[Federal Register Volume 60, Number 193 (Thursday, October 5, 1995)]
[Rules and Regulations]
[Pages 52106-52121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24756]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76

[MM Docket No. 92-266, FCC 95-397]


Cable Television Act of 1992

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted a Thirteenth Order on 
Reconsideration in MM Docket 92-266 to simplify rules affecting cable 
operators' rates and to provide cable operators with an additional 
option for adjusting their rates. This streamlined methodology 
encourages operators to limit rate increases to once per year rather 
than up to 4 times per year under the existing methodology. It will 
also limit delays in recovering costs that operators have experienced 
under the current system. This streamlined rate review process benefits 
all affected parties. An annual rate adjustment option could eliminate 
subscriber confusion and frustration because subscribers will not have 
to contend with numerous rate increases during a given year. Annual 
adjustments also benefit cable operators because filing for rate 
increases and providing notice to subscribers of such rate increases 
once per year is more efficient. Regulatory authorities benefit from an 
annual rate adjustment system because such a system minimizes the 
number of rate adjustments they have to review each year.

EFFECTIVE DATE: November 6, 1995, except that new reporting 
requirements shall take effect thirty (30) days after approval of the 
Office of Management and Budget. At a later date, the Commission will 
publish a document specifying the effective date.

FOR FURTHER INFORMATION CONTACT: Nancy Stevenson (202) 416-1190.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Thirteenth Order 
on Reconsideration in MM Docket No. 92-266, FCC 95-397, adopted 
September 15, 1995 and released September 22, 1995.
    The complete text of this Thirteenth Order on Reconsideration is 
available for inspection and copying during normal business hours in 
the FCC Reference Center (room 239), 1919 M Street, NW., Washington, DC 
and also may be purchased from the Commission's copy contractor, 
International Transcription Services, Inc. (``ITS, Inc.'') at (202) 
587-3800, 2100 M Street, NW., Suite 140, Washington, DC 20037.

[[Page 52107]]


Synopsis of the Thirteenth Order on Reconsideration

Introduction

    The Cable Television Consumer Protection and Competition Act of 
1992 (``the 1992 Cable Act'') required the Commission to prescribe rate 
regulations that protect subscribers from having to pay unreasonable 
rates by ensuring that basic service tier (``BST'') and cable 
programming service tier (``CPST'') rate levels do not exceed rates 
that would be charged in the presence of effective competition. The 
1992 Cable Act directed the Commission to ``seek to reduce 
administrative burdens on subscribers, cable operators, franchising 
authorities and the Commission'' in meeting this mandate.
    Based on information we have secured from operators, we have 
concluded that we should further streamline the rate review process in 
ways that will benefit subscribers, cable operators, local franchising 
authorities, and the Commission. The current process allows, and to 
some degree encourages, operators to file for multiple rate adjustments 
during each year. This process can be costly for operators because they 
must file Form 1210s and provide subscribers with 30 days' advance 
written notice each time they file for a rate adjustment. In addition, 
multiple rate adjustments in one year could create subscriber 
confusion. Multiple rate adjustments also impose administrative burdens 
on regulatory authorities because they must review each proposed rate 
adjustment.
    We have found that under the current rate framework, some operators 
are delayed when attempting to recover their costs because they are not 
permitted to file for recovery of external cost increases and additions 
of new channels until the quarter after costs are incurred or channel 
changes are made. Operators may experience further delay while 
regulatory authorities review the proposed adjustments. Further, 
operators are never able to recover costs between the date they are 
incurred and the date a rate adjustment is permitted. Also, under the 
so-called ``use or lose'' provision of the current rules, operators 
must file for rate increases that reflect cost increases within one 
year of the date they first incur those additional costs, or else lose 
the ability to pass through those costs.
    In order to address these concerns, we are adopting on our own 
motion a new optional rate adjustment methodology where cable operators 
will be permitted to make only annual rate changes to their BSTS and 
CPSTs. Operators that elect to use this new methodology will adjust 
their rates once per year to reflect reasonably certain and reasonably 
quantifiable changes in external costs, inflation, and the number of 
regulated channels that are projected for the 12 months following the 
rate change. Because operators will be permitted to estimate cost 
changes that will occur in the 12 months following the rate filing, we 
expect that this methodology will limit delays in recovering costs that 
operators may experience under the current system. Any incurred cost 
that is not projected may be accrued with interest and added to rates 
at a later time. If actual and projected costs are different during the 
rate year, a ``true up'' mechanism is available to correct estimated 
costs with actual cost changes. The `'true up'' requires operators to 
decrease their rates or alternatively, permits them to increase their 
rates to make adjustments for over- or under-estimations of these cost 
changes. Operators would not lose the right to make a rate increase at 
a later date if they choose not to implement a rate adjustment at the 
beginning of the next rate year. Finally, in order that operators not 
feel compelled to make rate filings or increase rates when they 
otherwise would not, we will eliminate the ``use or lose'' requirement 
for operators that elect this methodology.
    We believe that operators will benefit from this system because it 
will alleviate the difficulty of delays for rate adjustments that they 
now experience and will permit them to utilize annual rate adjustments 
without the loss of revenues they now incur as a result of the current 
methodology. Subscriber confusion will be alleviated because rate 
adjustments will take place once per year. Moreover, subscribers will 
be protected by this system because if an operator overestimates its 
permitted rate increase as a result of its projections, the operator 
would be required to rectify the error with interest when makes its 
rate adjustment at the beginning of the next rate year. Finally, 
franchising authorities and the Commission will benefit from this 
methodology because they will not be required to review more than one 
rate adjustment per year.
    We are also requiring operators that elect the annual rate 
adjustment methodology to file BST rate adjustment requests 90 days 
prior to the effective date of the proposed changes. Operators may 
implement rate changes as proposed in their filings 90 days after they 
file unless the franchising authority rejects the proposed rate as 
unreasonable. If the franchising authority has not issued a rate 
decision and the operator makes a rate adjustment after the 90-day 
period has expired, the franchising authority may order a prospective 
rate reduction and refunds at a later time, where appropriate. The 
franchising authority need not issue an accounting order to preserve 
its right to issue its rate order after the 90-day review period. 
However, if an operator inquires as to whether the franchising 
authority intends to issue a rate order after the 90-day review period, 
the franchising authority must notify the operator of its intent in 
this regard within 15 days of the operator's request of lose its 
ability to order a refund or a prospective rate reduction. If a 
proposed rate goes into effect before the franchising authority issues 
its rate order, the franchising authority will have 12 months from the 
date the operator filed for the rate adjustment to issue its rate 
order. In the event that the franchising authority does not act within 
this time, it may not at a later date order a refund or a prospective 
rate reduction with respect to the rate filing.
    An operator that has a CPST complaint pending against it or has 
been ordered by the Commission to reduce its CPST rates, and that 
elects the annual rate adjustment option, must propose the annual rate 
adjustment at least 30 days prior to the effective date of the rate 
change. The Commission can deny an increase before the end of the 30-
day period, but if the Commission does not act within 30 days, the 
operator may implement the rate increase as proposed on the Form 1240. 
The increase would go into effect, subject to a prospective rate 
reduction and refund, where appropriate, which the Commission may order 
at a later time.
    Although operators that elect the annual rate adjustment option 
generally will not be permitted to make more than one rate adjustment 
per year, we will permit operators to make rate adjustments for the 
addition of channels to BSTs that the operator is required by federal 
or local law to carry, i.e., new must-carry, local origination, public, 
educational and governmental access and leased access channels. 
Franchising authorities will have 60 days to review these increases 
prior to their going into effect. The proposed rate adjustment will go 
into effect 60 days after filing unless the franchising authority finds 
that the adjustment would be unreasonable. We also will allow operators 
to make one additional rate adjustment during the year to reflect 
channel additions to CPSTs, and to BSTs where the operator offers only 
one regulated tier. Operators may make this additional rate adjustment 
reflecting channel additions to CPSTs at any time during the year. 
Subject to the existing 

[[Page 52108]]
going forward rules, which affect the amount by which an operator can 
increase its rates, operators will have no limit on the number of 
channels they may add when they make this rate adjustment during the 
year.
    Operators that elect the annual rate adjustment system must file 
for rate adjustments for equipment and installations on Form 1205 on 
the same date that they file for their other rate adjustments on Form 
1240. Therefore, for operators that elect to use the annual rate 
adjustment methodology, we are changing the current rule which requires 
operators to file 60 days after the close of their fiscal year. In 
addition, we will continue to require operators to base their proposed 
annual customer equipment and installations rate adjustments on past 
costs because we believe that it would be far more difficult to project 
reasonably certain and reasonably quantifiable changes in equipment and 
installation costs. We also will require that when an operator 
introduces a new type of equipment, the operator must file for a rate 
adjustment no later than 60 days before the date the operator intends 
to charge subscribers for the new type of equipment. The proposed rate 
would go into effect at the end of this 60-day period unless the 
franchising authority rejects the proposed rate as unreasonable or the 
franchising authority finds that the operator has submitted an 
incomplete filing.
    Operators that do not elect to use the annual rate adjustment 
system may continue to use the existing system which allows operators 
to make rate adjustments up to once per calendar year quarter. With 
respect to the current quarterly rate adjustment system, this order 
affirms our decision in the Fourth Reconsideration Order 59 FR 53113 
(10/21/94) to allow operators to pass through changes in franchise fees 
and Commission regulatory fees within 30 days of filing for a rate 
adjustment reflecting these costs unless the franchising authority 
finds that these rate adjustments are unreasonable before the 30-day 
period has expired.
    This Order will also simplify the rate review process by 
eliminating our current practice of reviewing the entire CPST rate 
after receiving a CPST complaint. On the effective date of these rules, 
this system of rate regulation, commonly referred to as ``all rates in 
play,'' will be eliminated for CPSTs that have not been subject to a 
rate complaint. Following that date, CPST rate complaints will require 
a Commission determination whether the amount of the rate increase 
complained about is reasonable.
    In addition, we clarify that for purposes of adjusting rates to 
reflect increases in franchise requirement costs, operators are 
entitled to pass through any increases in costs that are specifically 
required by franchise agreements, provided that the recovery of costs 
may not encompass costs the operator would incur in the absence of the 
franchise requirement. Consistent with this goal, operators are 
permitted to pass through to subscribers (a) cost increases associated 
with technical standards and customer service standards that exceed 
federal requirements; (b) cost increases attributable to satisfying 
franchise requirements to support public, educational and governmental 
access; (c) increases in the costs of providing institutional networks, 
video services, voice transmissions and data services to or from 
governmental institutions and educational institutions, including 
private schools; and (d) cost increases associated with a franchise 
requirement that an operator remove cable from utility poles and place 
the same cable underground.
    Further, the Order affirms the Commission's decision to permit 
operators to advertise rates for regulated cable services regionally 
using a single tier rate plus a franchise fee. The order also permits 
franchising authorities to determine the method by which franchise fee 
overpayments are returned to cable operators. However, franchising 
authorities must return overpayments within a reasonable period of 
time.

