§ 76.934   Small systems and small cable companies.

   (a) For purposes of rules governing the reasonableness of rates charged
   by small systems, the size of a system or company shall be determined
   by reference to its size as of the date the system files with its
   franchising authority or the Commission the documentation necessary to
   qualify for the relief sought or, at the option of the company, by
   reference to system or company size as of the effective date of this
   paragraph. Where relief is dependent upon the size of both the system
   and the company, the operator must measure the size of both the system
   and the company as of the same date. A small system shall be considered
   affiliated with a cable company if the company holds a 20 percent or
   greater equity interest in the system or exercises de jure control over
   the system.

   (b) A franchising authority that has been certified, pursuant to
   § 76.910, to regulate rates for basic service and associated equipment
   may permit a small system as defined in § 76.901 to certify that the
   small system's rates for basic service and associated equipment comply
   with § 76.922, the Commission's substantive rate regulations.

   (c) Initial regulation of small systems:

   (1) If certified by the Commission, a local franchising authority may
   provide an initial notice of regulation to a small system, as defined
   by § 76.901(c), on May 15, 1994. Any initial notice of regulation issued
   by a certified local franchising authority prior to May 15, 1994 shall
   be considered as having been issued on May 15, 1994.

   (2) The Commission will accept complaints concerning the rates for
   cable programming service tiers provided by small systems on or after
   May 15, 1994. Any complaints filed with the Commission about the rates
   for a cable programming service tier provided by a small system prior
   to May 15, 1994 shall be considered as having been filed on May 15,
   1994.

   (3) A small system that receives an initial notice of regulation from
   its local franchising authority, or a complaint filed with the
   Commission for its cable programming service tier, must respond within
   the time periods prescribed in § § 76.930 and 76.956.

   (d) Statutory period for filing initial complaint: A complaint
   concerning a rate for cable programming service or associated equipment
   provided by a small system that was in effect on May 15, 1994 must be
   filed within 180 days from May 15, 1994.

   (e) Petitions for extension of time: Small systems may obtain an
   extension of time to establish compliance with rate regulations
   provided they can demonstrate that timely compliance would result in
   severe economic hardship. Requests for extension of time should be
   addressed to the local franchising authority concerning basic service
   and equipment rates and to the Commission concerning rates for a cable
   programming service tier and associated equipment. The filing of a
   request for an extension of time to comply with the rate regulations
   will not toll the effective date of rate regulation for small systems
   or alter refund liability for rates that exceed permitted levels after
   May 15, 1994.

   (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.

   (g) Alternative rate regulation agreements:

   (1) Local franchising authorities, certified pursuant to § 76.910, and
   small systems owned by small cable companies may enter into alternative
   rate regulation agreements affecting the basic service tier and the
   cable programming service tier.

   (i) Small systems must file with the Commission a copy of the operative
   alternative rate regulation agreement within 30 days after its
   effective date.

   (ii) [Reserved]

   (2) Alternative rate regulation agreements affecting the cable
   programming service tier shall take into account, among other factors,
   the following:

   (i) The rates for similarly situated cable systems offering comparable
   cable programming services, taking into account similarities in
   facilities, regulatory and governmental costs, the number of
   subscribers, and other relevant factors;

   (ii) The rates for cable systems, if any, that are subject to effective
   competition;

   (iii) The history of the rates for cable programming services of the
   system, including the relationship of such rates to changes in general
   consumer prices;

   (iv) The rates, as a whole, for all the cable programming, cable
   equipment, and cable services provided by the system, other than
   programming provided on a per channel or per program basis;

   (v) Capital and operating costs of the cable system, including the
   quality and costs of the customer service provided by the cable system;
   and

   (vi) The revenues received by a cable operator from advertising from
   programming that is carried as part of the service for which a rate is
   being established, and changes in such revenues, or from other
   considerations obtained in connection with the cable programming
   services concerned. The rate agreed to in such an alternative rate
   regulation agreement shall be deemed to be a reasonable rate.

   (3) Certified local franchising authorities shall provide a reasonable
   opportunity for consideration of the views of interested parties prior
   to finally entering into an alternative rate regulation agreement.

   (4) A basic service rate decision by a certified local franchising
   authority made pursuant to an alternative rate regulation agreement may
   be appealed by an interested party to the Commission pursuant to
   § 76.944 as if the decision were made according to § § 76.922 and 76.923.

   Note to paragraph (g) of § 76.934: Small systems owned by small cable
   companies must comply with the alternative rate agreement filing
   requirements of § 76.1805.

   (h) Small system cost-of-service showings:

   (1) At any time, a small system owned by a small cable company may
   establish new rates, or justify existing rates, for regulated program
   services in accordance with the small cable company cost-of-service
   methodology described below.

