Cable Television Act of 1992

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