Annual Rate Adjustments for Basic Services and Cable Programming 
Services

    We believe that the current price cap adjustment system generally 
protects subscribers from unreasonable rates. Nevertheless, with the 
benefit of more than one year of experience with the current system, we 
have found that there are some disadvantages to the current price cap 
adjustment mechanism. One of our concerns about the current system is 
that operators file for multiple rate adjustments each year because 
they realize cost increases throughout the year and are unable to 
adjust their rates to recover these costs until after these costs are 
incurred. We believe that this process can be costly and inefficient 
because operators must file a Form 1210 and provide subscribers with 30 
days' advance written notice each time they file for a rate adjustment. 
In addition, we are concerned that multiple rate adjustments in one 
year can cause confusion among subscribers. Furthermore, each rate 
adjustment imposes an administrative burden on regulatory authorities 
who must review the adjustment.
    We also are concerned about the delays that operators may 
experience in recovering their costs under the current rate adjustment 
system. Because operators incur costs before they can file for rate 
adjustments and they often experience delays in being able to implement 
rate adjustments after they have filed for them, they never recover 
costs that are incurred as a result of these delays.
    Moreover, the current rate adjustment system provides that if an 
operator waits more than 12 months to make rate adjustments reflecting 
increases in external costs and the number of regulated channels, the 
operator loses the ability to recover for these cost increases. In 
addition, operators are required to make their annual inflation 
adjustment during an eleven month period or lose the ability to make 
that inflation adjustment. Although we adopted these rules to ensure 
that subscribers do not experience rate shock in cases where an 
operator delays implementing large numbers of rate increases, we are 
concerned that the ``use or lose'' mechanisms may result in some cable 
operators charging higher rates before they would otherwise elect to 
adjust their rates.
Annual Rate Adjustment System
    In order to address these concerns, on our own motion we are 
adopting a new optional rate adjustment methodology that encourages 
cable operators to make only annual rate changes to their BSTs and 
CPSTs. Following the approval of the new Form 1240 by the Office of 
Management and Budget, operators may choose between the existing 
quarterly rate adjustment system and a new annual rate adjustment 
system. Operators that elect to use the new methodology would adjust 
their rates once a year to reflect changes in external costs, 
inflation, and the number of regulated channels that they expect to 
occur during the 12 months following the rate change. Because operators 
will be permitted to project changes that will occur in the 12 months 
following the rate filing, we expect that this methodology will limit 
delays that operators experience under the current system. Any cost 
that is not projected may be accrued and added to rates, with 11.25% 
interest, when the operator makes its next filing. Moreover, at the end 
of the rate year, operators ``true up'' their projected changes to 
correct for differences between actual and projected costs during the 
rate year. Operators would not lose the right to 

[[Page 52109]]
make rate increases at a later date if they choose not to implement a 
rate change at the beginning of the next rate year. Moreover, if an 
operator overestimates its permitted rate as a result of its 
projections, the operator would be required to correct this 
overestimation, with interest, when it makes its next rate adjustment 
at the beginning of the next rate year.
    We believe that this annual rate adjustment option will benefit 
subscribers, cable operators, franchising authorities, and the 
Commission. Annual rate modifications would limit subscriber confusion 
and frustration, for example, because subscribers would not have to 
contend with numerous rate adjustments during a given year. An annual 
adjustment makes good business sense for cable operators because it 
would allow them to file for a rate increase and provide notice to 
subscribers of such rate increases once a year. Regulatory authorities 
benefit from an annual rate adjustment system because it will minimize 
the number of rate adjustments they have to review each year.
    Moreover, the annual filing option addresses concerns raised by 
some cable operators that under the current system they can experience 
delays in recovering costs. Under the quarterly system, the operator 
will begin recovering these costs prospectively once the rate is 
approved, but will never recover the costs incurred during a period in 
which adjustments to its rates to reflect cost changes were delayed. 
However, operators that elect the annual system will face minimal 
delays in recovering their costs because they are permitted to adjust 
their rates to reflect reasonably certain and reasonably quantifiable 
changes that will occur up to 12 months after the rate adjustment will 
take effect. Moreover, even in cases where there are delays in cost 
recovery, the operator will be made whole because it will be permitted 
to recover for the accrual of unrecovered costs plus 11.25% interest 
between the date costs are incurred and the date the rate adjustment is 
made.
    Subscribers are protected by this system because if an operator 
overestimates its permitted rate as a result of its projections, the 
operator would be required to account for this overestimation plus 
11.25% interest when it makes its next rate adjustment at the beginning 
of the next rate year.
    On our own motion, we are also eliminating the ``use or lose'' 
mechanism for inflation, increases in external costs and increases in 
the number of channels for operators that elect the annual rate 
adjustment method. As a result, operators will not have to file more 
frequently than they would otherwise in order to recover costs they 
have incurred. In addition, subscribers will, in many cases, receive 
the benefit of having rate increases delayed.
    The annual option applies to all rate changes: inflation, changes 
in external costs, changes in the number of regulated channels, and 
changes in equipment and installation costs. Under this option, an 
operator would file an FCC Form 1240 once a year for the purpose of 
making rate adjustments to reflect changes in external costs, 
inflation, and the number of regulated channels on a tier. On the same 
date that it files an FCC Form 1240, the operator also would file an 
FCC Form 1205 for the purpose of adjusting rates for regulated 
equipment and installations.
    Operators may choose the annual filing date, but they must notify 
the franchising authority of their proposed date prior to their filing. 
Franchising authorities or their designees may reject the annual filing 
date chosen by the operator for good cause. For example, where a City 
Council must approve the rate adjustments at issue, if the review 
period the operator chooses coincides with a City Council recess, the 
franchising authority would be justified in rejecting the operator's 
chosen filing date. A franchising authority may not reject an 
operator's filing date, however, for the purpose of delaying an 
operator's ability to make rate adjustments. If the franchising 
authority finds good cause to reject the proposed filing date, the 
franchising authority and the operator should work together in an 
effort to reach a mutually acceptable date. If no agreement can be 
reached, the franchising authority may set the filing date up to 60 
days later. In addition, operators that elect annual rate adjustments 
may change their filing dates from year-to-year, but at least twelve 
months must pass before the operator can implement its next annual 
adjustment.
    Operators must use the annual or quarterly methodology for both 
BSTs and CPSTs. This requirement makes BST and CPST cost assumptions on 
an equivalent basis and ensures that subscribers receive the full 
benefit of the annual rate adjustment methodology, i.e., a minimal 
number of rate adjustments.
    Although we do not expect that operators will want to switch 
between the annual rate adjustment option and the quarterly option, our 
new rules will permit switching, provided they meet certain conditions. 
Whenever an operator switches from the current quarterly system to the 
annual system, the operator may not file a Form 1240 earlier than 90 
days after the operator proposed its last rate adjustment on a Form 
1210. This will give regulatory authorities a reasonable period of time 
to complete their review of an operator's previous rate increase 
request before it begins reviewing an annual rate adjustment request. 
Similarly, when an operator changes from the annual system to the 
quarterly system, the operator may not return to a quarterly adjustment 
using a Form 1210 until a full quarter after it has filed a true up of 
its annual rate on a Form 1240 for the preceding period. This will 
ensure that operators do not file a Form 1210 until after the initial 
regulatory review period for the true up on the Form 1240 has expired. 
It will also prevent operators from being able to double recover for 
changes in their expenses because the rate period under the annual 
system and the quarterly system will not coincide.
    The Commission will review this new annual rate adjustment option 
prior to December 31, 1998 to determine whether the new option is 
producing the expected benefits and whether the quarterly system should 
be eliminated and replaced with the annual rate adjustment system.
Regulatory Review Period for Annual Rate Changes
a. Basic Service Tier
    Operators that elect the annual rate adjustment methodology must 
file BST rate change requests at least 90 days prior to the date they 
plan to implement the proposed changes. Operators may implement rate 
changes as they have proposed in their filings 90 days after they file 
unless the franchising authority rejects the proposed rate as 
unreasonable. If the franchising authority has not issued a rate 
decision and the operator makes a rate adjustment after the 90-day 
period has expired, the franchising authority may order a prospective 
rate reduction and refunds at a later time, where appropriate. The 
franchising authority need not issue an accounting order to preserve 
its right to require a refund after the 90-day review period. However, 
if at the end of the 90-day review period an operator inquires as to 
whether the franchising authority is continuing to review the 
operator's filing, the franchising authority or its designee must 
respond to the operator within 15 days of receiving the inquiry. 
Failure to reply in the requisite amount of time will result in the 
franchising authority losing its ability to issue 

[[Page 52110]]
refunds or to order prospective rate reductions. In its response, the 
franchising authority must indicate whether it is continuing to review 
the operator's filing. If a proposed rate goes into effect before the 
franchising authority issues its rate order, the franchising authority 
will have 12 months from the date the operator filed for the rate 
adjustment to issue its rate order. In the event that the franchising 
authority does not act within the 12-month period, it may not at a 
later date order a refund or a prospective rate reduction with respect 
to the rate filing. We set this time constraint on franchising 
authorities because we believe that one year should provide ample time 
for review, and because operators need to have certainty with respect 
to their liability for refunds and whether their rates will be 
permitted to remain in effect.
    We believe that a 90-day regulatory review period strikes a good 
balance among the interests of subscribers, franchising authorities and 
cable operators. If operators were required to file any more than 90 
days before a rate adjustment is scheduled to take effect, they would 
encounter much greater difficulty in projecting their costs accurately. 
On the other hand, if operators were permitted to file less than 90 
days before a rate adjustment is scheduled to take effect, franchising 
authorities may not have enough time to review a complete rate filing 
because the franchising authority must simultaneously determine whether 
an operator has (a) justified projected inflation, changes in external 
costs, and changes in the number of regulated channels; (b) accurately 
estimated any undercharges or overcharges in its true up of the 
previous year; and (c) accurately determined its actual costs for 
customer equipment and installations in its annual Form 1205 filing. 
Without ample time to review operators' rate filings, franchising 
authorities may be unable to ensure that subscribers are paying 
reasonable rates for BSTs. This 90-day review period will also help 
operators develop their business plans because it provides them with 
certainty as to when rate changes will become effective.
    If there is a material change in an operator's circumstances during 
the 90-day review period and the change affects the operator's rate 
change filing, the operator may file an amendment to its Form 1240. 
Such an amendment must be filed, however, before the end of the 90-day 
review period. If the operator files such an amendment to its filing, 
the franchising authority will have at least 30 days to review the 
filing. Therefore, if the amendment is filed more than 60 days after 
the operator made its initial filing, the operator's proposed rate 
change may not go into effect any earlier than 30 days after the filing 
of its amendment. However, if the operator files its amended 
application on or prior to the sixtieth day of the 90-day review 
period, the operator may implement is proposed rate adjustment, as 
modified by the amendment, 90 days after its initial filing.
b. Cable Programming Services Tiers
    Section 76.960 of the Commission's rules provides that if the 
Commission has ordered an operator to make a prospective rate reduction 
for a CPST, the rate reduction will be binding on the operator for one 
year, unless the Commission specifies otherwise. Accordingly, operators 
that have been required to reduce their CPST rates have not been 
permitted to increase their rates under our price cap rules for one 
year without prior Commission approval.

