******************************************************** 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 ) CUID Nos. NY0135 (Conklin) ) NY0403 (Owego) Time Warner Cable ) ) Complaints Regarding ) Cable Programming Services Tier Rates ) ) ) ORDER Adopted: May 20, 1997 Released: May 23, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider complaints against the January 1, 1997 rate increase of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. We have already issued a separate order in which we approved of the withdrawal of all prior complaints pending against Operator in these communities. Accordingly, this Order addresses only the reasonableness of Operator's CPST rate increase effective January 1, 1997. 2. Under the Communications Act, the Commission is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation ("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. 3. To justify rates for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Operators may 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. The State of New York Department of Public Service, the LFA for the franchise areas referenced above, filed a complaint with the Commission on March 20, 1997. The LFA verified that it received more than one subscriber complaint for each of the franchise areas. The complaints for each of the franchise areas were timely filed with the LFA. The filing of a complete and timely complaint triggers an obligation on behalf of the cable operator to file a justification of its CPST rates. Operator has the burden of demonstrating that the CPST prices complained about are not unreasonable. 5. The Commission has allowed Operator to use a modified format of FCC Form 1240 to reflect the adjustments required under the Social Contract. We have reviewed Operator's modified FCC Form 1240 filings and have made the following adjustments. 6. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1996 through December 31, 1996, we find that Operator has not correctly calculated its maximum permitted rate ("MPR"). Operator claimed an inflation factor for the twelve-month true-up period at Line C1 of 4.10 percent but failed to provide any explanation of how it was derived. Accordingly, we reduced the inflation factor to 3.28 percent which consists of inflation for the six-month true-up period beginning July 1, 1995 through December 31, 1995 and allows the Operator unclaimed inflation of 2.96 percent for the period beginning July 1, 1994 through June 30, 1995. In addition, we determined that Operator incorrectly calculated the total amount for Line I4 (Projected Period Rate Eligible for Inflation). Operator calculated a total of $16.32. We calculated a total of $14.46. Consequently, we reduced Line I4 to $14.46. These adjustments resulted in a revised maximum permitted rate ("MPR") for the projected period of $19.69 rather than Operator's $21.65. 7. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1997 through December 31, 1997, we find that Operator has not correctly calculated its MPR. We adjusted the current MPR on Line A1 to conform with the previous revised FCC Form 1240 projected period MPR. Operator also made true-up adjustments through to the effective date of the rate increase. This is incorrect. The annual adjustment afforded by FCC Form 1240 allows operators to project changes in external costs, inflation, and the number of regulated channels. This structure avoids the delay some operators experienced in recouping costs through multiple rate adjustments throughout the year. Because projections will not reflect the costs that actually occur, the Commission provided, as part of the annual adjustment, a "true-up" to correct projected cost changes with the actual cost changes. However, the Commission has noted that, as FCC Form 1240 must be filed 90 days before an increase is to take effect, the period for the true-up will not coincide with the previous year's projections. The true-up data is intended to indicate real, not projected data. This policy is reflected in the instructions accompanying FCC Form 1240. 8. Based on this instruction and considering evidence in the filing, reasonable time for closing accounts and completing forms, we have adjusted Operator's true-up period from 12 months to 9 months. This adjustment required that we refresh Operator's inflation factors to 2.22 percent for the second quarter of 1996 and to 2.21 percent for the third quarter of 1996 and adjust Worksheet 1 accordingly. As a result, the true-up inflation factor in Module C, Line C1 for the 9 month period was corrected to 1.0171 instead of the 1.0239 used by the Operator for a 12 month period. We have adjusted Module E, and have corrected the number of months on Line E2 to 9 months and Line E3 to 3 months. We have also adjusted the inflation segment in Module F, Line F5 to reflect the corrections made in Line C1. This has resulted in a corresponding adjustment on Line F9 (MPR for True-Up Period 1). 9. The reduction in the length of the true-up period also results in a reduction in Line H2 (Revenue From MPR for Period 1). This results in a corresponding reduction in Line I8 (True- Up Segment for the Projected Period). In total, our adjustments to Operator's FCC Form 1240 result in a reduction of the MPR for the Projected Period to $20.94 (Line I9). Thus, Operator has failed to demonstrate that its January 1, 1997 rate of $22.46 for its CPST was not unreasonable. To the extent that external costs from the three months disallowed from Operator's true-up period have been averaged into the rates charged in the nine months allowed in Operator's true-up period, and have not been removed by our adjustments, we will order Operator to make a month-by-month accounting of such external costs. Such accounting shall allow a comparison of the actual external costs for the permitted nine-month true-up period with the recovery of external costs afforded by the external cost segment for that period as calculated on Worksheet 7. We will order the removal of any over-recovery, plus interest, identified thereby in Operator's next FCC Form 1240 filed with the Commission. Any such over-recovery of external costs shall be added to the amount otherwise reportable on Line H1 of Operator's next FCC Form 1240 rate calculation. 10. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $22.46, charged by Operator in CUID No. NY0135 during the period from January 1, 1997 to the present, IS UNREASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $22.46, charged by Operator in CUID No. NY0403 during the period from January 1, 1997 to the present, IS UNREASONABLE. 12. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the franchise areas referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $20.94 per month (plus franchise fees), plus interest to the date of the refund, for the period from the filing of the earliest complaint in each franchise area to the day before Operator implements the maximum permitted CPST rate of $20.94. 13. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, and shall within 30 days of the release of this Order, file a report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of Commission approval of the plan. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator revise the calculation of its maximum permitted CPST rate in its next FCC Form 1240 filing in accordance with our findings in this order and, in addition, that Operator attach to its next FCC Form 1240 filing a month-by-month accounting of its external costs from Operator's nine-month true-up period as found on Operator's Worksheets, and that Operator adjust its rates in its next FCC Form 1240 filing for any over-recovery of external costs, plus interest, identified thereby. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the referenced complaints ARE GRANTED TO THE EXTENT DISCUSSED HEREIN. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau