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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 Company, L.P.,)CUID No. VA0106 (Lynchburg) d/b/a Lynchburg Cablevision ) ) ) ) Complaint Regarding ) Cable Programming Services Tier Rates) ORDER Adopted: August 11, 1997 Released: August 13, 1997 By the Deputy Chief, Cable Services Bureau: 1.In this Order we consider a complaint concerning the rates of the above-captioned operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator's response includes benchmark justifications filed on FCC Form 1240. We have already issued an order ("Time Warner Social Contract") which resolved a complaint against Operator's rates for the period from September 1, 1993 through November 30, 1995. This Order addresses the reasonableness of Operator's CPST rate of $18.11, 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. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation ("Interim Rules"), require that complaints against 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 it receives more than one subscriber complaint within 90 days after such increase becomes effective. If the Commission finds the rate unreasonable, it shall determine the correct rate and any refund liability. 3.The Commission's original rate regulations took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Cable operators must use the FCC Form 1200 series to justify their rates through a benchmark showing for the period beginning May 15, 1994. 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.On May 19, 1997, the LFA filed a complaint against Operator's January 1, 1997 rate increase. The LFA certified that it has complied with the Interim Rules. Operator filed an FCC Form 1240 to justify its CPST rate of $15.55, effective January 1, 1996, and a second FCC Form 1240 to justify its CPST rate of $18.11, effective January 1, 1997. Upon review of Operator's first FCC Form 1240, for the projected period January 1, 1996 to December 31, 1996, we note that on Line A1, Current Maximum Permitted Rate, Operator used $12.63, its CPST rate in effect on the publication date of the Time Warner Social Contract. We find that Operator's MPR of $16.05 was not unreasonable. Because Operator's actual CPST rate of $15.55 did not exceed its MPR, we find that Operator's CPST rate, effective January 1, 1996, was not unreasonable. 5.Upon review of Operator's second FCC Form 1240, for the projected period January 1, 1997 to December 31, 1997, we find that Operator 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. 6.Based on this instruction and considering evidence in the filing and 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). 7.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 an MPR for the Projected Period, Line I9, of $17.85, rather than Operator's MPR for the projected period of $18.11. Because Operator's actual CPST rate of $18.11 exceeds its revised MPR of $17.85 for the projected period, we find Operator's actual CPST rate of $18.11, effective January 1, 1997, to be unreasonable. 8.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 Operator to incorporate this accounting report into its refund plan and refund any over-recovery, plus interest, to subscribers. We will also order Operator to submit an FCC Form 1240 for the projected period January 1, 1997 to December 31, 1997 which incorporates our revisions and the adjustments described above. 9.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 $18.11 effective January 1, 1997, in the community referenced above, IS UNREASONABLE. 10.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 against the CPST rate charged by Operator in the franchise area referenced in the caption IS GRANTED. 11.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 area referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $17.85 per month (plus franchise fees), plus interest to the date of the refund, for the period January 16, 1997 through the day before Operator implements the maximum permitted CPST rate of $17.85. 12.IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator shall conduct 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 shall file, within 30 days of the release of this Order, a report detailing the over-recovery of external costs, plus interest, with the Chief, Cable Services Bureau. 13.IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, including any over-recovery as detailed in its accounting report, and shall file, within 30 days of the release of this Order, a report with the Chief, Cable Services Bureau, stating the cumulative refund amounts so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of the 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 shall revise its FCC Form 1240 for the projected period January 1, 1997 through December 31, 1997 incorporating the changes detailed in this order and shall file such amended FCC Form 1240 with the Chief, Cable Services Bureau within 30 days of the release of this Order. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Deputy Chief, Cable Services Bureau