Treatment of Franchise Fees and Commission Regulatory Fees Under 
Quarterly Rate Adjustment Option

    We affirm our decision to permit operators that file rate 
adjustments under the quarterly system to pass through franchise fees 
within 30 days of filing unless the franchising authority finds that 
the rate adjustment is unreasonable before 30 days has expired. If the 
franchising authority does not issue a rate decision within this 30 day 
period, the proposed rate will go into effect, subject to subsequent 
refund orders. In order to issue a refund order, the franchising 
authority must issue a written order at the end of the 30 day period 
directing the operator to keep an accurate account of all amounts 
received by reason of the proposed rate and on whose behalf such 
amounts are paid.
    We do not believe this rule presents a serious risk of harm to 
subscribers because, contrary to the assertions of Local Governments, 
we believe franchising authorities normally should be able to complete 
their review of rate adjustments reflecting the pass through of 
franchise fees within 30 days of an operator's filing. In most cases, 
the franchising authority's review of the franchise fee pass through 
generally should entail minimal administrative burdens since the 
franchising authority is intimately familiar with how the fee is 
assessed. Because the operator pays the franchise fee to the 
franchising authority, there should not be any dispute over the amount 
of franchise fees that were actually paid to the franchising authority. 
Further, the franchise fee is generally easily determined by computing 
a fixed percentage of the operator's gross annual revenues or some 
other easily ascertainable amount. We find that franchising authorities 
can easily determine how the pass through of such fees should be 
reflected in a BST rate adjustment because the entire cost of franchise 
fees is directly assigned to the BST. Finally, to the extent franchise 
fees are miscalculated, we believe that our approach fully protects 
subscribers' interests in paying reasonable rates because franchise fee 
increases are subject to refunds.
    As with all other rate adjustment filings, if an operator files for 
a rate adjustment to reflect an increase in franchise fees and fails to 
complete its rate justification form or to include supporting 
information called for by the form, the franchising authority may order 
the cable operator to file supplemental information. While the 
franchising authority is waiting to receive this information from the 
cable operator, the deadline for the franchising authority to rule on 
the reasonableness of the proposed rates is tolled. Once the 
supplemental information has been filed with the franchising authority, 
the time for determining the reasonableness of the rate by the 
franchising authority will recommence. We believe that this requirement 
is essential if franchising authorities are going to have the minimum 
information necessary to complete a review of an operator's rate 
adjustment request within 30 days of the filing.
    We affirm our decision to permit operators to pass through 
Commission annual regulatory fees as external costs. As we stated in 
the Fourth Reconsideration Order, Commission annual regulatory fees 
should be afforded external cost treatment because they are 
exceptional, newly imposed, governmentally assessed fees that are 
easily measurable and beyond the control of operators. We disagree with 
NATOA's argument that Commission regulatory fees are like CARS fees in 
that they do not impose a significant financial burden on cable 
operators. We find that Commission regulatory fees can reach 
significant levels because they are assessed on a per subscriber basis, 
as opposed to CARS fees, which are assessed on a flat fee basis of $220 
per license and which comprise only a small expense for most cable 
systems.
    In addition, with respect to operators that elect to file rate 
adjustments under the quarterly system, we affirm our 

[[Page 52111]]
decision to permit operators to adjust rates on account of changes in 
Commission regulatory fees within 30 days of filing. We do not believe 
this rule presents a serious risk of harm to consumers because we 
believe franchising authorities normally should be able to complete 
their review of rate adjustments reflecting the pass through of 
Commission annual regulatory fees within 30 days of an operator's 
filing. In most cases, the franchising authority's review of the 
franchise fee pass through should entail minimal administrative burdens 
because the amount of any rate adjustment reflecting an increase should 
be easy to determine since it is fixed on a per subscriber basis. To 
the extent Commission annual regulatory fees are miscalculated, we 
believe that our approach fully protects subscribers' interests in 
paying reasonable rates because fee increases are subject to refunds.
    We also affirm our decision to require operators to assign the 
Commission's annual regulatory fee directly to the BST. As we noted in 
the Fourth Reconsideration Order, the fee is intended to reimburse the 
Commission for its costs of regulating cable service, including 
oversight of basic cable service and other regulatory activities. We 
continue to believe that direct assignment to the BST is the most 
equitable means of permitting cable systems to pass through regulatory 
fees to subscribers because cable system annual regulatory fees are 
assessed on a per subscriber basis and all subscribers receive the BST. 
If we were to allocate these costs among the tiers, some subscribers 
would pay more than others even though the cost is imposed on the cable 
operator evenly per subscriber. Moreover, the administrative burdens 
associated with calculating and assigning fees among the BST and CPSTs 
weigh against such an assignment.

External Cost Treatment of Franchise Requirements

    On reconsideration, we believe that operators should be permitted 
to include increases in franchise requirement costs that the operator 
would not have incurred in the absence of the franchise requirement. 
Such increases include both new requirements that the franchising 
authority imposes and increases in the cost of complying with existing 
requirements. Our current rules permit external cost treatment for 
increases in the cost of satisfying franchise requirements for (a) PEG 
access channels, (b) public, educational, and governmental access 
programming, and (c) customer service standards and technical standards 
that exceed federal requirements. In our view, such increased costs 
would not have been incurred in the absence of a franchise agreement 
because we believe that the operator would not have chosen to provide 
such services.
    We believe that operators also should be permitted to pass through 
increases in the costs of institutional networks and the provision of 
video services, voice transmissions and data transmissions to or from 
governmental institutions and educational institutions, including 
private schools, to the extent such services are required by the 
franchise agreement. We believe that such costs should be afforded 
external cost treatment because we believe that operators generally 
would not provide such services in the absence of a franchising 
requirement. Because such costs are largely beyond the control of the 
cable operator, we believe they should be passed on to subscribers 
without a cost-of-service showing.
    In addition, under certain circumstances, we will permit operators 
to pass through to subscribers the cost of meeting franchise 
requirements that they remove aerial facilities and place them 
underground. However, the external cost pass through should be limited 
to cases where the operator has been required to actually remove cable 
from utility poles and place the same cable underground. We do not 
believe that external cost treatment should be afforded in cases where 
the franchise agreement requires the operator to place new cable 
facilities underground because we believe that this is a cost 
associated with a rebuild or an upgrade of the cable system and we have 
determined that we will not permit external cost treatment of upgrades 
or rebuilds. Moreover, costs associated with placing cable underground 
in these circumstances are costs that the operator could have incurred 
in absence of the franchise requirement as a result of the upgrade or 
rebuild.
    We believe that increased costs resulting from normal maintenance 
or from a simple expansion of service within the franchise area should 
not be subject to external treatment. An operator may not pass through 
the costs associated with expanding the reach of its cable system even 
if such expansion is contained in the franchise documents. Accordingly, 
we reject NCTA's suggestion that external cost treatment should be 
imposed as long as the service is ``specifically required'' in the 
franchise agreement. Such a formulation of the rule could encompass 
costs that the cable operator could have incurred even in the absence 
of a specific franchise requirement or would be obligated to incur 
under pre-existing federal standards. We reject NATOA's suggestion to 
allow only obligations enumerated in a franchise agreement by a 
specific dollar amount as unduly complicating franchise negotiations. 
This would require parties to specify the costs of providing certain 
services or facilities where such costs may not be certain when the 
contract is negotiated.
    As for the timing of the pass throughs of these costs, the operator 
will be required to amortize the cost of franchise imposed capital 
expenditures over the useful life of the items. We find such treatment 
appropriate because current subscribers should not be required to pay 
all costs associated with a service that will benefit future ratepayers 
as well. Consistent with interim rules governing cost-of-service 
showings, we find that operators will be permitted to recover an 11.25% 
rate of return on this investment.

Advertising of Rates

    On reconsideration, we continue to believe that cable system 
operators covering multiple franchise areas that have different 
franchise fees, franchise costs, channel line-ups, or rate structures 
should be permitted to use the ``fee plus'' approach when they 
advertise their rates. We find that the ``fee plus'' approach provides 
operators that cover multiple franchise areas the flexibility to 
efficiently advertise their services to consumers. We disagree with 
Local Governments' assertion that the ``fee plus'' approach violates 
Section 622(c) of the Communications Act. Section 622(c) permits 
operators to itemize certain fees imposed by franchise and governmental 
authorities. While operators are allowed to itemize certain fees on a 
subscribers bill, Congress intended that cable operators only be 
permitted to require one payment from subscribers for services. We find 
that because the ``fee plus'' approach only addresses how an operator 
serving multiple franchise areas may advertise services, it is not 
related to the operator's billing practices and does not, therefore, 
violate the intent of Section 622(c). Moreover, we believe that the 
``fee plus'' approach is consistent with the spirit of the subscriber 
bill itemization requirements in Section 622(c) of the 1992 Cable Act 
and Section 76.985 of the Commission's rules because it permits 
operators to inform consumers of the amount of franchise fees without 
confusing them as to the total cost of cable service.
    We believe that operators should be permitted to advertise their 
rates using 

[[Page 52112]]
either of the methods described above because both methods of 
advertising reasonably informs potential subscribers of the true price 
of cable service. This approach is consistent with the Commission's 
goal of enhancing industry's flexibility in making business and 
marketing decisions wherever reasonably possible. Therefore, we affirm 
our decision to allow cable systems that cover multiple franchise areas 
to advertise a range of fees of a ``fee plus'' rate that take account 
of variations in the itemized costs throughout the franchise area.
    Although Local Governments are concerned that the ``fee plus'' 
approach may result in a reduction in the amount of franchise fees that 
franchising authorities may assess, we decline to address this matter 
in this Order. The Cable Services Bureau has issued a decision 
regarding the proper assessment of franchise fees, and is currently 
reviewing a number of petitions for reconsideration filed in response 
to that decision.

Franchise Fee Refunds

    On reconsideration, we find that franchising authorities may 
determine whether a franchise fee overpayment is to be returned to the 
cable operator in one lump sum payment or by offsetting the overcharges 
against future franchise fee payments, provided that the overcharges 
are returned to the operator within a reasonable period of time. We 
recognize that in most instances, the operator holds franchise fees on 
behalf of the franchising authority for lump sum payment at the end of 
an agreed upon period. In those situations, the operator should offset 
the overpayments against the franchise fees it then holds. In the rare 
instances where the overpayments are very large, the franchising 
authority has the discretion to determine a reasonable repayment period 
plus interest. Because we have already determined that 11.25% is 
presumptively the cable operator's cost of capital, we find that the 
interest rate presumptively should be 11.25%.
    We agree with NATOA that franchising authorities should have the 
discretion to determine the means by which overpayments are to be 
returned to cable operators because it would be inappropriate to permit 
cable operators to dictate how the franchising authority should 
recompense operators. Moreover, in certain cases, the franchise fee 
overpayment may have been spent before it has been determined that an 
overpayment has been made and the franchising authority may not have 
the funds to immediately return the overpayment. However, we also 
believe that operators are entitled to receive interest on any 
franchise fee overpayments if franchising authorities delay returning 
overpayments to operators and that, in any case, operators should have 
overpayments returned within a reasonable period of time. We find that 
the meaning of ``reasonable period of time'' is dependent upon the 
amount of the overcharge and the relationship it bears to a franchising 
authority's budget. That is, the larger the absolute amount of the 
overpayment and the larger its amount in relation to a franchising 
authority's budget, the longer the franchising authority may need 
either to credit the operator for future franchise fee payments or to 
make a lump sum payment to the operator. We believe that this approach 
balances the franchising authority's need to have discretion in 
determining the means by which overcharges are returned with the 
operator's need to have such overcharges returned within a reasonable 
period of time.

Regulatory Review of Existing Rates

    On our own motion, we have decided to end regulatory review of the 
operator's entire rate structure when we receive future CPST rate 
complaints. Operators that have never been subject to CPST rate 
regulation will not face Commission review of their entire rate 
structure if a complaint is filed after the effective date of these 
rules. Complaints filed after the effective date of these rules on 
subsequent CPST rate changes must be field with the Commission within 
45 days of the date subscribers receive a bill reflecting the 
operator's next CPST rate increase, and will result in Commission 
review of only the amount of the rate increase complained about.
    Although Commission review will be so limited, in order to meet its 
burden of showing that its CPST rates are not unreasonable, the 
operator nevertheless may have to provide the Commission with details 
about its previous increases where no earlier filing provides those 
details. For example, an operator that attempts to use the new Going 
Forward method for channel additions in its current filing may need to 
demonstrate that its current increase, in conjunction with its previous 
rate increases, does not exceed the operator's cap. As another example, 
if no complaint was filed for the operator's relevant earlier rate 
adjustments, an operator that adjusts its rates using the annual rate 
adjustment method should provide the projections on which the 
operator's previous rates were based so that the Commission can review 
the operator's true up in its current filing.
    We are eliminating review of an operator's entire rate structure 
because we find that continuing this policy creates an uncertain 
business environment for cable operators that have not had their CPSTs 
subject to rate regulation. We are concerned about this because an 
uncertain business environment may generally discourage investment, 
without which operators may lack the resources to upgrade their 
networks, add new programming services, and provide new innovative 
services.
    We find that, if no rate complaint is filed prior to the effective 
date of these rules, the operator's initial CPST rates under regulation 
are not unreasonable. In our view, subscribers and franchising 
authorities have had ample opportunity to file a complaint that would 
result in Commission review of operators' entire rate structure. It has 
been nearly two years since subscribers and franchising authorities 
first had the opportunity to complain about their CPST rates. Since 
September 1, 1993, subscribers had an initial 180 day period to 
complain about initial CPST rates. If they missed the opportunity to 
complain during this initial 180 day period, they could have complained 
about any subsequent rate increase and that would have triggered a 
review of the operator's entire rate structure. We believe that if 
subscribers and the franchising authority have not filed a CPST rate 
complaint, it indicates a level of satisfaction with their current 
rates that would not exist if they believe CPST rates were 
unreasonable. We also believe that the Commission can fulfill its 
responsibility to ensure that CPST rates are not unreasonable when only 
reviewing rate changes.

Regulatory Flexibility Act Analysis

    Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
Secs. 601-612, the Commission's final analysis with respect to the 
Thirteenth Order on Reconsideration is as follows:
    Need and purpose of this action. The Commission, in compliance with 
section 3 of the Cable Television Consumer Protection and Competition 
Act of 1992, 47 U.S.C. 543 (1992), pertaining to rate regulation, 
adopts revised rules and procedures intended to ensure that cable 
services are offered at reasonable rates with minimum regulatory and 
administrative burdens on cable entities.
    Summary of issues raised by the public in response to the Initial 
Regulatory Flexibility Analysis. There were no comments submitted in 
response to the Initial Regulatory 

[[Page 52113]]
Flexibility Analysis. The Chief Counsel for Advocacy of the United 
States Small Business Administration (SBA) filed comments in the 
original rulemaking order. The Commission addressed the concerns raised 
by the Office of Advocacy in the Rate Order 58 FR 29736 (5/21/93). The 
SBA also filed reply comments in response to the Fifth Notice 59 FR 
18064 (4/15/94). The Commission addressed those comments in the Fifth 
Report and Order 59 FR 62614 (12/6/94).
    Significant alternatives considered and rejected. Petitioners 
representing cable interests and franchising authorities submitted 
several alternatives aimed at minimizing administrative burdens. In 
this proceeding, the Commission has attempted to accommodate the 
concerns expressed by these parties. For example, the revised rules 
permitting the expedited pass through of certain external costs are 
designed to reduce administrative burdens on industry. In addition, the 
revised rules permitting operators to recover the full portion of 
previously incurred increases in external costs are designed to 
maintain and enhance incentives for cable operators to achieve 
efficiency cost savings and reduce administrative burdens on both 
industry and regulators. Finally, the Order further reduces burdens by 
clarifying rules concerning the advertising of rates, the refunds of 
franchise fees, and the costs related to franchise requirements.

Paperwork Reduction Act

    The requirements adopted herein have been analyzed with respect to 
the Paperwork Reduction Act of 1980 and found to impose a new or 
modified information collection requirement on the public. 
Implementation of any new or modified requirement will be subject to 
approval by the Office of Management and Budget as prescribed by the 
Act.

Ordering Clauses

    Accordingly, it is ordered that, pursuant to sections 4(i), 4(j), 
303(r), 612, 622(c) and 623 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, 542(c) and 543, the 
rules, requirements and policies discussed in this Thirteenth Order on 
Reconsideration, are adopted and part 76 of the Commission's rules, 47 
CFR part 76, is amended as set forth below.
    It is further ordered that the Secretary shall send a copy of this 
Report and Order to the Chief Counsel for Advocacy of the Small 
Business Administration in accordance with paragraph 603(a) of the 
Regulatory Flexibility Act. Public Law 96-354, 94 Stat. 1164, 5 U.S.C. 
601 et seq. (1981).
    It is further ordered that the requirements and regulations 
established in this decision shall become effective thirty (30) days 
after publication in the Federal Register, except that new reporting 
requirements shall take effect thirty (30) days after approval by the 
Office of Management and Budget.

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Amendatory Text

    Part 76 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 76--CABLE TELEVISION SERVICE

    1. The authority citation for Part 76 continues to read as follows:

    Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat., as 
amended 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47 
U.S.C. 152, 153, 154, 301, 303, 307, 308, 309; Secs. 612, 614-615, 
623, 632 as amended, 106 Stat. 1460, 47 U.S.C. 532; Sec. 623, as 
amended, 106 Stat. 1460; 47 U.S.C. 532, 533, 535, 543, 552.

    2. Section 76.922 is amended by redesignating paragraphs (e) 
through (k) as paragraphs (g) through (m), respectively, revising 
paragraphs (c) and (d), and newly redesignated paragraphs (g), (h), 
(i), (j), (k), (l), (m) and adding new paragraphs (e) and (f), to read 
as follows:


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

* * * * *
    (c) Subsequent permitted charge. (1) The permitted charge for a 
tier after May 15, 1994 shall be, at the election of the cable system, 
either:
    (i) A rate determined pursuant to a cost-of-service showing,
    (ii) A rate determined by application of the Commission's price cap 
requirements set forth in paragraph (d) of this section to a permitted 
rate determined in accordance with paragraph (b) of this section, or
    (iii) A rate determined by application of the Commission's price 
cap requirements set forth in paragraph (e) of this section to a 
permitted rate determined in accordance with paragraph (b) of this 
section.
    (2) The Commission's price cap requirements allow a system to 
adjust its permitted charges for inflation, changes in the number of 
regulated channels on tiers, or changes in external costs. After May 
15, 1994, adjustments for changes in external costs shall be calculated 
by subtracting external costs from the system's permitted charge and 
making changes to that ``external cost component'' as necessary. The 
remaining charge, referred to as the ``residual component,'' will be 
adjusted annually for inflation. Cable systems may adjust their rates 
by using the price cap rules contained in either paragraphs (d) or (e) 
of this section.
    (3) An operator may switch between the quarterly rate adjustment 
option contained in paragraph (d) of this section and the annual rate 
adjustment option contained in paragraph (e) of this section, provided 
that:
    (i) Whenever an operator switches from the current quarterly system 
to the annual system, the operator may not file a Form 1240 earlier 
than 90 days after the operator proposed its last rate adjustment on a 
Form 1210; and
    (ii) When an operator changes from the annual system to the 
quarterly system, the operator may not return to a quarterly adjustment 
using a Form 1210 until a full quarter after it has filed a true up of 
its annual rate on a Form 1240 for the preceding filing period.
    (4) An operator that does not set its rates pursuant to a cost-of-
service filing must use the quarterly rate adjustment methodology 
pursuant to paragraph (d) of this section or annual rate adjustment 
methodology pursuant to paragraph (e) of this section for both its 
basic service tier and its cable programming services tier(s).
    (d) Quarterly rate adjustment method--(1) Calendar year quarters. 
All systems using the quarterly rate adjustment methodology must use 
the following calendar year quarters when adjusting rates under the 
price cap requirements. The first quarter shall run from January 1 
through March 31 of the relevant year; the second quarter shall run 
from April 1 through June 30; the third quarter shall run from July 1 
through September 30; and the fourth quarter shall run from October 1 
through December 31.
    (2) Inflation Adjustments. The residual component of a system's 
permitted charge may be adjusted annually for inflation. The annual 
inflation adjustment shall be used on inflation occurring from June 30 
of the previous year to June 30 of the year in which the inflation 
adjustment is made, except that the first annual inflation adjustment 
shall cover inflation from September 30, 1993 until June 30 of the year 
in which the inflation adjustment 

