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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 ) ) ) Cox Communications Pensacola, Inc. ) CUID No. FL0001(Escambia) ) ) Complaints Regarding ) Cable Programming Services Tier Rates) ) Petition for Reconsideration ) ) ORDER ON RECONSIDERATION Adopted: November 20, 1997 Released: November 24, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider a Petition for Reconsideration of a Cable Services Bureau ("Bureau") order regarding the rates the above-referenced operator ("Operator") was charging for its cable programming services tier ("CPST") in the community referenced above. We have already issued an order in which we found that Operator's rates in effect prior to May 15, 1994 were unreasonable ("First Order"). Subsequently, we issued an order vacating and superseding our First Order and resolving all the complaints filed from September 1, 1993 through June 30, 1995 against Operator's CPST rates ("Second Order"). Next, we issued an Order in which we found Operator's November 1, 1996 CPST rate increase to be unreasonable ("Third Order"). On our own motion, we reconsidered the Third Order and required Operator to submit a revised FCC Form 1240 for the projected period November 1, 1996 through October 31, 1997 ("Fourth Order"). On September 5, 1997, Operator filed a timely Petition for Reconsideration of our Third and Fourth Orders ("Petition") as well as a Petition for Stay Pending Reconsideration. Because we are addressing Operator's Petition for Reconsideration, we will deny Operator's Petition for Stay. On September 5, 1997, Operator also filed a revised FCC Form 1240 for the projected period November 1, 1996 through October 31, 1997, pursuant to the Fourth Order ("Modified 1240"). 2. Under the Communications Act, the Commission is authorized 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 legislation ("Interim Rules"), require that a complaint against the CPST rate be filed with the Commission by a local franchising authority ("LFA") that has received more than one subscriber complaint. The filing of a complete and timely complaint triggers an obligation upon the cable operator to file a justification of its CPST rates. The Operator has the burden of demonstrating that the CPST rates complained about are reasonable. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. 3. To justify rates for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. Operators may alternatively 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. 4. In our Second Order, we approved a maximum permitted rate ("MPR") of $12.80 for the CPST in the community referenced above. In our Fourth Order, we reviewed Operator's FCC Form 1210 covering the period January 1, 1995 through September 30, 1995, which updates Operator's approved MPR of $12.80, and we adjusted Operator's beginning rate at Line A1 to $12.80. We allowed Operator a 1.0511 inflation adjustment factor at Line I5, which included unclaimed inflation of 2.15% for the October 1, 1993 to June 30, 1994 period pursuant to the Ninth Reconsideration Order. Operator had until March 31, 1996 to implement this inflation adjustment. These adjustments resulted in a revised MPR of $14.40. We also adjusted Line A1 on Operator's initial FCC Form 1240, for the projected period November 1, 1995 to October 31, 1996, to reflect the corrected MPR from the prior FCC Form 1210. As in the Third Order, we then reduced the true-up inflation factor in Module C, Line C1 to 1.0019 from 1.0074 because Operator claimed only a one month true-period rather than a four month true-up period. Also, as in the Third Order, we corrected the current inflation factor in Module C, Line C3 to 1.0239 instead of the 1.0296 used by Operator. These adjustments result in a revised MPR of $14.78, effective November 1, 1995. 5. In its Petition, Operator argues that it was entitled to recover unclaimed inflation for three months on Line C1 of its initial FCC Form 1240. We agree with Operator's argument and will allow this additional unclaimed inflation for the period July 1, 1995 through September 30, 1995. Operator further argues that it was entitled to use the 1.0296 inflation factor at Line C3 on its initial FCC Form 1240, due to its good faith reliance on the Commission's rules. Operator used an annual rather than quarterly inflation rate. We agree that Operator could have made the error in good faith. Because Operator is required to correct this inflation rate in the true-up segment of its second FCC Form 1240, we will allow Operator to use the annual rate of 1.0296 on its initial FCC Form 1240 only. Subsequent FCC Form 1240 filings must use the most recent quarterly rate, in conformance with the FCC Form 1240 instructions. Because of these adjustments, our review of Operator's FCC Form 1240 for the projected period November 1, 1995 through October 31, 1996 resulted in a revised MPR of $14.89 rather than $14.78. 6. In our Fourth Order, upon review of Operator's FCC Form 1240 for the projected period November 1, 1996 through October 31, 1997, we ordered Operator to use the rate of $14.78 on Line A1 of its FCC Form 1240 to coincide with Operator's revised MPR from its previous FCC Form 1240. Because of our finding above, we now revise Operator's Line A1 to $14.89. In its FCC Form 1240 for the projected period November 1, 1996 through October 31, 1997, Operator made true-up adjustments through to the effective date of the rate increase. Because Operator signed the FCC Form 1240 on October 14, 1996, Operator could not have had actual data for all twelve months of the true-up period, specifically Operator could not have had actual data for October 1996. Therefore, we ordered Operator to submit an FCC Form 1240 for the projected period November 1, 1996 through October 31, 1997, with a true-up period not to exceed eleven months, provided Operator had actual data for all of the months used in the true-up. Operator filed its Modified 1240 in response to the Fourth Order. 7. Upon review of Operator's Modified 1240 for the projected period November 1, 1996 through October 31, 1997, we adjusted Operator's Line A1 to $14.89 to coincide with Operator's MPR from its previous revised FCC Form 1240. We also used the data from Operator's previous revised FCC Form 1240 where required by FCC Form 1240 instructions. Our adjustments resulted in a revised MPR of $15.98, for the projected period November 1, 1996 through October 31, 1997, rather than Operator's Modified 1240 calculated MPR of $15.75 for the projected period. Because Operator's actual CPST rate of $16.15, effective November 15, 1996, exceeds its revised MPR of $15.98, we find Operator's actual CPST rate of $16.15 to be unreasonable. 8. In its Petition, Operator argues that even though it submitted an FCC Form 1240 dated October 14, 1996, the data remained accurate through October 1996 and Operator should be allowed to include the additional month in its true-up period. Operator's argument fails to take into consideration that the FCC Form 1240 is designed to be filed 30 to 90 days in advance of a rate increase, to determine whether a proposed rate increase is reasonable under the Commission's rules. Even if an operator is not required to file a rate justification with the Commission until after a complaint is filed, an Operator who sets its CPST rates using an FCC Form 1240 will be setting rates for a future period of time, usually a minimum of 30 days in advance. Operator's argument also fails to acknowledge that the date and signature on the FCC Form 1240 is a certification that the events recorded in the form are true and correct. An event cannot be certified to when it has not yet occurred. 9. On its own motion, the Commission adopted an optional annual rate methodology in the Thirteenth Reconsideration Order. The annual adjustment afforded by FCC Form 1240 allows operators to adjust their rates to reflect reasonably certain and reasonably quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the 12 months following the rate change. This structure avoids the delay some operators experienced in recouping costs through multiple rate adjustments throughout the year. As we noted in the Fourth Order, because projections will not reflect the costs that actually occur, the Commission provided, as part of the annual adjustment, a "true- up" mechanism to correct projected cost changes with the actual cost changes. As the Commission stated in the Thirteenth Reconsideration Order, "[b]ecause the true-up will examine what costs were actually incurred, it can only examine costs as of the date the Form 1240 is filed." 10. In response to several operators' requests, we issued a waiver, for the first filing of FCC Form 1240, of the Commission's requirement that only costs that have actually been incurred may be included in the non-projected period. We stated that the waiver applied solely to the operators' first FCC Form 1240 filing, that true-ups in subsequent filings would only include actual cost data. We found it unnecessary to grant a waiver for subsequent FCC Form 1240 filings because future true-up periods would apply to periods that operators had already projected and recovery based on the projections would have already been permitted. 11. The annual rate methodology outlined in the Thirteenth Reconsideration Order has achieved its purpose. It allows operators to project future events and then reconcile those events with actual events once they have occurred. We see no reason for an exception which allows an operator to create a true-up period based on projections, such an exception would undermine the function of the FCC Form 1240. Therefore, we deny Operator's request that we accept its twelve-month true-up period. 12. Accordingly, IT IS ORDERED, pursuant to Section 1.106 of the Commission's rules, 47 C.F.R.  1.106, that the Petition for Reconsideration filed by Operator is GRANTED IN PART AND DENIED IN PART TO THE EXTENT INDICATED HEREIN. 13. IT IS FURTHER ORDERED, that In the Matter of Cox Communications Pensacola, Inc., DA 97-1432 (Released July 9, 1997) and In the Matter of Cox Communications Pensacola, Inc., DA 97- 1668 (Released August 6, 1997) ARE VACATED IN PART AND AFFIRMED IN PART TO THE EXTENT INDICATED HEREIN. 14. IT IS FURTHER ORDERED, that the Petition for Stay filed by Operator is DENIED. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $16.15, charged by Operator in the franchise area referenced above, effective November 1, 1996 through the present, IS UNREASONABLE. 16. 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 $15.98 per month (plus franchise fees), plus interest to the date of the refund, for the period November 15, 1996 through the day before Operator implements the maximum permitted rate of $15.98. 17. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, and shall within 30 days of the release of this Order, file a report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of Commission approval of the plan. 18. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator take into account our FCC Form 1240 adjustments when calculating its maximum permitted rate and performing the true-up calculation on its next FCC Form 1240. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau