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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR FCC RECORD ONLY $//Cable Oakland, Oakland, CA, MO&O, DA 95-1076//$ $/76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1076 In the Matter of ) ) Cable Oakland ) CUID No. CA0589 (Oakland) ) Benchmark Filing to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: May 11, 1995 Released: May 16, 1995 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. Here we consider complaints about the price Lenfest West, Inc. d/b/a Cable Oakland ("Operator") was charging for its cable programming service ("CPS") tier in the community designated above. Operator has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Operator'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. 4. The first valid CPS complaint in the franchise area which is the subject of this Order was completed and served on Operator and received by the Commission on the dates set forth on Appendix A. Operator filed an FCC Form 393 in response; Operator has also filed amended and supplemental Form 393 filings, most recently on April 11, 1995, in response to an inquiry by Commission staff. 5. Operator asserts that its monthly CPS tier price is justified by its benchmark filing because its price is lower than the maximum permitted charge as calculated in the filing. Upon review of Operator's Form 393 filing, we have found that it has not correctly calculated its maximum permitted price, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393: a. Operator's Form 393, Worksheet 1, Line 104 entry does not represent its current monthly equipment revenue as of the initial date of regulation. Since Operator restructured its rates, including its equipment rates, on September 1, 1993, in an attempt to comply with the Commission's regulations, the monthly equipment cost figure it entered on Line 34 of Step G of Part III should have been close or identical to its Line 104 entry. However, Operator's entries on Line 104 differed substantially from its entries on Line 34. We therefore adjusted Line 104 (and subsequent steps) to equal the amount entered on Line 34. b. In Column G of Schedules A and C of Part III of its FCC Form 393, Operator did not report any income tax expense. Operator 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 calculated Operator's federal income tax allowance on Column G of Schedules A and C on the basis of a 34% 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 calculated Column G of Schedules A and C (and subsequent steps) using a grossed-up federal income tax rate of 51.51% of Operator's return on investment. c. Operator's calculations for its rate-regulated package as of the initial date of regulation (Form 393, Part I, and Form 393, Part II, Worksheet 1) are based on a channel count of 22 channels on the basic service tier and 28 channels on the CPS tier. Our examination of the channel line-up card provided by Operator in its amended filings, however, reveals that Operator offered 24 channels on the basic tier and 26 channels on the CPS tier. We therefore adjusted Operator's calculations to reflect the correct number of channels on each tier. d. On Line 108 of Form 393, Part II, Worksheet 1, Operator incorrectly entered a franchise fee exceeding the 5% assessed by the local franchising authority. We therefore adjusted Line 108 (and subsequent steps) to reflect the fact that the local franchising authority was actually charging the maximum allowance of 5%. e. Because of these errors, we conclude that Operator 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. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1, on the basis of the most accurate data currently available for the date as to which Operator filed. On its amended Form 393, Operator calculated the Inflation Adjustment Factor as of the end of February 1994 using data released on March 31, 1994. 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 126.5 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through February 1994, the base date Operator used in justifying its rates, of 1.039. 6. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator's showing supports the maximum reasonable CPS tier price shown on Appendix B (plus franchise fee) for the period from the filing of the earliest complaint (as set forth in Appendix A) to May 14, 1994. However, we further determine that the refund at issue is such a de minimis amount that it would not serve the public interest to order a refund. 7. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaint referred to in Appendix A against the cable programming service price charged by Operator in the area referenced above, and all other complaints in this franchise area related to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. FEDERAL COMMUNICATIONS COMMISSION JoAnn Lucanik Chief, Financial Analysis and Compliance Division Cable Services Bureau Appendix A CUID No. Date First Complaint Date Complaint Filed with FCC Served CA0589 2/22/94 2/14/94 Appendix B CUID No. Actual Rates Maximum Permitted Rates CA0589 $10.96 $10.92