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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 Communications ) CUID No. NY0954 (Scottsville) ) ) Complaint Regarding ) Cable Programming Services Tier Rate) ORDER Adopted: August 20, 1997 Released: August 29, 1997 By the Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider a complaint concerning the January 1, 1997 rate increase of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator has filed FCC Forms 1240 in response to this complaint. We have issued a separate order addressing the reasonableness of Operator's rates in effect before May 15, 1994. On January 4, 1996, Cablevision Industries Corporation ("CVI") merged with Time Warner Cable ("TWC"). According to the terms of the Time Warner Social Contract, systems acquired by TWC from CVI are included under the social contract. Consequently, for the community referenced above, all rate complaints filed prior to January 4, 1996 are resolved and rates in effect on January 4, 1996 are deemed reasonable. Accordingly, this Order addresses the reasonableness of Operator's CPST rates in effect from February 1, 1996 to the present. We conclude that Operator's CPST rate of $15.37 (without franchise fees), effective January 1, 1997, is not unreasonable. 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, 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 rate complaint. 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. On June 18, 1997, the LFA filed a complaint regarding the January 1, 1997 increase in Operator's CPST rate in the community referenced above. 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 behalf of the cable operator to file a justification of its CPST rates with the LFA. Thus, in this case, Operator is required to justify the increase in its CPST rate which is the subject of the LFA's complaint. In its response, Operator asserts that its January 1, 1997 rate increase is justified by an FCC Form 1240 filed along with the LFA's complaint on June 18, 1997. 5. 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 February 1, 1996 to December 31, 1996, we find that Operator has justified a maximum permitted rate ("MPR") of $14.36, effective January 1, 1996. 6. Upon review of Operator's FCC Form 1240 for the period January 1, 1997 to December 1, 1997, we find that Operator has not correctly calculated its MPR. In particular, 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. 7. 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 11 months to 8 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 8 month period was corrected to 1.0151 instead of the 1.0239 used by the Operator for an 11 month period. We have adjusted Module E, and have corrected the number of months on Line E2 to 8 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). 8. 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 $16.14 (Line I9). Despite our adjustment, we find that Operator has justified its actual January 1, 1997 CPST rate of $15.37. However, 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. 9. 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 $15.37 charged by Operator in the community referenced above, effective January 1, 1997, IS NOT 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, IS DENIED. 11. 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 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. FEDERAL COMMUNICATIONS COMMISSION Margaret M. Egler Acting Chief, Financial Analysis and Compliance Division Cable Services Bureau