******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) Cablevision of New York - Phase I ) CUID Nos. NY1413 (Brooklyn) ) NY1414 (Bronx) ) ) Petition for Reconsideration ) MEMORANDUM OPINION AND ORDER Adopted: February 10, 1997 Released: February 11, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On June 5, 1995 Cablevision of New York City - Phase I ("Cablevision") filed a Petition for Reconsideration ("Petition") of our action in Cablevision of New York, 10 FCC Rcd 8150 (1995)("Benchmark Rate Order"). In that Benchmark Rate Order, we found that Cablevision's rates for its cable programming service tier ("CPST") on its cable system serving Brooklyn and the Bronx, New York, exceeded the maximum permitted under our rules and were not reasonable and therefore, we ordered Cablevision to provide refunds to subscribers of these tiers. On June 23, 1995, we granted a stay of that Benchmark Rate Order in Petitions for Stay of Action Pending Resolution of Applications for Review or Petitions for Reconsideration ("Stay"), 10 FCC Rcd 12279 (1995). In its Petition, Cablevision asks us to reconsider and vacate that order. Cablevision contends that it incorrectly made notations on its initial FCC Form 393 filing leading the Bureau to conclude that Cablevision is a tax-paying entity. Cablevision asserts that it is a limited partnership and therefore not a tax-paying entity. Upon review of the underlying record, we conclude that Cablevision should be treated as a limited partnership and be permitted to exclude federal and state income taxes from its calculation of equipment costs. As a consequence, we find that its CPST rates as of the initial date of regulation did not exceed the maximum permitted rates and were not unreasonable. We thus grant its Petition. In view of our action herein, the Stay referenced above is hereby terminated. II. BACKGROUND 2. The Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), and our rules implementing it, 47 C.F.R. Part 76, Subpart N, authorizes that the Commission must review CPST rates upon the filing of a valid complaint. The filing of such a complaint triggers an obligation on behalf of the cable operator to file a justification of its CPST rates. Under our rules, an operator may attempt to justify its rates through either a benchmark showing or a cost-of-service showing. In either case, the operator has the burden of demonstrating that its CPST rates are not unreasonable. If the rate is determined to be unreasonable, the Commission can require the cable operator to reduce its rate and "to refund such portion of the rates or charges that were paid by subscribers after the filing of such complaint and that are determined to be 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 CPST complaints filed against them prior to May 15, 1994, were required to demonstrate that their CPST rates were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their rates were in compliance with the revised rules from May 15, 1994, forward. Operators attempting to justify their rates for the period prior to May 15, 1994, through a benchmark showing had to complete and file FCC Form 393. The period under review here is the early period commencing from the date the first valid CPST complaint against Cablevision's CPST rates was filed with the Commission for each of the franchise areas. III. ORIGINAL ACTION 4. In the Benchmark Rate Order, we concluded that Cablevision had not correctly calculated the maximum permitted rates for Brooklyn and the Bronx, New York and that adjustments to Cablevision's rates were necessary. First, we found that Cablevision, which, in its FCC Form 393 filings, had effectively identified itself as a tax-paying entity, had applied the corporate tax rate on investment without grossing-up its tax entries and calculating its federal and state income tax as a percentage of return on investment. We determined that Cablevision, by not grossing-up, had understated its tax entries on FCC Form 393 and had reduced its effective rate of return on equipment and installations, thereby creating the potential for increasing its CPST rates. Second, because Cablevision had not correctly calculated its maximum permitted rates, we found it necessary to recalculate the Inflation Adjustment Factor for Brooklyn and the Bronx, New York based on corrected Gross National Product-Price Index ("GNP-PI") data released July 29, 1994, by the Department of Commerce. IV. PETITION FOR RECONSIDERATION 5. In its Petition, Cablevision alleges that it inadvertently and incorrectly made notations in Column G of Schedule A, leading to the Bureau belief that Cablevision was a tax-paying entity. Cablevision points out that the information relied upon by the Bureau in making its determination was contained in the initial FCC Form 393 filed on December 3, 1993. It states, however, that a revised FCC Form 393, which Cablevision submitted to the City of New York on December 12, 1994, correctly reflected Cablevision's status as a limited partnership and therefore its proper income tax status as a non-taxable entity. Cablevision acknowledges that the Bureau relied on the notations in Column G of Schedule A in the FCC Form 393 filed on December 3, 1993, but alleges that this reliance has led to an incorrect reduction in Cablevision's maximum permitted rates. Cablevision contends that when Cablevision's maximum permitted rates are computed based upon its true status as a non-taxable entity, the company's actual rates are demonstrably lower than its maximum permitted CPST rates. It therefore requests that the Bureau reconsider and approve the CPST rates charged by Cablevision during the period under review. V. DISCUSSION 6. We find that Cablevision has demonstrated that it is not a tax-paying entity. Therefore, the inclusion of income tax expenses in its initial FCC Form 393 filings was incorrect. Because Cablevision is a limited partnership and thus a non-tax-paying entity, we have, consistent with this and with the First Order on Reconsideration, 9 FCC Rcd 1164, 1197 (1993), revised its rates by omitting the entries made by Cablevision for income tax expenses on its FCC Form 393 filings for Brooklyn and the Bronx, New York. After reviewing these filings and the Benchmark Rate Order, we find no errors that would result in Cablevision's actual CPST rates exceeding its maximum permitted CPST rates. We further find that Cablevision has demonstrated that the CPST rates set forth in its revised FCC Form 393 filings were justified as of the initial date of regulation. 7. Accordingly, IT IS ORDERED, pursuant to Section 1.106 of the Commission's Rules, 47 C.F.R.  1.106, that the Petition for Reconsideration filed by Cablevision of New York - Phase I IS GRANTED. 8. IT IS FURTHER ORDERED, that Cablevision of New York, 10 FCC Rcd 8150 (1995) IS VACATED. 9. IT IS FURTHER ORDERED that Petitions for Stay of Action Pending Resolution of Applications for Review or Petitions for Reconsideration, 10 FCC Rcd 12279 (1995) for CUID Nos. NY1413 and NY1414 IS TERMINATED. 10. This action is taken by the Chief, Cable Services Bureau pursuant to authority delegated by  0.321 of the Commissions Rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau