FOR FCC RECORD ONLY $//Harron Communications Corp., East Whiteland, PA, MO&O, DA 95-528//$ $/76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-528 In the Matter of ) ) Harron Communications Corp. ) CUID No. PA1849 East Whiteland, Pennsylvania ) ) Benchmark Filing To Support ) Cable Programming Service Price ) Memorandum Opinion and Order Adopted: March 17, 1995 Released: March 20, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price Harron Communications Corp. ("Harron") was charging for its cable programming service ("CPS") tier in East Whiteland, Pennsylvania, CUID No. PA1849. Harron has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Harron's price only through May 14, 1994. At a later date 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 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 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 complete and timely CPS complaint in East Whiteland Township, CUID No. PA1849, was completed and served on Harron on October 12, 1993 and received by the Commission on October 15, 1993. 5. Harron filed an FCC Form 393 for East Whiteland Township, CUID No. PA1849 on November 15, 1993. Harron amended its justification on February 17, 1995, in response to a Commission letter which requested further clarification of Harron's showing. Harron submitted additional information on February 7, 1995 in response to a Cable Services Bureau Public Notice offering operators the opportunity to make optional supplemental filings. Discussion 6. Harron asserts that its monthly CPS tier price is justified by its benchmark filing because its price is equal to the maximum permitted charge of $10.78, as calculated in the filing. Upon review of Harron's Form 393 filing, we have found that Harron has not correctly calculated its maximum permitted price, and it is therefore appropriate to make the following adjustments to Harron's calculations in Form 393: a. In Column G of Schedules A and C of Part III of its FCC Form 393, Harron did not report any income tax expense. Harron is a Subchapter C corporation and is therefore required to pay corporate income tax. By omitting 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 calculate Harron's federal income tax allowance on Column G of Schedules A and C on the basis of a 35% corporate tax rate. Furthermore, 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). In accordance with this principle, we recalculate Column G of Schedules A and C (and subsequent steps) using a grossed-up federal income tax rate of 53.85% of Harron's return on investment. b. In its Form 393 filing of February 7, 1995, Harron incorrectly calculated the Inflation Adjustment Factor (Form 393, Part II, Worksheet 1, Line 127, and Form 393, Part II, Worksheet 4, Line 401). Lines 122 and 125 of Form 393 require the operator to enter Gross National Product Price Index ("GNP-PI") data for the latest quarter for which data is available that ended before the date through which the Inflation Adjustment Factor is calculated. On its most recent Form 393, Harron calculated the Inflation Adjustment Factor through October 1993. However, Harron completed Lines 122 and 125 using updated GNP-PI data for the first quarter of 1993, rather than the third quarter of 1993. Harron's calculation of the Inflation Adjustment Factor is therefore incorrect. c. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date for which Harron filed. On its most recent Form 393, Harron entered 13 months on Line 124, indicating that its filing was as of the end of October 1993. On July 29, 1994, the Department of Commerce released corrected inflation data including 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 an Inflation Adjustment Factor of 1.030 through October 1993. 7. Because of these errors, we conclude that Harron 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 effect of reducing the maximum permitted monthly CPS tier price from $10.78 to $10.58. Conclusions 8. Upon review of the record herein, we conclude that Harron's showing supports the maximum reasonable CPS tier price of $10.58 (plus franchise fee) for the period from October 15, 1993 to May 14, 1994. We further determine that we will order appropriate refunds 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 Harron must reflect in its FCC Form 1200 rate filing for the period after May 14, 1994 the fact that Harron's price during the earlier period was unreasonable. We reserve the right to make further adjustments to Harron's price for the period after May 14, 1994, upon completion of our review of Harron's FCC Form 1200 rate filings. 10. We further conclude that Harron has submitted in good faith a timely optional supplemental filing in response to our Public Notice. As provided in the Public Notice, we will relieve Harron of its obligation to obtain advance Commission approval of adjustments to its CPS prices 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 complaint filed October 15, 1993 against the cable programming service price charged by Harron Communications Corp. in the Township of East Whiteland, Pennsylvania, CUID No. PA1849, and all other complaints in this franchise area related to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 12. IT IS FURTHER ORDERED that the benchmark filing submitted by Harron Communications Corp. with respect to the Township of East Whiteland, Pennsylvania, CUID No. PA1849, for the period beginning on October 15, 1993 and ending on May 14, 1994 justifies the maximum price of $10.58 (plus franchise fee) per month for Harron Communications Corp.'s 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 Harron Communications Corp. shall refund to subscribers that portion of the amounts paid for cable programming service for the period from October 15, 1993 to May 14, 1994 which exceeded $10.58 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 14. IT IS FURTHER ORDERED that Harron Communications Corp. 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. 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 Harron Communications Corp. shall, within 30 days of the release of this Order, revise its Form 1200 filing with respect to the Township of East Whiteland, Pennsylvania, CUID No. PA1849, 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 $10.58 (plus franchise fee). 16. IT IS FURTHER ORDERED that Harron Communications Corp. 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. 17. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's rules, 47 C.F.R.  76.960, that Harron Communications Corp. shall not be required to obtain advance approval of adjustments to its CPS price in East Whiteland Township, Pennsylvania, CUID No. PA1849, for one year following the release of this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau