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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) ) Time Warner Entertainment Co., L.P.)CUID No. HI0002 (Lahaina) d/b/a Hawaiian Cablevision) ) ) Complaint Regarding) Cable Programming Services Tier Rates) ORDER Adopted: June 19, 1997Released: June 20, 1997 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1.In this Order we consider a complaint against the January 1, 1997 rate increase that the above-captioned operator ("Operator") implemented for its cable programming services tier ("CPST") in the community set forth above. Operator has attempted to justify its CPST rate increase through a benchmark showing on FCC Forms 1240. We have already issued an order which resolved complaints filed from September 1, 1993 through September 15, 1995 against the Operator in the community referenced above ("Final Resolution"). Accordingly, this Order addresses the reasonableness of the Operator's CPST rate of $16.46 effective January 1, 1997. 2.The Communications Act authorizes the Federal Communications Commission ("Commission") 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 the rate 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. An LFA may not file a CPST rate complaint unless, within 90 days after such increase becomes effective, it receives more than one subscriber complaint. 3.The Commission's original rate regulations took effect on September 1, 1993. The Commission revised its rate regulations effective May 15, 1994. Cable 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. 4.On March 25, 1997, the LFA filed a complaint against the Operator's January 1, 1997 CPST rate increase. In its complaint, the LFA asserts that it has received more than one subscriber complaint against Operator's CPST rate increase, thereby triggering the Commission's jurisdiction to review this complaint The valid complaint from the LFA triggers an obligation on the cable operator to file a justification of its CPST rate with the LFA. Thus, Operator is required to justify the increase in its CPST rate which is the subject of the LFA's complaint. Operator submitted modified FCC Forms 1240 pursuant to the terms of the Social Contract ("Social Contract") between Time Warner Cable ("Time Warner") and the Commission for the community set forth above to justify the rate increase that went into effect on January 1, 1997. 5.The Social Contract covers all of Time Warner's systems as of August 3, 1995, except under limited circumstances. Because Operator acquired the cable television system serving the community referenced above in October, 1995, the community was not part of the Social Contract when Operator implemented its January 1, 1997 CPST rate increase. 6.Subject to Commission approval, Time Warner may include systems acquired after August 3, 1995 within the Social Contract. On May 15, 1997, Operator requested the retroactive inclusion of the community referenced above within the Social Contract. Operator maintains that upon acquisition of the system, Operator inadvertently failed to seek the Commission's approval to include the system within the Social Contract. According to Operator, the system was treated as if it were initially included in the Social Contract. In accordance with the Social Contract, Operator afforded the LFA the opportunity to opt out of the creation of a low cost lifeline basic service tier ("Lifeline Tier") along with a corresponding CPST rate adjustment. In addition, Operator implemented the annual CPST rate increase allowed by the Social Contract on January 1, 1996 and January 1, 1997. Operator also implemented an equipment rate structure consistent with the Social Contract. Operator asserts that it has substantially upgraded the system plant for the community referenced above and anticipates that it will complete the system rebuild by the end of the year 1998. Operator also asserts that it has provided notice to subscribers regarding the home wiring provisions of the Social Contract and it has provided the LFA with Operator's first annual Social Contract report as required by the Social Contract. 7.Under the terms of the Social Contract, Time Warner may request that Time Warner Cable systems which were not originally included in the Social Contract be included, subject to Commission approval. The Social Contract further provides that the Commission's approval to such a request will be decided expeditiously and approval will not be unreasonably withheld. The Commission has delegated to the Cable Services Bureau the authority to implement the Social Contract. 8.Our review of the record reveals that the subscribers in the community set forth above have already received the benefits afforded by the Social Contract such as the capping of regulated rates, the creation of a low cost Lifeline Tier and a system upgrade which is anticipated to be completed by the end of 1998. The LFA has not objected to Operator's request that the franchise area set forth above be included in the Social Contract. In addition, the LFA was given the opportunity to opt-out of the creation of a low cost BST, which it declined. Furthermore, Operator provided the LFA with an annual report detailing the upgrades made to the system. Because Operator implemented the terms of the Social Contract after it acquired the cable system, and because Operator's request is unopposed, we find that it would be in the public interest to retroactively include the community referenced above within the Social Contract. Accordingly, we will allow Operator to add the community referenced above to the Social Contract. 9. To justify its CPST rate, effective January 1, 1997, Operator has submitted two FCC Forms 1240. Upon review of Operator's FCC Form 1240, for the projected period January 1, 1996 to December 31, 1996, we find that Operator has justified a maximum permitted rate ("MPR") of $16.68, effective January 1, 1996. 10.Upon review of Operator's FCC Form 1240 for the projected period January 1, 1997 to December 31, 1997, we find that Operator has incorrectly calculated its MPR. In particular, Operator has 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. 11. 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 for the second quarter of 1996 and to 2.21 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). 12. 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 $19.44 (Line I9). Notwithstanding our adjustments, Operator's actual CPST rate of $16.46 is justified and is 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. 13. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's CPST rate of $16.46, effective January 1, 1997 in the community set forth above, IS NOT UNREASONABLE. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaint referenced herein, IS DENIED. 15.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. 16.IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's request for the addition of Lahaina, Hawaii, CUID No. HI0002, to the Social Contract, IS GRANTED and Lahaina, Hawaii, CUID No. HI0002, is hereby added to the Social Contract. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau