NOTICE ************************************************************************* NOTICE ************************************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* FOR FCC RECORD ONLY $//TCI Cablevision of Merced County, MO&O, DA95-819//$ $/76.922 Rates for Cable Programming Service Tiers/$ $/benchmark cable rates$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-819 In the Matter of ) ) TCI Cablevision of West ) CUID Nos. MI0125 (Wyoming), MI0256 Michigan, Inc. ) (Grand Rapids), MI0289 (Grandville), ) MI0336 (East Grand Rapids), MI0388 ) (Georgetown), MI0390 (Gains), MI0391 ) (Walker), MI0393 (Grand Rapids), ) MI0394 (Plainsfield), MI0615 (Ada) ) and MI0616 (Cascade) Benchmark Filings to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: April 12, 1995 Released: April 18, 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, 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 each of 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 393 in response; Operator has also filed amended and supplemental Form 393 filings, most recently on May 27, 1994. 5. On March 20, 1995, Operator submitted to the Commission an agreement between Operator and the local franchising authorities in the communities addressed in this Order. The Agreement purports to settle numerous issues, including the CPS tier rate complaints at issue here. The Commission, however, is not a party to the settlement, and did not have notice or opporunity to comment on the terms of the settlement. The settlement specifically states that the franchising authorities do not have to withdraw their complaints, and to date these complaints have not been withdrawn. In addition, some of the complaints at issue were filed by subscribers who are not parties to the settlement. Since there are valid pending complaints before the Commission and since the Commission is not a party to the settlement, we must act on the pending complaints. 6. In its amended benchmark filings for CUID Nos. MI0125 and MI0256, Operator calculated a maximum permitted price for the CPS tier of $11.11 per month. For the rest of the franchise areas considered in this Order, Operator calculated a maximum permitted price for the CPS tier of $11.26. However, Operator's actual price for the CPS tier for both groups of franchise areas was $11.80 per month. Thus, Operator has failed to demonstrate that its price for the CPS tier was not unreasonable. Furthermore, upon review of Operator's submission 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. Because Operator has failed to demonstrate that its price for the CPS tier was not unreasonable, 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 rate for the franchise areas under consideration in this Order, of 1.030. 7. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator has failed to justify the rate 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. 8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, 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. 9. 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. 10. 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. 11. 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). 12. 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. 13. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's rules, 47 C.F.R.  76.960, that Operator shall not be required to obtain advance approval of adjustments to its CPS prices in the franchise areas addressed herein for one year following the release of this Order, due to Operator's having submitted in good faith optional supplemental filings in response to our Public Notice. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau Appendix A CUID No. Date First Complaint Date Complaint Filed with FCC Served MI0125 11/23/93 11/11/93 MI0256 10/15/93 10/6/93 MI0289 12/9/93 12/6/93 MI0336 11/1/93 10/26/93 MI0388 12/14/93 12/9/93 MI0390 10/5/93 10/1/93 MI0391 10/12/93 10/6/93 MI0393 12/29/93 12/6/93 MI0394 11/16/93 11/13/93 MI0615 12/9/93 12/6/93 MI0616 11/2/93 10/28/93 Appendix B CUID No. Actual Rates Maximum Permitted Rates MI0125 $11.80 $11.02 MI0256 $11.80 $11.02 MI0289 $11.80 $11.15 MI0336 $11.80 $11.15 MI0388 $11.80 $11.15 MI0390 $11.80 $11.15 MI0391 $11.80 $11.15 MI0393 $11.80 $11.15 MI0394 $11.80 $11.15 MI0615 $11.80 $11.15 MI0616 $11.80 $11.15