[Federal Register Volume 60, Number 193 (Thursday, October 5, 1995)]
[Rules and Regulations]
[Pages 52106-52121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24756]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MM Docket No. 92-266, FCC 95-397]
Cable Television Act of 1992
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission has adopted a Thirteenth Order on
Reconsideration in MM Docket 92-266 to simplify rules affecting cable
operators' rates and to provide cable operators with an additional
option for adjusting their rates. This streamlined methodology
encourages operators to limit rate increases to once per year rather
than up to 4 times per year under the existing methodology. It will
also limit delays in recovering costs that operators have experienced
under the current system. This streamlined rate review process benefits
all affected parties. An annual rate adjustment option could eliminate
subscriber confusion and frustration because subscribers will not have
to contend with numerous rate increases during a given year. Annual
adjustments also benefit cable operators because filing for rate
increases and providing notice to subscribers of such rate increases
once per year is more efficient. Regulatory authorities benefit from an
annual rate adjustment system because such a system minimizes the
number of rate adjustments they have to review each year.
EFFECTIVE DATE: November 6, 1995, except that new reporting
requirements shall take effect thirty (30) days after approval of the
Office of Management and Budget. At a later date, the Commission will
publish a document specifying the effective date.
FOR FURTHER INFORMATION CONTACT: Nancy Stevenson (202) 416-1190.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Thirteenth Order
on Reconsideration in MM Docket No. 92-266, FCC 95-397, adopted
September 15, 1995 and released September 22, 1995.
The complete text of this Thirteenth Order on Reconsideration is
available for inspection and copying during normal business hours in
the FCC Reference Center (room 239), 1919 M Street, NW., Washington, DC
and also may be purchased from the Commission's copy contractor,
International Transcription Services, Inc. (``ITS, Inc.'') at (202)
587-3800, 2100 M Street, NW., Suite 140, Washington, DC 20037.
[[Page 52107]]
Synopsis of the Thirteenth Order on Reconsideration
Introduction
The Cable Television Consumer Protection and Competition Act of
1992 (``the 1992 Cable Act'') required the Commission to prescribe rate
regulations that protect subscribers from having to pay unreasonable
rates by ensuring that basic service tier (``BST'') and cable
programming service tier (``CPST'') rate levels do not exceed rates
that would be charged in the presence of effective competition. The
1992 Cable Act directed the Commission to ``seek to reduce
administrative burdens on subscribers, cable operators, franchising
authorities and the Commission'' in meeting this mandate.
Based on information we have secured from operators, we have
concluded that we should further streamline the rate review process in
ways that will benefit subscribers, cable operators, local franchising
authorities, and the Commission. The current process allows, and to
some degree encourages, operators to file for multiple rate adjustments
during each year. This process can be costly for operators because they
must file Form 1210s and provide subscribers with 30 days' advance
written notice each time they file for a rate adjustment. In addition,
multiple rate adjustments in one year could create subscriber
confusion. Multiple rate adjustments also impose administrative burdens
on regulatory authorities because they must review each proposed rate
adjustment.
We have found that under the current rate framework, some operators
are delayed when attempting to recover their costs because they are not
permitted to file for recovery of external cost increases and additions
of new channels until the quarter after costs are incurred or channel
changes are made. Operators may experience further delay while
regulatory authorities review the proposed adjustments. Further,
operators are never able to recover costs between the date they are
incurred and the date a rate adjustment is permitted. Also, under the
so-called ``use or lose'' provision of the current rules, operators
must file for rate increases that reflect cost increases within one
year of the date they first incur those additional costs, or else lose
the ability to pass through those costs.
In order to address these concerns, we are adopting on our own
motion a new optional rate adjustment methodology where cable operators
will be permitted to make only annual rate changes to their BSTS and
CPSTs. Operators that elect to use this new methodology will adjust
their rates once per year 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. Because operators will be permitted to estimate cost
changes that will occur in the 12 months following the rate filing, we
expect that this methodology will limit delays in recovering costs that
operators may experience under the current system. 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 adjustments for over- or under-estimations of these cost
changes. Operators would not lose the right to make a rate increase at
a later date if they choose not to implement a rate adjustment at the
beginning of the next rate year. Finally, in order that operators not
feel compelled to make rate filings or increase rates when they
otherwise would not, we will eliminate the ``use or lose'' requirement
for operators that elect this methodology.
We believe that operators will benefit from this system because it
will alleviate the difficulty of delays for rate adjustments that they
now experience and will permit them to utilize annual rate adjustments
without the loss of revenues they now incur as a result of the current
methodology. Subscriber confusion will be alleviated because rate
adjustments will take place once per year. Moreover, subscribers will
be protected by this system because if an operator overestimates its
permitted rate increase as a result of its projections, the operator
would be required to rectify the error with interest when makes its
rate adjustment at the beginning of the next rate year. Finally,
franchising authorities and the Commission will benefit from this
methodology because they will not be required to review more than one
rate adjustment per year.
We are also requiring operators that elect the annual rate
adjustment methodology to file BST rate adjustment requests 90 days
prior to the effective date of the proposed changes. Operators may
implement rate changes as proposed in their filings 90 days after they
file unless the franchising authority rejects the proposed rate as
unreasonable. If the franchising authority has not issued a rate
decision and the operator makes a rate adjustment after the 90-day
period has expired, the franchising authority may order a prospective
rate reduction and refunds at a later time, where appropriate. The
franchising authority need not issue an accounting order to preserve
its right to issue its rate order after the 90-day review period.
However, if an operator inquires as to whether the franchising
authority intends to issue a rate order after the 90-day review period,
the franchising authority must notify the operator of its intent in
this regard within 15 days of the operator's request of lose its
ability to order a refund or a prospective rate reduction. If a
proposed rate goes into effect before the franchising authority issues
its rate order, the franchising authority will have 12 months from the
date the operator filed for the rate adjustment to issue its rate
order. In the event that the franchising authority does not act within
this time, it may not at a later date order a refund or a prospective
rate reduction with respect to the rate filing.
An operator that has a CPST complaint pending against it or has
been ordered by the Commission to reduce its CPST rates, and that
elects the annual rate adjustment option, must propose the annual rate
adjustment at least 30 days prior to the effective date of the rate
change. The Commission can deny an increase before the end of the 30-
day period, but if the Commission does not act within 30 days, the
operator may implement the rate increase as proposed on the Form 1240.
The increase would go into effect, subject to a prospective rate
reduction and refund, where appropriate, which the Commission may order
at a later time.
Although operators that elect the annual rate adjustment option
generally will not be permitted to make more than one rate adjustment
per year, we will permit operators to make rate adjustments for the
addition of channels to BSTs that the operator is required by federal
or local law to carry, i.e., new must-carry, local origination, public,
educational and governmental access and leased access channels.
Franchising authorities will have 60 days to review these increases
prior to their going into effect. The proposed rate adjustment will go
into effect 60 days after filing unless the franchising authority finds
that the adjustment would be unreasonable. We also will allow operators
to make one additional rate adjustment during the year to reflect
channel additions to CPSTs, and to BSTs where the operator offers only
one regulated tier. Operators may make this additional rate adjustment
reflecting channel additions to CPSTs at any time during the year.
Subject to the existing
[[Page 52108]]
going forward rules, which affect the amount by which an operator can
increase its rates, operators will have no limit on the number of
channels they may add when they make this rate adjustment during the
year.
Operators that elect the annual rate adjustment system must file
for rate adjustments for equipment and installations on Form 1205 on
the same date that they file for their other rate adjustments on Form
1240. Therefore, for operators that elect to use the annual rate
adjustment methodology, we are changing the current rule which requires
operators to file 60 days after the close of their fiscal year. In
addition, we will continue to require operators to base their proposed
annual customer equipment and installations rate adjustments on past
costs because we believe that it would be far more difficult to project
reasonably certain and reasonably quantifiable changes in equipment and
installation costs. We also will require that when an operator
introduces a new type of equipment, the operator must file for a rate
adjustment no later than 60 days before the date the operator intends
to charge subscribers for the new type of equipment. The proposed rate
would go into effect at the end of this 60-day period unless the
franchising authority rejects the proposed rate as unreasonable or the
franchising authority finds that the operator has submitted an
incomplete filing.
Operators that do not elect to use the annual rate adjustment
system may continue to use the existing system which allows operators
to make rate adjustments up to once per calendar year quarter. With
respect to the current quarterly rate adjustment system, this order
affirms our decision in the Fourth Reconsideration Order 59 FR 53113
(10/21/94) to allow operators to pass through changes in franchise fees
and Commission regulatory fees within 30 days of filing for a rate
adjustment reflecting these costs unless the franchising authority
finds that these rate adjustments are unreasonable before the 30-day
period has expired.
This Order will also simplify the rate review process by
eliminating our current practice of reviewing the entire CPST rate
after receiving a CPST complaint. On the effective date of these rules,
this system of rate regulation, commonly referred to as ``all rates in
play,'' will be eliminated for CPSTs that have not been subject to a
rate complaint. Following that date, CPST rate complaints will require
a Commission determination whether the amount of the rate increase
complained about is reasonable.
In addition, we clarify that for purposes of adjusting rates to
reflect increases in franchise requirement costs, operators are
entitled to pass through any increases in costs that are specifically
required by franchise agreements, provided that the recovery of costs
may not encompass costs the operator would incur in the absence of the
franchise requirement. Consistent with this goal, operators are
permitted to pass through to subscribers (a) cost increases associated
with technical standards and customer service standards that exceed
federal requirements; (b) cost increases attributable to satisfying
franchise requirements to support public, educational and governmental
access; (c) increases in the costs of providing institutional networks,
video services, voice transmissions and data services to or from
governmental institutions and educational institutions, including
private schools; and (d) cost increases associated with a franchise
requirement that an operator remove cable from utility poles and place
the same cable underground.
Further, the Order affirms the Commission's decision to permit
operators to advertise rates for regulated cable services regionally
using a single tier rate plus a franchise fee. The order also permits
franchising authorities to determine the method by which franchise fee
overpayments are returned to cable operators. However, franchising
authorities must return overpayments within a reasonable period of
time.
Annual Rate Adjustments for Basic Services and Cable Programming
Services
We believe that the current price cap adjustment system generally
protects subscribers from unreasonable rates. Nevertheless, with the
benefit of more than one year of experience with the current system, we
have found that there are some disadvantages to the current price cap
adjustment mechanism. One of our concerns about the current system is
that operators file for multiple rate adjustments each year because
they realize cost increases throughout the year and are unable to
adjust their rates to recover these costs until after these costs are
incurred. We believe that this process can be costly and inefficient
because operators must file a Form 1210 and provide subscribers with 30
days' advance written notice each time they file for a rate adjustment.
In addition, we are concerned that multiple rate adjustments in one
year can cause confusion among subscribers. Furthermore, each rate
adjustment imposes an administrative burden on regulatory authorities
who must review the adjustment.
We also are concerned about the delays that operators may
experience in recovering their costs under the current rate adjustment
system. Because operators incur costs before they can file for rate
adjustments and they often experience delays in being able to implement
rate adjustments after they have filed for them, they never recover
costs that are incurred as a result of these delays.
Moreover, the current rate adjustment system provides that if an
operator waits more than 12 months to make rate adjustments reflecting
increases in external costs and the number of regulated channels, the
operator loses the ability to recover for these cost increases. In
addition, operators are required to make their annual inflation
adjustment during an eleven month period or lose the ability to make
that inflation adjustment. Although we adopted these rules to ensure
that subscribers do not experience rate shock in cases where an
operator delays implementing large numbers of rate increases, we are
concerned that the ``use or lose'' mechanisms may result in some cable
operators charging higher rates before they would otherwise elect to
adjust their rates.
Annual Rate Adjustment System
In order to address these concerns, on our own motion we are
adopting a new optional rate adjustment methodology that encourages
cable operators to make only annual rate changes to their BSTs and
CPSTs. Following the approval of the new Form 1240 by the Office of
Management and Budget, operators may choose between the existing
quarterly rate adjustment system and a new annual rate adjustment
system. Operators that elect to use the new methodology would adjust
their rates once a year to reflect changes in external costs,
inflation, and the number of regulated channels that they expect to
occur during the 12 months following the rate change. Because operators
will be permitted to project changes that will occur in the 12 months
following the rate filing, we expect that this methodology will limit
delays that operators experience under the current system. Any cost
that is not projected may be accrued and added to rates, with 11.25%
interest, when the operator makes its next filing. Moreover, at the end
of the rate year, operators ``true up'' their projected changes to
correct for differences between actual and projected costs during the
rate year. Operators would not lose the right to
[[Page 52109]]
make rate increases at a later date if they choose not to implement a
rate change at the beginning of the next rate year. Moreover, if an
operator overestimates its permitted rate as a result of its
projections, the operator would be required to correct this
overestimation, with interest, when it makes its next rate adjustment
at the beginning of the next rate year.
We believe that this annual rate adjustment option will benefit
subscribers, cable operators, franchising authorities, and the
Commission. Annual rate modifications would limit subscriber confusion
and frustration, for example, because subscribers would not have to
contend with numerous rate adjustments during a given year. An annual
adjustment makes good business sense for cable operators because it
would allow them to file for a rate increase and provide notice to
subscribers of such rate increases once a year. Regulatory authorities
benefit from an annual rate adjustment system because it will minimize
the number of rate adjustments they have to review each year.
Moreover, the annual filing option addresses concerns raised by
some cable operators that under the current system they can experience
delays in recovering costs. Under the quarterly system, the operator
will begin recovering these costs prospectively once the rate is
approved, but will never recover the costs incurred during a period in
which adjustments to its rates to reflect cost changes were delayed.
However, operators that elect the annual system will face minimal
delays in recovering their costs because they are permitted to adjust
their rates to reflect reasonably certain and reasonably quantifiable
changes that will occur up to 12 months after the rate adjustment will
take effect. Moreover, even in cases where there are delays in cost
recovery, the operator will be made whole because it will be permitted
to recover for the accrual of unrecovered costs plus 11.25% interest
between the date costs are incurred and the date the rate adjustment is
made.
Subscribers are protected by this system because if an operator
overestimates its permitted rate as a result of its projections, the
operator would be required to account for this overestimation plus
11.25% interest when it makes its next rate adjustment at the beginning
of the next rate year.
On our own motion, we are also eliminating the ``use or lose''
mechanism for inflation, increases in external costs and increases in
the number of channels for operators that elect the annual rate
adjustment method. As a result, operators will not have to file more
frequently than they would otherwise in order to recover costs they
have incurred. In addition, subscribers will, in many cases, receive
the benefit of having rate increases delayed.
The annual option applies to all rate changes: inflation, changes
in external costs, changes in the number of regulated channels, and
changes in equipment and installation costs. Under this option, an
operator would file an FCC Form 1240 once a year for the purpose of
making rate adjustments to reflect changes in external costs,
inflation, and the number of regulated channels on a tier. On the same
date that it files an FCC Form 1240, the operator also would file an
FCC Form 1205 for the purpose of adjusting rates for regulated
equipment and installations.
Operators may choose the annual filing date, but they must notify
the franchising authority of their proposed date prior to their filing.
Franchising authorities or their designees may reject the annual filing
date chosen by the operator for good cause. For example, where a City
Council must approve the rate adjustments at issue, if the review
period the operator chooses coincides with a City Council recess, the
franchising authority would be justified in rejecting the operator's
chosen filing date. A franchising authority may not reject an
operator's filing date, however, for the purpose of delaying an
operator's ability to make rate adjustments. If the franchising
authority finds good cause to reject the proposed filing date, the
franchising authority and the operator should work together in an
effort to reach a mutually acceptable date. If no agreement can be
reached, the franchising authority may set the filing date up to 60
days later. In addition, operators that elect annual rate adjustments
may change their filing dates from year-to-year, but at least twelve
months must pass before the operator can implement its next annual
adjustment.
Operators must use the annual or quarterly methodology for both
BSTs and CPSTs. This requirement makes BST and CPST cost assumptions on
an equivalent basis and ensures that subscribers receive the full
benefit of the annual rate adjustment methodology, i.e., a minimal
number of rate adjustments.
Although we do not expect that operators will want to switch
between the annual rate adjustment option and the quarterly option, our
new rules will permit switching, provided they meet certain conditions.
Whenever an operator switches from the current quarterly system to the
annual system, the operator may not file a Form 1240 earlier than 90
days after the operator proposed its last rate adjustment on a Form
1210. This will give regulatory authorities a reasonable period of time
to complete their review of an operator's previous rate increase
request before it begins reviewing an annual rate adjustment request.
Similarly, when an operator changes from the annual system to the
quarterly system, the operator may not return to a quarterly adjustment
using a Form 1210 until a full quarter after it has filed a true up of
its annual rate on a Form 1240 for the preceding period. This will
ensure that operators do not file a Form 1210 until after the initial
regulatory review period for the true up on the Form 1240 has expired.
It will also prevent operators from being able to double recover for
changes in their expenses because the rate period under the annual
system and the quarterly system will not coincide.
The Commission will review this new annual rate adjustment option
prior to December 31, 1998 to determine whether the new option is
producing the expected benefits and whether the quarterly system should
be eliminated and replaced with the annual rate adjustment system.
Regulatory Review Period for Annual Rate Changes
a. Basic Service Tier
Operators that elect the annual rate adjustment methodology must
file BST rate change requests at least 90 days prior to the date they
plan to implement the proposed changes. Operators may implement rate
changes as they have proposed in their filings 90 days after they file
unless the franchising authority rejects the proposed rate as
unreasonable. If the franchising authority has not issued a rate
decision and the operator makes a rate adjustment after the 90-day
period has expired, the franchising authority may order a prospective
rate reduction and refunds at a later time, where appropriate. The
franchising authority need not issue an accounting order to preserve
its right to require a refund after the 90-day review period. However,
if at the end of the 90-day review period an operator inquires as to
whether the franchising authority is continuing to review the
operator's filing, the franchising authority or its designee must
respond to the operator within 15 days of receiving the inquiry.
Failure to reply in the requisite amount of time will result in the
franchising authority losing its ability to issue
[[Page 52110]]
refunds or to order prospective rate reductions. In its response, the
franchising authority must indicate whether it is continuing to review
the operator's filing. If a proposed rate goes into effect before the
franchising authority issues its rate order, the franchising authority
will have 12 months from the date the operator filed for the rate
adjustment to issue its rate order. In the event that the franchising
authority does not act within the 12-month period, it may not at a
later date order a refund or a prospective rate reduction with respect
to the rate filing. We set this time constraint on franchising
authorities because we believe that one year should provide ample time
for review, and because operators need to have certainty with respect
to their liability for refunds and whether their rates will be
permitted to remain in effect.
We believe that a 90-day regulatory review period strikes a good
balance among the interests of subscribers, franchising authorities and
cable operators. If operators were required to file any more than 90
days before a rate adjustment is scheduled to take effect, they would
encounter much greater difficulty in projecting their costs accurately.
On the other hand, if operators were permitted to file less than 90
days before a rate adjustment is scheduled to take effect, franchising
authorities may not have enough time to review a complete rate filing
because the franchising authority must simultaneously determine whether
an operator has (a) justified projected inflation, changes in external
costs, and changes in the number of regulated channels; (b) accurately
estimated any undercharges or overcharges in its true up of the
previous year; and (c) accurately determined its actual costs for
customer equipment and installations in its annual Form 1205 filing.
Without ample time to review operators' rate filings, franchising
authorities may be unable to ensure that subscribers are paying
reasonable rates for BSTs. This 90-day review period will also help
operators develop their business plans because it provides them with
certainty as to when rate changes will become effective.
If there is a material change in an operator's circumstances during
the 90-day review period and the change affects the operator's rate
change filing, the operator may file an amendment to its Form 1240.
Such an amendment must be filed, however, before the end of the 90-day
review period. If the operator files such an amendment to its filing,
the franchising authority will have at least 30 days to review the
filing. Therefore, if the amendment is filed more than 60 days after
the operator made its initial filing, the operator's proposed rate
change may not go into effect any earlier than 30 days after the filing
of its amendment. However, if the operator files its amended
application on or prior to the sixtieth day of the 90-day review
period, the operator may implement is proposed rate adjustment, as
modified by the amendment, 90 days after its initial filing.
b. Cable Programming Services Tiers
Section 76.960 of the Commission's rules provides that if the
Commission has ordered an operator to make a prospective rate reduction
for a CPST, the rate reduction will be binding on the operator for one
year, unless the Commission specifies otherwise. Accordingly, operators
that have been required to reduce their CPST rates have not been
permitted to increase their rates under our price cap rules for one
year without prior Commission approval.
Treatment of Franchise Fees and Commission Regulatory Fees Under
Quarterly Rate Adjustment Option
We affirm our decision to permit operators that file rate
adjustments under the quarterly system to pass through franchise fees
within 30 days of filing unless the franchising authority finds that
the rate adjustment is unreasonable before 30 days has expired. If the
franchising authority does not issue a rate decision within this 30 day
period, the proposed rate will go into effect, subject to subsequent
refund orders. In order to issue a refund order, the franchising
authority must issue a written order at the end of the 30 day period
directing the operator to keep an accurate account of all amounts
received by reason of the proposed rate and on whose behalf such
amounts are paid.
We do not believe this rule presents a serious risk of harm to
subscribers because, contrary to the assertions of Local Governments,
we believe franchising authorities normally should be able to complete
their review of rate adjustments reflecting the pass through of
franchise fees within 30 days of an operator's filing. In most cases,
the franchising authority's review of the franchise fee pass through
generally should entail minimal administrative burdens since the
franchising authority is intimately familiar with how the fee is
assessed. Because the operator pays the franchise fee to the
franchising authority, there should not be any dispute over the amount
of franchise fees that were actually paid to the franchising authority.
Further, the franchise fee is generally easily determined by computing
a fixed percentage of the operator's gross annual revenues or some
other easily ascertainable amount. We find that franchising authorities
can easily determine how the pass through of such fees should be
reflected in a BST rate adjustment because the entire cost of franchise
fees is directly assigned to the BST. Finally, to the extent franchise
fees are miscalculated, we believe that our approach fully protects
subscribers' interests in paying reasonable rates because franchise fee
increases are subject to refunds.
As with all other rate adjustment filings, if an operator files for
a rate adjustment to reflect an increase in franchise fees and fails to
complete its rate justification form or to include supporting
information called for by the form, the franchising authority may order
the cable operator to file supplemental information. While the
franchising authority is waiting to receive this information from the
cable operator, the deadline for the franchising authority to rule on
the reasonableness of the proposed rates is tolled. Once the
supplemental information has been filed with the franchising authority,
the time for determining the reasonableness of the rate by the
franchising authority will recommence. We believe that this requirement
is essential if franchising authorities are going to have the minimum
information necessary to complete a review of an operator's rate
adjustment request within 30 days of the filing.
We affirm our decision to permit operators to pass through
Commission annual regulatory fees as external costs. As we stated in
the Fourth Reconsideration Order, Commission annual regulatory fees
should be afforded external cost treatment because they are
exceptional, newly imposed, governmentally assessed fees that are
easily measurable and beyond the control of operators. We disagree with
NATOA's argument that Commission regulatory fees are like CARS fees in
that they do not impose a significant financial burden on cable
operators. We find that Commission regulatory fees can reach
significant levels because they are assessed on a per subscriber basis,
as opposed to CARS fees, which are assessed on a flat fee basis of $220
per license and which comprise only a small expense for most cable
systems.
In addition, with respect to operators that elect to file rate
adjustments under the quarterly system, we affirm our
[[Page 52111]]
decision to permit operators to adjust rates on account of changes in
Commission regulatory fees within 30 days of filing. We do not believe
this rule presents a serious risk of harm to consumers because we
believe franchising authorities normally should be able to complete
their review of rate adjustments reflecting the pass through of
Commission annual regulatory fees within 30 days of an operator's
filing. In most cases, the franchising authority's review of the
franchise fee pass through should entail minimal administrative burdens
because the amount of any rate adjustment reflecting an increase should
be easy to determine since it is fixed on a per subscriber basis. To
the extent Commission annual regulatory fees are miscalculated, we
believe that our approach fully protects subscribers' interests in
paying reasonable rates because fee increases are subject to refunds.
We also affirm our decision to require operators to assign the
Commission's annual regulatory fee directly to the BST. As we noted in
the Fourth Reconsideration Order, the fee is intended to reimburse the
Commission for its costs of regulating cable service, including
oversight of basic cable service and other regulatory activities. We
continue to believe that direct assignment to the BST is the most
equitable means of permitting cable systems to pass through regulatory
fees to subscribers because cable system annual regulatory fees are
assessed on a per subscriber basis and all subscribers receive the BST.
If we were to allocate these costs among the tiers, some subscribers
would pay more than others even though the cost is imposed on the cable
operator evenly per subscriber. Moreover, the administrative burdens
associated with calculating and assigning fees among the BST and CPSTs
weigh against such an assignment.
External Cost Treatment of Franchise Requirements
On reconsideration, we believe that operators should be permitted
to include increases in franchise requirement costs that the operator
would not have incurred in the absence of the franchise requirement.
Such increases include both new requirements that the franchising
authority imposes and increases in the cost of complying with existing
requirements. Our current rules permit external cost treatment for
increases in the cost of satisfying franchise requirements for (a) PEG
access channels, (b) public, educational, and governmental access
programming, and (c) customer service standards and technical standards
that exceed federal requirements. In our view, such increased costs
would not have been incurred in the absence of a franchise agreement
because we believe that the operator would not have chosen to provide
such services.
We believe that operators also should be permitted to pass through
increases in the costs of institutional networks and the provision of
video services, voice transmissions and data transmissions to or from
governmental institutions and educational institutions, including
private schools, to the extent such services are required by the
franchise agreement. We believe that such costs should be afforded
external cost treatment because we believe that operators generally
would not provide such services in the absence of a franchising
requirement. Because such costs are largely beyond the control of the
cable operator, we believe they should be passed on to subscribers
without a cost-of-service showing.
In addition, under certain circumstances, we will permit operators
to pass through to subscribers the cost of meeting franchise
requirements that they remove aerial facilities and place them
underground. However, the external cost pass through should be limited
to cases where the operator has been required to actually remove cable
from utility poles and place the same cable underground. We do not
believe that external cost treatment should be afforded in cases where
the franchise agreement requires the operator to place new cable
facilities underground because we believe that this is a cost
associated with a rebuild or an upgrade of the cable system and we have
determined that we will not permit external cost treatment of upgrades
or rebuilds. Moreover, costs associated with placing cable underground
in these circumstances are costs that the operator could have incurred
in absence of the franchise requirement as a result of the upgrade or
rebuild.
We believe that increased costs resulting from normal maintenance
or from a simple expansion of service within the franchise area should
not be subject to external treatment. An operator may not pass through
the costs associated with expanding the reach of its cable system even
if such expansion is contained in the franchise documents. Accordingly,
we reject NCTA's suggestion that external cost treatment should be
imposed as long as the service is ``specifically required'' in the
franchise agreement. Such a formulation of the rule could encompass
costs that the cable operator could have incurred even in the absence
of a specific franchise requirement or would be obligated to incur
under pre-existing federal standards. We reject NATOA's suggestion to
allow only obligations enumerated in a franchise agreement by a
specific dollar amount as unduly complicating franchise negotiations.
This would require parties to specify the costs of providing certain
services or facilities where such costs may not be certain when the
contract is negotiated.
As for the timing of the pass throughs of these costs, the operator
will be required to amortize the cost of franchise imposed capital
expenditures over the useful life of the items. We find such treatment
appropriate because current subscribers should not be required to pay
all costs associated with a service that will benefit future ratepayers
as well. Consistent with interim rules governing cost-of-service
showings, we find that operators will be permitted to recover an 11.25%
rate of return on this investment.
Advertising of Rates
On reconsideration, we continue to believe that cable system
operators covering multiple franchise areas that have different
franchise fees, franchise costs, channel line-ups, or rate structures
should be permitted to use the ``fee plus'' approach when they
advertise their rates. We find that the ``fee plus'' approach provides
operators that cover multiple franchise areas the flexibility to
efficiently advertise their services to consumers. We disagree with
Local Governments' assertion that the ``fee plus'' approach violates
Section 622(c) of the Communications Act. Section 622(c) permits
operators to itemize certain fees imposed by franchise and governmental
authorities. While operators are allowed to itemize certain fees on a
subscribers bill, Congress intended that cable operators only be
permitted to require one payment from subscribers for services. We find
that because the ``fee plus'' approach only addresses how an operator
serving multiple franchise areas may advertise services, it is not
related to the operator's billing practices and does not, therefore,
violate the intent of Section 622(c). Moreover, we believe that the
``fee plus'' approach is consistent with the spirit of the subscriber
bill itemization requirements in Section 622(c) of the 1992 Cable Act
and Section 76.985 of the Commission's rules because it permits
operators to inform consumers of the amount of franchise fees without
confusing them as to the total cost of cable service.
We believe that operators should be permitted to advertise their
rates using
[[Page 52112]]
either of the methods described above because both methods of
advertising reasonably informs potential subscribers of the true price
of cable service. This approach is consistent with the Commission's
goal of enhancing industry's flexibility in making business and
marketing decisions wherever reasonably possible. Therefore, we affirm
our decision to allow cable systems that cover multiple franchise areas
to advertise a range of fees of a ``fee plus'' rate that take account
of variations in the itemized costs throughout the franchise area.
Although Local Governments are concerned that the ``fee plus''
approach may result in a reduction in the amount of franchise fees that
franchising authorities may assess, we decline to address this matter
in this Order. The Cable Services Bureau has issued a decision
regarding the proper assessment of franchise fees, and is currently
reviewing a number of petitions for reconsideration filed in response
to that decision.
Franchise Fee Refunds
On reconsideration, we find that franchising authorities may
determine whether a franchise fee overpayment is to be returned to the
cable operator in one lump sum payment or by offsetting the overcharges
against future franchise fee payments, provided that the overcharges
are returned to the operator within a reasonable period of time. We
recognize that in most instances, the operator holds franchise fees on
behalf of the franchising authority for lump sum payment at the end of
an agreed upon period. In those situations, the operator should offset
the overpayments against the franchise fees it then holds. In the rare
instances where the overpayments are very large, the franchising
authority has the discretion to determine a reasonable repayment period
plus interest. Because we have already determined that 11.25% is
presumptively the cable operator's cost of capital, we find that the
interest rate presumptively should be 11.25%.
We agree with NATOA that franchising authorities should have the
discretion to determine the means by which overpayments are to be
returned to cable operators because it would be inappropriate to permit
cable operators to dictate how the franchising authority should
recompense operators. Moreover, in certain cases, the franchise fee
overpayment may have been spent before it has been determined that an
overpayment has been made and the franchising authority may not have
the funds to immediately return the overpayment. However, we also
believe that operators are entitled to receive interest on any
franchise fee overpayments if franchising authorities delay returning
overpayments to operators and that, in any case, operators should have
overpayments returned within a reasonable period of time. We find that
the meaning of ``reasonable period of time'' is dependent upon the
amount of the overcharge and the relationship it bears to a franchising
authority's budget. That is, the larger the absolute amount of the
overpayment and the larger its amount in relation to a franchising
authority's budget, the longer the franchising authority may need
either to credit the operator for future franchise fee payments or to
make a lump sum payment to the operator. We believe that this approach
balances the franchising authority's need to have discretion in
determining the means by which overcharges are returned with the
operator's need to have such overcharges returned within a reasonable
period of time.
Regulatory Review of Existing Rates
On our own motion, we have decided to end regulatory review of the
operator's entire rate structure when we receive future CPST rate
complaints. Operators that have never been subject to CPST rate
regulation will not face Commission review of their entire rate
structure if a complaint is filed after the effective date of these
rules. Complaints filed after the effective date of these rules on
subsequent CPST rate changes must be field with the Commission within
45 days of the date subscribers receive a bill reflecting the
operator's next CPST rate increase, and will result in Commission
review of only the amount of the rate increase complained about.
Although Commission review will be so limited, in order to meet its
burden of showing that its CPST rates are not unreasonable, the
operator nevertheless may have to provide the Commission with details
about its previous increases where no earlier filing provides those
details. For example, an operator that attempts to use the new Going
Forward method for channel additions in its current filing may need to
demonstrate that its current increase, in conjunction with its previous
rate increases, does not exceed the operator's cap. As another example,
if no complaint was filed for the operator's relevant earlier rate
adjustments, an operator that adjusts its rates using the annual rate
adjustment method should provide the projections on which the
operator's previous rates were based so that the Commission can review
the operator's true up in its current filing.
We are eliminating review of an operator's entire rate structure
because we find that continuing this policy creates an uncertain
business environment for cable operators that have not had their CPSTs
subject to rate regulation. We are concerned about this because an
uncertain business environment may generally discourage investment,
without which operators may lack the resources to upgrade their
networks, add new programming services, and provide new innovative
services.
We find that, if no rate complaint is filed prior to the effective
date of these rules, the operator's initial CPST rates under regulation
are not unreasonable. In our view, subscribers and franchising
authorities have had ample opportunity to file a complaint that would
result in Commission review of operators' entire rate structure. It has
been nearly two years since subscribers and franchising authorities
first had the opportunity to complain about their CPST rates. Since
September 1, 1993, subscribers had an initial 180 day period to
complain about initial CPST rates. If they missed the opportunity to
complain during this initial 180 day period, they could have complained
about any subsequent rate increase and that would have triggered a
review of the operator's entire rate structure. We believe that if
subscribers and the franchising authority have not filed a CPST rate
complaint, it indicates a level of satisfaction with their current
rates that would not exist if they believe CPST rates were
unreasonable. We also believe that the Commission can fulfill its
responsibility to ensure that CPST rates are not unreasonable when only
reviewing rate changes.
Regulatory Flexibility Act Analysis
Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
Secs. 601-612, the Commission's final analysis with respect to the
Thirteenth Order on Reconsideration is as follows:
Need and purpose of this action. The Commission, in compliance with
section 3 of the Cable Television Consumer Protection and Competition
Act of 1992, 47 U.S.C. 543 (1992), pertaining to rate regulation,
adopts revised rules and procedures intended to ensure that cable
services are offered at reasonable rates with minimum regulatory and
administrative burdens on cable entities.
Summary of issues raised by the public in response to the Initial
Regulatory Flexibility Analysis. There were no comments submitted in
response to the Initial Regulatory
[[Page 52113]]
Flexibility Analysis. The Chief Counsel for Advocacy of the United
States Small Business Administration (SBA) filed comments in the
original rulemaking order. The Commission addressed the concerns raised
by the Office of Advocacy in the Rate Order 58 FR 29736 (5/21/93). The
SBA also filed reply comments in response to the Fifth Notice 59 FR
18064 (4/15/94). The Commission addressed those comments in the Fifth
Report and Order 59 FR 62614 (12/6/94).
Significant alternatives considered and rejected. Petitioners
representing cable interests and franchising authorities submitted
several alternatives aimed at minimizing administrative burdens. In
this proceeding, the Commission has attempted to accommodate the
concerns expressed by these parties. For example, the revised rules
permitting the expedited pass through of certain external costs are
designed to reduce administrative burdens on industry. In addition, the
revised rules permitting operators to recover the full portion of
previously incurred increases in external costs are designed to
maintain and enhance incentives for cable operators to achieve
efficiency cost savings and reduce administrative burdens on both
industry and regulators. Finally, the Order further reduces burdens by
clarifying rules concerning the advertising of rates, the refunds of
franchise fees, and the costs related to franchise requirements.
Paperwork Reduction Act
The requirements adopted herein have been analyzed with respect to
the Paperwork Reduction Act of 1980 and found to impose a new or
modified information collection requirement on the public.
Implementation of any new or modified requirement will be subject to
approval by the Office of Management and Budget as prescribed by the
Act.
Ordering Clauses
Accordingly, it is ordered that, pursuant to sections 4(i), 4(j),
303(r), 612, 622(c) and 623 of the Communications Act of 1934, as
amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, 542(c) and 543, the
rules, requirements and policies discussed in this Thirteenth Order on
Reconsideration, are adopted and part 76 of the Commission's rules, 47
CFR part 76, is amended as set forth below.
It is further ordered that the Secretary shall send a copy of this
Report and Order to the Chief Counsel for Advocacy of the Small
Business Administration in accordance with paragraph 603(a) of the
Regulatory Flexibility Act. Public Law 96-354, 94 Stat. 1164, 5 U.S.C.
601 et seq. (1981).
It is further ordered that the requirements and regulations
established in this decision shall become effective thirty (30) days
after publication in the Federal Register, except that new reporting
requirements shall take effect thirty (30) days after approval by the
Office of Management and Budget.
List of Subjects in 47 CFR Part 76
Cable television.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Amendatory Text
Part 76 of Title 47 of the Code of Federal Regulations is amended
as follows:
PART 76--CABLE TELEVISION SERVICE
1. The authority citation for Part 76 continues to read as follows:
Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat., as
amended 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47
U.S.C. 152, 153, 154, 301, 303, 307, 308, 309; Secs. 612, 614-615,
623, 632 as amended, 106 Stat. 1460, 47 U.S.C. 532; Sec. 623, as
amended, 106 Stat. 1460; 47 U.S.C. 532, 533, 535, 543, 552.
2. Section 76.922 is amended by redesignating paragraphs (e)
through (k) as paragraphs (g) through (m), respectively, revising
paragraphs (c) and (d), and newly redesignated paragraphs (g), (h),
(i), (j), (k), (l), (m) and adding new paragraphs (e) and (f), to read
as follows:
Sec. 76.922 Rates for the basic service tier and cable programming
services tiers.
* * * * *
(c) Subsequent permitted charge. (1) The permitted charge for a
tier after May 15, 1994 shall be, at the election of the cable system,
either:
(i) A rate determined pursuant to a cost-of-service showing,
(ii) A rate determined by application of the Commission's price cap
requirements set forth in paragraph (d) of this section to a permitted
rate determined in accordance with paragraph (b) of this section, or
(iii) A rate determined by application of the Commission's price
cap requirements set forth in paragraph (e) of this section to a
permitted rate determined in accordance with paragraph (b) of this
section.
(2) The Commission's price cap requirements allow a system to
adjust its permitted charges for inflation, changes in the number of
regulated channels on tiers, or changes in external costs. After May
15, 1994, adjustments for changes in external costs shall be calculated
by subtracting external costs from the system's permitted charge and
making changes to that ``external cost component'' as necessary. The
remaining charge, referred to as the ``residual component,'' will be
adjusted annually for inflation. Cable systems may adjust their rates
by using the price cap rules contained in either paragraphs (d) or (e)
of this section.
(3) An operator may switch between the quarterly rate adjustment
option contained in paragraph (d) of this section and the annual rate
adjustment option contained in paragraph (e) of this section, provided
that:
(i) Whenever an operator switches from the current quarterly system
to the annual system, the operator may not file a Form 1240 earlier
than 90 days after the operator proposed its last rate adjustment on a
Form 1210; and
(ii) When an operator changes from the annual system to the
quarterly system, the operator may not return to a quarterly adjustment
using a Form 1210 until a full quarter after it has filed a true up of
its annual rate on a Form 1240 for the preceding filing period.
(4) An operator that does not set its rates pursuant to a cost-of-
service filing must use the quarterly rate adjustment methodology
pursuant to paragraph (d) of this section or annual rate adjustment
methodology pursuant to paragraph (e) of this section for both its
basic service tier and its cable programming services tier(s).
(d) Quarterly rate adjustment method--(1) Calendar year quarters.
All systems using the quarterly rate adjustment methodology must use
the following calendar year quarters when adjusting rates under the
price cap requirements. The first quarter shall run from January 1
through March 31 of the relevant year; the second quarter shall run
from April 1 through June 30; the third quarter shall run from July 1
through September 30; and the fourth quarter shall run from October 1
through December 31.
(2) Inflation Adjustments. The residual component of a system's
permitted charge may be adjusted annually for inflation. The annual
inflation adjustment shall be used on inflation occurring from June 30
of the previous year to June 30 of the year in which the inflation
adjustment is made, except that the first annual inflation adjustment
shall cover inflation from September 30, 1993 until June 30 of the year
in which the inflation adjustment
[[Page 52114]]
is made. The adjustment may be made after September 30, but no later
than August 31, of the next calendar year. Adjustments shall be based
on changes in the Gross National Product Price Index as published by
the Bureau of Economic Analysis of the United States Department of
Commerce. Cable systems that establish a transition rate pursuant to
paragraph (b)(4) of this section may not begin adjusting rates on
account of inflation before April 1, 1995. Between April 1, 1995 and
August 31, 1995 cable systems that established a transition rate may
adjust their rates to reflect the net of a 5.21% inflation adjustment
minus any inflation adjustments they have already received. Low price
systems that had their March 31, 1994 rates above the benchmark, but
their full reduction rate below the benchmark will be permitted to
adjust their rates to reflect the full 5.21% inflation factor unless
the rate reduction was less than the inflation adjustment received on
an FCC Form 393 for rates established prior to May 15, 1994. If the
rate reduction established by a low price system that reduced its rate
to the benchmark was less than the inflation adjustment received on an
FCC Form 393, the system will be permitted to receive the 5.21%
inflation adjustment minus the difference between the rate reduction
and the inflation adjustment the system made on its FCC Form 393. Cable
systems that established a transition rate may make future inflation
adjustments on an annual basis with all other cable operators, no
earlier than October 1 of each year and no later than August 31 of the
following year to reflect the final GNP-PI through June 30 of the
applicable year.
(3) External costs. (i) Permitted charges for a tier may be
adjusted up to quarterly to reflect changes in external costs
experienced by the cable system as defined by paragraph (f) of this
section. In all events, a system must adjust its rates annually to
reflect any decreases in external costs that have not previously been
accounted for in the system's rates. A system must also adjust its
rates annually to reflect any changes in external costs, inflation and
the number of channels on regulated tiers that occurred during the year
if the system wishes to have such changes reflected in its regulated
rates. A system that does not adjust its permitted rates annually to
account for those changes will not be permitted to increase its rates
subsequently to reflect the changes.
(ii) A system must adjust its rates in the next calendar year
quarter for any decrease in programming costs that results from the
deletion of a channel or channels from a regulated tier.
(iii) Any rate increase made to reflect an increase in external
costs must also fully account for all other changes in external costs,
inflation and the number of channels on regulated tiers that occurred
during the same period. Rate adjustments made to reflect changes in
external costs shall be based on any changes in those external costs
that occurred from the end of the last quarter for which an adjustment
was previously made through the end of the quarter that has most
recently closed preceding the filing of the FCC Form 1210 (or FCC Form
1211, where applicable). A system may adjust its rates after the close
of a quarter to reflect changes in external costs that occurred during
that quarter as soon as it has sufficient information to calculate the
rate change.
(e) Annual rate adjustment method--(1) Generally. Except as
provided for in paragraphs (e)(2)(iii)(B) and (e)(2)(iii)(C) of this
section and Section 76.923(o), operators that elect the annual rate
adjustment method may not adjust their rates more than annually to
reflect inflation, changes in external costs, changes in the number of
regulated channels, and changes in equipment costs. Operators that make
rate adjustments using this method must file on the same date a Form
1240 for the purpose of making rate adjustments to reflect inflation,
changes in external costs and changes in the number of regulated
channels and a Form 1205 for the purpose of adjusting rates for
regulated equipment and installation. Operators may choose the annual
filing date, but they must notify the franchising authority of their
proposed filing date prior to their filing. Franchising authorities or
their designees may reject the annual filing date chosen by the
operator for good cause. If the franchising authority finds good cause
to reject the proposed filing date, the franchising authority and the
operator should work together in an effort to reach a mutually
acceptable date. If no agreement can be reached, the franchising
authority may set the filing date up to 60 days later than the date
chosen by the operator. An operator may change its filing date from
year-to-year, but except as described in paragraphs (e)(2)(iii)(B) and
(e)(2)(iii)(C) of this section, at least twelve months must pass before
the operator can implement its next annual adjustment.
(2) Projecting Inflation, Changes in External Costs, and Changes in
Number of Regulated Channels. An operator that elects the annual rate
adjustment method may adjust its rates to reflect inflation, changes in
external costs and changes in the number of regulated channels that are
projected for the 12 months following the date the operator is
scheduled to make its rate adjustment pursuant to Section 76.933(g).
(i) Inflation Adjustments. The residual component of a system's
permitted charge may be adjusted annually to project for the 12 months
following the date the operator is scheduled to make a rate adjustment.
The annual inflation adjustment shall be based on inflation that
occurred in the most recently completed July 1 to June 30 period.
Adjustments shall be based on changes in the Gross National Product
Price Index as published by the Bureau of Economic Analysis of the
United States Department of Commerce.
(ii) External costs. (A) Permitted charges for a tier may be
adjusted annually to reflect changes in external costs experienced but
not yet accounted for by the cable system, as well as for projections
in these external costs for the 12-month period on which the filing is
based. In order that rates be adjusted for projections in external
costs, the operator must demonstrate that such projections are
reasonably certain and reasonably quantifiable. Projections involving
copyright fees, retransmission consent fees, other programming costs,
Commission regulatory fees, and cable specific taxes are presumed to be
reasonably certain and reasonably quantifiable. Operators may project
for increases in franchise related costs to the extent that they are
reasonably certain and reasonably quantifiable, but such changes are
not presumed reasonably certain and reasonably quantifiable. Operators
may pass through increases in franchise fees pursuant to Section
76.933(g).
(B) In all events, a system must adjust its rates every twelve
months to reflect any net decreases in external costs that have not
previously been accounted for in the system's rates.
(C) Any rate increase made to reflect increases or projected
increases in external costs must also fully account for all other
changes and projected changes in external costs, inflation and the
number of channels on regulated tiers that occurred or will occur
during the same period. Rate adjustments made to reflect changes in
external costs shall be based on any changes, plus projections, in
those external costs that occurred or will occur in the relevant time
periods since the periods used in the operator's most recent previous
FCC Form 1240.
(iii) Channel Adjustments. (A) Permitted charges for a tier may be
adjusted annually to reflect changes not yet accounted for in the
number of regulated channels provided by the cable system, as well as
for projected
[[Page 52115]]
changes in the number of regulated channels for the 12-month period on
which the filing is based. In order that rates be adjusted for
projected changes to the number of regulated channels, the operator
must demonstrate that such projections are reasonably certain and
reasonably quantifiable.
(B) An operator may make rate adjustments for the addition of
required channels to the basic service tier that are required under
federal or local law at any time such additions occur, subject to the
filing requirements of Section 76.933(g)(2), regardless of whether such
additions occur outside of the annual filing cycle. Required channels
may include must-carry, local origination, public, educational and
governmental access and leased access channels. Should the operator
elect not to pass through the costs immediately, it may accrue the
costs of the additional channels plus interest, as described in
paragraph (e)(3) of this section.
(C) An operator may make one additional rate adjustment during the
year to reflect channel additions to the cable programming services
tiers or, where the operator offers only one regulated tier, the basic
service tier. Operators may make this additional rate adjustment at any
time during the year, subject to the filing requirements of Section
76.933(g)(2), regardless of whether the channel addition occurs outside
of the annual filing cycle. Should the operator elect not to pass
through the costs immediately, it may accrue the costs of the
additional channels plus interest, as described in paragraph (e)(3) of
this section.
(3) True-up and Accrual of Charges Not Projected. As part of the
annual rate adjustment, an operator must ``true up'' its previously
projected inflation, changes in external costs and changes in the
number of regulated channels and adjust its rates for these actual cost
changes. The operator must decrease its rates for overestimation of its
projected cost changes, and may increase its rates to adjust for
underestimation of its projected cost changes.
(i) Where an operator has underestimated costs, future rates may be
increased to permit recovery of the accrued costs plus 11.25% interest
between the date the costs are incurred and the date the operator is
entitled to make its rate adjustment.
(ii) Where there is an overestimation of these costs, future rates
will be reduced or the amount of the increase will be reduced to
reflect the accrued amount of the overcharge plus 11.25% interest. The
operator must make such adjustments within 12 months of the date the
operator implemented its rates based on the projections.
(iii) If an operator has underestimated its cost changes and elects
not to recover these accrued costs with interest on the date the
operator is entitled to make its annual rate adjustment, the interest
will cease to accrue as of the date the operator is entitled to make
the annual rate adjustment, but the operator will not lose its ability
to recover such costs and interest. An operator may recover accrued
costs between the date such costs are incurred and the date the
operator actually implements its rate adjustment.
(iv) Operators that use the annual methodology in their next filing
after the release date of this Order may accrue costs and interest
incurred since July 1, 1995 in that filing. Operators that file a Form
1210 in their next filing after the release date of this Order, and
elect to use Form 1240 in a subsequent filing, may accrue costs
incurred since the end of the last quarter to which a Form 1210
applies.
(4) Sunset Provision. The Commission will review paragraph (e) of
this section prior to December 31, 1998 to determine whether the annual
rate adjustment methodology should be kept, and whether the quarterly
system should be eliminated and replaced with the annual rate
adjustment method.
(f) External costs. (1) External costs shall consist of costs in
the following categories:
(i) State and local taxes applicable to the provision of cable
television service;
(ii) Franchise fees;
(iii) Costs of complying with franchise requirements, including
costs of providing public, educational, and governmental access
channels as required by the franchising authority;
(iv) Retransmission consent fees and copyright fees incurred for
the carriage of broadcast signals;
(v) Other programming costs; and
(vi) Commission cable television system regulatory fees imposed
pursuant to 47 U.S.C. Sec. 159.
(2) The permitted charge for a regulated tier shall be adjusted on
account of programming costs, copyright fees and retransmission consent
fees only for the program channels or broadcast signals offered on that
tier.
(3) The permitted charge shall not be adjusted for costs of
retransmission consent fees or changes in those fees incurred prior to
October 6, 1994.
(4) The starting date for adjustments on account of external costs
for a tier of regulated programming service shall be the earlier of the
initial date of regulation for any basic or cable service tier or
February 28, 1994.
(5) Changes in franchise fees shall not result in an adjustment to
permitted charges, but rather shall be calculated separately as part of
the maximum monthly charge per subscriber for a tier of regulated
programming service.
(6) Adjustments to permitted charges to reflect changes in the
costs of programming purchased from affiliated programmers, as defined
in Sec. 76.901, shall be permitted as long as the price charged to the
affiliated system reflects either prevailing company prices offered in
the marketplace to third parties (where the affiliated program supplier
has established such prices) or the fair market value of the
programming.
(7) Adjustments to permitted charges on account of increases in
costs of programming shall be further adjusted to reflect any revenues
received by the operator from the programmer. Such adjustments shall
apply on a channel-by-channel basis.
(8) In calculating programming expense, operators may add a mark-up
of 7.5% for increases in programming costs occurring after March 31,
1994, except that operators may not file for or take the 7.5% mark-up
on programming costs for new channels added on or after May 15, 1994
for which the operator has used the methodology set forth in paragraph
(g)(3) of this section for adjusting rates for channels added to cable
programming service tiers. Operators shall reduce rates by decreases in
programming expense plus an additional 7.5% for decreases occurring
after May 15, 1994 except with respect to programming cost decreases on
channels added after May 15, 1994 for which the rate adjustment
methodology in paragraph (g)(3) of this section was used.
(g) Changes in the number of channels on regulated tiers.--(1)
Generally. A system may adjust the residual component of its permitted
rate for a tier to reflect changes in the number of channels offered on
the tier on a quarterly basis. Cable systems shall use FCC Form 1210
(or FCC Form 1211, where applicable) or FCC Form 1240 to justify rate
changes made on account of changes in the number of channels on a basic
service tier (``BST'') or a cable programming service tier (``CPST'').
Such rate adjustments shall be based on any changes in the number of
regulated channels that occurred from the end of the last quarter for
which an adjustment was previously made through the end of the quarter
that has most recently closed preceding the filing of the FCC Form 1210
(or FCC Form 1211, where applicable) or FCC Form 1240.
[[Page 52116]]
However, when a system deletes channels in a calendar quarter, the
system must adjust the residual component of the tier charge in the
next calendar quarter to reflect that deletion. Operators must elect
between the channel addition rules in paragraphs (g)(2) and (g)(3) of
this section the first time they adjust rates after December 31, 1994,
to reflect a channel addition to a CPST that occurred on or after May
15, 1994, and must use the elected methodology for all rate adjustments
through December 31, 1997. A system that adjusted rates after May 15,
1994, but before January 1, 1995 on account of a change in the number
of channels on a CPST that occurred after May 15, 1994, may elect to
revise its rates to charge the rates permitted by paragraph (g)(3) of
this section on or after January 1, 1995, but is not required to do so
as a condition for using the methodology in paragraph (g)(3) of this
section for rate adjustments after January 1, 1995. Rates for the BST
will be governed exclusively by paragraph (g)(2) of this section,
except that where a system offered only one tier on May 14, 1994, the
cable operator will be allowed to elect between paragraphs (g)(2) and
(g)(3) of this section as if the tier was a CPST.
(2) Adjusting Rates for increases in the number of channels offered
between May 15, 1994, and December 31, 1997, on a basic service tier
and at the election of the operator on a cable programming service
tier. The following table shall be used to adjust permitted rates for
increases in the number of channels offered between May 15, 1994, and
December 31, 1997, on a basic service tier and subject to the
conditions in paragraph (g)(1) of this section at the election of the
operator on a CPST. The entries in the table provide the cents per
channel per subscriber per month by which cable operators will adjust
the residual component using FCC Form 1210 (or FCC Form 1211, where
applicable) or FCC Form 1240.
------------------------------------------------------------------------
Per-channel
Average No. of regulated channels adjustment
factor
------------------------------------------------------------------------
7.......................................................... $0.52
7.5........................................................ 0.45
8.......................................................... 0.40
8.5........................................................ 0.36
9.......................................................... 0.33
9.5........................................................ 0.29
10......................................................... 0.27
10.5....................................................... 0.24
11......................................................... 0.22
11.5....................................................... 0.20
12......................................................... 0.19
12.5....................................................... 0.17
13......................................................... 0.16
13.5....................................................... 0.15
14......................................................... 0.14
14.5....................................................... 0.13
15-15.5.................................................... 0.12
16......................................................... 0.11
16.5-17.................................................... 0.10
17.5-18.................................................... 0.09
18.5-19.................................................... 0.08
19.5-21.5.................................................. 0.07
22-23.5.................................................... 0.06
24-26...................................................... 0.05
26.5-29.5.................................................. 0.04
30-35.5.................................................... 0.03
36-46...................................................... 0.02
46.5-99.5.................................................. 0.01
------------------------------------------------------------------------
In order to adjust the residual component of the tier charge when
there is an increase in the number of channels on a tier, the operator
shall perform the following calculations:
(i) Take the sum of the old total number of channels on tiers
subject to regulation (i.e., tiers that are, or could be, regulated but
excluding New Product Tiers) and the new total number of channels and
divide the resulting number by two;
(ii) Consult the above table to find the applicable per channel
adjustment factor for the number of channels produced by the
calculations in step (1). For each tier for which there has been an
increase in the number of channels, multiply the per-channel adjustment
factor times the change in the number of channels on that tier. The
result is the total adjustment for that tier.
(3) Alternative methodology for adjusting rates for changes in the
number of channels offered on a cable programming service tier or a
single tier system between May 15, 1994, and December 31, 1997. This
paragraph at the Operator's discretion as set forth in paragraph (g)(1)
of this section shall be used to adjust permitted rates for a CPST
after December 31, 1994, for changes in the number of channels offered
on a CPST between May 15, 1994, and December 31, 1997. For purposes of
paragraph (g)(3) of this section, a single tier system may be treated
as if it were a CPST.
(i) Operators Cap Attributable to New Channels on All CPSTs Through
December 31, 1997. Operators electing to use the methodology set forth
in this paragraph may increase their rates between January 1, 1995, and
December 31, 1997, by up to 20 cents per channel, exclusive of
programming costs, for new channels added to CPSTs on or after May 15,
1994, except that they may not make rate adjustments totalling more
than $1.20 per month, per subscriber through December 31, 1996, and by
more than $1.40 per month, per subscriber through December 31, 1997
(the ``Operator's Cap''). Except to the extent that the programming
costs of such channels are covered by the License Fee Reserve provided
for in paragraph (g)(3)(iii) of this section, programming costs
associated with channels for which a rate adjustment is made pursuant
to this paragraph (g)(3) of this section must fall within the
Operators' Cap if the programming costs (including any increases
therein) are reflected in rates before January 1, 1997. Inflation
adjustments pursuant to paragraph (d)(2) or (e)(2) of this section are
not counted against the Operator's Cap.
(ii) Per Channel Adjustment. Operators may increase rates by a per
channel adjustment of up to 20 cents per subscriber per month,
exclusive of programming costs, for each channel added to a CPST
between May 15, 1994, and December 31, 1997, except that an operator
may take the per channel adjustment only for channel additions that
result in an increase in the highest number of channels offered on all
CPSTs as compared to May 14, 1994, and each date thereafter. Any
revenues received from a programmer, or shared by a programmer and an
operator in connection with the addition of a channel to a CPST shall
first be deducted from programming costs for that channel pursuant to
paragraph (f)(7) of this section and then, to the extent revenues
received from the programmer are greater than the programming costs,
shall be deducted from the per channel adjustment. This deduction will
apply on a channel by channel basis.
(iii) License Fee Reserve. In addition to the rate adjustments
permitted in paragraphs (g)(3)(i) and (g)(3)(ii) of this section,
operators that make channel additions on or after May 15, 1994 may
increase their rates by a total of 30 cents per month, per subscriber
between January 1, 1995, and December 31, 1996, for license fees
associated with such channels (the ``License Fee Reserve''). The
License Fee Reserve may be applied against the initial license fee and
any increase in the license fee for such channels during this period.
An operator may pass-through to subscribers more than the 30 cents
between January 1, 1995, and December 31, 1996, for license fees
associated with channels added after May 15, 1994, provided that the
total amount recovered from subscribers for such channels, including
the License Fee Reserve, does not exceed $1.50 per subscriber, per
month. After December 31, 1996, license fees may be passed through to
subscribers pursuant to
[[Page 52117]]
paragraph (f) of this section, except that license fees associated with
channels added pursuant to this paragraph (3) will not be eligible for
the 7.5% mark-up on increases in programming costs.
(iv) Timing. For purposes of determining whether a rate increase
counts against the maximum rate increases specified in paragraphs
(g)(3)(i) through (g)(3)(ii) of this section, the relevant date shall
be when rates are increased as a result of channel additions, not when
the addition occurs.
(4) Deletion of Channels. When dropping a channel from a BST or
CPST, operators shall reflect the net reduction in external costs in
their rates pursuant to paragraphs (d)(3)(i) and (d)(3)(ii) of this
section, or paragraphs (e)(2)(ii)(A) and (e)(2)(ii)(B) of this section.
With respect to channels to which the 7.5% mark-up on programming costs
applied pursuant to paragraph (f)(8) of this section, the operator
shall treat the mark-up as part of its programming costs and subtract
the mark-up from its external costs. Operators shall also reduce the
price of that tier by the ``residual'' associated with that channel.
For channels that were on a BST or CPST on May 14, 1994, or channels
added after that date pursuant to paragraph (g)(2) of this section, the
per channel residual is the charge for their tier, minus the external
costs for the tier, and any per channel adjustments made after that
date, divided by the total number of channels on the tier minus the
number of channels on the tier that received the per channel adjustment
specified in paragraph (g)(3) of this section. For channels added to a
CPST after May 14, 1994, pursuant to paragraph (g)(3) of this section,
the residuals shall be the actual per channel adjustment taken for that
channel when it was added to the tier.
(5) Movement of Channels Between Tiers. When a channel is moved
from a CPST or a BST to another CPST or BST, the price of the tier from
which the channel is dropped shall be reduced to reflect the decrease
in programming costs and residual as described in paragraph (g)(4) of
this section. The residual associated with the shifted channel shall
then be converted from per subscriber to aggregate numbers to ensure
aggregate revenues from the channel remain the same when the channel is
moved. The aggregate residual associated with the shifted channel may
be shifted to the tier to which the channel is being moved. The
residual shall then be converted to per subscriber figures on the new
tier, plus any subsequent inflation adjustment. The price of the tier
to which the channel is shifted may then be increased to reflect this
amount. The price of that tier may also be increased to reflect any
increase in programming cost. An operator may not shift a channel for
which it received a per channel adjustment pursuant to paragraph (g)(3)
of this section from a CPST to a BST.
(6) Substitution of Channels on a BST or CPST. If an operator
substitutes a new channel for an existing channel on a CPST or a BST,
no per channel adjustment may be made. Operators substituting channels
on a CPST or a BST shall be required to reflect any reduction in
programming costs in their rates and may reflect any increase in
programming costs pursuant to paragraphs (d)(3)(i) and (d)(3)(ii), or
paragraphs (e)(2)(ii)(A) and (e)(2)(ii)(B) of this section. If the
programming cost for the new channel is greater than the programming
cost for the replaced channel, and the operator chooses to pass that
increase through to subscribers, the excess shall count against the
License Fee Reserve or the Operator Cap when the increased cost is
passed through to subscribers. Where an operator substitutes a new
channel for a channel on which a 7.5% mark-up on programming costs was
taken pursuant to paragraph (f)(8) of this section, the operator may
retain the 7.5% mark-up on the license fee of the dropped channel to
the extent that it is no greater than 7.5% of programming cost of the
new service.
(7) Headend upgrades. When adding channels to CPSTs and single-tier
systems, cable systems that are owned by a small cable company and
incur additional monthly per subscriber headend costs of one full cent
or more for an additional channel may choose among the methodologies
set forth in paragraphs (g)(2) and (g)(3) of this section. In addition,
such systems may increase rates to recover the actual cost of the
headend equipment required to add up to seven such channels to CPSTs
and single-tier systems, not to exceed $5,000 per additional channel.
Rate increases pursuant to this paragraph may occur between January 1,
1995, and December 31, 1997, as a result of additional channels offered
on those tiers after May 14, 1994. Headend costs shall be depreciated
over the useful life of the equipment. The rate of return on this
investment shall not exceed 11.25 percent. In order to recover costs
for headend equipment pursuant to this paragraph, systems must certify
to the Commission their eligibility to use this paragraph, and the
level of costs they have actually incurred for adding the headend
equipment and the depreciation schedule for the equipment.
(8) Sunset Provision. Paragraph (g) of this section shall cease to
be effective on January 1, 1998 unless renewed by the Commission.
(h) Permitted charges for a tier shall be determined in accordance
with forms and associated instructions established by the Commission.
(i) Cost of Service Charge. (1) For purposes of this section, a
monthly cost-of-service charge for a basic service tier or a cable
programming service tier is an amount equal to the annual revenue
requirement for that tier divided by a number that is equal to 12 times
the average number of subscribers to that tier during the test year,
except that a monthly charge for a system or tier in service less than
one year shall be equal to the projected annual revenue requirement for
the first 12 months of operation or service divided by a number that is
equal to 12 times the projected average number of subscribers during
the first 12 months of operation or service. The calculation of the
average number of subscribers shall include all subscribers, regardless
of whether they receive service at full rates or at discounts.
(2) A test year for an initial regulated charge is the cable
operator's fiscal year preceding the initial date of regulation. A test
year for a change in the basic service charge that is after the initial
date of regulation is the cable operator's fiscal year preceding the
mailing or other delivery of written notice pursuant to Section 76.932.
A test year for a change in a cable programming service charge after
the initial date of regulation is the cable operator's fiscal year
preceding the filing of a complaint regarding the increase.
(3) The annual revenue requirement for a tier is the sum of the
return component and the expense component for that tier.
(4) The return component for a tier is the average allowable test
year ratebase allocable to the tier adjusted for known and measurable
changes occurring between the end of the test year and the effective
date of the rate multiplied by the rate of return specified by the
Commission or franchising authority.
(5) The expense component for a tier is the sum of allowable test
year expenses allocable to the tier adjusted for known and measurable
changes occurring between the end of the test year and the effective
date of the rate.
(6) The ratebase may include the following:
(i) Prudent investment by a cable operator in tangible plant that
is used and useful in the provision of cable
[[Page 52118]]
services less accumulated depreciation. Tangible plant in service shall
be valued at the actual money cost (or the money value of any
consideration other than money) of property at the time it was first
used to provide cable service. The actual money cost of plant may
include an allowance for funds used during construction at the prime
rate or at the operator's actual cost of funds used during
construction. Cost overruns are presumed to be imprudent investment in
the absence of a showing that the overrun occurred through no fault of
the operator.
(ii) An allowance for start-up losses, if any, that is equal to the
lesser of the first two years of operating costs or accumulated losses
incurred until the system reached the end of its prematurity stage as
defined in Financial Accounting Standards Board Standard 51 (``FASB
51'') less straight-line amortization over a reasonable period not
exceeding 15 years that commences at the end of the prematurity phase
of operation.
(iii) Intangible assets less amortization that reflect the original
costs prudently incurred by a cable operator in organizing and
incorporating a company that provides regulated cable services,
obtaining a government franchise to provide regulated cable services,
or obtaining patents that are used and useful in the provision of cable
services.
(iv) The cost of customer lists if such costs were capitalized
during the prematurity phase of operations less amortization.
(v) An amount for working capital to the extent that an allowance
or disallowance for funds needed to sustain the ongoing operations of
the regulated cable service is demonstrated.
(vi) Other intangible assets to the extent the cable operator
demonstrates that the asset reflects costs incurred in an activity or
transaction that produced concrete benefits or savings for subscribers
to regulated cable services that would not have been realized otherwise
and the cable operator demonstrates that a return on such an asset does
not exceed the value of such a subscriber benefit.
(vii) The portion of the capacity of plant not currently in service
that will be placed in service within twelve months of the end of the
test year.
(7) Deferred income taxes shall be deducted from items included in
the ratebase.
(8) Allowable expenses may include the following:
(i) All regular expenses normally incurred by a cable operator in
the provision of regulated cable service, but not including any
lobbying expense, charitable contributions, penalties and fines paid on
account of violations of statutes or rules, or membership fees in
social, service, recreational or athletic clubs or organizations.
(ii) Reasonable depreciation expense attributable to tangible
assets allowable in the ratebase.
(iii) Reasonable amortization expense for prematurely abandoned
tangible assets formerly includable in the ratebase that are amortized
over the remainder of the original expected life of the asset.
(iv) Reasonable amortization expense for start-up losses and
capitalized intangible assets that are includable in ratebase.
(v) Taxes other than income taxes attributable to the provision of
regulated cable services.
(vi) An income tax allowance.
(j) Network upgrade rate increase. (1) Cable operators that
undertake significant network upgrades requiring added capital
investment may justify an increase in rates for regulated services by
demonstrating that the capital investment will benefit subscribers.
(2) A rate increase on account of upgrades shall not be assessed on
customers until the upgrade is complete and providing benefits to
customers of regulated services.
(3) Cable operators seeking an upgrade rate increase have the
burden of demonstrating the amount of the net increase in costs, taking
into account current depreciation expense, likely changes in
maintenance and other costs, changes in regulated revenues and expected
economies of scale.
(4) Cable operators seeking a rate increase for network upgrades
shall allocate net cost increases in conformance with the cost
allocation rules as set forth in Sec. 76.924.
(5) Cable operators that undertake significant upgrades shall be
permitted to increase rates by adding the benchmark/price cap rate to
the rate increment necessary to recover the net increase in cost
attributable to the upgrade.
(k) Hardship rate relief. A cable operator may adjust charges by an
amount specified by the Commission for the cable programming service
tier or the franchising authority for the basic service tier if it is
determined that:
(1) Total revenues from cable operations, measured at the highest
level of the cable operator's cable service organization, will not be
sufficient to enable the operator to attract capital or maintain credit
necessary to enable the operator to continue to provide cable service;
(2) The cable operator has prudent and efficient management; and
(3) Adjusted charges on account of hardship will not result in
total charges for regulated cable services that are excessive in
comparison to charges of similarly situated systems.
(l) Cost of service showing. A cable operator that elects to
establish a charge, or to justify an existing or changed charge for
regulated cable service, based on a cost-of-service showing must submit
data to the Commission or the franchising authority in accordance with
forms established by the Commission. The cable operator must also
submit any additional information requested by franchising authorities
or the Commission to resolve questions in cost-of-service proceedings.
(m) Subsequent Cost of Service Charges. No cable operator may use a
cost-of-service showing to justify an increase in any charge
established on a cost-of-service basis for a period of 2 years after
that rate takes effect, except that the Commission or the franchising
authority may waive this prohibition upon a showing of unusual
circumstances that would create undue hardship for a cable operator.
3. Section 76.923 is amended by adding paragraphs (n) and (o), to
read as follows:
Sec. 76.923 Rates for equipment and installation used to receive the
basic service tier.
* * * * *
(n) Timing of Filings. An operator shall file FCC Form 1205 in
order to establish its maximum permitted rates at the following times:
(1) When the operator sets its initial rates under either the
benchmark system or through a cost-of-service showing;
(2) Within 60 days of the end of its fiscal year, for an operator
that adjusts its rates under the system described in Section 76.922(d)
that allows it to file up to quarterly;
(3) On the same date it files its FCC Form 1240, for an operator
that adjusts its rates under the annual rate adjustment system
described in Section 76.922(e). If an operator elects not to file an
FCC Form 1240 for a particular year, the operator must file a Form 1205
on the anniversary date of its last Form 1205 filing; and
(4) When seeking to adjust its rates to reflect the offering of new
types of customer equipment other than in conjunction with an annual
filing of Form 1205, 60 days before it seeks to adjust its rates to
reflect the offering of new types of customer equipment.
(o) Introduction of new equipment. In setting the permitted charge
for a new
[[Page 52119]]
type of equipment at a time other than at its annual filing, an
operator shall only complete Schedule C and the relevant step of the
Worksheet for Calculating Permitted Equipment and Installation Charges
of a Form 1205. The operator shall rely on entries from its most
recently filed FCC Form 1205 for information not specifically related
to the new equipment, including but not limited to the Hourly Service
Charge. In calculating the annual maintenance and service hours for the
new equipment, the operator should base its entry on the average annual
expected time required to maintain the unit, i.e., expected service
hours required over the life of the equipment unit being introduced
divided by the equipment unit's expected life.
4. Section 76.925 is amended by redesignating paragraphs (a) and
(b) as paragraphs (b) and (c), respectively, adding new paragraph (a),
and revising newly redesignated paragraph (c), to read as follows:
Sec. 76.925 Costs of franchise requirements.
(a) Franchise requirement costs may include cost increases required
by the franchising authority in the following categories:
(1) Costs of providing PEG access channels;
(2) Costs of PEG access programming;
(3) Costs of technical and customer service standards to the extent
that they exceed federal standards;
(4) Costs of institutional networks and the provision of video
services, voice transmissions and data transmissions to or from
governmental institutions and educational institutions, including
private schools, to the extent such services are required by the
franchise agreement; and
(5) When the operator is not already in the process of upgrading
the system, costs of removing cable from utility poles and placing the
same cable underground.
(b) The costs of satisfying franchise requirements to support
public, educational, and government channels shall consist of the sum
of:
(1) All per channel costs for the number of channels used to meet
franchise requirements for public, educational, and governmental
channels;
(2) Any direct costs of meeting such franchise requirements; and
(3) A reasonable allocation of general and administrative overhead.
(c) The costs of satisfying any requirements under the franchise
other than PEG access costs shall consist of the direct and indirect
costs including a reasonable allocation of general and administrative
overhead.
5. Section 76.933 is amended by revising paragraphs (a), (b), (e),
and (f), and adding paragraphs (g) and (h), to read as follows:
Sec. 76.933 Franchising authority review of basic cable rates and
equipment costs.
(a) After a cable operator has submitted for review its existing
rates for the basic service tier and associated equipment costs, or a
proposed increase in these rates (including increases in the baseline
channel change that results from reductions in the number of channels
in a tier) under the quarterly rate adjustment system pursuant to
Section 76.922(d), the existing rates will remain in effect or the
proposed rates will become effective after 30 days from the date of
submission; Provided, however, that the franchising authority may toll
this 30-day deadline for an additional time by issuing a brief written
order as described in paragraph (b) within 30 days of the rate
submission explaining that it needs additional time to review the
rates.
(b) If the franchising authority is unable to determine, based upon
the material submitted by the cable operator, that the existing, or
proposed rates under the quarterly adjustment system pursuant to
Section 76.922(d), are within the Commission's permitted basic service
tier charge or actual cost of equipment as defined in Secs. 76.922 and
76.923, or if a cable operator has submitted a cost-of-service showing
pursuant Secs. 76.937(c) and 76.924, seeking to justify a rate above
the Commission's basic service tier charge as defined in Secs. 76.922
and 76.923, the franchising authority may toll the 30-day deadline in
paragraph (a) of this section to request and/or consider additional
information or to consider the comments from interested parties as
follows:
(1) For an additional 90 days in cases not involving cost-of-
service showings; or
(2) For an additional 150 days in cases involving cost-of-service
showings.
* * * * *
(e) Notwithstanding the foregoing, when the franchising authority
is regulating basic service tier rates, a cable operator that sets its
rates pursuant to the quarterly rate adjustment system pursuant to
Section 76.922(d) may increase its rates for basic service to reflect
the imposition of, or increase in, franchise fees or Commission cable
television system regulatory fees imposed pursuant to 47 U.S.C.
Sec. 159, upon 30 days' notice to subscribers and the franchising
authority and, where required by Section 76.958, to the Commission. For
the purposes of paragraphs (a) through (c) of this section, the
increase rate attributable to Commission regulatory fees or franchise
fees shall be treated as an ``existing rate, subject to subsequent
review and refund if the franchising authority determines that the
increase in basic tier rates exceeds the increase in regulatory fees or
in franchise fees allocable to the basic tier. This determination shall
be appealable to the Commission pursuant to Section 76.944. When the
Commission is regulating basic service tier rates pursuant to Section
76.945 or cable programming service rates pursuant to Section 76.960,
an increase in those rates resulting from franchise fees or Commission
regulatory fees shall be reviewed by the Commission pursuant to the
mechanisms set forth in Section 76.945. A cable operator must adjust
its rates to reflect decreases in franchise fees or Commission
regulatory fees within the periods set forth in Section 76.922(d)(3)(i)
and (iii).
(f) For an operator that sets its rates pursuant to the quarterly
rate adjustment system pursuant to Section 76.922(d), cable television
system regulatory fees assessed by the Commission pursuant to 47 U.S.C.
Sec. 159 shall be recovered in monthly installments during the fiscal
year following the year for which the payment was imposed. Payments
shall be collected in equal monthly installments, except that for so
many months as may be necessary to avoid fractional payments, an
additional $0.01 payment per month may be collected. All such
additional payments shall be collected in the last month or months of
the fiscal year, so that once collections of such payments begin there
shall be no month remaining in the year in which the operator is not
entitled to such an additional payment. Operators may not assess
interest. Operators may provide notice of the entire fiscal year's
regulatory fee pass-through in a single notice.
(g) A cable operator that submits for review a proposed change in
its existing rates for the basic service tier and associated equipment
costs using the annual filing system pursuant to Section 76.922(e)
shall do so no later than 90 days from the effective date of the
proposed rates. The franchising authority will have 90 days from the
date of the filing to review it. However, if the franchising authority
or its designee concludes that the operator has submitted a facially
incomplete filing, the franchising authority's deadline for issuing a
decision, the date on which
[[Page 52120]]
rates may go into effect if no decision is issued, and the period for
which refunds are payable will be tolled while the franchising
authority is waiting for this information, provided that, in order to
toll these effective dates, the franchising authority or its designee
must notify the operator of the incomplete filing within 45 days of the
date the filing is made.
(1) If there is a material change in an operator's circumstances
during the 90-day review period and the change affects the operator's
rate change filing, the operator may file an amendment to its Form 1240
prior to the end of the 90-day review period. If the operator files
such an amendment, the franchising authority will have at least 30 days
to review the filing. Therefore, if the amendment is filed more than 60
days after the operator made its initial filing, the operator's
proposed rate change may not go into effect any earlier than 30 days
after the filing of its amendment. However, if the operator files its
amended application on or prior to the sixtieth day of the 90-day
review period, the operator may implement its proposed rate adjustment,
as modified by the amendment, 90 days after its initial filing.
(2) If a franchising authority has taken no action within the 90-
day review period, then the proposed rates may go into effect at the
end of the review period, subject to a prospective rate reduction and
refund if the franchising authority subsequently issues a written
decision disapproving any portion of such rates, provided, however,
that in order to order a prospective rate reduction and refund, if an
operator inquires as to whether the franchising authority intends to
issue a rate order after the initial review period, the franchising
authority or its designee must notify the operator of its intent in
this regard within 15 days of the operator's inquiry. If a proposed
rate goes into effect before the franchising authority issues its rate
order, the franchising authority will have 12 months from the date the
operator filed for the rate adjustment to issue its rate order. In the
event that the franchising authority does not act within this 12-month
period, it may not at a later date order a refund or a prospective rate
reduction with respect to the rate filing.
(3) At the time an operator files its rates with the franchising
authority, the operator may give customers notice of the proposed rate
changes. Such notice should state that the proposed rate change is
subject to approval by the franchising authority. If the operator is
only permitted a smaller increase than was provided for in the notice,
the operator must provide an explanation to subscribers on the bill in
which the rate adjustment is implemented. If the operator is not
permitted to implement any of the rate increase that was provided for
in the notice, the operator must provide an explanation to subscribers
within 60 days of the date of the franchising authority's decision.
Additional advance notice is only required in the unlikely event that
the rate exceeds the previously noticed rate.
(4) If an operator files for a rate adjustment under Section
76.922(e)(2)(iii)(B) for the addition of required channels to the basic
service tier that the operator is required by federal or local law to
carry, or, if a single-tier operator files for a rate adjustment based
on a mid-year channel addition allowed under Section
76.922(e)(2)(iii)(C), the franchising authority has 60 days to review
the requested rate. The proposed rate shall take effect at the end of
this 60-day period unless the franchising authority rejects the
proposed rate as unreasonable. In order to order refunds and
prospective rate reductions, the franchising authority shall be subject
to the requirements described in paragraph (g)(1) of this section.
(5) Notwithstanding the foregoing, when the franchising authority
is regulating basic service tier rates, a cable operator may increase
its rates for basic service to reflect the imposition of, or increase
in, franchise fees upon 30 days' notice to subscribers and the
franchising authority and, where required by Section 76.958, to the
Commission. The increased rate attributable to Commission regulatory
fees or franchise fees shall be subject to subsequent review and refund
if the franchising authority determines that the increase in basic tier
rates exceeds the increase in regulatory fees or in franchise fees
allocable to the basic tier. This determination shall be appealable to
the Commission pursuant to Section 76.944. When the Commission is
regulating basic service tier rates pursuant to Section 76.945 or cable
programming service rates pursuant to Section 76.960, an increase in
those rates resulting from franchise fees or Commission regulatory fees
shall be reviewed by the Commission pursuant to the mechanisms set
forth in Section 76.945.
(h) If an operator files an FCC Form 1205 for the purpose of
setting the rate for a new type of equipment under Section 76.923(o),
the franchising authority has 60 days to review the requested rate. The
proposed rate shall take effect at the end of this 60-day period unless
the franchising authority rejects the proposed rate as unreasonable.
(1) If the operator's most recent rate filing was based on the
system that enables them to file up to once per quarter found at
Section 76.922(d), the franchising authority must issue an accounting
order before the end of the 60-day period in order to order refunds and
prospective rate reductions.
(2) If the operator's most recent rate filing was based on the
annual rate system at Section 76.922(e), in order to order refunds and
prospective rate reductions, the franchising authority shall be subject
to the requirements described in paragraph (g)(1) of this section.
6. Section 76.934 is amended by revising paragraph (f) to read as
follows:
Sec. 76.934 Small systems and small cable companies.
* * * * *
(f) Small Systems Owned by Small Cable Companies. Small systems
owned by small cable companies shall have 90 days from their initial
date of regulation on a tier to bring their rates for that tier into
compliance with the requirements of Sections 76.922 and 76.923. Such
systems shall have sixty days from the initial date of regulation to
file FCC Forms 1200, 1205, 1210, 1211, 1215, 1220, 1225, 1230, and 1240
and any similar forms as appropriate. Rates established during the 90-
day period shall not be subject to prior approval by franchising
authorities or the Commission, but shall be subject to refund pursuant
to sections 76.942 and 76.961.
* * * * *
7. Section 76.942 is amended by revising paragraph (f) to read as
follows:
Sec. 76.942 Refunds.
* * * * *
(f) Once an operator has implemented a rate refund to subscribers
in accordance with a refund order by the franchising authority (or the
Commission, pursuant to paragraph (a) of this section), the franchising
authority must return to the cable operator an amount equal to that
portion of the franchise fee that was paid on the total amount of the
refund to subscribers. The franchising authority must promptly return
the franchise fee overcharge either in an immediate lump sum payment,
or the cable operator may deduct it from the cable system's future
franchise fee payments. The franchising authority has the discretion to
determine a reasonable repayment period, but interest shall accrue on
any outstanding portion of the franchise fee starting on the date the
operator has
[[Page 52121]]
completed implementation of the refund order. In determining the amount
of the refund, the franchise fee overcharge should be offset against
franchise fees the operator holds on behalf of the franchising
authority for lump sum payment. The interest rate on any refund owed to
the operator presumptively shall be 11.25%.
8. Section 76.944 is amended by adding paragraph (c) as follows:
Sec. 76.944 Commission review of franchising authority decisions on
rates for the basic service tier and associated equipment.
* * * * *
(c) An operator that uses the annual rate adjustment method under
Section 76.922(e) may include in its next true up under Section
76.922(e)(3) any amounts to which the operator would have been entitled
but for a franchising authority decision that is not upheld on appeal.
9. Section 76.957 is revised to read as follows:
Sec. 76.957 Commission adjudication of the complaint.
The Commission will consider the complaint and the cable operator's
response and then determine by written decision whether the rate for
the cable programming service or associated equipment is unreasonable
or not. In making its determination, the Commission will only review
the amount of the rate increase subject to the complaint. If the
Commission determines that the rate change in question is unreasonable,
it will grant the complaint and may order appropriate relief,
including, but not limited to, prospective rate reductions and refunds.
If it determines that the rate in question is reasonable, the
Commission will deny the complaint.
10. Section 76.960 is revised to read as follows:
Sec. 76.960 Prospective rate reductions.
Upon a finding that a rate for cable programming service or
associated equipment is unreasonable, the Commission may order the
cable operator to implement a prospective rate reduction to the class
of customers subscribing to the cable programming service at issue.
(a) For an operator that adjusts its rates using the quarterly rate
adjustment system pursuant to Section 76.922(d), the Commission's
decision regarding a prospective rate reduction shall remain binding on
the cable operator for one year unless the Commission specifies
otherwise.
(b) For an operator that adjusts its rates using the annual rate
adjustment system pursuant to Section 76.922(e), for one year following
the Commission's decision, the operator shall provide the Commission at
least 30 days' notice of any proposed change.
[FR Doc. 95-24756 Filed 10-4-95; 8:45 am]
BILLING CODE 6712-01-M
