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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 ) ) Marcus Cable Associates ) CUID No. TX0647 (City of Benbrook) ) ) Complaint Regarding ) Cable Programming Services Tier Rates ) ORDER Adopted: March 2, 1998 Released: March 4, 1998 By the Deputy Chief, Cable Services Bureau: 1. In this Order we consider complaints against the rate of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator has attempted to justify its CPST rate on FCC Form 1200, FCC Form 1210, FCC Form 1235 and two FCC Forms 1240. We have already issued an order ("Prior Order") in which we found that Operator's CPST rates in effect before May 15, 1994 were unreasonable. In this Order we address Operator's refund plan filed in response to the Prior Order. This Order also addresses the reasonableness of Operator's CPST rate for the period beginning May 15, 1994, as justified on FCC Forms 1200, 1210, 1235, and 1240. 2. We first address Operator's refund plan. Our review of Operator's refund plan reveals that it does not comply with the requirements of the Prior Order. In its refund plan, Operator states that it does not dispute the findings made by the Federal Communications Commission ("Commission") regarding its CPST rates, however, Operator raises an issue which Operator believes requires a calculation of the refund amount which differs from the calculation prescribed in the Prior Order. Consequently, Operator is now attempting to raise in its refund plan an issue concerning the inter-tier offsets that it failed to properly place before the Commission in accordance with the Commission's rules. 3. Specifically, Operator argues, in its refund plan, that it is entitled to offset its undercharges on its basic service tier ("BST") with its overcharges on its CPST. The Commission has addressed the issue of inter-tier offsets in Cencom Cable Income Partners ("Cencom"). In Cencom, the Commission determined that such inter-tier offsets are "inconsistent with the Commission's conclusion in the [Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992, Rate Regulation, MM Docket 92-266, Report and Order and Further Notice of Proposed Rulemaking] that cable operators should not balance low BST rates with CPST rates that exceed the maximum permitted rate for the tier." Based on the Commission's holding in Cencom, we have determined that Operator's refund plan is unacceptable and that it has failed to comply with the Prior Order. Operator shall have thirty days from the release of this Order to resubmit a refund plan which complies with this Order and with the Prior Order. If Operator fails to submit a timely and adequate refund plan, we will issue an order that addresses how refunds are to be made as well as any other appropriate remedy. 4. 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 Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), and our rules in effect at the time the first complaint was filed, required the Commission to review CPST rates upon the filing of a valid complaint by a subscriber. 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 more than one subscriber complaint. If the Commission finds the rate to be unreasonable, it shall determine the correct rate and any refund liability. 5. The Commission's original rate regulations took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Cable operators with valid CPST complaints filed against them prior to May 15, 1994 must demonstrate that their CPST rates were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their rates were in compliance with the revised rules from May 15, 1994 forward. Cable operators attempting to justify their rates for the period prior to May 15, 1994 using a benchmark showing must complete and file FCC Form 393. Operators must use the FCC Form 1200 series to justify their rates for the period beginning May 15, 1994 using a benchmark showing. Cable operators may also justify rate increases based on the addition and deletion of channels, changes in certain external costs, and inflation, by filing FCC Form 1210. FCC Form 1210 must be filed at least 30 days before the rates are scheduled to go into effect where the Commission has found the cable programming service rate to be unreasonable less than one year prior to the filing, or where there is a pending complaint against the CPST rate. 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. 