FOR FCC RECORD ONLY $//Paragon Cable Manhattan, New York, NY, MO&O, DA 95-250//$ $76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-250 In the Matter of ) ) Paragon Cable Manhattan ) CUID No. NY0104 New York, New York ) ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: February 16, 1995 Released: February 17, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price Paragon Cable Manhattan ("Paragon") was charging for its cable programming service ("CPS") tier in New York, New York, CUID No. NY0104. Paragon has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This order addresses the reasonableness of Paragon'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 Paragon prior to September 1, 1993. The Commission received the complaint on September 2, 1993. 5. Paragon attempted to justify its CPS price through an FCC Form 393 filed on November 15, 1993. Paragon amended its justification on May 31, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally; and on December 14, 1994, December 27, 1994 and January 11, 1995 in response to Commission letters which requested further clarification of Paragon's amended showing. Discussion 6. Paragon asserts that its monthly CPS tier price of $9.09 per subscriber is justified by its benchmark filing because its price equals the maximum permitted charge calculated in the filing. Upon review of Paragon's FCC Form 393, as amended, we have found the following errors that require a recalculation of Paragon's maximum permitted CPS price: a. Paragon has included as franchise fees on Form 393, Part II, Worksheet 1, Line 108 $54,837 in payments to the Manhattan community access organization to support public, educational and governmental ("PEG") access channels. The effect of including these payments on Line 108 is to deduct them from Paragon's regulated revenues as of the initial date of regulation and thereby to reduce its base rate per channel. Under our rules, franchise fees are not included in an operator's regulated revenues for purposes of calculating its maximum permitted charge. The reason for this exclusion is that the benchmark was calculated based on data that excluded franchise fees. However, other external costs, including the costs of providing PEG channels, were not excluded from the benchmark calculation. For this reason, such costs are included in regulated revenues, and changes in these costs after the initial date of regulation are reflected in adjustments to an operator's permitted rates. Accordingly, Paragon's PEG access fees should be included in the per channel rate calculated in Part II of its Form 393. We therefore adjust Paragon's submission to exclude the PEG charges from the franchise fees deducted on line 108. b. On its Form 393 filing, Paragon calculated the Inflation Adjustment Factor (line 127, Worksheet 1, Part II) as of the end of October 1993 using data released by the U.S. Department of Commerce on August 31, 1993. However, Paragon's use of October 1993 as the date through which it calculated the inflation adjustment is impermissible. Paragon was served with a rate complaint prior to September 1, 1993. The instructions to FCC Form 393, page 11, require that the Inflation Adjustment Factor be calculated using "the number of whole months from September 30, 1992 to the date you will submit this form." In general, a cable operator must submit a justification of its rates no more than 30 days after service of the earliest valid complaint. Paragon cannot be permitted to claim an additional inflation adjustment simply because it did not file its Form 393 within this 30-day period. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the latest date contemplated by the Form 393 instructions. On July 29, 1994, the 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 125.7 for the third quarter of 1993. Using these GNP-PI figures, we calculate 1.028 as the Inflation Adjustment Factor through September 1993, the base date Paragon should have used in justifying its rates. 7. Because of these errors, we conclude that Paragon has failed to demonstrate that its price for the CPS tier was not unreasonable. We will therefore set a price for this tier, incorporating the adjustments discussed above. These adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $9.09 (as Paragon calculated) to $8.41. Conclusions 8. Upon review of the record herein, we conclude that Paragon's showing supports a maximum reasonable CPS tier price of $8.41 per month (plus franchise fee) for the period September 2, 1993 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. 9. We further conclude that Paragon must reflect in its FCC Form 1200 rate filing for the period after May 14, 1994 the fact that Paragon's price during the earlier period was unreasonable. We reserve the right to make further adjustments to Paragon's price for the period after May 14, 1994, upon completion of our review of Paragon's FCC Form 1200 rate filing. 10. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the August 31, 1993 complaint against the cable programming service price charged by Paragon Cable Manhattan in New York, New York, CUID No. NY0104, and all other complaints relating to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 11. IT IS FURTHER ORDERED, that the benchmark filing submitted by Paragon Cable Manhattan with respect to New York, New York, CUID No. NY0104, for the period of September 2, 1993 to May 14, 1994, justifies a maximum price of $8.41 per month (plus franchise fee) for Paragon Cable Manhattan's cable programming service tier. 12. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R. 76.961, that Paragon Cable Manhattan shall refund to subscribers that portion of the amounts paid for cable programming service from September 2, 1993 to May 14, 1994, that exceeded $8.41 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 13. IT IS FURTHER ORDERED, that Paragon Cable Manhattan 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 60 days of Commission approval thereof. 14. 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 Paragon Cable Manhattan shall, within 30 days of the release of this Order, revise its Form 1200 filing with respect to New York, New York, CUID No. NY0104, 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 $8.41 (plus franchise fee). 15. IT IS FURTHER ORDERED, that Paragon Cable Manhattan shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, a price that reflects the reduction in the CPS rate determined in this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau