Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | File No. CSB-A-0482          |
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| MARYLAND CABLE PARTNERS, L.P.    | ) |                              |
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| Appeal of Local Rate Order of    | * |                              |
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| City of Bowie, Maryland (CUID    | * |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: July 10, 2000 Released: July 11, 2000**

By the Deputy Chief, Cable Services Bureau:

# introduction

1.  Maryland Cable Partners, L.P. ("Maryland Cable" or the "Company")
    has appealed Bowie Cable Rate Regulation Commission Order No 8-1997
    ("Third Rate Order") of the City of Bowie, Maryland ("City"),[^1]
    its franchising authority. The order directs the Company to refile
    its FCC Form 1205 to justify basic equipment and installation rates
    for its 1996 reporting year and denies it certain refund offsets.
    The City opposed the appeal,[^2] and the Company replied.[^3]

# background

2.  Under the Commission's rules, rate orders issued by local
    franchising authorities may be appealed to the Commission.[^4] In
    ruling on an appeal of a local rate order, the Commission will not
    conduct a *de novo* review, but will sustain the franchising
    authority's decision provided there is a reasonable basis for that
    decision, and will reverse a franchising authority's decision only
    if the franchising authority unreasonably applied the Commission's
    rules in its local rate order.[^5] If the Commission reverses a
    franchising authority's decision, it will not substitute its own
    decision but will remand the issue to the franchising authority with
    instructions to resolve the case consistent with the Commission
    decision on appeal.[^6]

3.  An operator seeking to justify its existing or proposed rates for
    the basic service tier, equipment, or installation bears the burden
    of demonstrating that the rates conform with our rules.[^7] In
    determining this, a franchising authority may direct the operator to
    provide supporting information.[^8] After reviewing an operator's
    rate forms and any other additional information submitted, the
    franchising authority may approve the operator's rates or issue a
    written decision explaining why the operator's rates are not
    reasonable.[^9] If the franchising authority determines that the
    operator's rates exceed the maximum permitted rate as determined by
    the Commission's rules, it may prescribe a rate different from the
    proposed rate or order refunds, provided that it explains why the
    operator's rate or rates are unreasonable and any prescribed rate is
    reasonable.

# discussion

4.  Shortly after the City adopted its Initial Rate Order on February
    27, 1996 disapproving the Company's use of statutory tax rates on
    its 1995 Form 1205,[^10] the Company filed its 1996 Form 1205 on
    March 1, 1996, along with its Form 1240 adjusting its basic service
    tier rates. The Company's Form 1205 again used the statutory tax
    rates,[^11] and the Company's transmittal letter advised the City
    that its equipment and installation rates for the rate year starting
    June 1, 1996 would remain the same.[^12] The Company also
    successfully appealed the Initial Rate Order to the Commission.
    After the order was remanded,[^13] the City adopted its Second Rate
    Order on May 6, 1997, again disallowing use of statutory tax rates
    on the 1995 Form 1205 and ordering refunds.[^14] This, too, was
    appealed and remanded.[^15] While the second appeal was pending, the
    Company filed the refund plan required by the Second Rate Order. The
    City adopted the Third Rate Order on December 2, 1997 addressing the
    refund plan and denying certain refund offsets claimed by the
    Company. The City also ordered that the converter rental, wire
    maintenance, and hourly service charges prescribed for the 1995 Form
    1205 be the basis for all rates starting with rates for periods
    subsequent to June 1, 1996, and that such revised rates be
    resubmitted for approval.[^16]

5.  The appeal before us concerns the Third Rate Order. Maryland Cable
    argues: (1) that the City is without authority to order refunds or
    prospective rate reductions with respect to rates set pursuant to
    its 1996 Form 1205 because the City failed to act on the form within
    the time periods provided by the Commission's rules; and (2) that
    the City erroneously requires refunds without allowing the Company
    to offset actual undercharges against putative overcharges. Maryland
    Cable also argues that the City denied it due process by failing to
    hold a proceeding to review the 1996 Form 1205. Because we are
    vacating that part of the City's Third Rate Order prescribing rates
    for the period starting June 1, 1996 and ordering the Company to
    submit revised rates, this due process issue is moot.

## Timeliness of Local Rate Order

6.  Section 76.933(g) of the Commission's rules provides that an
    operator submitting proposed changes to its rates for the basic
    service tier and associated equipment costs using the annual filing
    system must do so no later than 90 days before the effective date of
    the new rates.[^17] If the franchising authority has taken no action
    within this 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
    the rates.[^18] If an operator inquires as to whether the
    franchising authority intends to issue a rate order after the
    initial review period, then the franchising authority or its
    designee must notify the operator of its intent within 15 days of
    the operator's inquiry in order to retain its authority. In
    addition, if a proposed rate goes into effect before the franchising
    authority issues a rate order, the franchising authority has 12
    months from the date the operator filed for the rate adjustment to
    issue a rate order. If the franchising authority does not act within
    this 12-month period, it may not later order a refund or prospective
    rate reduction with respect to the rate filing.

7.  The Company argues that the City lost its authority to prescribe
    equipment and installation rates and order refunds when it failed to
    act on the March 1, 1996 rate form until December 2, 1997, outside
    the 12-month period provided in section 76.933(g)(2), [^19] and also
    because it failed to respond to the Company's status inquiry within
    15 days of the inquiry.[^20] The City disagrees, arguing that the
    12-month rule is inapplicable in this case.[^21] According to the
    City, the Company's letter transmitting the rate form requested that
    the City take no action; [^22] the time limits in section 76.933(g)
    are triggered only when an operator submits a proposed change for
    review, and no change was requested; and the Company's statement in
    the transmittal letter that its rates would "remain the same" as
    earlier rates committed it to adjust the rates after the City
    prescribed adjustments to the earlier rates. The City also argues
    that its Second Rate Order issued on May 6, 1997 required the
    Company to recompute its figures on the 1996 Form 1205, and its
    counsel made this clear at the City's Cable Rate Commission meeting
    on June 17, 1997. In reply, Maryland Cable argues that an operator
    is required to file equipment rates annually and the Commission's
    rules specify the review period for these filings, even when an
    operator does not propose to increase rates.[^23] It disputes the
    City's characterization of its transmittal letter as a request that
    the City take no action.

8.  We agree with Maryland Cable that the City lost its authority to
    order a refund or prospective rate reduction with respect to the
    Company's 1996 Form 1205. The Commission's rules provide that
    subscriber charges shall not exceed charges based on actual costs,
    including a reasonable profit, computed in accordance with
    Commission requirements.[^24] As Maryland Cable points out,[^25]
    costs change over time. To ensure that subscriber charges comply
    with the actual cost standard, the Commission requires operators to
    submit a Form 1205 annually, even if the operator does not change
    its selected rates.[^26] If the cable operator uses the annual rate
    adjustment method in section 76.922(e) of the Commission's rules for
    its basic service tier,[^27] as Maryland Cable did, it must file
    Form 1205 on the same date it files its Form 1240,[^28] and the
    review procedure in section 76.933(g) applies to both forms.[^29]
    The City was not required to issue a rate order if it had no problem
    with the rates, but if it disapproved the rates, it should have
    explained its action in a written decision within 12 months from the
    date Maryland Cable filed its rate forms with the City. Having
    failed to act within the 12-month period set forth in section
    76.933(g)(2), the City cannot at a later date order a refund or
    prospective rate reduction. The City's argument that statements in
    the Company's transmittal letter tolled the review period is
    unavailing, for a cable operator has no authority to waive the
    Commission's rules.[^30] The City's view that the Company should
    have known its rates were disapproved and should have conformed its
    rates to the Initial Rate Order does not substitute for timely City
    action on the Company's rate form if the rates were, in fact,
    disapproved. Although the City also relies on its May 7, 1997 Second
    Rate Order as notice to the Company, [^31] that order was issued
    after the 12-month review period had expired and makes no mention of
    the 1996 Form 1205. Accordingly, we are granting Maryland Cable's
    appeal with respect to the City's authority to order refunds or
    prospective rate reductions for the period addressed by Maryland
    Cable's 1996 Form 1205, and we are vacating the relevant paragraph
    in the Third Rate Order.[^32]

## Refund Offsets

9.  In addressing Maryland Cable's refund plan, the City disallowed
    offsets of actual undercharges in installation against putative
    overcharges in equipment rates.[^33] The Company asks that the
    City's rate order be reversed and remanded because it requires the
    Company to implement refunds without accounting for this offset.
    Although conceding that the undercharges result from promotional
    rates and that the Cable Services Bureau has previously found that a
    promotional discount cannot be recovered through a refund offset
    because it had the effect of increasing rates on other types of
    equipment, the Company points to the statement in the *Third Order
    on Reconsideration* of the Commission's intention to monitor this
    issue and to consider appropriate revisions to its rules and
    policies if evidence demonstrates that such costs have not been
    adequately accounted for under the existing approach.[^34] According
    to the Company, there is no finding that its installation rates
    accounted for costs not recovered during the promotions. The City
    objects, pointing to the Cable Services Bureau's previous
    determination that offsets of promotional discounts are not
    permitted.[^35]

