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MI0204 (Dowagiac)  Y -` `  hh,V)ppMI0243 (Watervliet)  Y -Benchmark Filings to Supporthh,V)  Y -Cable Programming Service Priceshh,V)  Yz-}  MEMORANDUM OPINION AND ORDER ă  YM-` ` Adopted: July 17, 1995VppReleased: August 16, 1995 By the Chief, Cable Services Bureau:  Y- I. A. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a)  1. Here we consider complaints about the prices that the abovecaptioned operator ("Operator") was charging for its cable programming service ("CPS") tier in the communities referenced 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  Y~-reasonableness of the prices after that date.  ~f  Y-ԍ The findings in this Order do not in any way prejudge the reasonableness of the prices for CPS service after May 14, 1994 under our new rate regulations. However, to the extent Operator has sought to take advantage of the refund deferral period under the Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed Rulemaking,  Y-MM Docket No. 92266, FCC 9438, 9 FCC Rcd 4119 (1994) ("Second Order on  Y -Reconsideration"), the maximum permitted CPS prices determined herein might also apply from May 15, 1994 until the date on which Operator #XR  P7jQXP#implemented its CPS prices under the  YZ"<new regulations. See para. 3, infra.#x6X@`7iX@# #XR  P7jQXP#Further, to the extent that the prices as of March 31, 1994 are found to be excessive, reductions in Operator's prices for the period after May 14, 1994 may be required to reflect the fact that Operator's prices during the earlier period, which are used as the starting point to calculate its prices for the prospective period, were  Y&-unreasonable. See 47 C.F.R.  76.922(b)(4)(C).  "g 0*0*0*?"Ԍ Y-  2. Under the Cable Television Consumer Protection and Competition Act of 1992, Yy-ԍ Pub. L. No. 102385, 106 Stat. 1460 (1992); Communications Act,  623(c), as  Yd-amended, 47 U.S.C.  543(c) (1993). 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  Y-obligation on behalf of the cable operator to file a justification of its CPS prices.@ Yb-ԍ 47 C.F.R.  76.956.@ Under our rules, an operator may attempt to justify its prices through either a benchmark showing or a  Y-costofservice showing.Cy Y-ԍ 47 C.F.R.  76.956(b).C In either case, the operator has the burden of demonstrating that its  Y-CPS prices are not unreasonable.3* Y -ԍ Id.3  Yv-3. The Commission's original rate regulations took effect on September 1, 1993.v Y -ԍ Order in MM Docket No. 92266, Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, FCC 93372, 58 Fed. Reg. 41042 (Aug. 2, 1993).  Y_-The Commission subsequently revised its rate regulations effective May 15, 1994.C_`  Yp-ԍ 47 C.F.R.  76.922(b).C 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  Y -compliance with the revised rules from May 15, 1994 forward.w   Y-ԍ See Second Order on Reconsideration, 9 FCC Rcd at 4190, paras. 150152.w Operators attempting to justify their prices for the period prior to May 15, 1994 through a benchmark showing must  Y -complete and file FCC Form 393.3  YJ-ԍ Id.3 Generally, to justify their prices for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200  Y -series.  w Y-ԍ 47 C.F.R.  76.922(b)(6); see also Second Order on Reconsideration, 9 FCC Rcd at 4189 n.195.  Yy- 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  Y4-also filed amended and supplemental Form 393 filings, most recently on June 6, 1994. 4 Y$-ԍ Operator filed amended FCC Forms 393 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally. Cable Operators' Rate Justification Filings, 9 FCC Rcd 7752 (Cab. Serv. Bur. 1994).  "4 l*((8"Ԍ5. Operator asserts that its monthly CPS tier prices are justified by its benchmark filings because its prices are equal to or lower than the maximum permitted charges as calculated in the filings. 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: X` ` 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  YH-these columns, Operator confirms that it is a taxpaying entity (i.e., a subchapter "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 taxpaying business entities must grossup their tax entries in Column G of  Y -Schedules A and C (i.e., calculate the tax as a percentage of return on investment  Y -plus tax). a  YR-ԍ First Order on Reconsideration, Second Report and Order, and Third Notice of Proposed Rulemaking, MM Docket No. 92266, FCC 93428, 9 FCC Rcd 1164, 1196 n.92 (1993) ("Our provision to grossup the return amount for income taxes applies to all tax paying business entities to the extent that they have a state or federal income tax  Y-obligation."). See also Cable Television Rate Regulation Questions and Answers Relating to FCC Form 393, Question and Answer No. 14 (released July 30, 1993) ("The federal tax expense should be calculated based upon a pretax return on investment."). 