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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 ) ) Sonic Cable Television of ) CUID No. CA0519 (City of Auburn) Northern California ) ) Cost of Service Showing to Support) Basic Service Tier Rate ) ORDER Adopted: August 27, 1997 Released: September 3, 1997 By the Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau: I. INTRODUCTION 1. On August 29, 1994, the above-referenced operator ("Operator") serving the community referenced above, filed a cost of service showing on FCC Form 1220 with its local franchising authority, the City of Auburn, California ("City"), seeking to justify its Basic Service Tier ("BST") rate. On September 29, 1994, the City petitioned the Commission to review the BST cost of service showing. The Commission granted the City's request on March 11, 1996, and agreed to review Operator's cost of service showing for the BST rate. In its grant of the City's request, contrary to Operator's opposition, the Cable Services Bureau determined that the filing of the City's resolution was within the 30 day deadline and that the Operator had been given proper notice of the City's intent to file its request. There have been no CPST complaints filed in this community. 2. According to information provided by Operator in its cost of service showing, the franchise area comprised approximately 2,904 BST subscribers at the time of the filings. Operator provided 12 BST channels. In this review process, pursuant to the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), we analyzed Operator's BST cost of service showing to ensure that the rates charged were not unreasonable and to determine any associated refund liability. 3. We analyzed BST rates charged for the period from September 1, 1993 to March 31, 1994. Operator's FCC Form 1220 seeks to establish that its BST rate of $5.19 per month is justified based on its cost of providing service on its BST. Our analysis indicates that the BST rate that Operator was charging from September 1, 1993 was justified under the Commission's rules. II. ADJUSTMENTS 4. Rate base and expense items have been evaluated to determine whether Operator should be permitted to recover those items. Where a certain rate base or expense element was not supported, was excessive, or was unrelated to providing regulated cable service, such cost was disallowed in whole or in part. The following adjustments were made to Operator's filing: a) Other Intangibles valued at $80,000 were recorded on FCC Form 1220, Worksheet A, line 16. In an August 27, 1994 letter which accompanied Operator's FCC Form 1220, Operator claimed that these intangibles represented the unamortized costs of preparing its regulatory filings. However, on page 7 of Operator's Opposition to the LFA's Petition, Operator characterized the $80,000 as franchise fees, $46,000 of which were paid to the LFA in 1993 and $34,000 of which were paid in 1994. Franchise fees are recovered separately by Operator as 5% of its Basic Tier rate. Therefore, to preclude double recovery, we excluded these Other Intangibles, and corresponding accumulated amortization and amortization expenses, from our calculations. b) Consistent with paragraph 59 of the Final Cost Rules, we reinstated Intangibles to rate base equal to Gross Intangibles booked when the Auburn franchise was purchased less 34% of the purchase price and amortization that should have accumulated during the twelve years between the purchase date and test year end. Net book Intangibles reinstated totaled $17,643. We also reinstated corresponding amortization expenses valued at $5,881. c) In its income tax allowance calculations, Operator synchronized interest expenses based on a hypothetical capital structure of 44% debt and 56% equity, and an 8.5% cost of debt. Consistent with paragraph 104 of the Final Cost Rules, we recalculated interest expenses based on a 55% debt and 45% equity capital structure. This adjustment marginally reduced Operator's Basic revenue requirement. d) Operator split its Advertising Revenue offsets between its CPST and unregulated tiers. However, because available advertising time is concentrated almost entirely on CPST channels, we redistributed all Advertising Revenue offsets to the CPST tier. This adjustment did not affect the Basic Tier revenue requirement. e) Operator allocated its Home Shopping Revenues to its tiers based on channel ratios. Since home shopping is offered only on the CPST tier, we redistributed all Home Shopping Revenue offsets to the CPST tier. This adjustment marginally increased the Basic Tier revenue requirement. Even with our adjustments and disallowances, however, we find that Operator's monthly BST rates for the periods under review have been justified. III. CONCLUSION 5. Based on our review of Operator's FCC Form 1220 filing and upon applying the Commission's most current rules, we find that, as discussed above, Operator has justified the monthly BST rate of $5.19 (plus franchise fee) for the period after September 1, 1993. 6. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the monthly BST rate of $5.19 charged by Operator with respect to the above- referenced community, effective September 1, 1993, IS JUSTIFIED. 7. IT IS FURTHER ORDERED, pursuant to Section 76.933(d) of the Commission's rules, 47 C.F.R. Section 76.933(d), that this ruling on the rate Operator was charging for its BST is binding on the local franchising authority, the City of Auburn, and the cable operator, Sonic Cable Television of Northern California, Inc. FEDERAL COMMUNICATIONS COMMISSION Margaret M. Egler Acting Chief, Financial Analysis and Compliance Division Cable Services Bureau