Sec. 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 
Sec. 76.910, to regulate rates for basic service and associated 
equipment may permit a small system as defined in Sec. 76.901 to certify 
that the small system's rates for basic service and associated equipment 
comply with Sec. 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 Sec. 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 Secs. 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

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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 
Sec. 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 basic 
service tier shall take into account the following:
    (i) The rates for cable systems that are subject to effective 
competition;
    (ii) The direct costs of obtaining, transmitting, and otherwise 
providing signals carried on the basic service tier, including signals 
and services carried on the basic service tier, pursuant to Secs. 76.56 
and 76.64 of this subpart, and changes in such costs;
    (iii) Only such portion of the joint and common costs of obtaining, 
transmitting, and otherwise providing such signals as is determined to 
be reasonably and properly allocable to the basic service tier, and 
changes in such costs;
    (iv) The revenues received by a cable operator from advertising from 
programming that is carried as part of the basic service tier or from 
other consideration obtained in connection with the basic service tier;
    (v) The reasonably and properly allocable portion of any amount 
assessed as a franchise fee, tax, or charge of any kind imposed by any 
State or local authority on the transactions between cable operators and 
cable subscribers or any other fee, tax, or assessment of general 
applicability imposed by a governmental entity applied against cable 
operators or cable subscribers;
    (vi) Any amount required to satisfy franchise requirements to 
support public, educational, or governmental channels or the use of such 
channels or any other services required under the franchise; and
    (vii) A reasonable profit. The rate agreed to in such an alternative 
rate regulation agreement shall be deemed to be a reasonable rate.
    (3) 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.
    (4) 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.
    (5) 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 
Sec. 76.944 as if the decision were made according to Secs. 76.922 and 
76.923.
    (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

[[Page 595]]

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 
Sec. 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.
    (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

[[Page 596]]

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 Cable Services 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 Cable Services 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 Sec. 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 Sec. 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 Sec. 76.922(d).
    (ii) The system may adjust its maximum permitted rate in accordance 
with the requirements set forth in Sec. 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 Sec. 76.922(e)(3).

[[Page 597]]

    (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 Sec. 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 effective date of this rule and as 
of the period during which the disputed rates were in effect. This rule 
shall not affect the validity of a final rate decision made by a 
franchising authority before June 5, 1995.
    (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.

[ 60 FR 35865 , July 12, 1995, as amended at  60 FR 52120 , Oct. 5, 1995]

    Effective Date Note: At  60 FR 52120 , Oct. 5, 1995, in Sec. 76.934, 
paragraph (f) was revised. Paragraph (f) contains information collection 
and recordkeeping requirements and will not become effective until 30 
days after approval has been given by the Office of Management and 
Budget.