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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, Inc. ) CUID No. FL0143 (Okaloosa) d/b/a Emerald Coast Cable Television ) ) 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"). Most recently, we issued an Order in which we found Operator's March 1, 1997 CPST rate increase to be unreasonable ("Third Order"). On September 25, 1997, Operator filed a timely Petition for Reconsideration of our Third Order ("Petition"). On September 25, 1997, Operator also filed a revised FCC Form 1240 for the projected period March 1, 1997 through February 28, 1998, pursuant to the Third 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 $12.79 for the CPST in the community referenced above. In our Third 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 $12.79, and we adjusted Operator's inflation adjustment factor at Line I5 to 1.0296. This adjustment resulted in a revised MPR of $13.36 rather than Operator's MPR of $13.56. Upon review of Operator's FCC Form 1240 for the projected period March 1, 1996 through February 28, 1997, we adjusted Operator's Line A1 to coincide with Operator's MPR of $13.36 from its previous revised FCC Form 1210. This adjustment resulted in a revised FCC Form 1240 MPR of $15.45 rather than Operator's MPR of $15.73 for the projected period March 1, 1996 through February 28, 1997. 5. In the Second Reconsideration Order, the Commission prohibited small systems and low- price systems that had been provided with transition relief from adjusting their transition rates to reflect increases in inflation. In the Ninth Reconsideration Order, the Commission determined that transition relief systems should no longer be prevented from adjusting their rates to reflect changes in inflation. Pursuant to the Ninth Reconsideration Order, we allowed transition system operators to recover unclaimed inflation up to 2.15% for the October 1, 1993 to June 30, 1994 period. We also granted transition system operators a waiver to allow operators until March 31, 1996 to implement this inflation adjustment. 6. In its Petition, Operator argues that it was entitled to claim in its FCC Form 1210 covering the period January 1, 1995 through September 30, 1995, a 1.0215 inflation adjustment factor for the period October 1, 1993 through June 30, 1994. In our Third Order, we denied Operator this adjustment because Operator had claimed an inflation adjustment factor of 1.029 for that same period of time in its previous FCC Form 1210 covering the period July 1, 1994 through December 31, 1994. However, upon further review of Operator's FCC Form 1210 filing covering the period July 1, 1994 through December 31, 1994, we find that Operator applied the inflation adjustment factor to its full reduction rate in Module E only. We find that Operator did not previously apply the 2.15% inflation factor to its CPST transition rates. Consequently, Operator, as a transition operator, implemented the inflation adjustment in a timely manner. Therefore, we accept Operator's MPR of $13.56 for its FCC Form 1210 covering the period January 1, 1995 through September 30, 1995 and Operator's MPR of $15.73 for its FCC Form 1240 for the projected period March 1, 1996 through February 28, 1997. 7. In our Third Order, upon review of Operator's FCC Form 1240 for the projected period March 1, 1997 through February 28, 1998, we ordered Operator to use the rate of $15.45 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 accept Operator's Line A1 of $15.73. However, Operator made true-up adjustments through to the effective date of the rate increase, March 1, 1997. Because Operator signed the FCC Form 1240 on January 30, 1997, 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 January or February 1997. Therefore, we ordered Operator to submit an FCC Form 1240 for the projected period March 1, 1997 through February 28, 1998 with a true-up period not to exceed ten 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 Third Order. 8. Upon review of Operator's Modified 1240 for the projected period March 1, 1997 through February 28, 1998, we adjusted Operator's Line A1 to $15.73 to coincide with Operator's MPR from its previous unrevised FCC Form 1240. We also used the data from Operator's previous unrevised FCC Form 1240 where required by FCC Form 1240 instructions. In its Modified 1240, Operator used a ten month true-up period pursuant to our Third Order. In accordance with the FCC Form 1240 instructions, we adjusted Line 201 of Operator's Worksheet 2 (CAPS Method Projected Period) to include the figures from the last month of the true-up period on Operator's Worksheet 2 (CAPS Method True-up Period). We adjusted those figures by adding the last two months of the Worksheet 2 (CAPS Method Projected Period) from Operator's previous unrevised FCC Form 1240. This resulted in a Total License Fee Reserve Used of $.43 and a Total Operator's Cap Used of $1.40 on Line 201 of Operator's Worksheet 2 (CAPS Method Projected Period) of its Modified 1240. Because we allowed Operator a seventh channel addition in February of 1997, and we included that adjustment on Line 201 of its Worksheet 2 (CAPS Method Projected Period) of its Modified 1240, we disallowed Operator's claim on Line 202 of Worksheet 2 (CAPS Method Projected Period) of its Modified 1240 for an additional $.20. Pursuant to our Going Forward Order, Operator may not claim an Operator's Cap of more than $1.40 through December 31, 1997. Because of these changes, we revised Line I1 of Operator's Modified 1240 to $1.9542 rather than $1.9254. The aggregate adjustments resulted in a revised MPR of $16.91, for the projected period March 1, 1997 through February 28, 1998, rather than Operator's Modified 1240 calculated MPR of $16.33 for the projected period. Because Operator's actual CPST rate of $17.02, effective March 1, 1997, exceeds its revised MPR, we find Operator's actual CPST rate of $17.02 to be unreasonable. 9. In its Petition, Operator argues that "a cable operator filing Form 1240 in response to a CPST rate complaint will always have actual data for costs incurred prior to the rate adjustment because CPST rate complaints can only be filed after a rate change has taken effect." Operator's Petition at page 6 (footnote omitted). Operator also claims that even though it submitted an FCC Form 1240 dated January 30, 1997, the data remained accurate as of May 30, 1997 and the allowance of a true-up period which includes the additional two months (January and February 1997) would not circumvent the Commission's policies or rules. 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. 10. 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 Third 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." 11. 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. 12. 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. 13. 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. 14. IT IS FURTHER ORDERED, that In the Matter of Cox Communications, Inc. d/b/a Emerald Coast Cable Television, DA 97-1828 (Released August 26, 1997) IS VACATED IN PART AND AFFIRMED IN PART TO THE EXTENT INDICATED HEREIN. 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 $17.02, charged by Operator in the franchise area referenced above, effective March 1, 1997 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 $16.91 per month (plus franchise fees), plus interest to the date of the refund, for the period March 1, 1997 through the day before Operator implements the maximum permitted rate of $16.91. 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