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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR THE FCC RECORD ONLY $//Paragon Cable, Laredo, TX, MO&O, DA 95-986//$ $/76.922 Rates for Cable Programming Service Tier/$ $/Benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-986 In the Matter of ) ) CUID No. TX0181 (Laredo) Paragon Cable ) ) Benchmark Filing to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: May 1, 1995 Released: May 4, 1995 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. Here we consider a complaint about the prices that the above-captioned operator ("Operator") was charging for its cable programming service ("CPS") tiers in the community designated above. Operator has chosen to attempt to justify its prices through a benchmark showing 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 complaint was completed and served on Operator and received by the Commission on February 28, 1994. Operator filed FCC Form 393 on March 9, 1995 in response. Operator further amended its justification on April 6, 1995 and April 17, 1995, in response to Commission letters which requested clarification of Operator's showing. 5. On April 20, 1995, Operator filed a motion to dismiss the complaint. Operator asserts that it did not receive the complaint from the complainant and was not aware of the complaint until it was brought to its attention by a Commission staff attorney. Operator's assertions do not persuade us that the complaint is invalid or should be dismissed. The complainant certified on FCC Form 329 that he mailed a copy to Operator on February 28, 1994. Although Operator asserts that it did not receive a copy of the complaint at that time, under our rules service is complete upon mailing. We will therefore consider February 28, 1994 as the date of service, but we will not consider imposing penalties on Operator for failing to respond to the complaint in a timely manner. 6. Operator asserts that its monthly CPS tier prices are justified by its benchmark filing because its prices are equal to the maximum permitted charges as calculated in the filing. Upon review of Operator's Form 393 filings, 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 its Form 393 filing, Part I, Operator sets forth $9.82 as its current rate as of the initial date of regulation for the first cable programming service tier (Tier 2) excluding franchise fees and $4.13 as its current rate for the second cable programming service tier (Tier 3) excluding franchise fees. However, on Worksheet 1 of Part II, Operator sets forth $8.15 as its current monthly charge for Tier 2 and $3.81 as its current monthly charge for Tier 3. The rates set forth in Part I are consistent with the charges which appear on Operator's rate card. Apparently, on Worksheet 1 Operator incorrectly entered its rates that were in effect prior to September 1, 1993. This conclusion is supported by the fact that the rates Operator entered on Worksheet 1 are the same as the rates as of September 30, 1992 that it entered on Part II, Worksheet 2. Therefore, we have adjusted Operator's Form 393 to reflect charges of $9.82 for Tier 2 and $4.13 for Tier 3. This adjustment increases the base rate per channel on Worksheet 1. b. 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. c. In calculating its Inflation Adjustment Factor in Form 393, Part II, Worksheets 1 and 4, Operator did not rely on the most currently available data released by the U.S. Department of Commerce. Instead, Operator calculated its inflation adjustment through October 1993 using data released on November 25, 1992 for the third quarter of 1992 (Line 123) and on May 28, 1993 for the first quarter of 1993 (Lines 122 and 125). We therefore must recalculate Operator's Inflation Adjustment Factor using the most accurate data currently available for the date for which Operator filed. 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. 7. 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 A (plus franchise fee) for the period from February 28, 1994 to May 14, 1994. However, we further determine that the total overcharge per subscriber is de minimis. Therefore, it would not serve the public interest to order a refund. 8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the Operator's motion to dismiss the complaint referenced herein IS DENIED. 9. IT IS FURTHER ORDERED that the complaint referred to herein against the cable programming service prices charged by Operator in the area referenced in the caption IS GRANTED TO THE EXTENT INDICATED HEREIN. 10 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 filing with respect to the community listed herein, for the period beginning May 15, 1994, to reduce the monthly charges per tier as of March 31, 1994 to $9.72 (plus franchise fee) for Tier 2 (Line A6b) and to $4.09 (plus franchise fee) for Tier 3 (Line A6c). 11. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, prices that reflect the reductions in the CPS rates determined in this Order. FEDERAL COMMUNICATIONS COMMISSION JoAnn Lucanik Chief, Financial Analysis and Compliance Division Cable Services Bureau Appendix A CUID No. Tier Actual Rates Maximum Permitted Rates TX0181 2 $9.82 $9.72 3 $4.13 $4.09