for local franchising authorities to have jurisdiction over inside wire maintenance charges. The City further states that Falcon's costs for these services were probably included in its basic service tier rates or equipment basket costs contrary to the 1992 Cable Act. In response, Falcon denies that it included these costs in its basic service tier rates or equipment basket costs. 28. Under our rules, an operator is permitted to sell customer premises equipment to subscribers, and may also offer service contracts for the maintenance and repair of equipment sold to subscribers. If the subscriber owns the inside wiring, as is the case here, then pursuant to our rules, the wire maintenance charge is regulated and the cost of "the charge for a service contract shall be the HSC times the estimated average number of hours for maintenance and repair over the life of the equipment." Thus, Falcon was required to provide evidence as to the costs and labor hours associated with the maintenance of the customer-owned inside wiring. With inside wiring which is customer-owned, such information is needed to identify what hours and costs have been included in the calculation of the HSC and for calculating the average charge. Accordingly, Falcon's appeal of the issue of the City's requirement that Falcon to justify the inside wire maintenance charge is denied. Upon remand, Falcon must provide the City with the evidence as to the costs and labor hours associated with the maintenance of the customer- owned inside wiring so that the local authority may determine the reasonableness of the charge. 6. Miscellaneous Subscriber Charges 29. Falcon alleges that the City exceeded its authority by attempting to regulate charges for late fees, returned check fees, converter equipment deposits, field collection fees, and account transfer fees when it required the operator to provide cost justification for the charges. The operator contends that these charges are unregulated. As a premise for its claim, the operator notes that the costs and revenues from these sources are not a part of the Commission's equipment charge or service rate calculations in Forms 1200, 1205, and 1220. In support of its argument, Falcon cites the Commission decision in Cable Vision Industries and contends that CVI stands for the proposition while local authorities may regulate the customer service aspects of late fees, they may not regulate the rate charged for such fees. 30. The City specifically disputes Falcon's contentions regarding late fees and notes that the Commission, in CVI, found that the regulation of late fees is within the purview of local franchising authorities. The City does not specifically address Falcon's contentions regarding charges for returned checks, converter equipment deposits, field collections, and account transfers. Rather, the City simply argues that the Commission intended for local franchising authorities to have jurisdiction over these charges as well as over late fee charges. 31. We find Falcon's reliance on CVI to be misplaced. We stated in CVI, that the regulation of late fees is within the purview of local franchising authorities. The Commission's Customer Service and Consumer Protection Order declined to adopt regulations in this area providing a formula for determining unreasonable rates. Rather, it provided that late fees were appropriately dealt with through local negotiation or the application of local or state consumer protection and customer service laws. Accordingly, local authorities may regulate the rates of late fees utilizing local or state laws provided that these laws permit such regulation. The resolution of this issue requires an interpretation of applicable local law and not federal law; thus, a state or local court is the appropriate forum to hear this matter. Therefore, we will not rule on the reasonableness of the City's decision to require cost justification with respect to Falcon's charges for late fees. Thus, we deny Falcon's appeal with respect to this charge. 32. With respect to the other charges in dispute, the Commission has not specifically addressed the regulation of charges for returned checks, converter equipment deposits, field collections, and account transfers. However, the Commission, in its Customer Service and Consumer Protection Order, allowed local authorities, in overseeing cable operators, to exceed the customer service standards adopted by the Commission. Thus, these charges may be reviewed through local negotiation or the application of local or state consumer protection and customer service laws. The resolution of this portion of the issue, like the resolution of the late fees portion of the issue, requires an interpretation of applicable local law