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

   (a) Basic and cable programming service tier rates. Basic service tier
   and cable programming service rates shall be subject to regulation by
   the Commission and by state and local authorities, as is appropriate,
   in order to assure that they are in compliance with the requirements of
   47 U.S.C. 543. Rates that are demonstrated, in accordance with this
   part, not to exceed the "Initial Permitted Per Channel Charge" or the
   "Subsequent Permitted Per Channel Charge" as described in this section,
   or the equipment charges as specified in § 76.923, will be accepted as
   in compliance. The maximum monthly charge per subscriber for a tier of
   regulated programming services offered by a cable system shall consist
   of a permitted per channel charge multiplied by the number of channels
   on the tier, plus a charge for franchise fees. The maximum monthly
   charges for regulated programming services shall not include any
   charges for equipment or installations. Charges for equipment and
   installations are to be calculated separately pursuant to § 76.923. The
   same rate-making methodology (either the benchmark methodology found in
   paragraph (b) of this section, or a cost-of-service showing) shall be
   used to set initial rates on all rate regulated tiers, and shall
   continue to provide the basis for subsequent permitted charges.

   (b) Permitted charge on May 15, 1994. (1) The permitted charge for a
   tier of regulated program service shall be, at the election of the
   cable system, either:

   (i) A rate determined pursuant to a cost-of-service showing;

   (ii) The full reduction rate;

   (iii) The transition rate, if the system is eligible for transition
   relief; or

   (iv) A rate based on a streamlined rate reduction, if the system is
   eligible to implement such a rate reduction. Except where noted, the
   term "rate" in this subsection means a rate measured on an average
   regulated revenue per subscriber basis.

   (2) Full reduction rate. The "full reduction rate" on May 15, 1994 is
   the system's September 30, 1992 rate, measured on an average regulated
   revenue per subscriber basis, reduced by 17 percent, and then adjusted
   for the following:

   (i) The establishment of permitted equipment rates as required by
   § 76.923;

   (ii) Inflation measured by the GNP-PI between October 1, 1992 and
   September 30, 1993;

   (iii) Changes in the number of program channels subject to regulation
   that are offered on the system's program tiers between September 30,
   1992 and the earlier of the initial date of regulation for any tier or
   February 28, 1994; and

   (iv) Changes in external costs that have occurred between the earlier
   of the initial date of regulation for any tier or February 28, 1994,
   and March 31, 1994.

   (3) March 31, 1994 benchmark rate. The "March 31, 1994 benchmark rate"
   is the rate so designated using the calculations in Form 1200.

   (4) Transition rates--(i) Termination of transition relief for systems
   other than low price systems. Systems other than low-price systems that
   already have established a transition rate as of the effective date of
   this rule may maintain their current rates, as adjusted under the price
   cap requirements of § 76.922(d), until two years from the effective
   date of this rule. These systems must begin charging reasonable rates
   in accordance with applicable rules, other than transition relief, no
   later than that date.

   (ii) Low-price systems. Low price systems shall be eligible to
   establish a transition rate for a tier.

   (A) A low-price system is a system:

   (1) Whose March 31, 1994 rate is below its March 31, 1994 benchmark
   rate, or

   (2) Whose March 31, 1994 rate is above its March 31, 1994 benchmark
   rate, but whose March 31, 1994 full reduction rate is below its March
   31, 1994 benchmark rate, as defined in § 76.922(b)(2), above.

   (B) The transition rate on May 15, 1994 for a system whose March 31,
   1994 rate is below its March 31, 1994 benchmark rate is the system's
   March 31, 1994 rate. The March 31, 1994 rate is in both cases adjusted:

   (1) To establish permitted rates for equipment as required by § 76.923
   if such rates have not already been established; and

   (2) For changes in external costs incurred between the earlier of
   initial date of regulation of any tier or February 28, 1994, and March
   31, 1994, to the extent changes in such costs are not already reflected
   in the system's March 31, 1994 rate. The transition rate on May 15,
   1994 for a system whose March 31, 1994 adjusted rate is above its March
   31, 1994 benchmark rate, but whose March 31, 1994 full reduction rate
   is below its March 31, 1994 benchmark rate, is the March 31, 1994
   benchmark rate, adjusted to establish permitted rates for equipment as
   required by § 76.923 if such rates have not already been established.

   (iii) Notwithstanding the foregoing, the transition rate for a tier
   shall be adjusted to reflect any determination by a local franchising
   authority and/or the Commission that the rate in effect on March 31,
   1994 was higher (or lower) than that permitted under applicable
   Commission regulations. A filing reflecting the adjusted rate shall be
   submitted to all relevant authorities within 30 days after issuance of
   the local franchising authority and/or Commission determination. A
   system whose March 31, 1994 rate is determined by a local franchising
   authority or the Commission to be too high under the Commission's rate
   regulations in effect before May 15, 1994 will be subject to any refund
   liability that may accrue under those rules. In addition, the system
   will be liable for refund liability under the rules in effect on and
   after May 15, 1994. Such refund liability will be measured by the
   difference in the system's March 31, 1994 rate and its permitted March
   31, 1994 rate as calculated under the Commission's rate regulations in
   effect before May 15, 1994. The refund liability will accrue according
   to the time periods set forth in § § 76.942, and 76.961 of the
   Commission's rules.

   (5) Streamlined rate reductions. (i) Upon becoming subject to rate
   regulation, a small system owned by a small cable company may make a
   streamlined rate reduction, subject to the following conditions, in
   lieu of establishing initial rates pursuant to the other methods of
   rate regulation set forth in this subpart:

   (A) Small systems that are owned by small cable companies and that have
   not already restructured their rates to comply with the Commission's
   rules may establish rates for regulated program services and equipment
   by making a streamlined rate reduction. Small systems owned by small
   cable companies shall not be eligible for streamlined rate reductions
   if they are owned or controlled by, or are under common control or
   affiliated with, a cable operator that exceeds these subscriber limits.
   For purposes of this rule, a small system will be considered
   "affiliated with" such an operator if the operator has a 20 percent or
   greater equity interest in the small system.

   (B) The streamlined rate for a tier on May 15, 1994 shall be the
   system's March 31, 1994 rate for the tier, reduced by 14 percent. A
   small system that elects to establish its rate for a tier by
   implementing this streamlined rate reduction must also reduce, at the
   same time, each billed item of regulated cable service, including
   equipment, by 14 percent. Regulated rates established using the
   streamlined rate reduction process shall remain in effect until:

   (1) Adoption of a further order by the Commission establishing a
   schedule of average equipment costs;

   (2) The system increases its rates using the calculations and time
   periods set forth in FCC Form 1211; or

   (3) The system elects to establish permitted rates under another
   available option set forth in paragraph (b)(1) of this section.

   (C) Implementation and notification. An eligible small system that
   elects to use the streamlined rate reduction process must implement the
   required rate reductions and provide written notice of such reductions
   to subscribers, the local franchising authority and the Commission
   according to the following schedule:

   (1) Within 60 days from the date it receives the initial notice of
   regulation from the franchising authority or the Commission, the small
   system must provide written notice to subscribers and the franchising
   authority, or to the Commission if the Commission is regulating the
   basic tier, that it is electing to set its regulated rates by the
   streamlined rate reduction process. The system must then implement the
   streamlined rate reductions within 30 days after the written
   notification has been provided to subscribers and the local franchise
   authority or Commission.

   (2) If a cable programming services complaint is filed against the
   system, the system must provide the required written notice, described
   in paragraph (b)(5)(iii)(C)(1) of this section, to subscribers, the
   local franchising authority or the Commission within 60 days after the
   complaint is filed. The system must then implement the streamlined rate
   reductions within 30 days after the written notification has been
   provided.

   (3) A small system is required to give written notice of, and to
   implement, the rates that are produced by the streamlined rate
   reduction process only once. If a system has already provided notice
   of, and implemented, the streamlined rate reductions when a given tier
   becomes subject to regulation, it must report to the relevant regulator
   (either the franchising authority or the Commission) in writing within
   30 days of becoming subject to regulation that it has already provided
   the required notice and implemented the required rate reductions.

   (ii) The stremlined rate for a tier on May 15, 1994 shall be the
   system's March 31, 1994 rate for the tier, reduced by 14 percent. A
   small system that elects to establish its rate for a tier by
   implementing this streamlined rate reduction must also reduce, at the
   same time, each billed item of regulated cable service, including
   equipment, by 14 percent. Regulated rates established using the
   streamlined rate reduction process shall remain in effect until:

   (A) Adoption of a further order by the Commission establishing a
   schedule of average equipment costs;

   (B) The system increases its rates using the calculations and time
   periods set forth in FCC Form 1211; or

   (C) The system elects to establish permitted rates under another
   available option set forth in paragraph (b)(1) of this section.

   (iii) Implementation and notification. An eligible small system that
   elects to use the streamlined rate reduction process must implement the
   required rate reductions and provide written notice of such reductions
   to subscribers, the local franchising authority and the Commission
   according to the following schedule:

   (A) Where the franchising authority has been certified by the
   Commission to regulate the small system's basic service tier rates as
   of May 15, 1994, the system must notify the franchising authority and
   its subscribers in writing that it is electing to set its regulated
   rates by the streamline rate reduction process. Such notice must be
   given by June 15, 1994, and must also describe the new rates that will
   result from the streamlined rate reduction process. Those rates must
   then be implemented within 30 days after the written notification has
   been provided to subscribers and the local franchising authority.

   (B) Where the franchising authority has not been certified to regulate
   basic service tier rates by May 15, 1994, the small system must provide
   the written notice to subscribers and the franchising authority,
   described in paragraph (b)(5)(iii)(A) of this section, within 30 days
   from the date it receives the initial notice of regulation from the
   franchising authority. The system must then implement the streamlined
   rate reductions within 30 days after the written notification has been
   provided to subscribers and the local franchise authority.

   (C) Where the Commission is regulating the small system's basic service
   tier rates as of May 15, 1994, the system must notify the Commission
   and its subscribers in writing that it is electing to set its regulated
   rates by the streamlined rate reduction process. Such notice must be
   given by June 15, 1994, and must also describe the new rates that will
   result from the streamlined rate reduction process. Those rates must
   then be implemented within 30 days after the written notification has
   been provided to subscribers and the Commission.

   (D) Where the Commission begins regulating basic service rates after
   May 15, 1994, the small system must provide the written notice to
   subscribers and the Commission, described in paragraph (b)(5)(iii)(C)
   of this section, within 30 days from the date it receives an initial
   notice of regulation. The system must then implement the streamlined
   rate reductions within 30 days after the written notification has been
   provided to subscribers and the Commission.

   (E) If a complaint about its cable programming service rates has been
   filed with the Commission on or before May 15, 1994, the small system
   must provide the written notice described in paragraph (b)(5)(iii)(A)
   of this section, to subscribers, the local franchising authority and
   the Commission by June 15, 1994. If a cable programming services
   complaint is filed against the system after May 15, 1994, the system
   must provide the required written notice to subscribers, the local
   franchising authority or the Commission within 30 days after the
   complaint is filed. The system must then implement the streamlined rate
   reductions within 30 days after the written notification has been
   provided.

   (F) A small system is required to give written notice of, and to
   implement, the rates that are produced by the streamlined rate
   reduction process only once. If a system has already provided notice
   of, and implemented, the streamlined rate reductions when a given tier
   becomes subject to regulation, it must report to the relevant regulator
   (either the franchising authority or the Commission) in writing within
   30 days of becoming subject to regulation that it has already provided
   the required notice and implemented the required rate reductions.

   (6) Establishment of initial regulated rates. (i) Cable systems, other
   than those eligible for streamlined rate reductions, shall file FCC
   Forms 1200, 1205, and 1215 for a tier that is regulated on May 15, 1994
   by June 15, 1994, or thirty days after the initial date of regulation
   for the tier. A system that becomes subject to regulation for the first
   time on or after July 1, 1994 shall also file FCC Form 1210 at the time
   it files FCC Forms 1200, 1205 and 1215.

   (ii) A cable system will not incur refund liability under the
   Commission's rules governing regulated cable rates on and after May 15,
   1994 if:

   (A) Between March 31, 1994 and July 14, 1994, the system does not
   change the rate for, or restructure in any fashion, any program service
   or equipment offering that is subject to regulation under the 1992
   Cable Act; and

   (B) The system establishes a permitted rate defined in paragraph (b) of
   this section by July 14, 1994. The deferral of refund liability
   permitted by this subsection will terminate if, after March 31, 1994,
   the system changes any rate for, or restructures, any program service
   or equipment offering subject to regulation, and in all events will
   expire on July 14, 1994. Moreover, the deferral of refund liability
   permitted by this paragraph does not apply to refund liability that
   occurs because the system's March 31, 1994 rates for program services
   and equipment subject to regulation are higher than the levels
   permitted under the Commission's rules in effect before May 15, 1994.

   (7) For purposes of this section, the initial date of regulation for
   the basic service tier shall be the date on which notice is given
   pursuant to § 76.910, that the provision of the basic service tier is
   subject to regulation. For a cable programming services tier, the
   initial date of regulation shall be the first date on which a complaint
   on the appropriate form is filed with the Commission concerning rates
   charged for the cable programming services tier.

