FOR FCC RECORD ONLY $//U.S. Cablevision Corp., NY, MO&O, DA 95-480//$ $/76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-480 In the Matter of ) U.S. Cablevision Corporation ) East Fishkill, New York ) Wappingers Falls, New York ) CUID Nos. NY0275 and NY0278 ) Benchmark Filing To Support ) Cable Programming Service Price ) Memorandum Opinion and Order Adopted: March 13, 1995 Released: March 14, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price U.S. Cablevision Corporation ("U.S. Cablevision") was charging for its cable programming service ("CPS") tier in East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278. U.S. Cablevision has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of U.S. Cablevision'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 complete and timely complaint. The filing of a complete and timely 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 prices 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 complete and timely 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 complete and timely CPS complaints in East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278, were completed and served on U.S. Cablevision on October 12, 1993 and received by the Commission on October 15, 1993. 5. U.S. Cablevision attempted to justify its CPS price through an FCC Form 393 filed on November 15, 1993. U.S. Cablevision amended its justification on June 23, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally, and on January 24 and 25, 1995, in response to a Cable Services Bureau Public Notice offering operators the opportunity to make optional supplemental filings. Discussion 6. In its amended benchmark filings of January 24 and January 25, 1995, U.S. Cablevision calculated a maximum permitted price for the CPS tier of $9.66 per month. However, U.S. Cablevision's actual price for the CPS tier was $9.69 per month. Thus, U.S. Cablevision has failed to demonstrate that its price for the CPS tier was not unreasonable. Furthermore, upon review of U.S. Cablevision's filings, as amended, we have found the following errors that would require a recalculation of U.S. Cablevision's maximum permitted CPS price: a. In Column G of Schedules A and C of Part III of its FCC Form 393, U.S. Cablevision did not correctly account for its income tax expense. By placing entries in these columns, U.S. Cablevision confirms that it is a tax- paying entity (i.e., a "C" corporation). However, U.S. Cablevision 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. On its amended benchmark filings of January 24 and 25, 1995, U.S. Cablevision calculated the Inflation Adjustment Factor as of the end of January 1994 using data released by the U.S. Department of Commerce on July 29, 1994. However, U.S. Cablevision cannot permissibly calculate inflation through the end of January 1994. In East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278, U.S. Cablevision was served with rate complaints in October 1993. U.S. Cablevision was therefore required to file a rate justification for these areas no later than November 1993. Since U.S. Cablevision filed its initial FCC Form 393 by that date, the instructions to Form 393 required it to calculate the inflation adjustment only through October 1993. U.S. Cablevision cannot be permitted to claim an additional inflation adjustment simply because it amended its justification at a later date. We therefore must recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date that U.S. Cablevision timely filed its Form 393. 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 125.7 for the third quarter of 1993. Using these GNP-PI figures, we calculate 1.030 as the Inflation Adjustment Factor through October 1993, the base date U.S. Cablevision should have used in justifying its rates. 7. Because U.S. Cablevision has failed to demonstrate that its price for the CPS tier was not unreasonable, we will 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 $9.66 (as U.S. Cablevision calculated) to $9.60. Conclusions 8. Upon review of the record herein, we conclude that U.S. Cablevision's showing supports a maximum reasonable CPS tier price of $9.60 per month (plus franchise fee) for the period October 15, 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 U.S. Cablevision must reflect in its Form 1200 rate filing for the period after May 14, 1994 the fact that U.S. Cablevision's price during the earlier period was unreasonable. We reserve the right to make further adjustments to U.S. Cablevision's price for the period after May 14, 1994, upon completion of our review of U.S. Cablevision's FCC Form 1200 rate filing. 10. We further conclude that U.S. Cablevision has submitted in good faith a timely optional supplemental filing in response to our December 29, 1994 Public Notice. As provided in the Public Notice, we will relieve U.S. Cablevision of its obligation to obtain advance Commission approval of adjustments to its CPS price for one year following the release of this Order. 11. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the October 12, 1993 complaints against the cable programming service price charged by U.S. Cablevision Corporation in East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 12. IT IS FURTHER ORDERED that the benchmark filing submitted by U.S. Cablevision Corporation with respect to East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278, for the period of October 15, 1993 to May 14, 1994, justifies a maximum price of $9.60 per month (plus franchise fee) for the cable programming service tier. 13. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R.  76.961, that U.S. Cablevision Corporation shall refund to subscribers that portion of the amounts paid for cable programming service from October 15, 1993 to May 14, 1994, that exceeded $9.60 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 14. IT IS FURTHER ORDERED that U.S. Cablevision Corporation shall promptly determine the overcharges to CPS subscribers for the same 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. 15. 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 U.S. Cablevision Corporation shall, within 30 days of the release of this Order, revise its Form 1200 filing for East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278, 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 those franchise areas (plus franchise fee). 16. IT IS FURTHER ORDERED that U.S. Cablevision Corporation shall place into effect, within 30 days after submission of the revised Form 1200 filing required above, a CPS tier price for East Fishkill, New York, CUID No. NY0275, and Wappingers Falls, New York, CUID No. NY0278, that reflects the reduction in the CPS rate determined in this Order. 17. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's Rules, 47 C.F.R.  76.960, that U.S. Cablevision Corporation shall not be required to obtain advance Commission approval of adjustments to its CPS price for one year following the release of this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Service Bureau