[[Page 52114]]
is made. The adjustment may be made after September 30, but no later 
than August 31, of the next calendar year. Adjustments shall be based 
on changes in the Gross National Product Price Index as published by 
the Bureau of Economic Analysis of the United States Department of 
Commerce. Cable systems that establish a transition rate pursuant to 
paragraph (b)(4) of this section may not begin adjusting rates on 
account of inflation before April 1, 1995. Between April 1, 1995 and 
August 31, 1995 cable systems that established a transition rate may 
adjust their rates to reflect the net of a 5.21% inflation adjustment 
minus any inflation adjustments they have already received. Low price 
systems that had their March 31, 1994 rates above the benchmark, but 
their full reduction rate below the benchmark will be permitted to 
adjust their rates to reflect the full 5.21% inflation factor unless 
the rate reduction was less than the inflation adjustment received on 
an FCC Form 393 for rates established prior to May 15, 1994. If the 
rate reduction established by a low price system that reduced its rate 
to the benchmark was less than the inflation adjustment received on an 
FCC Form 393, the system will be permitted to receive the 5.21% 
inflation adjustment minus the difference between the rate reduction 
and the inflation adjustment the system made on its FCC Form 393. Cable 
systems that established a transition rate may make future inflation 
adjustments on an annual basis with all other cable operators, no 
earlier than October 1 of each year and no later than August 31 of the 
following year to reflect the final GNP-PI through June 30 of the 
applicable year.
    (3) External costs. (i) Permitted charges for a tier may be 
adjusted up to quarterly to reflect changes in external costs 
experienced by the cable system as defined by paragraph (f) of this 
section. In all events, a system must adjust its rates annually to 
reflect any decreases in external costs that have not previously been 
accounted for in the system's rates. A system must also adjust its 
rates annually to reflect any changes in external costs, inflation and 
the number of channels on regulated tiers that occurred during the year 
if the system wishes to have such changes reflected in its regulated 
rates. A system that does not adjust its permitted rates annually to 
account for those changes will not be permitted to increase its rates 
subsequently to reflect the changes.
    (ii) A system must adjust its rates in the next calendar year 
quarter for any decrease in programming costs that results from the 
deletion of a channel or channels from a regulated tier.
    (iii) Any rate increase made to reflect an increase in external 
costs must also fully account for all other changes in external costs, 
inflation and the number of channels on regulated tiers that occurred 
during the same period. Rate adjustments made to reflect changes in 
external costs shall be based on any changes in those external costs 
that occurred from the end of the last quarter for which an adjustment 
was previously made through the end of the quarter that has most 
recently closed preceding the filing of the FCC Form 1210 (or FCC Form 
1211, where applicable). A system may adjust its rates after the close 
of a quarter to reflect changes in external costs that occurred during 
that quarter as soon as it has sufficient information to calculate the 
rate change.
    (e) Annual rate adjustment method--(1) Generally. Except as 
provided for in paragraphs (e)(2)(iii)(B) and (e)(2)(iii)(C) of this 
section and Section 76.923(o), operators that elect the annual rate 
adjustment method may not adjust their rates more than annually to 
reflect inflation, changes in external costs, changes in the number of 
regulated channels, and changes in equipment costs. Operators that make 
rate adjustments using this method must file on the same date a Form 
1240 for the purpose of making rate adjustments to reflect inflation, 
changes in external costs and changes in the number of regulated 
channels and a Form 1205 for the purpose of adjusting rates for 
regulated equipment and installation. Operators may choose the annual 
filing date, but they must notify the franchising authority of their 
proposed filing date prior to their filing. Franchising authorities or 
their designees may reject the annual filing date chosen by the 
operator for good cause. If the franchising authority finds good cause 
to reject the proposed filing date, the franchising authority and the 
operator should work together in an effort to reach a mutually 
acceptable date. If no agreement can be reached, the franchising 
authority may set the filing date up to 60 days later than the date 
chosen by the operator. An operator may change its filing date from 
year-to-year, but except as described in paragraphs (e)(2)(iii)(B) and 
(e)(2)(iii)(C) of this section, at least twelve months must pass before 
the operator can implement its next annual adjustment.
    (2) Projecting Inflation, Changes in External Costs, and Changes in 
Number of Regulated Channels. An operator that elects the annual rate 
adjustment method may adjust its rates to reflect inflation, changes in 
external costs and changes in the number of regulated channels that are 
projected for the 12 months following the date the operator is 
scheduled to make its rate adjustment pursuant to Section 76.933(g).
    (i) Inflation Adjustments. The residual component of a system's 
permitted charge may be adjusted annually to project for the 12 months 
following the date the operator is scheduled to make a rate adjustment. 
The annual inflation adjustment shall be based on inflation that 
occurred in the most recently completed July 1 to June 30 period. 
Adjustments shall be based on changes in the Gross National Product 
Price Index as published by the Bureau of Economic Analysis of the 
United States Department of Commerce.
    (ii) External costs. (A) Permitted charges for a tier may be 
adjusted annually to reflect changes in external costs experienced but 
not yet accounted for by the cable system, as well as for projections 
in these external costs for the 12-month period on which the filing is 
based. In order that rates be adjusted for projections in external 
costs, the operator must demonstrate that such projections are 
reasonably certain and reasonably quantifiable. Projections involving 
copyright fees, retransmission consent fees, other programming costs, 
Commission regulatory fees, and cable specific taxes are presumed to be 
reasonably certain and reasonably quantifiable. Operators may project 
for increases in franchise related costs to the extent that they are 
reasonably certain and reasonably quantifiable, but such changes are 
not presumed reasonably certain and reasonably quantifiable. Operators 
may pass through increases in franchise fees pursuant to Section 
76.933(g).
    (B) In all events, a system must adjust its rates every twelve 
months to reflect any net decreases in external costs that have not 
previously been accounted for in the system's rates.
    (C) Any rate increase made to reflect increases or projected 
increases in external costs must also fully account for all other 
changes and projected changes in external costs, inflation and the 
number of channels on regulated tiers that occurred or will occur 
during the same period. Rate adjustments made to reflect changes in 
external costs shall be based on any changes, plus projections, in 
those external costs that occurred or will occur in the relevant time 
periods since the periods used in the operator's most recent previous 
FCC Form 1240.
    (iii) Channel Adjustments. (A) Permitted charges for a tier may be 
adjusted annually to reflect changes not yet accounted for in the 
number of regulated channels provided by the cable system, as well as 
for projected 

[[Page 52115]]
changes in the number of regulated channels for the 12-month period on 
which the filing is based. In order that rates be adjusted for 
projected changes to the number of regulated channels, the operator 
must demonstrate that such projections are reasonably certain and 
reasonably quantifiable.
    (B) An operator may make rate adjustments for the addition of 
required channels to the basic service tier that are required under 
federal or local law at any time such additions occur, subject to the 
filing requirements of Section 76.933(g)(2), regardless of whether such 
additions occur outside of the annual filing cycle. Required channels 
may include must-carry, local origination, public, educational and 
governmental access and leased access channels. Should the operator 
elect not to pass through the costs immediately, it may accrue the 
costs of the additional channels plus interest, as described in 
paragraph (e)(3) of this section.
    (C) An operator may make one additional rate adjustment during the 
year to reflect channel additions to the cable programming services 
tiers or, where the operator offers only one regulated tier, the basic 
service tier. Operators may make this additional rate adjustment at any 
time during the year, subject to the filing requirements of Section 
76.933(g)(2), regardless of whether the channel addition occurs outside 
of the annual filing cycle. Should the operator elect not to pass 
through the costs immediately, it may accrue the costs of the 
additional channels plus interest, as described in paragraph (e)(3) of 
this section.
    (3) True-up and Accrual of Charges Not Projected. As part of the 
annual rate adjustment, an operator must ``true up'' its previously 
projected inflation, changes in external costs and changes in the 
number of regulated channels and adjust its rates for these actual cost 
changes. The operator must decrease its rates for overestimation of its 
projected cost changes, and may increase its rates to adjust for 
underestimation of its projected cost changes.
    (i) Where an operator has underestimated costs, future rates may be 
increased to permit recovery of the accrued costs plus 11.25% interest 
between the date the costs are incurred and the date the operator is 
entitled to make its rate adjustment.
    (ii) Where there is an overestimation of these costs, future rates 
will be reduced or the amount of the increase will be reduced to 
reflect the accrued amount of the overcharge plus 11.25% interest. The 
operator must make such adjustments within 12 months of the date the 
operator implemented its rates based on the projections.
    (iii) If an operator has underestimated its cost changes and elects 
not to recover these accrued costs with interest on the date the 
operator is entitled to make its annual rate adjustment, the interest 
will cease to accrue as of the date the operator is entitled to make 
the annual rate adjustment, but the operator will not lose its ability 
to recover such costs and interest. An operator may recover accrued 
costs between the date such costs are incurred and the date the 
operator actually implements its rate adjustment.
    (iv) Operators that use the annual methodology in their next filing 
after the release date of this Order may accrue costs and interest 
incurred since July 1, 1995 in that filing. Operators that file a Form 
1210 in their next filing after the release date of this Order, and 
elect to use Form 1240 in a subsequent filing, may accrue costs 
incurred since the end of the last quarter to which a Form 1210 
applies.
    (4) Sunset Provision. The Commission will review paragraph (e) of 
this section prior to December 31, 1998 to determine whether the annual 
rate adjustment methodology should be kept, and whether the quarterly 
system should be eliminated and replaced with the annual rate 
adjustment method.
    (f) External costs. (1) External costs shall consist of costs in 
the following categories:
    (i) State and local taxes applicable to the provision of cable 
television service;
    (ii) Franchise fees;
    (iii) Costs of complying with franchise requirements, including 
costs of providing public, educational, and governmental access 
channels as required by the franchising authority;
    (iv) Retransmission consent fees and copyright fees incurred for 
the carriage of broadcast signals;
    (v) Other programming costs; and
    (vi) Commission cable television system regulatory fees imposed 
pursuant to 47 U.S.C. Sec. 159.
    (2) The permitted charge for a regulated tier shall be adjusted on 
account of programming costs, copyright fees and retransmission consent 
fees only for the program channels or broadcast signals offered on that 
tier.
    (3) The permitted charge shall not be adjusted for costs of 
retransmission consent fees or changes in those fees incurred prior to 
October 6, 1994.
    (4) The starting date for adjustments on account of external costs 
for a tier of regulated programming service shall be the earlier of the 
initial date of regulation for any basic or cable service tier or 
February 28, 1994.
    (5) Changes in franchise fees shall not result in an adjustment to 
permitted charges, but rather shall be calculated separately as part of 
the maximum monthly charge per subscriber for a tier of regulated 
programming service.
    (6) Adjustments to permitted charges to reflect changes in the 
costs of programming purchased from affiliated programmers, as defined 
in Sec. 76.901, shall be permitted as long as the price charged to the 
affiliated system reflects either prevailing company prices offered in 
the marketplace to third parties (where the affiliated program supplier 
has established such prices) or the fair market value of the 
programming.
    (7) Adjustments to permitted charges on account of increases in 
costs of programming shall be further adjusted to reflect any revenues 
received by the operator from the programmer. Such adjustments shall 
apply on a channel-by-channel basis.
    (8) In calculating programming expense, operators may add a mark-up 
of 7.5% for increases in programming costs occurring after March 31, 
1994, except that operators may not file for or take the 7.5% mark-up 
on programming costs for new channels added on or after May 15, 1994 
for which the operator has used the methodology set forth in paragraph 
(g)(3) of this section for adjusting rates for channels added to cable 
programming service tiers. Operators shall reduce rates by decreases in 
programming expense plus an additional 7.5% for decreases occurring 
after May 15, 1994 except with respect to programming cost decreases on 
channels added after May 15, 1994 for which the rate adjustment 
methodology in paragraph (g)(3) of this section was used.
    (g) Changes in the number of channels on regulated tiers.--(1) 
Generally. A system may adjust the residual component of its permitted 
rate for a tier to reflect changes in the number of channels offered on 
the tier on a quarterly basis. Cable systems shall use FCC Form 1210 
(or FCC Form 1211, where applicable) or FCC Form 1240 to justify rate 
changes made on account of changes in the number of channels on a basic 
service tier (``BST'') or a cable programming service tier (``CPST''). 
Such rate adjustments shall be based on any changes in the number of 
regulated channels that occurred from the end of the last quarter for 
which an adjustment was previously made through the end of the quarter 
that has most recently closed preceding the filing of the FCC Form 1210 
(or FCC Form 1211, where applicable) or FCC Form 1240. 

[[Page 52116]]
However, when a system deletes channels in a calendar quarter, the 
system must adjust the residual component of the tier charge in the 
next calendar quarter to reflect that deletion. Operators must elect 
between the channel addition rules in paragraphs (g)(2) and (g)(3) of 
this section the first time they adjust rates after December 31, 1994, 
to reflect a channel addition to a CPST that occurred on or after May 
15, 1994, and must use the elected methodology for all rate adjustments 
through December 31, 1997. A system that adjusted rates after May 15, 
1994, but before January 1, 1995 on account of a change in the number 
of channels on a CPST that occurred after May 15, 1994, may elect to 
revise its rates to charge the rates permitted by paragraph (g)(3) of 
this section on or after January 1, 1995, but is not required to do so 
as a condition for using the methodology in paragraph (g)(3) of this 
section for rate adjustments after January 1, 1995. Rates for the BST 
will be governed exclusively by paragraph (g)(2) of this section, 
except that where a system offered only one tier on May 14, 1994, the 
cable operator will be allowed to elect between paragraphs (g)(2) and 
(g)(3) of this section as if the tier was a CPST.
    (2) Adjusting Rates for increases in the number of channels offered 
between May 15, 1994, and December 31, 1997, on a basic service tier 
and at the election of the operator on a cable programming service 
tier. The following table shall be used to adjust permitted rates for 
increases in the number of channels offered between May 15, 1994, and 
December 31, 1997, on a basic service tier and subject to the 
conditions in paragraph (g)(1) of this section at the election of the 
operator on a CPST. The entries in the table provide the cents per 
channel per subscriber per month by which cable operators will adjust 
the residual component using FCC Form 1210 (or FCC Form 1211, where 
applicable) or FCC Form 1240.

------------------------------------------------------------------------
                                                             Per-channel
             Average No. of regulated channels                adjustment
                                                                factor  
------------------------------------------------------------------------
7..........................................................        $0.52
7.5........................................................         0.45
8..........................................................         0.40
8.5........................................................         0.36
9..........................................................         0.33
9.5........................................................         0.29
10.........................................................         0.27
10.5.......................................................         0.24
11.........................................................         0.22
11.5.......................................................         0.20
12.........................................................         0.19
12.5.......................................................         0.17
13.........................................................         0.16
13.5.......................................................         0.15
14.........................................................         0.14
14.5.......................................................         0.13
15-15.5....................................................         0.12
16.........................................................         0.11
16.5-17....................................................         0.10
17.5-18....................................................         0.09
18.5-19....................................................         0.08
19.5-21.5..................................................         0.07
22-23.5....................................................         0.06
24-26......................................................         0.05
26.5-29.5..................................................         0.04
30-35.5....................................................         0.03
36-46......................................................         0.02
46.5-99.5..................................................         0.01
------------------------------------------------------------------------

    In order to adjust the residual component of the tier charge when 
there is an increase in the number of channels on a tier, the operator 
shall perform the following calculations:
    (i) Take the sum of the old total number of channels on tiers 
subject to regulation (i.e., tiers that are, or could be, regulated but 
excluding New Product Tiers) and the new total number of channels and 
divide the resulting number by two;
    (ii) Consult the above table to find the applicable per channel 
adjustment factor for the number of channels produced by the 
calculations in step (1). For each tier for which there has been an 
increase in the number of channels, multiply the per-channel adjustment 
factor times the change in the number of channels on that tier. The 
result is the total adjustment for that tier.
    (3) Alternative methodology for adjusting rates for changes in the 
number of channels offered on a cable programming service tier or a 
single tier system between May 15, 1994, and December 31, 1997. This 
paragraph at the Operator's discretion as set forth in paragraph (g)(1) 
of this section shall be used to adjust permitted rates for a CPST 
after December 31, 1994, for changes in the number of channels offered 
on a CPST between May 15, 1994, and December 31, 1997. For purposes of 
paragraph (g)(3) of this section, a single tier system may be treated 
as if it were a CPST.
    (i) Operators Cap Attributable to New Channels on All CPSTs Through 
December 31, 1997. Operators electing to use the methodology set forth 
in this paragraph may increase their rates between January 1, 1995, and 
December 31, 1997, by up to 20 cents per channel, exclusive of 
programming costs, for new channels added to CPSTs on or after May 15, 
1994, except that they may not make rate adjustments totalling more 
than $1.20 per month, per subscriber through December 31, 1996, and by 
more than $1.40 per month, per subscriber through December 31, 1997 
(the ``Operator's Cap''). Except to the extent that the programming 
costs of such channels are covered by the License Fee Reserve provided 
for in paragraph (g)(3)(iii) of this section, programming costs 
associated with channels for which a rate adjustment is made pursuant 
to this paragraph (g)(3) of this section must fall within the 
Operators' Cap if the programming costs (including any increases 
therein) are reflected in rates before January 1, 1997. Inflation 
adjustments pursuant to paragraph (d)(2) or (e)(2) of this section are 
not counted against the Operator's Cap.
    (ii) Per Channel Adjustment. Operators may increase rates by a per 
channel adjustment of up to 20 cents per subscriber per month, 
exclusive of programming costs, for each channel added to a CPST 
between May 15, 1994, and December 31, 1997, except that an operator 
may take the per channel adjustment only for channel additions that 
result in an increase in the highest number of channels offered on all 
CPSTs as compared to May 14, 1994, and each date thereafter. Any 
revenues received from a programmer, or shared by a programmer and an 
operator in connection with the addition of a channel to a CPST shall 
first be deducted from programming costs for that channel pursuant to 
paragraph (f)(7) of this section and then, to the extent revenues 
received from the programmer are greater than the programming costs, 
shall be deducted from the per channel adjustment. This deduction will 
apply on a channel by channel basis.
    (iii) License Fee Reserve. In addition to the rate adjustments 
permitted in paragraphs (g)(3)(i) and (g)(3)(ii) of this section, 
operators that make channel additions on or after May 15, 1994 may 
increase their rates by a total of 30 cents per month, per subscriber 
between January 1, 1995, and December 31, 1996, for license fees 
associated with such channels (the ``License Fee Reserve''). The 
License Fee Reserve may be applied against the initial license fee and 
any increase in the license fee for such channels during this period. 
An operator may pass-through to subscribers more than the 30 cents 
between January 1, 1995, and December 31, 1996, for license fees 
associated with channels added after May 15, 1994, provided that the 
total amount recovered from subscribers for such channels, including 
the License Fee Reserve, does not exceed $1.50 per subscriber, per 
month. After December 31, 1996, license fees may be passed through to 
subscribers pursuant to 

[[Page 52117]]
paragraph (f) of this section, except that license fees associated with 
channels added pursuant to this paragraph (3) will not be eligible for 
the 7.5% mark-up on increases in programming costs.
    (iv) Timing. For purposes of determining whether a rate increase 
counts against the maximum rate increases specified in paragraphs 
(g)(3)(i) through (g)(3)(ii) of this section, the relevant date shall 
be when rates are increased as a result of channel additions, not when 
the addition occurs.
    (4) Deletion of Channels. When dropping a channel from a BST or 
CPST, operators shall reflect the net reduction in external costs in 
their rates pursuant to paragraphs (d)(3)(i) and (d)(3)(ii) of this 
section, or paragraphs (e)(2)(ii)(A) and (e)(2)(ii)(B) of this section. 
With respect to channels to which the 7.5% mark-up on programming costs 
applied pursuant to paragraph (f)(8) of this section, the operator 
shall treat the mark-up as part of its programming costs and subtract 
the mark-up from its external costs. Operators shall also reduce the 
price of that tier by the ``residual'' associated with that channel. 
For channels that were on a BST or CPST on May 14, 1994, or channels 
added after that date pursuant to paragraph (g)(2) of this section, the 
per channel residual is the charge for their tier, minus the external 
costs for the tier, and any per channel adjustments made after that 
date, divided by the total number of channels on the tier minus the 
number of channels on the tier that received the per channel adjustment 
specified in paragraph (g)(3) of this section. For channels added to a 
CPST after May 14, 1994, pursuant to paragraph (g)(3) of this section, 
the residuals shall be the actual per channel adjustment taken for that 
channel when it was added to the tier.
    (5) Movement of Channels Between Tiers. When a channel is moved 
from a CPST or a BST to another CPST or BST, the price of the tier from 
which the channel is dropped shall be reduced to reflect the decrease 
in programming costs and residual as described in paragraph (g)(4) of 
this section. The residual associated with the shifted channel shall 
then be converted from per subscriber to aggregate numbers to ensure 
aggregate revenues from the channel remain the same when the channel is 
moved. The aggregate residual associated with the shifted channel may 
be shifted to the tier to which the channel is being moved. The 
residual shall then be converted to per subscriber figures on the new 
tier, plus any subsequent inflation adjustment. The price of the tier 
to which the channel is shifted may then be increased to reflect this 
amount. The price of that tier may also be increased to reflect any 
increase in programming cost. An operator may not shift a channel for 
which it received a per channel adjustment pursuant to paragraph (g)(3) 
of this section from a CPST to a BST.
    (6) Substitution of Channels on a BST or CPST. If an operator 
substitutes a new channel for an existing channel on a CPST or a BST, 
no per channel adjustment may be made. Operators substituting channels 
on a CPST or a BST shall be required to reflect any reduction in 
programming costs in their rates and may reflect any increase in 
programming costs pursuant to paragraphs (d)(3)(i) and (d)(3)(ii), or 
paragraphs (e)(2)(ii)(A) and (e)(2)(ii)(B) of this section. If the 
programming cost for the new channel is greater than the programming 
cost for the replaced channel, and the operator chooses to pass that 
increase through to subscribers, the excess shall count against the 
License Fee Reserve or the Operator Cap when the increased cost is 
passed through to subscribers. Where an operator substitutes a new 
channel for a channel on which a 7.5% mark-up on programming costs was 
taken pursuant to paragraph (f)(8) of this section, the operator may 
retain the 7.5% mark-up on the license fee of the dropped channel to 
the extent that it is no greater than 7.5% of programming cost of the 
new service.
    (7) Headend upgrades. When adding channels to CPSTs and single-tier 
systems, cable systems that are owned by a small cable company and 
incur additional monthly per subscriber headend costs of one full cent 
or more for an additional channel may choose among the methodologies 
set forth in paragraphs (g)(2) and (g)(3) of this section. In addition, 
such systems may increase rates to recover the actual cost of the 
headend equipment required to add up to seven such channels to CPSTs 
and single-tier systems, not to exceed $5,000 per additional channel. 
Rate increases pursuant to this paragraph may occur between January 1, 
1995, and December 31, 1997, as a result of additional channels offered 
on those tiers after May 14, 1994. Headend costs shall be depreciated 
over the useful life of the equipment. The rate of return on this 
investment shall not exceed 11.25 percent. In order to recover costs 
for headend equipment pursuant to this paragraph, systems must certify 
to the Commission their eligibility to use this paragraph, and the 
level of costs they have actually incurred for adding the headend 
equipment and the depreciation schedule for the equipment.
    (8) Sunset Provision. Paragraph (g) of this section shall cease to 
be effective on January 1, 1998 unless renewed by the Commission.
    (h) Permitted charges for a tier shall be determined in accordance 
with forms and associated instructions established by the Commission.
    (i) Cost of Service Charge. (1) For purposes of this section, a 
monthly cost-of-service charge for a basic service tier or a cable 
programming service tier is an amount equal to the annual revenue 
requirement for that tier divided by a number that is equal to 12 times 
the average number of subscribers to that tier during the test year, 
except that a monthly charge for a system or tier in service less than 
one year shall be equal to the projected annual revenue requirement for 
the first 12 months of operation or service divided by a number that is 
equal to 12 times the projected average number of subscribers during 
the first 12 months of operation or service. The calculation of the 
average number of subscribers shall include all subscribers, regardless 
of whether they receive service at full rates or at discounts.
    (2) A test year for an initial regulated charge is the cable 
operator's fiscal year preceding the initial date of regulation. A test 
year for a change in the basic service charge that is after the initial 
date of regulation is the cable operator's fiscal year preceding the 
mailing or other delivery of written notice pursuant to Section 76.932. 
A test year for a change in a cable programming service charge after 
the initial date of regulation is the cable operator's fiscal year 
preceding the filing of a complaint regarding the increase.
    (3) The annual revenue requirement for a tier is the sum of the 
return component and the expense component for that tier.
    (4) The return component for a tier is the average allowable test 
year ratebase allocable to the tier adjusted for known and measurable 
changes occurring between the end of the test year and the effective 
date of the rate multiplied by the rate of return specified by the 
Commission or franchising authority.
    (5) The expense component for a tier is the sum of allowable test 
year expenses allocable to the tier adjusted for known and measurable 
changes occurring between the end of the test year and the effective 
date of the rate.
    (6) The ratebase may include the following:
    (i) Prudent investment by a cable operator in tangible plant that 
is used and useful in the provision of cable 

[[Page 52118]]
services less accumulated depreciation. Tangible plant in service shall 
be valued at the actual money cost (or the money value of any 
consideration other than money) of property at the time it was first 
used to provide cable service. The actual money cost of plant may 
include an allowance for funds used during construction at the prime 
rate or at the operator's actual cost of funds used during 
construction. Cost overruns are presumed to be imprudent investment in 
the absence of a showing that the overrun occurred through no fault of 
the operator.
    (ii) An allowance for start-up losses, if any, that is equal to the 
lesser of the first two years of operating costs or accumulated losses 
incurred until the system reached the end of its prematurity stage as 
defined in Financial Accounting Standards Board Standard 51 (``FASB 
51'') less straight-line amortization over a reasonable period not 
exceeding 15 years that commences at the end of the prematurity phase 
of operation.
    (iii) Intangible assets less amortization that reflect the original 
costs prudently incurred by a cable operator in organizing and 
incorporating a company that provides regulated cable services, 
obtaining a government franchise to provide regulated cable services, 
or obtaining patents that are used and useful in the provision of cable 
services.
    (iv) The cost of customer lists if such costs were capitalized 
during the prematurity phase of operations less amortization.
    (v) An amount for working capital to the extent that an allowance 
or disallowance for funds needed to sustain the ongoing operations of 
the regulated cable service is demonstrated.
    (vi) Other intangible assets to the extent the cable operator 
demonstrates that the asset reflects costs incurred in an activity or 
transaction that produced concrete benefits or savings for subscribers 
to regulated cable services that would not have been realized otherwise 
and the cable operator demonstrates that a return on such an asset does 
not exceed the value of such a subscriber benefit.
    (vii) The portion of the capacity of plant not currently in service 
that will be placed in service within twelve months of the end of the 
test year.
    (7) Deferred income taxes shall be deducted from items included in 
the ratebase.
    (8) Allowable expenses may include the following:
    (i) All regular expenses normally incurred by a cable operator in 
the provision of regulated cable service, but not including any 
lobbying expense, charitable contributions, penalties and fines paid on 
account of violations of statutes or rules, or membership fees in 
social, service, recreational or athletic clubs or organizations.
    (ii) Reasonable depreciation expense attributable to tangible 
assets allowable in the ratebase.
    (iii) Reasonable amortization expense for prematurely abandoned 
tangible assets formerly includable in the ratebase that are amortized 
over the remainder of the original expected life of the asset.
    (iv) Reasonable amortization expense for start-up losses and 
capitalized intangible assets that are includable in ratebase.
    (v) Taxes other than income taxes attributable to the provision of 
regulated cable services.
    (vi) An income tax allowance.
    (j) Network upgrade rate increase. (1) Cable operators that 
undertake significant network upgrades requiring added capital 
investment may justify an increase in rates for regulated services by 
demonstrating that the capital investment will benefit subscribers.
    (2) A rate increase on account of upgrades shall not be assessed on 
customers until the upgrade is complete and providing benefits to 
customers of regulated services.
    (3) Cable operators seeking an upgrade rate increase have the 
burden of demonstrating the amount of the net increase in costs, taking 
into account current depreciation expense, likely changes in 
maintenance and other costs, changes in regulated revenues and expected 
economies of scale.
    (4) Cable operators seeking a rate increase for network upgrades 
shall allocate net cost increases in conformance with the cost 
allocation rules as set forth in Sec. 76.924.
    (5) Cable operators that undertake significant upgrades shall be 
permitted to increase rates by adding the benchmark/price cap rate to 
the rate increment necessary to recover the net increase in cost 
attributable to the upgrade.
    (k) Hardship rate relief. A cable operator may adjust charges by an 
amount specified by the Commission for the cable programming service 
tier or the franchising authority for the basic service tier if it is 
determined that:
    (1) Total revenues from cable operations, measured at the highest 
level of the cable operator's cable service organization, will not be 
sufficient to enable the operator to attract capital or maintain credit 
necessary to enable the operator to continue to provide cable service;
    (2) The cable operator has prudent and efficient management; and
    (3) Adjusted charges on account of hardship will not result in 
total charges for regulated cable services that are excessive in 
comparison to charges of similarly situated systems.
    (l) Cost of service showing. A cable operator that elects to 
establish a charge, or to justify an existing or changed charge for 
regulated cable service, based on a cost-of-service showing must submit 
data to the Commission or the franchising authority in accordance with 
forms established by the Commission. The cable operator must also 
submit any additional information requested by franchising authorities 
or the Commission to resolve questions in cost-of-service proceedings.
    (m) Subsequent Cost of Service Charges. No cable operator may use a 
cost-of-service showing to justify an increase in any charge 
established on a cost-of-service basis for a period of 2 years after 
that rate takes effect, except that the Commission or the franchising 
authority may waive this prohibition upon a showing of unusual 
circumstances that would create undue hardship for a cable operator.
    3. Section 76.923 is amended by adding paragraphs (n) and (o), to 
read as follows:


Sec. 76.923  Rates for equipment and installation used to receive the 
basic service tier.

* * * * *
    (n) Timing of Filings. An operator shall file FCC Form 1205 in 
order to establish its maximum permitted rates at the following times:
    (1) When the operator sets its initial rates under either the 
benchmark system or through a cost-of-service showing;
    (2) Within 60 days of the end of its fiscal year, for an operator 
that adjusts its rates under the system described in Section 76.922(d) 
that allows it to file up to quarterly;
    (3) On the same date it files its FCC Form 1240, for an operator 
that adjusts its rates under the annual rate adjustment system 
described in Section 76.922(e). If an operator elects not to file an 
FCC Form 1240 for a particular year, the operator must file a Form 1205 
on the anniversary date of its last Form 1205 filing; and
    (4) When seeking to adjust its rates to reflect the offering of new 
types of customer equipment other than in conjunction with an annual 
filing of Form 1205, 60 days before it seeks to adjust its rates to 
reflect the offering of new types of customer equipment.
    (o) Introduction of new equipment. In setting the permitted charge 
for a new 

[[Page 52119]]
type of equipment at a time other than at its annual filing, an 
operator shall only complete Schedule C and the relevant step of the 
Worksheet for Calculating Permitted Equipment and Installation Charges 
of a Form 1205. The operator shall rely on entries from its most 
recently filed FCC Form 1205 for information not specifically related 
to the new equipment, including but not limited to the Hourly Service 
Charge. In calculating the annual maintenance and service hours for the 
new equipment, the operator should base its entry on the average annual 
expected time required to maintain the unit, i.e., expected service 
hours required over the life of the equipment unit being introduced 
divided by the equipment unit's expected life.
    4. Section 76.925 is amended by redesignating paragraphs (a) and 
(b) as paragraphs (b) and (c), respectively, adding new paragraph (a), 
and revising newly redesignated paragraph (c), to read as follows:


Sec. 76.925  Costs of franchise requirements.

    (a) Franchise requirement costs may include cost increases required 
by the franchising authority in the following categories:
    (1) Costs of providing PEG access channels;
    (2) Costs of PEG access programming;
    (3) Costs of technical and customer service standards to the extent 
that they exceed federal standards;
    (4) Costs of institutional networks and the provision of video 
services, voice transmissions and data transmissions to or from 
governmental institutions and educational institutions, including 
private schools, to the extent such services are required by the 
franchise agreement; and
    (5) When the operator is not already in the process of upgrading 
the system, costs of removing cable from utility poles and placing the 
same cable underground.
    (b) The costs of satisfying franchise requirements to support 
public, educational, and government channels shall consist of the sum 
of:
    (1) All per channel costs for the number of channels used to meet 
franchise requirements for public, educational, and governmental 
channels;
    (2) Any direct costs of meeting such franchise requirements; and
    (3) A reasonable allocation of general and administrative overhead.
    (c) The costs of satisfying any requirements under the franchise 
other than PEG access costs shall consist of the direct and indirect 
costs including a reasonable allocation of general and administrative 
overhead.
    5. Section 76.933 is amended by revising paragraphs (a), (b), (e), 
and (f), and adding paragraphs (g) and (h), to read as follows:


Sec. 76.933  Franchising authority review of basic cable rates and 
equipment costs.

    (a) After a cable operator has submitted for review its existing 
rates for the basic service tier and associated equipment costs, or a 
proposed increase in these rates (including increases in the baseline 
channel change that results from reductions in the number of channels 
in a tier) under the quarterly rate adjustment system pursuant to 
Section 76.922(d), the existing rates will remain in effect or the 
proposed rates will become effective after 30 days from the date of 
submission; Provided, however, that the franchising authority may toll 
this 30-day deadline for an additional time by issuing a brief written 
order as described in paragraph (b) within 30 days of the rate 
submission explaining that it needs additional time to review the 
rates.
    (b) If the franchising authority is unable to determine, based upon 
the material submitted by the cable operator, that the existing, or 
proposed rates under the quarterly adjustment system pursuant to 
Section 76.922(d), are within the Commission's permitted basic service 
tier charge or actual cost of equipment as defined in Secs. 76.922 and 
76.923, or if a cable operator has submitted a cost-of-service showing 
pursuant Secs. 76.937(c) and 76.924, seeking to justify a rate above 
the Commission's basic service tier charge as defined in Secs. 76.922 
and 76.923, the franchising authority may toll the 30-day deadline in 
paragraph (a) of this section to request and/or consider additional 
information or to consider the comments from interested parties as 
follows:
    (1) For an additional 90 days in cases not involving cost-of-
service showings; or
    (2) For an additional 150 days in cases involving cost-of-service 
showings.
* * * * *
    (e) Notwithstanding the foregoing, when the franchising authority 
is regulating basic service tier rates, a cable operator that sets its 
rates pursuant to the quarterly rate adjustment system pursuant to 
Section 76.922(d) may increase its rates for basic service to reflect 
the imposition of, or increase in, franchise fees or Commission cable 
television system regulatory fees imposed pursuant to 47 U.S.C. 
Sec. 159, upon 30 days' notice to subscribers and the franchising 
authority and, where required by Section 76.958, to the Commission. For 
the purposes of paragraphs (a) through (c) of this section, the 
increase rate attributable to Commission regulatory fees or franchise 
fees shall be treated as an ``existing rate, subject to subsequent 
review and refund if the franchising authority determines that the 
increase in basic tier rates exceeds the increase in regulatory fees or 
in franchise fees allocable to the basic tier. This determination shall 
be appealable to the Commission pursuant to Section 76.944. When the 
Commission is regulating basic service tier rates pursuant to Section 
76.945 or cable programming service rates pursuant to Section 76.960, 
an increase in those rates resulting from franchise fees or Commission 
regulatory fees shall be reviewed by the Commission pursuant to the 
mechanisms set forth in Section 76.945. A cable operator must adjust 
its rates to reflect decreases in franchise fees or Commission 
regulatory fees within the periods set forth in Section 76.922(d)(3)(i) 
and (iii).
    (f) For an operator that sets its rates pursuant to the quarterly 
rate adjustment system pursuant to Section 76.922(d), cable television 
system regulatory fees assessed by the Commission pursuant to 47 U.S.C. 
Sec. 159 shall be recovered in monthly installments during the fiscal 
year following the year for which the payment was imposed. Payments 
shall be collected in equal monthly installments, except that for so 
many months as may be necessary to avoid fractional payments, an 
additional $0.01 payment per month may be collected. All such 
additional payments shall be collected in the last month or months of 
the fiscal year, so that once collections of such payments begin there 
shall be no month remaining in the year in which the operator is not 
entitled to such an additional payment. Operators may not assess 
interest. Operators may provide notice of the entire fiscal year's 
regulatory fee pass-through in a single notice.
    (g) A cable operator that submits for review a proposed change in 
its existing rates for the basic service tier and associated equipment 
costs using the annual filing system pursuant to Section 76.922(e) 
shall do so no later than 90 days from the effective date of the 
proposed rates. The franchising authority will have 90 days from the 
date of the filing to review it. However, if the franchising authority 
or its designee concludes that the operator has submitted a facially 
incomplete filing, the franchising authority's deadline for issuing a 
decision, the date on which 

[[Page 52120]]
rates may go into effect if no decision is issued, and the period for 
which refunds are payable will be tolled while the franchising 
authority is waiting for this information, provided that, in order to 
toll these effective dates, the franchising authority or its designee 
must notify the operator of the incomplete filing within 45 days of the 
date the filing is made.
    (1) If there is a material change in an operator's circumstances 
during the 90-day review period and the change affects the operator's 
rate change filing, the operator may file an amendment to its Form 1240 
prior to the end of the 90-day review period. If the operator files 
such an amendment, the franchising authority will have at least 30 days 
to review the filing. Therefore, if the amendment is filed more than 60 
days after the operator made its initial filing, the operator's 
proposed rate change may not go into effect any earlier than 30 days 
after the filing of its amendment. However, if the operator files its 
amended application on or prior to the sixtieth day of the 90-day 
review period, the operator may implement its proposed rate adjustment, 
as modified by the amendment, 90 days after its initial filing.
    (2) If a franchising authority has taken no action within the 90-
day review period, then the proposed rates may go into effect at the 
end of the review period, subject to a prospective rate reduction and 
refund if the franchising authority subsequently issues a written 
decision disapproving any portion of such rates, provided, however, 
that in order to order a prospective rate reduction and refund, if an 
operator inquires as to whether the franchising authority intends to 
issue a rate order after the initial review period, the franchising 
authority or its designee must notify the operator of its intent in 
this regard within 15 days of the operator's inquiry. If a proposed 
rate goes into effect before the franchising authority issues its rate 
order, the franchising authority will have 12 months from the date the 
operator filed for the rate adjustment to issue its rate order. In the 
event that the franchising authority does not act within this 12-month 
period, it may not at a later date order a refund or a prospective rate 
reduction with respect to the rate filing.
    (3) At the time an operator files its rates with the franchising 
authority, the operator may give customers notice of the proposed rate 
changes. Such notice should state that the proposed rate change is 
subject to approval by the franchising authority. If the operator is 
only permitted a smaller increase than was provided for in the notice, 
the operator must provide an explanation to subscribers on the bill in 
which the rate adjustment is implemented. If the operator is not 
permitted to implement any of the rate increase that was provided for 
in the notice, the operator must provide an explanation to subscribers 
within 60 days of the date of the franchising authority's decision. 
Additional advance notice is only required in the unlikely event that 
the rate exceeds the previously noticed rate.
    (4) If an operator files for a rate adjustment under Section 
76.922(e)(2)(iii)(B) for the addition of required channels to the basic 
service tier that the operator is required by federal or local law to 
carry, or, if a single-tier operator files for a rate adjustment based 
on a mid-year channel addition allowed under Section 
76.922(e)(2)(iii)(C), the franchising authority has 60 days to review 
the requested rate. The proposed rate shall take effect at the end of 
this 60-day period unless the franchising authority rejects the 
proposed rate as unreasonable. In order to order refunds and 
prospective rate reductions, the franchising authority shall be subject 
to the requirements described in paragraph (g)(1) of this section.
    (5) Notwithstanding the foregoing, when the franchising authority 
is regulating basic service tier rates, a cable operator may increase 
its rates for basic service to reflect the imposition of, or increase 
in, franchise fees upon 30 days' notice to subscribers and the 
franchising authority and, where required by Section 76.958, to the 
Commission. The increased rate attributable to Commission regulatory 
fees or franchise fees shall be subject to subsequent review and refund 
if the franchising authority determines that the increase in basic tier 
rates exceeds the increase in regulatory fees or in franchise fees 
allocable to the basic tier. This determination shall be appealable to 
the Commission pursuant to Section 76.944. When the Commission is 
regulating basic service tier rates pursuant to Section 76.945 or cable 
programming service rates pursuant to Section 76.960, an increase in 
those rates resulting from franchise fees or Commission regulatory fees 
shall be reviewed by the Commission pursuant to the mechanisms set 
forth in Section 76.945.
    (h) If an operator files an FCC Form 1205 for the purpose of 
setting the rate for a new type of equipment under Section 76.923(o), 
the franchising authority has 60 days to review the requested rate. The 
proposed rate shall take effect at the end of this 60-day period unless 
the franchising authority rejects the proposed rate as unreasonable.
    (1) If the operator's most recent rate filing was based on the 
system that enables them to file up to once per quarter found at 
Section 76.922(d), the franchising authority must issue an accounting 
order before the end of the 60-day period in order to order refunds and 
prospective rate reductions.
    (2) If the operator's most recent rate filing was based on the 
annual rate system at Section 76.922(e), in order to order refunds and 
prospective rate reductions, the franchising authority shall be subject 
to the requirements described in paragraph (g)(1) of this section.
    6. Section 76.934 is amended by revising paragraph (f) to read as 
follows:


Sec. 76.934  Small systems and small cable companies.

* * * * *
    (f) Small Systems Owned by Small Cable Companies. Small systems 
owned by small cable companies shall have 90 days from their initial 
date of regulation on a tier to bring their rates for that tier into 
compliance with the requirements of Sections 76.922 and 76.923. Such 
systems shall have sixty days from the initial date of regulation to 
file FCC Forms 1200, 1205, 1210, 1211, 1215, 1220, 1225, 1230, and 1240 
and any similar forms as appropriate. Rates established during the 90-
day period shall not be subject to prior approval by franchising 
authorities or the Commission, but shall be subject to refund pursuant 
to sections 76.942 and 76.961.
* * * * *
    7. Section 76.942 is amended by revising paragraph (f) to read as 
follows:


Sec. 76.942  Refunds.

* * * * *
    (f) Once an operator has implemented a rate refund to subscribers 
in accordance with a refund order by the franchising authority (or the 
Commission, pursuant to paragraph (a) of this section), the franchising 
authority must return to the cable operator an amount equal to that 
portion of the franchise fee that was paid on the total amount of the 
refund to subscribers. The franchising authority must promptly return 
the franchise fee overcharge either in an immediate lump sum payment, 
or the cable operator may deduct it from the cable system's future 
franchise fee payments. The franchising authority has the discretion to 
determine a reasonable repayment period, but interest shall accrue on 
any outstanding portion of the franchise fee starting on the date the 
operator has 

[[Page 52121]]
completed implementation of the refund order. In determining the amount 
of the refund, the franchise fee overcharge should be offset against 
franchise fees the operator holds on behalf of the franchising 
authority for lump sum payment. The interest rate on any refund owed to 
the operator presumptively shall be 11.25%.
    8. Section 76.944 is amended by adding paragraph (c) as follows:


Sec. 76.944  Commission review of franchising authority decisions on 
rates for the basic service tier and associated equipment.

* * * * *
    (c) An operator that uses the annual rate adjustment method under 
Section 76.922(e) may include in its next true up under Section 
76.922(e)(3) any amounts to which the operator would have been entitled 
but for a franchising authority decision that is not upheld on appeal.
    9. Section 76.957 is revised to read as follows:


Sec. 76.957  Commission adjudication of the complaint.

    The Commission will consider the complaint and the cable operator's 
response and then determine by written decision whether the rate for 
the cable programming service or associated equipment is unreasonable 
or not. In making its determination, the Commission will only review 
the amount of the rate increase subject to the complaint. If the 
Commission determines that the rate change in question is unreasonable, 
it will grant the complaint and may order appropriate relief, 
including, but not limited to, prospective rate reductions and refunds. 
If it determines that the rate in question is reasonable, the 
Commission will deny the complaint.
    10. Section 76.960 is revised to read as follows:


Sec. 76.960  Prospective rate reductions.

    Upon a finding that a rate for cable programming service or 
associated equipment is unreasonable, the Commission may order the 
cable operator to implement a prospective rate reduction to the class 
of customers subscribing to the cable programming service at issue.
    (a) For an operator that adjusts its rates using the quarterly rate 
adjustment system pursuant to Section 76.922(d), the Commission's 
decision regarding a prospective rate reduction shall remain binding on 
the cable operator for one year unless the Commission specifies 
otherwise.
    (b) For an operator that adjusts its rates using the annual rate 
adjustment system pursuant to Section 76.922(e), for one year following 
the Commission's decision, the operator shall provide the Commission at 
least 30 days' notice of any proposed change.

[FR Doc. 95-24756 Filed 10-4-95; 8:45 am]
BILLING CODE 6712-01-M