10. Section 76.923(j) of the Commission's rules provides that operators
    may not recover the cost of a promotional offering by increasing the
    charges for other equipment basket elements or by increasing rates
    for programming services above the maximum monthly charge prescribed
    by the Commission's rules.[^36] *United Cable Television of
    California, Inc.*,[^37] acknowledged by the Company and relied on by
    the City, clarifies that this prohibition also applies to the
    calculation of subscriber refunds.[^38] The cost of promotions
    should not be recovered by reducing an operator's refund
    liability.[^39] Maryland Cable suggests that this prohibition should
    be revisited because there is no finding that its installation rates
    already accounted for costs not recovered during promotions. We
    disagree. While the Commission suggested in the *Third Order on
    Reconsideration* that it might revisit the issue of promotional
    offsets,[^40] which it has not done, it did not require franchising
    authorities to make a finding about recovery of promotional costs
    before disallowing offsets of those costs. The Commission's rules
    provide for computing permitted charges based on actual costs,
    including a reasonable profit,[^41] and franchising authorities
    cannot require operators to charge less than the permitted charges.
    An operator's decision to charge less than the permitted charge
    reflects its business decision and should not be subsidized by
    increased charges or reduced refunds for other offerings, whether
    within or outside the equipment basket. Such subsidies would be
    inconsistent with the requirement in section 76.923(b) of the
    Commission's rules that rates for remote control units, converters,
    other customer equipment, installation, and additional connections
    be separate from rates for basic tier service and be unbundled from
    each other.[^42] Such subsidies would also create a disincentive to
    comply with requirements that equipment and installation charges be
    set at cost and would undermine Congressional intent to create a
    competitive market for cable equipment providers.[^43] The City's
    requirement that refunds be computed without offsets for promotional
    discounts was reasonable. Maryland Cable's appeal on this issue is
    denied.[^44]

# ordering clauses

11. Accordingly, IT IS ORDERED that the Appeal of Maryland Cable
    Partners, L.P. from a Rate Order of the City of Bowie, Maryland
    filed December 31, 1997 IS GRANTED IN PART AND DENIED IN PART as
    indicated herein and numbered paragraph 2 of the Order section of
    Order No 8-1997 of the Bowie Cable Rate Regulation Commission IS
    VACATED.

12. This action is taken pursuant authority delegated by section 0.321
    of the Commission's rules. 47 C.F.R. § 0.321.

FEDERAL COMMUNICATIONS COMMISSION

William H. Johnson

Deputy Chief, Cable Services Bureau

[^1]: The Third Rate Order can be found at Appeal of Maryland Cable
    Partners, L.P. from a Rate Order of the City of Bowie, Maryland
    (filed Dec. 31, 1997) ("Maryland Cable Appeal"), Exhibit 1.

[^2]: Opposition to Appeal of Maryland Cable Partners, L.P. from a Rate
    Order of the City of Bowie, Maryland (filed Jan. 21, 1998) ("City
    Opposition").

[^3]: Reply of Maryland Cable Partners, L.P. (filed Jan. 23, 1998)
    ("Maryland Cable Reply").

[^4]: 47 C.F.R. § 76.944.

[^5]: *See* Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992, Rate Regulation, *Report and
    Order*, 8 FCC Rcd 5631, 5731 (1993) (*\"Rate Order\"*); *see also*
    Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992, Rate Regulation*, Third
    Order on Reconsideration*, 9 FCC Rcd 4316, 4346 (1994) ("*Third
    Order on Reconsideration*").

[^6]: *Rate Order*, 8 FCC Rcd at 5732.

[^7]: 47 C.F.R. § 76.937(a).

[^8]: *See Rate Order* at 5718-19; *Third Order on Reconsideration*, 9
    FCC Rcd at 4348.

[^9]: 47 C.F.R. § 76.936; *see Ultracom of Marple, Inc.*, 10 FCC Rcd
    6640, 6641-42 (Cab.Serv.Bur. 1995).

[^10]: *See* Bowie Cable Rate Regulation Commission Order No 4-1995
    (adopted Feb. 27, 1996) ("Initial Rate Order").

[^11]: *See* FCC Form 1205 Instructions for Determining Costs of
    Regulated Cable Equipment and Installation at 8 (cable operators
    that are organized in forms other than C corporations (*e.g.*
    partnerships, Subchapter S corporations, and sole proprietorships)
    may gross-up their rate of return for state and federal income taxes
    as directed by the form).

[^12]: Letter from David A. Wilson (Maryland Cable) to David Deutsch,
    City Manager (3/1/96) ("transmittal letter"), *found at* City
    Opposition, Exhibit A.

[^13]: *See Maryland Cable Partners*, 12 FCC Rcd 11951 (Cab. Serv. Bur.
    1996).

[^14]: Bowie Cable Rate Regulation Commission Order No 4A-1995 ("Second
    Rate Order"), *found at* Maryland Cable Reply, Exhibit 1.

[^15]: *See Maryland Cable Partners, L.P. v. City of Bowie, Maryland*,
    13 FCC Rcd 5218 (Cab. Serv. Bur. 1998), *application for review
    denied*, FCC 00- 218, 2000 WL 800972 (F.C.C.) (released June 23,
    2000).

[^16]: Third Rate Order, fourth page, numbered para. 2.

[^17]: 47 C.F.R. § 76.933(g); *see* Implementation of Sections of the
    Cable Television Consumer Protection and Competition Act of 1992,
    Rate Regulation, *Thirteenth Order on Reconsideration*, 11 FCC Rcd
    388, 426 (1995) ("*Thirteenth Order on Reconsideration*").

[^18]: 47 C.F.R. § 76.933(g)(2); *see Thirteenth Order on
    Reconsideration* at 426.

[^19]: Maryland Cable Appeal at 6.

[^20]: *Id*. In Letter from David A. Wilson (Maryland Cable) to David
    Deutsch, City Manager (6/3/96), *found at* Maryland Cable Appeal,
    Exhibit 3, the Company asked "whether the City of Bowie has
    completed their review" of the 1996 Forms 1240 and 1205, not whether
    the City intended to issue a rate order after the initial 90-day
    review period as contemplated by section 76.933(g)(2), 47 C.F.R. §
    76.922(g)(2).

[^21]: City Opposition at 2-4.

[^22]: *See* transmittal letter ("The FCC Form 1205 . . . must be filed
    with the FCC Form 1240. The Form 1205 filing is for informational
    purposes only. All other rates including the equipment rates,
    installation rates and Premium channel rates will remain the same.")

[^23]: Maryland Cable Reply at 2-5.

[^24]: 47 C.F.R. § 76.923(a)(2), (c).

[^25]: Maryland Cable Reply at 3 ("an operator's equipment depreciates
    annually").

[^26]: 47 C.F.R. § 76.923(n).

[^27]: 47 C.F.R. § 76.922(e).

[^28]: 47 C.F.R. § 76.923(n)(3).

[^29]: 47 C.F.R. § 76.933(g); *Thirteenth Order on Reconsideration*, 11
    FCC Rcd at 426 para. 93.

[^30]: *See Chillocothe Cablevision, Inc*., 10 FCC Rcd 6055, 6056 para.
    5 (Cab. Serv. Bur. 1995).

[^31]: Although the Company had appealed the Second Rate Order, the City
    argues that the Company's failure to address that rate order's
    applicability to the 1996 Form 1205 terminated its right to
    challenge the timeliness of the Third Rate Order at issue here.
    Lacking notice from the Second Rate Order that it applied to the
    1996 Form 1205, the Company was under no obligation to appeal on
    that point. The City does not argue that the Company's appeal of the
    Third Rate Order was filed outside the period for appealing that
    order.

[^32]: Third Rate Order, fourth page, numbered para. 2.

[^33]: *Id*. at numbered para. 1.

[^34]: Maryland Cable Appeal at 10-11, citing *Third Order on
    Reconsideration*, 9 FCC Rcd at 4370.

[^35]: City Opposition at 6.

[^36]: 47 C.F.R. § 76.923(j). This rule section further provides that an
    operator may offer charges below permitted charges, but these
    charges must be "reasonable in scope in relation to the operator's
    overall offerings in the Equipment Basket and not unreasonably
    discriminatory."

[^37]: 11 FCC Rcd 4465 (Cab. Serv. Bur. 1995).

[^38]: *Id.* at paras. 9-10.

[^39]: The treatment of promotional offerings was an exception to the
    general treatment of refund offsets for operators setting initial
    regulated rates. The Commission's rules provided that refund
    liability should be based on the difference between an operator's
    aggregated old basic service tier and equipment and installation
    rates and its aggregated new rates set pursuant to the Commission's
    rate rules. 47 C.F.R. § 76.942(a). This approach took into account
    the variety of billing practices before unbundled rates were
    required by 47 C.F.R. § 76.923(a)(2). Once permitted regulated rates
    have been established and operators have gained experience with the
    Commission's rules, refund offsets are no longer appropriate for
    subsequent rate adjustments. *See Media General Cable of Fairfax
    County, Inc.*, 12 FCC Rcd 17424, 17432 para. 23 (Cab. Serv. Bur.
    1997), *request for review pending*.

[^40]: *Third Order on Reconsideration*, 9 FCC Rcd at 4370.

[^41]: *See* 47 C.F.R. 76.923(a)(2), (c).

[^42]: 47 C.F.R. § 923(b).

[^43]: *See* Communications Act §§ 624A(c)(2)(C), 629, 47 U.S.C. §§
    544a(c)(2)(C); 549.

[^44]: We express no opinion as to whether any refund liability remains
    in light of the remand of the Second Rate Order in *Maryland Cable
    Partners v. City of Bowie, supra* n.15.