6. The Commission's rules also provide for a refund liability deferral period, if timely requested by Operator, beginning May 15, 1994 and ending on the date the Operator changes the actual rate for regulated services or, at the latest, on July 14, 1994, for any overcharges resulting from Operator's calculation of a new maximum permitted rate ("MPR") on FCC Form 1200. This deferral of refund liability, however, does not apply to refund liability that may have occurred because Operator's March 31, 1994 rates for its CPST subject to regulation were higher than levels permitted under the Commission's rules in effect before May 15, 1994. Accordingly, the liability period for Operator's overcharges associated with its FCC Form 1200 filing does not begin to run until the date Operator changes its actual rate for regulated services or, at the latest, July 15, 1994. However, Operator will incur refund liability between May 15, 1994 and the date Operator changes the actual rate for regulated services, or July 14, 1994, for any CPST rates charged above the MPR approved by the Commission on Operator's FCC Form 393. 7. FCC Form 1235 is an abbreviated cost of service filing used in cases of network upgrades. It allows cable operators to justify rate increases related to significant capital expenditures used to improve rate-regulated services. This option is extended only in cases of significant upgrades requiring added capital investment, such as bandwidth capacity and conversion to fiber optics, and for system rebuilds. Normal improvements and expansions of service will remain subject to the usual rate adjustments allowed by filings of FCC Forms 1210, 1220 and 1240. Cable operators that incur increases in operating costs associated with a significant network upgrade will be permitted to charge additional rates as justified by their FCC Form 1235 filing. 8. The LFA for the franchise area referenced above filed a complaint with the Commission on December 4, 1997 against Operator's August 1, 1997 CPST rate increase from $14.22 to $18.86. The LFA verified that it received more than one subscriber complaint for the franchise area and that the first valid complaint was received by the LFA on August 5, 1997. The filing of a complete and timely LFA 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. 9. In its complaint, the LFA requests that the Commission review Operator's charges for certain equipment. Operator responds that the equipment that is the subject of the LFA's complaint transmits BST and CPST programming and therefore, the equipment is not subject to our jurisdiction. Under Section 76.923(a) of the Commission's rules, all equipment used to receive the BST is subject to rate regulation, regardless of whether such equipment is used to receive other tiers of regulated programming and/or unregulated service. Such equipment related charges are subject to regulation by the LFA. According to Operator, subscribers use the same equipment at issue to receive both BST and CPST programming. Therefore, the LFA's complaint does not trigger our jurisdiction to regulate Operator's equipment charges. However, the LFA has jurisdiction to determine the reasonableness of Operator's equipment rates. 10. Upon review of Operator's FCC Form 1200, filed to justify its CPST rates beginning May 15, 1994, we adjusted Line A6 to $7.85 to correspond to the MPR determined in the Prior Order. Notwithstanding our adjustment, we find that Operator has correctly calculated its MPR of $7.64. Because Operator's actual CPST rate was $8.00, we find Operator's CPST rate to be unreasonable for the period May 15, 1994 through July 14, 1994. However, Operator has elected to take advantage of the refund liability deferral period in accordance with the Commission's Rules. Accordingly, Operator does not incur refund liability for charging in excess of the MPR calculated on its FCC Form 1200 for the period May 15, 1994 through July 14, 1994. However, Operator does incur refund liability for charging a CPST rate of $8.00 for the period May 15, 1994 through July 14, 1994, which is above the MPR of $7.85 approved by the Commission on Operator's FCC Form 393. In addition, because Operator's actual CPST rate of $7.90, in effect from July 15, 1994 to April 5, 1995, exceeded its FCC Form 1200 MPR of $7.64, we find Operator's actual CPST rate of $7.90, to be unreasonable effective July 15, 1994 through April 5, 1995. 11. Upon review of Operator's FCC Form 1210 covering the period March 31, 1994 to June 30, 1995, we find that Operator claimed an excessive inflation factor. Operator is a "transition rate" benchmark operator and, therefore, may apply an inflation adjustment factor of no more than 1.0215 for the period October 1, 1993 to June 30, 1994. Accordingly, we adjusted Operator's inflation factor on Lines I5 (Inflation Adjustment Factor) and J5 (Inflation Adjustment Factor) each from 1.0521 to 1.0215. These adjustments to Operator's FCC Form 1210 have reduced Operator's MPR from $9.20 to $9.09. Although Operator's FCC Form 1210 for the period March 31, 1994 to June 30, 1995 justifies a CPST rate of $9.09, as of July 1, 1995, Operator implemented this rate on April 6, 1995. Therefore, Operator's CPST rate of $9.09 for the period April 6, 1995 to June 30, 1995 is not justified. However, Operator justifies its CPST rate of $9.09, effective July 1, 1995. 