and not federal law; thus, a state or local court is the appropriate forum to hear this matter. Therefore, we will also not rule on the reasonableness of the City's decision to require cost justification with respect to Falcon's charges for returned checks, converter equipment deposits, field collections, and account transfers. We deny Falcon's appeal with respect to these charges. B. February 22, 1995 Appeal 33. Falcon contends that the City wrongfully decided matters beyond the scope of the review of Falcon's Form 1210 when it reduced Falcon's July 15, 1995 rate of $21.00 to $17.72 and ordered Falcon to refund the difference to subscribers. According to Falcon, the City's consultant recommended, and the City approved, the operator's Form 1210 calculation that a $1.00 rate increase was justified. However, relying on its March 21, 1995 order reducing Falcon's basic service rate from $20.00 to $16.90 and despite its own stay of this order, the City, in its January 23 order, directed Falcon to reduce its rates from the July 15, 1995 rate of $21.00 to $17.72 and refund the difference to subscribers. Instead, Falcon argues that the City should have approved the increase with the proper underlying rate level to be determined by the outcome of its April 20, 1995 appeal. Given the fact that the Commission now has both appeals before it, Falcon requests that the Commission consolidate the two appeals into one matter because the rate increase justified by the Form 1210 will vary depending on the ultimate rate set by Falcon's FCC Form 1220 upon remand. 34. In the case at hand, the City approved the calculations in Falcon's FCC Form 1210 and the $1.00 increase. Thus, the sole issue to be resolved is the maximum permitted rate to which the increase will be applied. As a starting point for calculating an increase in the maximum permitted rate, the Form 1210 uses the operator's existing maximum permitted rate established by its Form 1220/1200 or its most recently filed 1210. In this matter, the maximum permitted rate to be used as a starting point is the rate established by Falcon's 1220. However, the ultimate maximum permitted rate using the Form 1220 has not been established because the City's FCC Form 1220 ratemaking determination made in its March 21, 1995 order is being remanded back to the local authority for further consideration by this instant order. As Falcon's February 26, 1996 appeal is predicated on its April 20, 1995 appeal, the resolution of its February 25, 1996 appeal will flow from the resolution of its April 20, 1995 appeal. Accordingly, we deny Falcon's appeal of this issue as untimely. ORDERING CLAUSES 35. Accordingly, IT IS ORDERED that Falcon Telecable's appeal of the City of Thousand Oaks' April 20, 1995 local rate order, regarding the issue of the City's exclusion of Falcon's intangible assets from the rate base is REMANDED to the City for resolution in accordance with the terms of this Memorandum Opinion and Order. 36. IT IS FURTHER ORDERED that Falcon Telecable's appeal of the City of Thousand Oaks' April 20, 1995 local rate order, regarding the issue of the City's reduction of Falcon's rate of return from 13 percent to 11.25 percent is DENIED. 37. IT IS FURTHER ORDERED that Falcon's Telecable's appeal of the City of Thousand Oaks' April 20, 1995 local rate order, regarding the issue of the City's use of Falcon's advertising revenue as an offset against subscriber revenue requirements is DENIED. 38. IT IS FURTHER ORDERED that Falcon Telecable's appeal of the City of Thousand Oaks' April 20, 1995 local rate order, regarding the issue of the City's requirement that Falcon to set its equipment and hourly service charge rates less than a year from its initial unbundling is REMANDED to the City for resolution in accordance with the terms of this Memorandum Opinion and Order. 39. IT IS FURTHER ORDERED that Falcon Telecable's appeal of the City of Thousand Oaks' April 20, 1995 local rate order, regarding the issue of the City's authority to prescribe rates for Falcon's inside wire maintenance plan is DENIED. 40. IT IS FURTHER ORDERED that Falcon Telecable's appeal of the City of Thousand Oaks' April 20, 1995 local rate order, regarding the issue of the City's authority to regulate charges for returned checks, late fees, converter equipment deposits, field collection fees, and account transfer fees is DENIED. 41. IT IS FURTHER ORDERED that Falcon Telecable's appeal of the City of Thousand Oaks' January 23, 1996 local rate order is dismissed as moot. 42. IT IS FURTHER ORDERED that Falcon Telecable's stay request of the City of Thousand Oaks' March 21, 1995 and January 23, 1996 local rate orders is dismissed as moot. 43. 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