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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. NY0416 (Town of Greece) ) ) ) Complaint Regarding ) Cable Programming Services Tier Rates) ORDER Adopted: August 26, 1997 Released: Augsut 29, 1997 By the Chief, 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 through a benchmark showing on FCC Form 1240. We have already issued an order which resolved complaints filed against Operator from September 1, 1993 through November 30, 1995. Accordingly, this Order addresses the reasonableness of the Operator's CPST rate of $22.47 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. 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. 4. On June 6, 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 by 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. 5. 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. In addition to its FCC Form 1240, Operator raises several affirmative defenses to the LFA's complaint. Specifically, Operator claims that its rates are not subject to regulation because the Operator is subject to effective competition in the community set forth above. We denied Operator's Petition For Effective Competition on June 5, 1997. Operator also argues, as an affirmative defense, that the CPST rate charged in the community set forth above was established as part of a system-wide, revenue-neutral rate structuring that comports with the Commission's recently adopted uniform rate-setting methodology ("Uniform Rate Rules"). If the Commission is unable to reach a determination regarding Operator's affirmative defense within the 90-day statutory deadline for resolving the complaint filed by the LFA, Operator requests that any adverse determination regarding Operator's CPST rate be suspended pending resolution of its defenses. 6. On June 3, 1997, the Commission adopted an Order denying Operator's Effective Competition Petition for the community referenced above. Therefore, Operator's effective competition affirmative defense is moot. We will therefore review Operator's FCC Form 1240 to determine if Operator has correctly calculated its maximum permitted rate ("MPR") for its CPST. 7. Upon review of Operator's revised FCC Form 1240 for the projected period January 1, 1996 to December 31, 1996, we find that Operator has correctly calculated its MPR of $20.15. Pursuant to the Social Contract, Operator carried forward its settlement rate on Line A1. 8. 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 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. 9. 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). 10. 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 $21.90 (Line I9). Thus, Operator has failed to demonstrate that its January 1, 1997 rate of $22.47 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 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. 11. As indicated above, Operator requests that any adverse determination regarding Operator's CPST rate be suspended, pending resolution of Operator's Petition for Special Relief for Uniform Rates ("Petition") in its Rochester, New York cable system. We find that it would serve the public interest to hold the refund liability of Operator in abeyance pending a decision on Operator's Petition. There is an administrative burden on Operator to implement a refund plan, which we seek to avoid, if we subsequently grant Operator's Petition in the Rochester, New York cable system, which includes the community set forth above, and essentially seeks retroactive approval of its rate. The interests of subscribers will be safeguarded if Operator's Petition is denied because this Order imposes refund liability on Operator for its overcharge on the CPST. Therefore, we will hold in abeyance Operator's obligation to issue refunds until 30 days of the release of an order denying Operator's Petition in the Rochester cable system. 12. 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 $22.47 effective January 1, 1997 in the community set forth above, IS UNREASONABLE. 13. 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 GRANTED TO THE EXTENT INDICATED HEREIN. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's refund liability for the overcharge on the CPST, effective January 1, 1997, is held in abeyance, TO THE EXTENT INDICATED HEREIN. 15. 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 $21.90 per month (plus franchise fees), plus interest to the date of the refund, for the period from the filing of the earliest complaint in the franchise area to the day before Operator implements the maximum permitted CPST rate of $21.90. 16. 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. 17. IT IS FURTHER ORDERED, that Operator shall promptly determine the overcharges to CPST subscribers for the stated period, including any over-recovery as detailed in its accounting report, and shall file, within 30 days of the release of an Order denying its Petition for Special Relief for Uniform Rates in its Rochester, New York cable system, 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. 18. IT IS FURTHER ORDERED, that Operator shall revise its FCC Form 1240 for the projected period January 1, 1997 to 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 Meredith J. Jones Chief, Cable Services Bureau