Small Cable Television Systems; Rate Regulation

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MM Docket Nos. 92-266 and 93-215; FCC 97-339]

Small Cable Television Systems; Rate Regulation

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted a Fourteenth Order on

Reconsideration denying two petitions seeking reconsideration of the

rules adopted for small cable television systems governing rates

charged for regulated cable services in the Sixth Report and Order and

Eleventh Order on Reconsideration in MM Docket Nos. 92-266 and 93-215,

FCC 95-195. The Commission also adopted minor clarifications to the

rate rules.

EFFECTIVE DATE: October 15, 1997.

FOR FURTHER INFORMATION CONTACT: Julie Buchanan, Cable Services Bureau,

(202) 418-7200.

SUPPLEMENTARY INFORMATION: The following is a synopsis of the

Commission's Fourteenth Order on Reconsideration in MM Docket Nos. 92-

266 and 93-215, adopted September 24, 1997 and released October 1,

1997. The full text of this decision is available for inspection and

copying during normal business hours in the FCC Reference Center (Room

239), 1919 M Street, NW., Washington, DC 20554, and may be purchased

from the Commission's copy contractor, International Transcription

Services, Inc., (202) 857-3800, 1231 20th Street, NW., Washington, DC

20036.

Synopsis

I. Introduction

1. On May 5, 1995, the Commission adopted the Sixth Report and

Order and Eleventh Order on Reconsideration in MM Docket Nos. 92-266

and 93-215, FCC 95-196, 60 FR 35854 (July 12, 1995) (``Small System

Order''), thereby modifying the rules governing rates charged for

regulated cable services by certain smaller cable systems. In this

order, we address petitions for reconsideration of the Small System

Order.

II. Background

2. Section 623(i) of the Communications Act of 1934, as amended

(``Communications Act''), requires that the Commission design rate

regulations to reduce the administrative burdens and the cost of

compliance for cable systems with 1,000 or fewer subscribers. In the

Small System Order, the Commission extended small system rate relief to

small cable systems owned by small cable companies. The Small System

Order defines a small system as any system that serves 15,000 or fewer

subscribers, and it defines a small cable company as a cable operator

that serves a total of 400,000 or fewer subscribers over all of its

systems.

3. In addition to adopting the new categories of small systems and

small cable companies, the Small System Order introduced a form of rate

regulation known as the small system cost of service methodology. This

approach, which is available only to small systems owned by small cable

companies, follows general principles of cost of service rate

regulation. An eligible cable operator may establish a maximum

permitted rate for regulated cable service equal to the amount

necessary to cover its operating expenses plus a reasonable return on

its prudent investment in the assets used to provide that service. The

small system cost of service methodology differs both procedurally and

substantively from the standard cost of service methodology available

to cable operators generally.

4. To implement the small system cost of service rules, we designed

FCC Form 1230, a simplified one-page form, for use exclusively by

operators eligible for these rules. This form is more streamlined than

Form 1220 used for cost of service showings by larger operators. To use

Form 1230, the operator must calculate five items of data pertaining to

the system in question: annual operating expenses, net rate base, rate

of return, channel count and subscriber count. Once these variables are

calculated, the form generates the maximum per channel rate the

operator may charge for regulated service. Although subject to

regulatory review, this rate is presumed reasonable if it is no more

than $1.24 per channel.

5. When applicable, the presumption of reasonableness effectively

exempts eligible cable operators from many of the proof burdens that

apply under our standard cost of service rules. For example, eligible

small cable companies have greater discretion than larger operators in

determining how to allocate costs between regulated and unregulated

services and between various levels of regulated services. Similarly,

qualifying cable operators using Form 1230 are not subject to the

presumption of unreasonableness that otherwise attaches when an

operator seeks a rate of return higher than

[[Page 53573]]

11.25%. As noted, an eligible operator enjoys the presumption of

reasonableness with respect to these and other factors only if the

maximum permitted rate claimed on Form 1230 does not exceed $1.24 per

channel. If the rate exceeds $1.24 per channel, the cable operator

still may use Form 1230, but is subject to the same presumptions that

apply in a standard cost of service showing. As with other rate-setting

procedures, a cost of service showing involving Form 1230 is subject to

review by the cable operator's local franchising authority and/or by

the Commission.

6. With respect to the effective date of the small system rules, we

directed franchising authorities to apply the small system cost of

service approach to rate cases pending as of the release date of the

Small System Order because the record demonstrated that the pre-

existing rules were imposing a significant burden on small systems. The

Small System Order was released on June 5, 1995.

III. Petitions for Reconsideration

7. Two parties seek reconsideration of the Small System Order and a

number of other parties oppose the petitions. In one petition, the

Georgia Municipal Association (``GMA'') requests that we repeal the

small system cost of service rules in their entirety. In the

alternative, GMA urges the Commission to lower the maximum amount of

$1.24 per channel at which an operator may set rates and still be

entitled to a presumption of reasonableness. In support of its

petition, GMA questions the accuracy of the underlying cost data that

we used to set the $1.24 per channel rate. In addition, GMA claims that

the new rules will increase burdens on franchising authorities and lead

to unreasonable rates for regulated cable services. GMA also cites

examples of what it claims are cable operators abusing the small system

rules.

8. The New Jersey Board of Public Utilities (``New Jersey Board'')

seeks reconsideration of the Small System Order to the extent it

permits application of the small system rules to rate cases that were

pending as of the release date of the order. In support of its

petition, the New Jersey Board describes the possible impact of the

small system rules upon a rate case that was pending before it when the

Commission released the Small System Order on June 5, 1995. According

to the New Jersey Board, the cable operator in that case has given

notice of its intent to attempt to justify its proposed rate increase

by filing FCC Form 1230. The New Jersey Board complains that the rules

governing the information that a franchising authority may seek in

conjunction with its review of a Form 1230 are overly restrictive. The

New Jersey Board also objects to having to bear the burden of showing

the unreasonableness of the rate sought by the operator if that rate

does not exceed $1.24 per regulated channel. As a result of the above,

the New Jersey Board contends it will be ``precluded from establishing

whether the cable operator's subscribers are being charged a reasonable

rate,'' assuming the operator meets the small system and small cable

company definitions. The New Jersey Board also asserts the alleged

unfairness of applying the small system cost of service rules to the

pending case in light of the resources that the Board already has

expended in the case. Along with its petition for reconsideration, the

New Jersey Board also filed a motion for stay of the Small System Order

to the extent it mandates application of the new rules to pending

cases.

IV. Discussion

9. Neither petition challenges our determination that some measure

of regulatory relief is appropriate for small systems owned by small

cable companies. The petitioners do not dispute our conclusion that

such systems face proportionately higher operating and capital costs

than larger cable entities. Likewise, the petitioners do not contest

that our standard cost of service rules may place ``an inordinate

hardship'' on smaller systems ``in terms of the labor and other

resources that must be devoted to ensuring compliance.'' Therefore, the

petitions give us no reason to reconsider our decision to establish for

eligible small systems a form of rate regulation that lessens some of

the substantive and procedural burdens that otherwise would apply.

Because the petitions raise separate issues, we will resolve the merits

of each petition individually.

A. The GMA Petition

10. GMA challenges the presumption of reasonableness that arises

when an eligible small system uses Form 1230 to justify a regulated

rate that does not exceed $1.24 per channel. As noted above, we

established $1.24 per channel as the appropriate cut-off based on cost

data previously submitted to the Commission by small cable companies

seeking to establish regulated rates for their small systems by using

Form 1220 in accordance with our standard cost of service rules. GMA

asserts that a careful review of the Form 1220s that we relied on to

set the $1.24 per channel rate ``would probably * * * [show] that

corrections should be made to the operators' calculations in a large

percentage of cases.'' In support of this prediction, GMA states that

``several'' Georgia cable operators using FCC Form 1220 have overstated

the value of the intangible assets in their ratebases. In addition, GMA

states that the Commission found calculation or allocation errors in

each of the nine cost of service cases that we had addressed as of the

date GMA filed its petition. GMA cites three specific cost of service

cases in which the Cable Services Bureau (``Bureau'') made adjustments

to correct such errors. On this basis, GMA argues that ``there is a

strong possibility that there are errors'' in the Form 1220s from which

we gleaned the cost data to establish the presumptively reasonable rate

of $1.24 per channel.

11. We believe that the rate-setting mechanism we adopted in the

Small System Order reflects a reasoned judgment as to the method for

establishing the rates that an eligible small system may charge for

regulated services. Neither GMA nor any other party challenges this

mechanism. GMA objects only to the input data that produced the

standard of $1.24 per regulated channel against which the rates of

eligible small systems are measured. We determined in the Small System

Order, however, that a more comprehensive review of small system cost

data was not necessary to ensure that our small system rules were

properly tailored to the conditions faced by such systems.

12. GMA does not challenge our finding that small systems owned by

small cable companies were in need of immediate relief. GMA suggests

that the Form 1220 filings on which we relied were so facially

inaccurate that we should have conducted a further analysis of small

system cost data. We disagree. This approach would have delayed

implementation of measures for which there was an immediate need and

would have imposed additional administrative responsibilities (i.e.,

having to respond to Commission inquiries concerning small system

costs) on the very entities that we found were the most burdened by

regulation.

13. GMA fails to persuade us that the benefits of further analysis

of small system cost data would have outweighed the administrative

costs and delay that such analysis would have entailed. While GMA does

not dispute that such costs and delay would have been both inevitable

and extremely burdensome, it fails to factor these considerations into

its discussion. GMA bases its request for reconsideration on

[[Page 53574]]

the fact that the Bureau found allocation or calculation errors in the

cost of service cases it cites. However, the impact of the Bureau's

adjustments in the cited cases are overstated by GMA and do not

undermine the formulation of the $1.24 standard.

14. The Bureau decisions cited by GMA were based on general cost of

service principles and not under the interim rules the Commission

adopted in February 1994. As of the time of those filings, we had

directed cost of service operators to justify their rates in accordance

with traditional cost of service principles generally applicable in the

field of utility rate regulation. After seeking and reviewing further

public comment, we subsequently adopted more refined cost of service

rules better tailored for use in the cable service context. At the same

time, we designed Form 1220 for use in accordance with the new rules.

The cost data used in the Small System Order were gleaned from Form

1220s filed by small systems pursuant to cost of service rules adapted

specifically for use by cable operators. The specificity of the new

rules, combined with the uniformity of presentation required by Form

1220, makes the latter submissions inherently more reliable than the

earlier submissions cited by GMA. Thus, the errors in the filings

relied on by GMA do not suggest the likelihood of material inaccuracies

in the subsequent Form 1220 filings. This is particularly true given

the nature of the errors in the cases cited by GMA. In each case, the

errors were so minor that the Bureau found that the rates actually

being charged by the cable operator were nevertheless justified and

denied the complaint.

15. We further note that in the Small System Order, we decided that

standards applicable to cable systems generally were inappropriate for

small systems owned by small cable companies. In particular, we decided

that eligible small systems should be given more regulatory leeway than

larger cable entities because small systems face disproportionately

higher operating costs, capital costs, and regulatory compliance costs.

In fact, with respect to eligible small systems, we relaxed the very

standards that had caused the Bureau to make the adjustments described

in the cost of service cases cited by GMA.

16. GMA does not dispute that we should be less restrictive in

applying cost of service principles to small systems owned by small

cable companies. Yet it invites us to question cost information

submitted by such systems by applying the stricter standards that we

have found inappropriate for those systems. Because GMA's argument

relies on overly restrictive standards, we find that it has not raised

a material issue with respect to the reliability of those filings.

17. In addition to its specific challenge to the per channel rate

of $1.24, GMA recites several ``experiences'' of Georgia franchising

authorities that purport to show that the small system rules ``are

unfair to those franchising authorities who have invested a substantial

amount of time and money in the rate regulation process.'' GMA further

complains that these examples prove that ``the rules are unfair to

subscribers, because some cable operators will increase rates well

beyond the level which subscribers would pay if competition existed.''

These conclusory allegations do not refute the specific findings or

analyses set forth in the Small System Order and do not state a basis

for us to reconsider that order. Furthermore, franchising authorities

had no reasonable reliance interest in our rules remaining unchanged.

As for practices of the individual operators identified in the GMA

petition, we do not believe it is appropriate for us to make specific

findings in this context regarding the propriety of those practices. To

the extent cable operators fail to abide by our rules, local

franchising authorities may take appropriate action.

18. For the reasons stated above, we hereby deny GMA's petition for

reconsideration.

B. The New Jersey Board Petition

19. The New Jersey Board objects to the Small System Order to the

extent it requires local franchising authorities to permit eligible

systems to use the small system cost of service methodology in cases

pending as of the date the Small System Order was released. In support

of its petition, the New Jersey Board describes the potential impact of

the Small System Order upon a rate case pending before it. That case

involves the rates charged by Service Electric Cable TV of Hunterdon

(``Service Electric''). Service Electric filed a standard cost of

service showing with the New Jersey Board on July 14, 1994. Pursuant to

that showing, Service Electric sought to increase its monthly rates

from $21.00 to $26.31 for its 60-channel basic service tier. That case

was pending when the Commission released the Small System Order on June

5, 1995, although the staff of the New Jersey Board had negotiated a

tentative settlement with Service Electric that was subject to the

approval of the New Jersey Board. Before such approval occurred,

Service Electric gave notice of its intent to attempt to justify its

proposed rate increase by filing FCC Form 1230.

20. The New Jersey Board contends that under the small system cost

of service rules, Service Electric might be able to justify the rate

increase it sought in its initial showing to the Board or, potentially,

an even greater increase. According to the New Jersey Board, the rules

governing the information that a franchising authority may seek in

conjunction with its review of Form 1230 are so restrictive that it

will be ``difficult if not impossible to challenge'' the rate the

operator seeks to justify. The New Jersey Board also notes that under

the small system cost of service rules, the burden is on the

franchising authority to show the unreasonableness of the rate sought

by an eligible small system if that rate does not exceed $1.24 per

regulated channel. The New Jersey Board asserts that this

``unprecedented'' shift in the burden of proof will ``necessitate the

use of Board and State resources not usually required'' in order to

establish the unreasonableness of the rate sought by the cable

operator.

21. Based on the above, the New Jersey Board argues that it will be

``precluded from establishing whether Service Electric's subscribers

are being charged a reasonable rate,'' assuming the operator meets the

small system and small cable company definitions. The New Jersey Board

also asserts the alleged unfairness of applying the small system cost

of service rules to the pending case in light of the resources that it

already has expended in the case.

22. As an initial matter, we note that the petition seeks

reconsideration of a Commission rule of general applicability based

solely on the potential effect of that rule on a single rate case

affecting approximately 3,000 cable subscribers. The Commission is

charged with structuring a national framework of rate regulation. A

broader and more representative showing of the rule's impact is

necessary for us to review the merits of a particular rule or

regulatory approach.

23. Further, the New Jersey Board fails to refute the underlying

analysis supporting our decision to apply the new rules to pending

cases. We adopted this approach based upon our balancing of various

factors. With respect to rate regulation, Congress specifically

directed us to reduce the administrative burdens and ease the costs of

compliance for smaller systems. In the Small System Order, we concluded

that our then existing rules ``have significantly burdened small

systems.'' We designed the small system cost of service rules to remedy

this problem.

[[Page 53575]]

Having determined small systems' need for immediate relief, we deemed

it in the public interest to provide such relief accordingly. We

believe that it is appropriate to apply a new rule to pending cases

where the new rule serves to alleviate an existing restriction on

regulated parties, as the small system cost of service rules did by

creating an additional method for eligible systems to justify their

rates. In addition, were pending cases not made subject to the new

rules, subscribers in some areas might have received refunds when the

pending cases were decided, followed immediately by rate hikes when the

systems put new rates into effect prospectively in accordance with the

small system cost of service methodology. Applying the new small system

rules to pending cases avoids this confusing ``roller-coaster'' result.

24. We decided that the small system cost of service rules would

not affect final decisions of local franchising authorities made before

the release of the Small System Order. In these cases, the public

interest, and in particular the interests of administrative finality,

dictated that the final decision of a local franchising authority

should not be subject to reconsideration or appeal under the small

system rules.

25. By seeking reconsideration, the New Jersey Board suggests,

implicitly, that we erred in finding a need for immediate relief. Yet

it offers no arguments or evidence to refute this finding and thus

presents no basis to reconsider it. The New Jersey Board's statement of

a policy preference cannot overcome the evidence concerning the plight

of smaller systems that was before us when we adopted the Small System

Order. As James Cable Partners and Rifkin and Associates, Inc. argues,

it makes no sense ``to complete pending cases under pre-existing

criteria that do not embody the policy and statutory concerns that led

to the adoption of the Small System Order in the first place.''

Likewise, the New Jersey Board does not dispute the ``roller-coaster''

effect on rates that would result if the new rules were not applied to

pending cases.

26. The New Jersey Board contends that application of the small

system rules to the pending Service Electric case will result in a

waste of the resources it already has expended in that case. It objects

to our decision to place on the franchising authority the burden of

proving the unreasonableness of a proposed rate that does not exceed

$1.24 per regulated channel. The New Jersey Board suggests that the

presumption of reasonableness that will attach to such a rate, coupled

with the limitations on the information it can demand from the

operator, effectively will preclude it from determining whether a

particular rate is reasonable. We disagree.

27. We understand the frustration of the New Jersey Board with

respect to its prior expenditure of resources in accordance with the

standard cost of service rules. We note, however, that those

expenditures were made with notice of the possibility that we would

modify the rules governing small systems. Unfortunately, rule changes

and rule modifications sometimes lead to inefficiencies and disruptions

for both the regulator and the regulated. We are forced to balance

these factors against the impact of delaying implementation of the new

rule. Since the Service Electric case is the only matter in which a

franchising authority has articulated this concern, we cannot conclude

that the problem is so significant to require us to reconsider our

prior decision. We do not believe that the Small System Order will

result in squandered resources even in the Service Electric case. The

efforts already expended by the New Jersey Board in amassing data and

making factual determinations will not have been wasted since they are

relevant when the New Jersey Board decides the rate case in accordance

with the small system rules.

28. More generally, we disagree with the New Jersey Board's

characterization of the permissible scope of information requests that

a franchising authority may make when reviewing Form 1230. The Small

System Order expressly recognizes the right of franchising authorities

to obtain ``the information necessary for judging the validity'' of the

filing. No information has been submitted to indicate that anything

more than what this rule permits is necessary.

29. We further find that the New Jersey Board has failed to raise a

valid argument against imposing the burden of proof on the franchising

authority when the rate in question does not exceed $1.24 per channel.

What it terms an ``unprecedented shift in the burden of proof'' is the

logical extension of our determination that rates at or below $1.24 per

regulated channel appear reasonable. The New Jersey Board does not

challenge the analysis by which we arrived at the rate of $1.24 per

channel. While not disputing that rates at or below $1.24 per channel

can be presumed reasonable, the New Jersey Board would ignore this

finding in individual rate proceedings and continue to place upon the

cable operator the burden of establishing the reasonableness of its

requested rate, regardless of the amount. We believe that having made

the determination that rates at or below $1.24 per channel may by

presumed reasonable, we should shift the burden of proof to the

franchising authority when the operator seeks to justify rates that do

not exceed that amount. The New Jersey Board does not contest this

analysis and therefore we have no basis to reconsider our decision.

30. For these reasons, we hereby deny the New Jersey Board's

Petition. The New Jersey Board presents the same arguments in its

Motion for Stay as it does in its Petition. Therefore, for the same

reasons that we deny its Petition, we also deny the New Jersey Board's

Motion for Stay.

C. Other Matters

31. On our own motion, we clarify one aspect of our rule that

allocates the burden of establishing whether the rate claimed by a

cable operator under the small system cost of service methodology is

reasonable. As discussed above, the current rule states: ``If the

maximum rate established on Form 1230 does not exceed $1.24 per

channel, the rate shall be rebuttably presumed reasonable.'' Thus, the

current wording of the rule suggests that the burden depends on the

maximum rate permitted by Form 1230, not on the rate that the operator

intends to charge. Such an interpretation would create an anomaly where

an operator determines that its maximum permitted rate is above $1.24

per regulated channel, but does not actually intend to charge more than

$1.24. We did not intend for the operator to have the burden of

overcoming all of the presumptions we generally found to be

inappropriate for eligible small systems, if the actual rate the

operator seeks to charge is within the zone of what we presume to be

reasonable. To eliminate this potential confusion, we hereby clarify

that the presumption of reasonableness shall apply as long as the

actual rate to be charged does not exceed $1.24 per regulated channel,

regardless of whether the maximum permitted rate, as calculated on Form

1230, exceeds that amount. The burden shall shift back to the operator

once it seeks to actually raise rates above the $1.24 per channel

threshold.

32. We also take this opportunity to correct three editing errors

that appeared in the rules appendix to the Small System Order. These

corrections do not amend the substance of the rules in any way.

33. In the Small System Order, we provided for the treatment of a

small system that properly sets its rates in

[[Page 53576]]

accordance with the small system cost of service methodology, but later

experiences a change in its status, either because the system exceeds

the 15,000-subscriber cap for a small system or because the operator

exceeds the 400,000-subscriber threshold for a small cable company.

While the text of the order explained the regulatory effect of such a

transition, the accompanying rules did not. Here we amend the rules

consistent with the text of the Small System Order.

34. As discussed above, the Small System Order provided for the

application of the small system cost of service rules to cases pending

as of the release date of the order if the cable operator in question

met the subscriber threshold criteria as of the release date and as of

the date the system became subject to rate regulation. The rules

appendix inadvertently referred to the effective date, instead of the

release date, of the Small System Order for purposes of this rule. We

hereby revise the text of Sec. 76.934(h)(9) of our rules to conform it

with our intent as set forth in the Small System Order.

35. Due to an editing error, the rules appendix to the Small System

Order did not accurately indicate that we were revising the eligibility

criteria for streamlined rate reduction to incorporate the new small

system and small cable company definitions established in the Small

System Order. We hereby amend Sec. 76.922(b)(5) of our rules to conform

it with our intent as set forth in the Small System Order.

V. Final Regulatory Flexibility Certification

36. As permitted by Section 605(b) of the Regulatory Flexibility

Act, 5 U.S.C. 605(b), (``RFA''), we certify that a regulatory

flexibility analysis is not necessary because the amendments to the

rules adopted in this order will not impose a significant economic

impact on a substantial number of small entities as defined by statute,

by our rules, or by the Small Business Administration. 5 U.S.C. 605(b).

Three of the amendments merely correct the rules and have no

substantive effect. In addition, we clarified that the operator's

presumption of reasonableness is preserved when the operator's actual

rate charged does not exceed $1.24 per regulated channel, regardless of

the maximum permitted rate calculated on Form 1230. Because this

clarification will benefit small systems owned by small cable

companies, we believe a regulatory flexibility analysis is unnecessary.

This certification conforms to the RFA, as amended by the Small

Business Regulatory Enforcement Fairness Act of 1996.

37. The Commission will send a copy of this certification, along

with this order, in a report to Congress pursuant to the Small Business

Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A), and

to the Chief Counsel for Advocacy of the Small Business Association, 5

U.S.C. 605(b).

VI. Ordering Clauses

38. Accordingly, It Is Ordered that, pursuant to the authority

granted in sections 4(i), 4(j), 303(r), and 623 of the Communications

Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 303(r), and 543, the

petitions for reconsideration filed by the Georgia Municipal

Association and the New Jersey Board of Public Utilities, and the

Motion for Stay filed by the New Jersey Board of Public Utilities, are

denied.

39. It Is Further Ordered that, pursuant to the authority granted

in sections 4(i), 4(j), 303(r), and 623 of the Communications Act of

1934, as amended, 47 U.S.C. 154(i), 154(j), 303(r), and 543, 76.922 and

76.934 of the Commission's rules, 47 CFR 76.922 and 76.934, are amended

as set forth below.

40. It Is Further Ordered that the Commission shall send a copy of

this Fourteenth Order on Reconsideration, including the Final

Regulatory Flexibility Certification, to the Chief Counsel for Advocacy

of the Small Business Administration.

List of Subjects in 47 CFR Part 76

Administrative practice and procedure, Cable television, Reporting

and recordkeeping requirements.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

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: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a,

307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533,

534, 535, 536, 537, 543, 544, 544a, 545, 548, 552, 554, 556, 558,

560, 561, 571, 572, 573.

2. Section 76.922 is amended by revising paragraph (b)(5)(i)

introductory text to read as follows.

Sec. 76.922 Rates for the basic service tier and cable programming

services tiers.

* * * * *

(b) * * *

(5) Streamlined rate reductions. (i) Upon becoming subject to rate

regulation, a small system owned by a small cable company may make a

streamlined rate reduction, subject to the following conditions, in

lieu of establishing initial rates pursuant to the other methods of

rate regulation set forth in this subpart:

* * * * *

3. Section 76.934 is amended by revising paragraphs (h)(5)(i) and

(h)(9) and by adding paragraph (h)(11) to read as follows:

Sec. 76.934 Small systems and small cable companies.

* * * * *

(h) * * *

(5) * * *

(i) If the maximum rate established on Form 1230 does not exceed

$1.24 per channel, the rate shall be rebuttably presumed reasonable. To

disallow such a rate, the franchising authority shall bear the burden

of showing that the operator did not reasonably interpret and allocate

its cost and expense data in deriving its annual operating expenses,

its net rate base, and a reasonable rate of return. If the maximum rate

established on Form 1230 exceeds $1.24 per channel, the franchising

authority shall bear such burden only if the rate that the cable

operator actually seeks to charge does not exceed $1.24 per channel.

* * * * *

(9) In any rate proceeding before a franchising authority in which

a final decision had not been issued as of June 5, 1995, a small system

owned by a small cable company may elect the form of rate regulation

set forth in this section to justify the rates that are the subject of

the proceeding, if the system and affiliated company were a small

system and small company respectively as of the June 5, 1995 and as of

the period during which the disputed rates were in effect. However, the

validity of a final rate decision made by a franchising authority

before June 5, 1995 is not affected.

* * * * *

(11) A system that is eligible to establish its rates in accordance

with the small system cost-of-service approach shall remain eligible

for so long as the system serves no more than 15,000 subscribers. When

a system that has established rates in accordance with the small system

cost-of-service approach exceeds 15,000 subscribers, the system

[[Page 53577]]

may maintain its then existing rates. After exceeding the 15,000

subscriber limit, any further rate adjustments shall not reflect

increases in external costs, inflation or channel additions until the

system has re-established initial permitted rates in accordance with

some other method of rate regulation prescribed in this subpart.

[FR Doc. 97-27151 Filed 10-14-97; 8:45 am]

BILLING CODE 6712-01-P