12. Upon review of Operator's first FCC Form 1240 for the period June 1, 1996 through May 31, 1997, we have adjusted Module A, Line A1 to reflect Operator's previous MPR of $9.09. The adjustment to Line A1 required that we correct the inflation factor in Module C, Line C1 to 1.0151 and Line C3 to 1.0222 and Worksheet 1 accordingly. These adjustments reduced Operator's MPR from $10.75 to $10.50. Because Operator's actual CPST rate of $10.75 exceeded its reduced MPR of $10.50, we find Operator's actual CPST rate of $10.75, effective June 1, 1996 through May 31, 1997 to be unreasonable. 13. Upon review of Operator's second FCC Form 1240 for the projected period June 1, 1997 through May 31, 1998, we have adjusted Module A, Line A1 to reflect Operator's previous MPR of $10.50. This adjustment required that we revise Operator's inflation factor. As a result, the inflation factor in Module C, Line C3 was corrected from 1.0221 to 1.0177. These adjustments reduced Operator's MPR for the projected period (Line I9) to $13.65. 14. Operator's June 1, 1997 rate increase reflects not only the annual increase as reported on FCC Form 1240, but also recovery of costs for its network upgrade as reflected on FCC Form 1235. Operator elected to apply all of its FCC Form 1235 allowable BST and CPST increases to its CPST MPR. Such an election is consistent with the FCC Form 1235 instructions. We have reviewed Operator's cost allocations and determined that the costs Operator is seeking to recover on the CPST are properly allocable to the BST and CPST. Consequently, we accept Operator's FCC Form 1235. 15. Upon review of Operator's FCC Form 1235, we have calculated an MPR of $8.02, which Operator has chosen to apply completely to its CPST MPR. When the FCC Form 1240 MPR of $13.65 is combined with the FCC Form 1235 MPR of $8.02, the combined MPR is $21.67. Operator was actually charging a combined rate of $18.86. We conclude that the CPST rate of $18.86, effective June 1, 1997, is reasonable. 16. Accordingly, IT IS ORDERED, pursuant to Section 76.962 of the Commission's rules, 47 C.F.R. 76.962, that Operator's Refund Plan IS NOT ACCEPTED. 17. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 76.961, that Operator revise its Refund Plan as detailed herein and resubmit its plan to the Chief, Cable Services Bureau, within thirty days of the release of this Order. 18. 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 $8.00, effective May 15, 1994 through July 14, 1994, in the community set forth above, IS UNREASONABLE. 19. 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 $7.90, for the period July 15, 1994 through April 5, 1995, in the community set forth above, IS UNREASONABLE. 20. 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 $9.09, for the period April 6, 1995 through June 30, 1995, in the community set forth above, IS UNREASONABLE. 21. 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 $9.09, for the period July 1, 1995 through May 31, 1996, in the community set forth above, IS REASONABLE. 22. 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 $10.75, for the period June 1, 1996 through May 31, 1997, in the community set forth above, IS UNREASONABLE. 23. 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 $18.86, for the period June 1, 1997 through May 31, 1998, in the community set forth above, IS REASONABLE. 24. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 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 $7.85 per month (plus franchise fees), plus interest to the date of the refund, for the period May 15, 1994 through July 14, 1994. 25. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 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 $7.64 per month (plus franchise fees), plus interest to the date of the refund, for the period July 15, 1994 through June 30, 1995. 26. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 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 $10.50 per month (plus franchise fees), plus interest to the date of the refund, for the period June 1, 1996 to May 31, 1997. 27. 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. 28. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the complaints referenced herein against the rates charged by Operator in the community set forth above ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Deputy Chief, Cable Services Bureau