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X-x #Xj\  P6G; XP# Federal Communications Commission`(# DA 97323 ă  yxdddy .v3 #C\  P6QpP#Before the Federal Communications Commission  yO Washington, D.C. 20554 X01Í ÍX01Í  Í҃  yO -T#Xj\  P6G; XP#Ã X-X(# P  X-In the Matter of: hh@)hpp  X-x` `  hh@) h  X-Cablevision of New York Phase Ihh @) CUID Nos. NY1413 (Brooklyn)  Xu-x` `   hh@) NY1414 (Bronx) 0(#(#X x` `  hh@) x` `  hh@)  X0 -Petition for Reconsiderationhh@) T  X -  X-x` `  MEMORANDUM OPINION AND ORDER  X- xAdopted: February 10, 1997 hppReleased: February 11, 1997  X- By the Chief, Cable Services Bureau:  XJ- 1. 1. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a)   I. INTRODUCTION  X3- I. 1. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a)  X- ` x1. ` ` On June 5, 1995 Cablevision of New York City Phase I[ yO- xԍ Cablevision of New York Phase I is the full name of the Cable Company providing service to CUID Nos. NY1413 and NY1414. ("Cablevision") filed  X- xka Petition for Reconsideration ("Petition") of our action in Cablevision of New York, 10 FCC  X- x Rcd 8150 (1995)("Benchmark Rate Order"). In that Benchmark Rate Order, we found that  xLCablevision's rates for its cable programming service tier ("CPST") on its cable system serving  x.Brooklyn and the Bronx, New York, exceeded the maximum permitted under our rules and were  xnot reasonable and therefore, we ordered Cablevision to provide refunds to subscribers of these  X- x.tiers. On June 23, 1995, we granted a stay of that Benchmark Rate Order in Petitions for Stay  xof Action Pending Resolution of Applications for Review or Petitions for Reconsideration  Xj- x("Stay"), 10 FCC Rcd 12279 (1995). In its Petition, Cablevision asks us to reconsider and vacate  XS- x.that order. Cablevision contends that it incorrectly made notations on its initial FCC Form 393  xfiling leading the Bureau to conclude that Cablevision is a taxpaying entity. Cablevision asserts  xthat it is a limited partnership and therefore not a taxpaying entity. Upon review of the  xyunderlying record, we conclude that Cablevision should be treated as a limited partnership and  xbe permitted to exclude federal and state income taxes from its calculation of equipment costs.  xAs a consequence, we find that its CPST rates as of the initial date of regulation did not exceed  xthe 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.  X%-"% ,))ZZ$"Ԍ X- #Xj\  P6G; XP# II. BACKGROUND  X-  X- ` x2. ` ` The Cable Television Consumer Protection and Competition Act of 1992 ("1992  X- xzCable Act"),! {O6- xԍ Pub. L. No. 102385, 106 Stat. 1460 (1992); Communications Act, Section 623(c), as amended, 47 U.S.C.  543(c) (1996). and our rules implementing it, 47 C.F.R. Part 76, Subpart N, authorizes that the  X- xkCommission must review CPST rates upon the filing of a valid complaint. The filing of such  x>a complaint triggers an obligation on behalf of the cable operator to file a justification of its  Xz- xCPST rates.@z"! yOM -ԍ 47 C.F.R.  76.956.@ Under our rules, an operator may attempt to justify its rates through either a  Xc- x[benchmark showing or a costofservice showing.9c! {O -ԍ Id.9 In either case, the operator has the burden  XL- xof demonstrating that its CPST rates are not unreasonable.9LD! {OA-ԍ Id.9 If the rate is determined to be  xunreasonable, the Commission can require the cable operator to reduce its rate and "to refund  xsuch portion of the rates or charges that were paid by subscribers after the filing of such  X -complaint and that are determined to be unreasonable." ! {O- xԍ 47 U.S.C. 543(c)(1)(C); Implementation of Sections of the Cable Television Consumer Protection and  xKCompetition Act of 1992: Rate Regulation, Report and Order and Further Notice of Proposed Rulemaking, MM  {O - xDocket No. 92266, 8 FCC Rcd 5631, 586567 (1993). The refund period is calculated from the filing of the first  {O- xjvalid CPST complaint to May 15, 1994, the date upon which revised benchmark rules became effective. See  {M- xjImplementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate  xhRegulation Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed Rulemaking,  {OD-MM Docket No. 92266, 9 FCC Rcd 4119 (1994) ("Second Order on Reconsideration").   X - ` }x3. ` ` The Commission's original rate regulations took effect on September 1, 1993.  ! {O- xԍ Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate  {Or-Regulation, Order in MM Docket No. 92266, 58 Fed. Reg. 41042 (Aug. 2, 1993).  The  X - xLCommission subsequently revised its rate regulations effective May 15, 1994. z! {O-ԍ Second Order on Reconsideration, 9 FCC Rcd 4119 (1994); 47 C.F.R.  76.922(b). Operators with  xvalid CPST complaints filed against them prior to May 15, 1994, were required to demonstrate  X- xthat their CPST rates were in compliance with the Commission's initial rules from the time the  xcomplaint was filed through May 14, 1994, and that their rates were in compliance with the  Xf- xrevised rules from May 15, 1994, forward.< f ! {O#$-ԍ  Id. at 4190.< Operators attempting to justify their rates for the  xyperiod prior to May 15, 1994, through a benchmark showing had to complete and file FCC Form"O ,N(N(ZZ"  X- x393. ! {Oy- xԍ Id. In general, in order to justify rates through a benchmark showing for the period beginning May 15, 1994,  yOC-operators must use the FCC Form 1200 series. 47 C.F.R.  76.922(b)(6). The period under review here is the early period commencing from the date the first valid  xCPST complaint against Cablevision's CPST rates was filed with the Commission for each of the  X-franchise areas.S "! {O-ԍ  See 10 FCC Rcd at 8151, Appendix A.S  X- III. ORIGINAL ACTION  Xv- ` x4. ` ` In the Benchmark Rate Order, we concluded that Cablevision had not correctly  xcalculated the maximum permitted rates for Brooklyn and the Bronx, New York and that  xLadjustments to Cablevision's rates were necessary. First, we found that Cablevision, which, in  x[its FCC Form 393 filings, had effectively identified itself as a taxpaying entity, had applied the  xZcorporate tax rate on investment without grossingup its tax entries and calculating its federal and  X - xstate income tax as a percentage of return on investment. $ ! {Oj- x<ԍ See First Order on Reconsideration, Second Report and Order, and Third Notice of Proposed Rulemaking,  {O4- xJMM Docket No. 92266 ("First Order on Reconsideration"), 9 FCC Rcd 1164, 1196 n. 92 (1993)("Our provision to  xgrossup 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 obligation"). We determined that Cablevision, by  xynot grossingup, had understated its tax entries on FCC Form 393 and had reduced its effective  xrate of return on equipment and installations, thereby creating the potential for increasing its  xCPST rates. Second, because Cablevision had not correctly calculated its maximum permitted  xrates, we found it necessary to recalculate the Inflation Adjustment Factor for Brooklyn and the  xBronx, New York based on corrected Gross National ProductPrice Index ("GNPPI") data  X{-released July 29, 1994, by the Department of Commerce.% X{! yO- x=ԍ Using the GNPPI corrected data, we calculated an inflation adjustment factor of 1.028 as the Inflation  xAdjustment Factor through September, 1993 for both the franchise areas addressed in the order. 10 FCC Rcd at 8151.%     XM- IV. PETITION FOR RECONSIDERATION  X6-  X- ` x5. ` ` In its Petition, Cablevision alleges that it inadvertently and incorrectly made  xnotations in Column G of Schedule A, leading to the Bureau belief that Cablevision was a tax xpaying entity. Cablevision points out that the information relied upon by the Bureau in making  xNits determination was contained in the initial FCC Form 393 filed on December 3, 1993. It  x=states, however, that a revised FCC Form 393, which Cablevision submitted to the City of New  xYork on December 12, 1994, correctly reflected Cablevision's status as a limited partnership and" ,N(N(ZZR"  X- xytherefore its proper income tax status as a nontaxable entity.x! yOy- xxԍ While the Commission was reviewing Cablevision's CPST rates in Brooklyn and the Bronx, the City of New  xYork was examining the basic service and equipment rates charged by the company. Cablevision submitted an  xinitial rate filing to the City on November 15, 1993 which also contained the same erroneous notations in Column  xG of Schedule A that were included in the FCC Form 393 submitted to the Bureau in the instant proceeding. On  xDecember 12, 1994, after considering questions raised by the City and its consultants, Cablevision submitted to the  xCity a revised FCC Form 393. According to Cablevision, this revised FCC Form 393 correctly reflected its status as a limited partnership which is not subject to taxation and therefore does not incur tax expense.  Cablevision acknowledges that  x/the Bureau relied on the notations in Column G of Schedule A in the FCC Form 393 filed on  xDecember 3, 1993, but alleges that this reliance has led to an incorrect reduction in Cablevision's  xmaximum permitted rates. Cablevision contends that when Cablevision's maximum permitted  xrates are computed based upon its true status as a nontaxable entity, the company's actual rates  xare demonstrably lower than its maximum permitted CPST rates. It therefore requests that the  xBureau reconsider and approve the CPST rates charged by Cablevision during the period under review.  X1- V. DISCUSSION  X - ` x6. ` ` We find that Cablevision has demonstrated that it is not a taxpaying entity.  xyTherefore, the inclusion of income tax expenses in its initial FCC Form 393 filings was incorrect.  xBecause Cablevision is a limited partnership and thus a nontaxpaying entity, we have, consistent  X - xwith this and with the First Order on Reconsideration, 9 FCC Rcd 1164, 1197 (1993), revised  xits rates by omitting the entries made by Cablevision for income tax expenses on its FCC Form  x393 filings for Brooklyn and the Bronx, New York. After reviewing these filings and the  X{- x.Benchmark Rate Order, we find no errors that would result in Cablevision's actual CPST rates  xexceeding its maximum permitted CPST rates. We further find that Cablevision has  xLdemonstrated that the CPST rates set forth in its revised FCC Form 393 filings were justified as of the initial date of regulation.  X!-  X - `  x7. ` ` Accordingly, IT IS ORDERED, pursuant to Section 1.106 of the Commission's  X- xRules, 47 C.F.R.  1.106, that the Petition for Reconsideration filed by Cablevision of New  X-York Phase I IS GRANTED.  X-  X- ` x 8. ` ` IT IS FURTHER ORDERED, that Cablevision of New York, 10 FCC Rcd 8150  X-(1995) IS VACATED.  Xk- ` x9. ` ` IT IS FURTHER ORDERED that Petitions for Stay of Action Pending Resolution  XT- xjof Applications for Review or Petitions for Reconsideration, 10 FCC Rcd 12279 (1995) for CUID  X=-Nos. NY1413 and NY1414 IS TERMINATED. "&,N(N(ZZ>"  X- ` Bx10. ` ` 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.  x` `  hhFEDERAL COMMUNICATIONS COMMISSION  X1-x` `  hhMeredith J. Jonespp   x` `  hhChief, Cable Services Bureau