FOR FCC RECORD ONLY $//TCI Cablevision of W. Michigan, Inc., Vergennes, Michigan, MO&O, DA 94-1632//$ $/76.922 Rates for Cable Programming Service tier/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 94-1632 In the matter of ) ) TCI Cablevision of West Michigan, Inc. ) CUID No. MI1502 Vergennes, Michigan ) ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: December 30, 1994 Released: January 3, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider a complaint about the price TCI Cablevision of West Michigan, Inc. ("TCI") was charging for its cable programming service ("CPS") tier in Vergennes, Michigan, CUID No. MI1502. TCI has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This order addresses the reasonableness of TCI's price only through May 14, 1994. At a later time we will issue a separate order addressing the reasonableness of the price after that date. 2. Under the Cable Television Consumer Protection and Competition Act of 1992, and our rules implementing it, 47 C.F.R. Part 76, Subpart N, the Commission must review CPS prices upon the filing of a valid complaint. The filing of a valid complaint triggers an obligation on behalf of the cable operator to file a justification of its CPS prices. Under our rules, an operator may attempt to justify its rates through either a benchmark showing or a cost-of-service showing. In either case, the operator has the burden of demonstrating that its CPS prices are not unreasonable. 3. The Commission's original rate regulations took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Operators with valid CPS complaints filed against them prior to May 15, 1994 must demonstrate that their CPS prices were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their prices were in compliance with the revised rules from May 15, 1994 forward. Operators attempting to justify their prices for the period prior to May 15, 1994 through a benchmark showing must complete and file FCC Form 393. Generally, to justify their prices for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Procedural Matters 4. The first valid CPS complaint was completed and served on TCI on February 2, 1994. The Commission received the complaint on February 9, 1994. 5. TCI attempted to justify its CPS price through an FCC Form 393 filed on March 10, 1994. TCI amended its justification twice: on May 27, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally; and on December 20, 1994 in response to a Commission letter citing still unresolved deficiencies in TCI's amended showing. Discussion 6. In its amended benchmark filing of May 27, 1994, TCI calculated a maximum permitted price for the CPS tier of $10.96 per month. However, TCI's actual price for the CPS tier was $11.65 per month. Thus, TCI has failed to demonstrate that its price for the CPS tier was not unreasonable. 7. We will therefore set a price for this tier. In doing so we have found the following errors that require a recalculation of TCI's maximum permitted CPS price: a. In Column G of Schedules A and C of Part III of its FCC Form 393, TCI did not correctly account for its income tax expense. By placing entries in these columns, TCI confirms that it is a tax-paying entity (i.e., a "C" corporation). However, TCI incorrectly calculated its income tax by simply applying the corporate tax rate to its return on investment. The Commission has stated that tax-paying business entities must gross-up their tax entries in Column G of Schedules A and C (i.e., calculate the tax as a percentage of return on investment plus tax). By understating its tax entries in Column G, an operator reduces its effective rate of return on equipment and installations and thereby could increase its CPS price. We therefore recalculate Column G of Schedules A and C (and subsequent steps) using correctly grossed-up tax entries. b. TCI's calculations for its rate-regulated package as of the initial date of regulation (Form 393, Part I, and Form 393, Part II, Worksheet 1) reflect 33 regulated channels and 26 satellite channels. Our examination of the channel line-up that TCI provided with its May 27, 1994 filing, however, reveals only 32 regulated channels and 25 satellite channels. TCI apparently incorrectly counted channel 21, identified as "Request 1 PPV," as a satellite channel and channel 48, identified as "PPV Events," as a satellite channel and a regulated channel. Pay-per-view channels, however, may not be counted as regulated channels or as satellite channels. On the other hand, TCI apparently failed to count channel 32 as a satellite channel, even though this channel carried Pro Am Sports ("PASS") and Consumer News & Business Channel ("CNBC"), both of which are satellite delivered. Accordingly, we reduce the number of regulated channels by one and the number of satellite channels by one. c. On Line 108 of Form 393, Part II, Worksheet 1, TCI entered a monthly franchise fee expense of $823.87. The instructions to Form 393 provide that franchise fees are to be deducted on Line 108 only if they are included in the charges listed on Form 393, Part II, Worksheet 1, Line 101. However, the rate card TCI provided with its May 27, 1994 filing indicates that the prices entered by TCI on Line 101, $9.70 for the basic tier and $11.65 for the CPS tier, do not include franchise fees. Accordingly, we reduce TCI's Line 108 entry from $823.87 per month to $0.00 per month. 8. Because of these errors, we conclude that TCI has failed to demonstrate that its maximum permitted price for the CPS tier was not unreasonable. We will therefore set a maximum permitted price for this tier, incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1, on the basis of the most accurate data currently available for the date as to which TCI filed. On its amended Form 393, TCI calculated the Inflation Adjustment Factor as of the end of December 1993 using data released on December 1, 1993. On July 29, 1994, the U.S. Department of Commerce released corrected inflation data including Gross National Product Price Index ("GNP-PI") figures of 122.3 for the third quarter of 1992 and 126.5 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through December 1993, the base date TCI used in justifying its rates, of 1.034. 9. These adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.96 (as TCI calculated) to $10.69. Conclusions 10. Upon review of the record herein, we conclude that TCI's showing supports a maximum reasonable CPS tier price of $10.69 per month (plus franchise fee) for the period February 9, 1994 to May 14, 1994. We further determine that we will order an appropriate refund pursuant to Section 76.957 of the Commission's Rules, 47 C.F.R.  76.957, in order to reimburse subscribers for the amount they paid in excess of a reasonable price. 11. We further conclude that TCI must reflect in its Form 1200 rate filing for the period after May 14, 1994 the fact that TCI's prices during the earlier period were unreasonable. We reserve the right to make further adjustments to TCI's prices for the period after May 14, 1994, upon completion of our review of TCI's FCC Form 1200 rate filing. 12. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the February 2, 1994 complaint against the cable programming service price charged by TCI Cablevision of West Michigan, Inc. in Vergennes, Michigan, CUID No. MI1502, IS GRANTED TO THE EXTENT INDICATED HEREIN. 13. IT IS FURTHER ORDERED, that the benchmark filing submitted by TCI Cablevision of West Michigan, Inc. with respect to Vergennes, Michigan, CUID No. MI1502, for the period of February 9, 1994 to May 14, 1994, justifies a maximum price of $10.69 per month (plus franchise fee) for TCI Cablevision of West Michigan, Inc.'s cable programming service tier. 14. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R. 76.961, that TCI Cablevision of West Michigan, Inc. shall refund to subscribers that portion of the amounts paid for cable programming service from February 9, 1994 to May 14, 1994, that exceeded $10.69 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 15. IT IS FURTHER ORDERED, that TCI Cablevision of West Michigan, Inc. shall promptly determine the overcharges to CPS subscribers for the stated period, and shall within 30 days of the release of this Order file a report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 30 days of Commission approval thereof. 16. IT IS FURTHER ORDERED, pursuant to Section 76.922(b)(4)(C) of the Commission's rules, 47 C.F.R.  76.922(b)(4)(C), that TCI Cablevision of West Michigan, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filing with respect to its Vergennes, Michigan franchise area, CUID No. MI1502, for the period beginning May 15, 1994, to reduce the monthly charge per tier as of March 31, 1994 for Tier 2 (Line A6b) to equal the maximum price for that franchise area (plus franchise fee). 17. IT IS FURTHER ORDERED, that TCI Cablevision of West Michigan, Inc. shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, a CPS tier price for its Vergennes, Michigan franchise area, CUID No. MI1502, that reflects the reduction in the CPS rate determined in this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau