******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 ) ) C-TEC Cable Systems of Michigan, Inc.) CUID No. MI0371 (Grand Haven) ) ) Complaint Regarding ) Cable Programming Services Tier Rates) ORDER Adopted: September 19, 1997 Released: September 25, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider a complaint against the January 21, 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 increases through benchmark showings on FCC Forms 1240. 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 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. 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. 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 costs changes. 4. On July 11, 1997, the LFA filed a complaint regarding the Operator's January 21, 1997 CPST rate increase for the community set forth above. 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, 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 to the LFA complaint, Operator asserts that its January 21, 1997 rate increase is justified by two FCC Forms 1240, one for the projected period February 1, 1996 to January 31, 1997 ("First Form 1240"), and the other for the projected period February 1, 1997 to January 31, 1998 ("Second Form 1240"). We note that Operator provides service on two CPSTs, CPST-1 and CPST-2. 5. The FCC Form 1240 allows the operator to use, as its beginning rate on Line A1, the maximum permitted rate ("MPR") calculated on a series of Forms 1200, 1210, and 1240, even if the MPR has never been put into effect by the operator. Consequently, we allow Operator to use as the starting rate on its First Form 1240, Line A1, the rate that Operator was charging prior to the January 21, 1996 CPST rate increase. Operator may then use the MPR calculated in the First Form 1240 as the starting rate on Line A1 of its Second FCC Form 1240. 6. Upon review of Operator's First Form 1240, we have made the following adjustments. Because Operator was not previously subject to CPST regulation and because Operator did not file a series of FCC Forms 1200 and 1210s to justify a true-up, Operator was not entitled to claim a true-up period in this FCC Form 1240. Consequently, we disallowed the seven-month true-up period claimed in this FCC Form 1240. This adjustment reduced Operator's MPR for CPST-1 from $11.32 to $10.93 and reduced Operator's MPR for CPST-2 from $6.27 to $6.15. Consequently, we find that Operator's CPST-1 rate of $11.00 is not justified and Operator's CPST-2 rate of $4.95 is justified. Because there is not a valid complaint against Operator's CPST-1 rate increase effective January 21, 1996, Operator incurs no refund liability for the period beginning January 21, 1996. 7. Operator increased its CPST-1 and CPST-2 rates to $11.10 and $6.15, respectively, effective January 21, 1997. Because Operator's CPST-1 rate of $11.10, effective January 21, 1997 exceeds its MPR of $10.93 of the First Form 1240, we find that Operator's CPST-1 rate is unreasonable and not justified. However, Operator's CPST-2 rate of $6.15, effective January 21, 1997, does not exceed its MPR of $6.15. Consequently, we find that Operator's CPST-2 rate of $6.15 is justified and is reasonable. 8. Upon review of Operator's Second Form 1240, for the projected period February 1, 1997 to January 31, 1998, we adjusted the starting rates at Line A1 for CPST-1 and CPST-2 to conform with the MPRs from the previous FCC Form 1240. Because of this adjustment, we also corrected the Current FCC Inflation Factor at Line C3 to 1.0132. We also corrected line D6 (Current True-Up Segment), Line D7 (Current Inflation Segment) and Line F8 (True-Up Segment For True-Up Period 1) to conform to the previous FCC Form 1240 for the projected period February 1, 1996 to January 31, 1997. These adjustments reduced the MPR for CPST-1 from $11.12 to $10.30 and the MPR for CPST-2 from $7.80 to $7.47, effective February 1, 1997. Consequently, we find that Operator's rate of $11.10 for CPST-1 continues to be unreasonable and Operator's rate of $6.15 for CPST-2 continues to be reasonable. 9. Accordingly, IT IS ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $11.10 for CPST-1, effective January 21, 1997, in the community set forth above, IS UNREASONABLE. 10. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $6.15 for CPST-2, effective January 21, 1997, in the community set forth above, IS REASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321, that the complaint referenced herein against the rate increase charged by Operator in the community set forth above, effective January 21, 1997, IS GRANTED. 12. 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 community referenced above that portion of the amount paid in excess of the maximum permitted CPST-1 rate of $10.93 per month (plus franchise fee) plus interest to the date of the refund, for the period from January 25, 1997 to January 31, 1997. 13. 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 community referenced above that portion of the amount paid in excess of the maximum permitted CPST-1 rate of $10.30 per month (plus franchise fee) plus interest to the date of the refund, for the period from February 1, 1997 the day before Operator reduces its CPST rate to $10.30 14. IT IS FURTHER ORDERED, that Operator shall promptly determine the overcharges to CPST subscribers for the stated period, and shall within 30 days of the release of this Order, file 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. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau