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  Sec.  Sec. 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  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 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  Sec. 76.944 as if the decision
   were made according to  Sec.  Sec. 76.922 and 76.923.

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

   (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 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  Sec. 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]

   Effective Date Note:   At  60 FR 52120 , Oct. 5, 1995, in  Sec. 76.934, paragraph
   (f)  was  revised.  This paragraph 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.