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 recalculated Column G of Schedules A and C (and subsequent steps) using correctly grossedup tax entries.(# X` ` b. Operator's Form 393, Part II, 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, the current monthly equipment revenue figure it entered on Line 104 should have been close or identical to its equipment cost figure on Part III, Step G, Line  Y-34.  Y-ԍ  See Questions and Answers on Completion of FCC Form 393 and Associated Filing Requirements, Question and Answer No. 7 (released Nov. 10, 1993) ("Where operators have restructured equipment rates as of September 1, 1993 in accordance with our regulations . . . operators will enter on Line 104 the same, or nearly the same, number as on Line 301."). However, Operator's entries on these two lines were different. We therefore adjusted Line 104 to equal the amount entered on Line 34, which includes the correctly grossedup tax entries.(# X` ` c. Because of these errors, we conclude that Operator has failed to demonstrate that its prices for the CPS tier were not unreasonable. We will, therefore, set prices for this tier, incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part"R_ l*((>" II, Worksheet 1, using the most accurate data currently available for the date which  Y-Operator filed. Yb-ԍ  See 47 C.F.R.  76.922(b)(9)(iii) (if a cable operator fails to justify its rates, rates must be adjusted with the most accurate data available at the time of analysis). On its amended Form 393, Operator calculated the Inflation Adjustment Factor as of the end of October 1993 using data released by the U.S. Department of Commerce on August 31, 1993. On July 29, 1994, the U.S. Department of Commerce released corrected inflation data including Gross National Product Price Index ("GNPPI") figures of 122.3 for the third quarter of 1992 and 125.7 for the third quarter of 1993. Using these GNPPI figures, we calculate an Inflation Adjustment Factor of 1.030 through October 1993, the base date Operator used in justifying its rates. (#  Y1-  Y -  6. 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 periods in question. Operator's showings justify the maximum reasonable CPS tier prices shown on Appendix B (plus franchise fee) for the period from the filing of the  Y -earliest complaint in each franchise area (as set forth in Appendix A) to May 14, 1994. d Y-ԍ This finding is based solely on the representations of Operator and the modifications described herein. Should information come to our attention that these representations were materially inaccurate, we reserve the right to take appropriate action. This Order is not to be construed as a finding that we have accepted as correct any specific entry, explanation or argument made by any party to this proceeding not specifically addressed herein. 7. 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 franchise areas referenced in the caption and at Appendix A ARE GRANTED TO THE EXTENT INDICATED HEREIN. 8. 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 franchise areas 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  Y-Appendix A) Y+!-ԍ Our jurisdiction to order a refund dates from the earliest date a valid complaint is filed with the Commission. 47 C.F.R.  76.961(b). 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. 9. 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"7S l*((=" 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.l  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 filings with respect to the franchise areas 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  Y1-forth in Appendix B (plus franchise fee).1 Y -ԍ We reserve the right to make further adjustments to Operator's prices for the period after May 14, 1994, upon completion of our review of Operator's Form 1200 filings.  11. 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. ` `  hh,FEDERAL COMMUNICATIONS COMMISSION ` `  hh,Meredith J. Jones ` `  hh,Chief, Cable Services Bureau "bl*(("  Y-D Appendix A ă  Y-CUID No.` `  Date First ComplaintppDate Complaint xx-  Y-` `  Filed with FCCVppServed  xx-  Y`-MI0204` `  10/12/93hh,Vpp10/15/93  YI-MI0243` `  12/03/93hh,Vpp11/29/93 " l*l*l*` "  Y-E Appendix B ă l  Y-CUID No.` `  Actual RatesVMaximum Permitted Rates  Yw-MI0204` `  $10.97V$10.79  Y`-MI0243` `  $10.24V$10.08