Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-760 In the Matter of: ) ) CUID Nos. NY0468 (Elmsford), NY0700 TCI Cable of Westchester ) (New Rochelle), NY0701 (Scarsdale), ) NY0739 (Eastchester), NY0743 ) (Tuckahoe), NY0750 (Bronxville), ) NY0792 (Dobbs Ferry), NY0793 ) (Ardsley), NY0803 (Pelham), NY0804 ) (Pelham Manor), NY0805 (White Plains), ) NY0814 (Rye), NY0815 (Greenburgh), ) NY0851 (Irvington), NY0868 (Hastings- ) on-Hudson), NY0900 (Town of ) Mammaroneck), NY0901 (Village of ) Mammaroneck), NY0902 (Larchmont), ) NY0982 (Rye Brook) and NY1277 (North ) Castle) Benchmark Filings to Support ) Cable Programming Service Prices ) MEMORANDUM OPINION AND ORDER Adopted: April 7, 1995 Released: April 11, 1995 By the Chief, Cable Services Bureau: 1. Here we consider complaints about the prices that the above-captioned operator ("Operator") was charging for its cable programming service ("CPS") tier in the communities designated above. Operator has chosen to attempt to justify its prices through benchmark showings on FCC Form 393. This Order addresses the reasonableness of Operator's prices only through May 14, 1994. At a later date we will issue a separate order addressing the reasonableness of the prices after that date. 2. Under the Cable Television Consumer Protection and Competition Act of 1992 ("Cable Act"), 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. 4. The first valid CPS complaints in the franchise areas which are the subject of this Order were completed and served on Operator and received by the Commission on the dates set forth on Appendix A. Operator filed FCC Form 393s in response; Operator has also filed amended and supplemental Form 393 filings, most recently on June 23, 1994. 5. Operator has moved to dismiss complaints filed by Assemblyman Richard L. Brodsky, who represents the 86th District in the State of New York Assembly. Assemblyman Brodsky filed a CPS tier rate complaint for each franchise area being considered in this Order. In seven of these franchise areas Assemblyman Brodsky's complaint was preceded by an earlier valid complaint. For these seven franchise areas, therefore, it is not necessary to rule on Operator's motion. 6. For the other 13 franchise areas, however, it is necessary to consider Operator's motion. The Cable Act provides that a CPS tier rate complaint may be filed by "any subscriber, franchise authority, or other relevant State or local government entity . . . ." Operator argues that Assemblyman Brodsky does not meet any of these descriptions. The legislative history to the Cable Act, however, clarifies that "[n]othing in this legislation shall be interpreted as restricting subscribers, franchising authorities, or state officials from the submission of a complaint." We conclude that a state assemblyman is a state official, and we therefore find that a state assemblyman may file a CPS tier rate complaint. Accordingly, we deny Operator's motions to dismiss Assemblyman Brodsky's rate complaints in the remaining 13 franchise areas. 7. In its amended benchmark filings of June 23, 1994, Operator calculated a maximum permitted price for its CPS tier of $11.87 per month in all of the franchise areas being considered in this Order except those designated by CUID Nos. NY0739, NY0743 and NY0750. For CUID Nos. NY0739, NY0743 and NY0750, Operator calculated a maximum permitted price for its CPS tier of $11.39 per month. However, Operator's actual price for the CPS tier in the first set of franchise areas was $12.65 per month and for the second set of franchise areas it was $12.22 per month. Thus, Operator has failed to demonstrate that its prices for the CPS tier were not unreasonable. Furthermore, upon review of Operator's submissions we have found that it has not correctly calculated its maximum permitted prices, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393: a. In Column G of Schedules A and C of Part III of its FCC Form 393, Operator did not correctly account for its income tax expense. By placing entries in these columns, Operator confirms that it is a tax-paying entity (i.e., a "C" corporation). However, Operator 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 Part II, Worksheet 2, Line 201 of both Form 393s, Operator entered $13.54 for the basic tier and $5.83 for the CPS tier as its monthly prices for