   (8) For purposes of this section, rates in effect on the initial date
   of regulation or on September 30, 1992 shall be the rates charged to
   subscribers for service received on that date.

   (9) Updating data calculations. (i) For purposes of this section, if:

   (A) A cable operator, prior to becoming subject to regulation, revised
   its rates to comply with the Commission's rules; and

   (B) The data on which the cable operator relied was current and
   accurate at the time of revision, and the rate is accurate and
   justified by the prior data; and

   (C) Through no fault of the cable operator, the rates that resulted
   from using such data differ from the rates that would result from using
   data current and accurate at the time the cable operator's system
   becomes subject to regulation; then the cable operator is not required
   to change its rates to reflect the data current at the time it becomes
   subject to regulation.

   (ii) Notwithstanding the above, any subsequent changes in a cable
   operator's rates must be made from rate levels derived from data [that
   was current as of the date of the rate change].

   (iii) For purposes of this subsection, if the rates charged by a cable
   operator are not justified by an analysis based on the data available
   at the time it initially adjusted its rates, the cable operator must
   adjust its rates in accordance with the most accurate data available at
   the time of the analysis.

   (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 paragraph (d) or (e)
   of this section. In addition, cable systems may further adjust their
   rates using the methodologies set forth in paragraph (n) 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 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 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) 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 (d)(3)(x) 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. With respect to the per channel
   adjustment only, this deduction shall not apply to revenues received by
   an operator from a programmer as commissions on sales of products or
   services offered through home shopping services.

   (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. § 159.

   (vii) Headend equipment costs necessary for the carriage of digital
   broadcast signals.

   (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. Except, for regulated FCC Form 1200 rates set on the
   basis of rates at September 30, 1992 (using either March 31, 1994 rates
   initially determined from FCC Form 393 Worksheet 2 or using Form 1200
   Full Reduction Rates from Line J6), the starting date shall be
   September 30, 1992. Operators in this latter group may make adjustment
   for changes in external costs for the period between September 30,
   1992, and the initial date of regulation or February 28, 1994,
   whichever is applicable, based either on changes in the GNP-PI over
   that period or on the actual change in the external costs over that
   period. Thereafter, adjustment for external costs may be made on the
   basis of actual changes in external costs only.

   (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
   § 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.

   (i) For purposes of this section, entities are affiliated if either
   entity has an attributable interest in the other or if a third party
   has an attributable interest in both entities.

   (ii) Attributable interest shall be defined by reference to the
   criteria set forth in Notes 1 through 5 to § 76.501 provided, however,
   that:

   (A) The limited partner and LLC/LLP/RLLP insulation provisions of Note
   2(f) shall not apply; and

   (B) The provisions of Note 2(a) regarding five (5) percent interests
   shall include all voting or nonvoting stock or limited partnership
   equity interests of five (5) percent or more.

   (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. 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.
   Average No. of regulated channels Per-channel 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 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 regulated cable 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) at the time it was first used to provide cable service,
   except that in the case of systems purchased before May 15, 1994 shall
   be presumed to equal 66% of the total purchase price allocable to
   assets (including tangible and intangible assets) used to provide
   regulated services. The 66% allowance shall not be used to justify any
   rate increase taken after the effective date of this rule. The actual
   money cost of plant may include an allowance for funds used during
   construction at the prime rate or the operator's actual cost of funds
   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 including depreciation,
   amortization and interest expenses related to assets that are included
   in the ratebase. Capitalized start-up losses, may include cumulative
   net losses, plus any unrecovered interest expenses connected to funding
   the regulated ratebase, amortized over the unexpired life of the
   franchise, commencing with the end of the loss accumulation phase.
   However, losses attributable to accelerated depreciation methodologies
   are not permitted.

   (iii) 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.

   (iv) 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.

   (v) The cost of customer lists if such costs were capitalized during
   the prematurity phase of operations less amortization.

   (vi) 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.

   (vii) 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.

   (viii) 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 accrued after the date upon which the
   operator became subject to regulation 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, including
   providing television broadcast programming in a digital format.

   (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 § 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.

   (n) Further rate adjustments--Uniform rates. A cable operator that has
   established rates in accordance with this section may then be permitted
   to establish a uniform rate for uniform services offered in multiple
   franchise areas. This rate shall be determined in accordance with the
   Commission's procedures and requirements set forth in CS Docket No.
   95-174.

   [ 58 FR 29753 , May 21, 1993]

   Editorial Note: For Federal Register citations affecting § 76.922 see
   the List of CFR Sections Affected, which appears in the Finding Aids
   section of the printed volume and at www.fdsys.gov.

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