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5 <br />2) External costs for Projected Period <br />3) Projected cable system upgrade costs (applied to upper cable tier only) - per Social Contract <br />4) Inflation from True -up Period <br />5) Inflation for Projected Period <br />6} Franchise related costs (PEG) from True -up Period <br />7) Franchise related costs (PEG) for Projected Period <br />Analysis of Rate Increases <br />External Costs <br />The rate adjustments reflect multiple external cost elements. An external cost is an expense a <br />cable operator incurs during the normal course of business and may be included in rate <br />calculations. External cost categories include: state and local taxes; franchise fees; costs of <br />complying with franchise requirements, including costs of providing public, educational, and <br />governmental access channels; retransmission consent fees and copyright fees incurred for the <br />carriage of broadcast signals; other programming costs; FCC regulatory fees; and costs <br />associated with channel additions. <br />True Up and Projected Periods <br />The FCC 1240 Form must be filed with the local franchise authority ninety (90) days before the <br />rates are scheduled to take effect, and may be filed no more frequently than annually. The FCC <br />1240 represents a departure from the quarterly method of updating cable rates, in that it allows <br />cable operators to estimate their future costs over a 12 -month period: this is referred to as the <br />projected period.' The FCC 1240 also allows operators to recover expenses that occurred during <br />a specified prior period of time, referred to as the true up period. If a cable operator incorrectly <br />estimates its costs for a projected period, it must correct those estimates by using the true up <br />segment of the next FCC 1240 rate filing. <br />Time Warner's projected period covers the 12 months of 1999, from January 1 to December 31. <br />The operator's true up period covers the 12 months of 1998, from January 1 to December 31. <br />CPST Rate Regulation Expiration <br />A provision within the Telecommunications Act of 1996 sets March 31, 1999 as the date upon <br />which rate regulation on upper cable service tiers expire. Thereafter, the cable operator is <br />allowed to change upper service tier rates at will and then, upon the provision of a 30 -day notice <br />to the franchise authority and subscribers. <br />'FCC 1210 Forms allow for the recovery of past costs, only, not future costs. Future costs are recoverable <br />through the use of the FCC 1240 Form, only. <br />2 <br />