   (2) The maximum annual per subscriber rate permitted initially by the
   small cable company cost-of-service methodology shall be calculated by
   adding

   (i) The system's annual operating expenses to

   (ii) The product of its net rate base and its rate of return, and then
   dividing that sum by (iii) the product of

   (A) The total number of channels carried on the system's basic and
   cable programming service tiers and

   (B) The number of subscribers. The annual rate so calculated must then
   be divided by 12 to arrive at a monthly rate.

   (3) The system shall calculate its maximum permitted rate as described
   in paragraph (b) of this section by completing Form 1230. The system
   shall file Form 1230 as follows:

   (i) Where the franchising authority has been certified by the
   Commission to regulate the system's basic service tier rates, the
   system shall file Form 1230 with the franchising authority.

   (ii) Where the Commission is regulating the system's basic service tier
   rates, the system shall file Form 1230 with the Commission.

   (iii) Where a complaint about the system's cable programming service
   rates is filed with the Commission, the system shall file Form 1230
   with the Commission.

   (4) In completing Form 1230:

   (i) The annual operating expenses reported by the system shall equal
   the system's operating expenses allocable to its basic and cable
   programming service tiers for the most recent 12 month period for which
   the system has the relevant data readily available, adjusted for known
   and measurable changes occurring between the end of the 12 month period
   and the effective date of the rate. Expenses shall include all regular
   expenses normally incurred by a cable operator in the provision of
   regulated cable service, but shall not include any lobbying expense,
   charitable contributions, penalties and fines paid one account of
   statutes or rules, or membership fees in social service, recreational
   or athletic clubs or associations.

   (ii) The net rate base of a system is the value of all of the system's
   assets, less depreciation.

   (iii) The rate of return claimed by the system shall reflect the
   operator's actual cost of debt, its cost of equity, or an assumed cost
   of equity, and its capital structure, or an assumed capital structure.

   (iv) The number of subscribers reported by the system shall be
   calculated according to the most recent reliable data maintained by the
   system.

   (v) The number of channels reported by the system shall be the number
   of channels it has on its basic and cable programming service tiers on
   the day it files Form 1230.

   (vi) In establishing its operating expenses, net rate base, and
   reasonable rate of return, a system may rely on previously existing
   information such as tax forms or company financial statements, rather
   than create or recreate financial calculations. To the extent existing
   information is incomplete or otherwise insufficient to make exact
   calculations, the system may establish its operating expenses, net rate
   base, and reasonable rate of return on the basis of reasonable, good
   faith estimates.

   (5) After the system files Form 1230, review by the franchising
   authority, or the Commission when appropriate, shall be governed by
   § 76.933, subject to the following conditions.

   (i) If the maximum rate established on Form 1230 does not exceed $1.24
   per channel, the rate shall be rebuttably presumed reasonable. To
   disallow such a rate, the franchising authority shall bear the burden
   of showing that the operator did not reasonably interpret and allocate
   its cost and expense data in deriving its annual operating expenses,
   its net rate base, and a reasonable rate of return. If the maximum rate
   established on Form 1230 exceeds $1.24 per channel, the franchising
   authority shall bear such burden only if the rate that the cable
   operator actually seeks to charge does not exceed $1.24 per channel.

   (ii) In the course of reviewing Form 1230, a franchising authority
   shall be permitted to obtain from the cable operator the information
   necessary for judging the validity of methods used for calculating its
   operating costs, rate base, and rate of return. If the maximum rate
   established in Form 1230 does not exceed $1.24 per channel, any request
   for information by the franchising authority shall be limited to
   existing relevant documents or other data compilations and should not
   require the operator to create documents, although the operator should
   replicate responsive documents that are missing or destroyed.

   (iii) A system may file with the Media Bureau an interlocutory appeal
   from any decision by the franchising authority requesting information
   from the system or tolling the effective date of a system's proposed
   rates. The appeal may be made by an informal letter to the Chief of the
   Media Bureau, served on the franchising authority. The franchising
   authority must respond within seven days of its receipt of the appeal
   and shall serve the operator with its response. The operator shall have
   four days from its receipt of the response in which to file a reply, if
   desired. If the maximum rate established on Form 1230 does not exceed
   $1.24 per channel, the burden shall be on the franchising authority to
   show the reasonableness of its order. If the maximum rate established
   on Form 1230 exceeds $1.24 per channel, the burden shall be on the
   operator to show the unreasonableness of the order.

   (iv) In reviewing Form 1230 and issuing a decision, the franchising
   authority shall determine the reasonableness of the maximum rate
   permitted by the form, not simply the rate which the operator intends
   to establish.

   (v) A final decision of the franchising authority with respect to the
   requested rate shall be subject to appeal pursuant to § 76.944. The
   filing of an appeal shall stay the effectiveness of the final decision
   pending the disposition of the appeal by the Commission. An operator
   may bifurcate its appeal of a final rate decision by initially limiting
   the scope of the appeal to the reasonableness of any request for
   information made by the franchising authority. The operator may defer
   addressing the substantive rate-setting decision of the franchising
   authority until after the Commission has ruled on the reasonableness of
   the request for information. At its option, the operator may forego the
   bifurcated appeal and address both the request for documentation and
   the substantive rate-setting decision in a single appeal. When filing
   an appeal from a final rate-setting decision by the franchising
   authority, the operator may raise as an issue the scope of the request
   for information only if that request was not approved by the Commission
   on a previous interlocutory appeal by the operator.

   (6) Complaints concerning the rates charged for a cable programming
   services tier by a system that has elected the small cable company
   cost-of-service methodology may be filed pursuant to § 76.957. Upon
   receipt of a complaint, the Commission shall review the system's rates
   in accordance with the standards set forth above with respect to basic
   tier rates.

   (7) Unless otherwise ordered by the franchising authority or the
   Commission, the system may establish its per channel rate at any level
   that does not exceed the maximum rate permitted by Form 1230, provided
   that the system has given the required written notice to subscribers.
   If the system establishes its per channel rate at a level that is less
   than the maximum amount permitted by the form, it may increase rates at
   any time thereafter to the maximum amount upon providing the required
   written notice to subscribers.

   (8) After determining the maximum rate permitted by Form 1230, the
   system may adjust that rate in accordance with this paragraph. Electing
   to adjust rates pursuant to one of the options set forth below shall
   not prohibit the system from electing a different option when adjusting
   rates thereafter. The system may adjust its maximum permitted rate
   without adjusting the actual rate it charges subscribers.

   (i) The system may adjust its maximum permitted rate in accordance with
   the price cap requirements set forth in § 76.922(d).

   (ii) The system may adjust its maximum permitted rate in accordance
   with the requirements set forth in § 76.922(e) for changes in the number
   of channels on regulated tiers. For any system that files Form 1230, no
   rate adjustments made prior to the effective date of this rule shall be
   charged against the system's Operator's Cap and License Reserve Fee
   described in § 76.922(e)(3).

   (iii) The system may adjust its maximum permitted rate by filing a new
   Form 1230 that permits a higher rate.

   (iv) The system may adjust its maximum permitted rate by complying with
   any of the options set forth in § 76.922(b)(1) for which it qualifies or
   under an alternative rate agreement as provided in paragraph (g) of
   this section.

   (9) In any rate proceeding before a franchising authority in which a
   final decision had not been issued as of June 5, 1995, a small system
   owned by a small cable company may elect the form of rate regulation
   set forth in this section to justify the rates that are the subject of
   the proceeding, if the system and affiliated company were a small
   system and small company respectively as of the June 5, 1995 and as of
   the period during which the disputed rates were in effect. However, the
   validity of a final rate decision made by a franchising authority
   before June 5, 1995 is not affected.

   (10) In any proceeding before the Commission involving a cable
   programming services tier complaint in which a final decision had not
   been issued as of June 5, 1995, a small system owned by a small cable
   company may elect the form of rate regulation set forth in this section
   to justify rates charged prior to the adoption of this rule and to
   establish new rates. For purposes of this paragraph, a decision shall
   not be deemed final until the operator has exhausted or is time-barred
   from pursuing any avenue of appeal, review, or reconsideration.

   (11) A system that is eligible to establish its rates in accordance
   with the small system cost-of-service approach shall remain eligible
   for so long as the system serves no more than 15,000 subscribers. When
   a system that has established rates in accordance with the small system
   cost-of-service approach exceeds 15,000 subscribers, the system may
   maintain its then existing rates. After exceeding the 15,000 subscriber
   limit, any further rate adjustments shall not reflect increases in
   external costs, inflation or channel additions until the system has
   re-established initial permitted rates in accordance with some other
   method of rate regulation prescribed in this subpart.

   Note: For rules governing small cable operators, see § 76.990 of this
   subpart.

   [ 60 FR 35865 , July 12, 1995, as amended at  60 FR 52120 , Oct. 5, 1995;
    62 FR 53576 , Oct. 15, 1997;  64 FR 35950 , July 2, 1999;  65 FR 53617 ,
   Sept. 5, 2000;  67 FR 13235 , Mar. 21, 2002]

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