rate- regulated service as of September 30, 1992. However, Operator's September 1992 rate card indicates that its actual prices, including franchise fees, were $13.95 for the basic tier and $6.00 for the CPS tier. On Line 208 of Form 393, Part II, Worksheet 2, Operator entered a monthly franchise fee expense for each group of franchise areas. The instructions to Form 393 provide that franchise fees are to be deducted on Line 208 only if they are included in the charges listed on Form 393, Part II, Worksheet 2, Line 201. Accordingly, we have revised Operator's Line 201 entries by entering $13.95 for the basic tier price and $6.00 for the CPS tier price. c. Because Operator has failed to demonstrate that its prices for the CPS tier were not unreasonable, we will set maximum permitted prices for this tier, incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheets 1 and 4, on the basis of the most accurate data currently available for the date for which Operator filed. On its amended Form 393s, Operator calculated the Inflation Adjustment Factor as of the end of October 1993 using data released on August 31, 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 125.7 for the third quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through October 1993, the base date Operator used in justifying its rates, of 1.030. 8. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator has failed to justify the rates it was charging during the period in question. Operator's showing justifies the maximum reasonable CPS tier prices shown on Appendix B (plus franchise fee) for the period from the filing of the earliest complaint in each franchise area (as set forth in Appendix A) to May 14, 1994. 9. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's motions to dismiss Assemblyman Brodsky's rate complaints in the 13 franchise areas where his complaint was the first filed ARE DENIED. 10. IT IS FURTHER ORDERED that the complaints referred to in Appendix A against the cable programming service prices charged by Operator in the areas referenced in the caption and at Appendix A herein, and all other complaints in these franchise areas related to the same prices, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 11. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the communities shown in Appendix B that portion of the amounts paid for cable programming service for the period from the filing of the first valid complaint in each franchise area (as set forth on Appendix A) to May 14, 1994 which exceeded the maximum price for each franchise area set forth in Appendix B (plus franchise fee) per month, plus interest to the date of the refund. 12. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPS subscribers for the stated periods, 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 of the plan. 13. 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 Operator shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to the communities listed herein, 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 in each franchise area set forth in Appendix B (plus franchise fee). 14. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filings required above, prices that reflect the reductions in the CPS rates determined in this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau Appendix A CUID No. Date First Complaint Date Complaint Filed with FCC Served NY0468 2/28/94 2/25/94 NY0700 2/28/94 2/25/94 NY0701 2/28/94 2/25/94 NY0739 2/28/94 2/25/94 NY0743 1/5/94 12/28/93 NY0750 2/28/94 2/25/94 NY0792 1/24/94 1/20/94 NY0793 2/28/94 2/25/94 NY0803 2/28/94 2/25/94 NY0804 2/28/94 2/25/94 NY0805 2/28/94 2/25/94 NY0814 12/20/93 12/16/93 NY0815 10/28/93 10/26/93 NY0851 2/28/94 2/25/94 NY0868 2/28/94 2/25/94 NY0900 11/15/93 11/8/93 NY0901 11/19/93 11/17/93 NY0902 10/20/93 10/3/93 NY0982 2/28/94 2/25/94 NY1277 2/28/94 2/25/94 Appendix B CUID No. Actual Rates Maximum Permitted Rates NY0468 $12.65 $12.06 NY0700 $12.65 $12.06 NY0701 $12.65 $12.06 NY0739 $12.22 $11.35 NY0743 $12.22 $11.35 NY0750 $12.22 $11.35 NY0792 $12.65 $12.06 NY0793 $12.65 $12.06 NY0803 $12.65 $12.06 NY0804 $12.65 $12.06 NY0805 $12.65 $12.06 NY0814 $12.65 $12.06 NY0815 $12.65 $12.06 NY0851 $12.65 $12.06 NY0868 $12.65 $12.06 NY0900 $12.65 $12.06 NY0901 $12.65 $12.06 NY0902 $12.65 $12.06 NY0982 $12.65 $12.06 NY1277 $12.65 $12.06