In In re Alleged Failure of Altice U.S., Inc., the Supreme Court of New Jersey held that Section 543(a)(1) of the Cable Act does not preempt the proration requirement in N.J.A.C. 14:18-3.8. According to the state’s highest court, the regulation does not regulate “rates for the provision of cable service,” but rather prevents cable companies from charging for cable service that customers have cancelled.
Facts of the Case
The statute at issue, N.J.A.C. 14:18-3.8, requires cable companies to refund or not charge customers who cancel cable service before the end of a billing cycle for cable service after the date of cancellation. Altice USA, Inc. (Altice) argues that N.J.A.C. 14:18-38’s proration requirement effectively regulates its “rates for the provision of cable service” and is therefore expressly preempted by 47 U.S.C. § 543(a)(1), a section of the federal Cable Communications Policy Act of 1984 (Cable Act). Accordingly, Altice maintains that, once its customers sign up for a monthly plan, they must pay for a full final month of cable service even if they terminate service before the month ends. The Board of Public Utilities (the BPU) and Division of Rate Counsel maintain that the regulation is a valid exercise of the State’s police power, which they argue the Cable Act explicitly authorizes.
In 2011, Cablevision Systems Corporation (Cablevision), Altice’s predecessor, petitioned the BPU for relief from various rules. BPU granted Cablevision’s request for relief from compliance with certain rules, expressly conditioned on Cablevision’s continuing to “prorate its bills pursuant to the requirements” of state law. As part of its request for relief, Cablevision submitted to the BPU sample customer bills that evidenced intent to continue prorating bills under N.J.A.C. 14:18-3.8. In 2015, Altice petitioned the BPU for approval of its merger with Cablevision Cable Entities. In May 2016, the BPU issued an Order approving the merger with the expectation that Altice would comply with N.J.A.C. 14:18-3.8.
Altice then began selling cable service to New Jersey residents. On its own, Altice selected a monthly rate and billed customers at that rate. Initially, Altice prorated bills for customers who cancelled service mid-month. In October 2016, Altice altered its practice and stopped prorating bills for customers who cancelled service before the end of a month without notifying the BPU. Hundreds of customers complained to the BPU about not receiving a refund for cancelled service, which led to this enforcement action.
In 2019, finding that Altice failed to prorate customer bills in violation of N.J.A.C. 14:18-3.8, the 2011 Relief Order, and the 2016 Merger Order, the BPU ordered Altice to cease and desist from failing to prorate monthly bills; refund affected customers; remit a one-time contribution to the Altice Advantage Internet program; and audit billing records.
Altice appealed the BPU’s cease-and-desist order to the Appellate Division. Focusing solely on preemption grounds, the appellate court invalidated the order.
NJ Supreme Court’s Decision
The New Jersey Supreme Court reversed. “We hold that Section 543(a)(1) of the Cable Act does not preempt the proration requirement in N.J.A.C. 14:18-3.8. The regulation does not regulate ‘rates for the provision of cable service,’ but rather prevents cable companies from charging for cable service that customers have cancelled. The regulation does not set the “rate” that companies can charge. It simply protects cable users from paying for service they no longer want,” the court wrote. “Furthermore, contrary to Altice’s alternative argument, neither Altice nor its predecessor sought or received a BPU waiver from prorating cable bills.”
In finding that Section 543(a)(1) does not expressly preempt N.J.A.C. 14:18-3.8, the New Jersey Supreme Court emphasized that Section 543 of the Cable Act prohibits rate regulation in competitive cable system markets — it does not expressly prohibit proration of bills. According to the court, it reached this conclusion by “deriving ordinary meaning from the text of N.J.A.C. 14:18-3.8 and Sections 543(a)(1) and 552(d)(1) of the Cable Act.”
The New Jersey Supreme Court went on to explain that a “rate” is not only the price or the unit of utility service sold; it is the ratio of price to unit, writing:
Here, the challenged regulation does not even indirectly affect the actual rate Altice charges; rather, it prohibits applying the service rate to a period after a customer cancels cable service. Altice sets its own competitive marketplace “rate.” If Altice sets a hypothetical monthly rate of $100 for cable service, and a customer cancels service halfway through a thirty-day month, the proration regulation requires Altice to charge that customer $50 rather than $100 because the customer terminated the service mid-month. Altice’s rate remains the same, and the customer is charged a proportion of the rate price equal to the proportion of the month for which service was provided.
The New Jersey Supreme Court also emphasized that Altice sets its own competitive marketplace “rate.” Moreover, N.J.A.C. 14:18-3.8’s proration requirement does not “regulate” that rate — that is, it does not fix, establish, adjust, or control Altice’s rate. The regulation merely uses the rate that the cable provider sets to enforce a price proportional to the quantity of service provided. The court also rejected the notion that that proration impliedly creates a new daily “rate” for the month of termination.
Finally, the New Jersey Supreme Court rejected the argument that the BPU excused Altice from complying with N.J.A.C. 14:18-3.8’s proration requirement. In support, it noted that both the 2011 Relief Order and the 2016 Merger Order memorialize Altice’s acknowledgment that it was obligated to continue prorating customer bills under the consumer protection regulation in N.J.A.C. 14:18-3.8.
In light of its decision, the New Jersey Supreme Court reinstated the BPU’s cease-and-desist order without prejudice and remanded to the appellate court to resolve Altice’s remaining argument that the BPU failed to follow proper procedures in the enforcement action.