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5 <br /> REPORT <br /> FCC-1220 Series Benchmark Rate Review <br /> Cablevision industries, Inc. - Orange County, NC-0256 <br /> BACKGROUND: <br /> Commensurate with the Cable Act of 1992, the Federal Communication Commission <br /> promulgated a set of rate determination rules for cable operators to apply in the absence of a <br /> competitive environment. The rules established a first year rate structure (FCC-393] and <br /> second year[FCC-1200/1220 series]to determine the maximum permitted rates for regulated <br /> programming services and equipment and certain aspects of a is carte program costs. The <br /> Commission also allows operators to"update" maximum permitted benchmark rates and <br /> recover inflationary and external costs through FCC-2210 form. <br /> The Cost of Service[COS] filing enables cable operators to justify charges for regulated cable <br /> service based on actual costs to providing,such services. Provided for are: 1) the recovery of <br /> all expanses necessary to deliver services, including operating expense and the depreciation on <br /> property,plant and equipment; and, 2)a return on investment[ROI] for property, plant, and <br /> equipment used to deliver the services. The ROI is to assure a fair return out equity, recovery <br /> of interest expense, and income taxes associated with the equity portion of the return. <br /> i <br /> METHODOLOGY: <br /> CVI's submission to Orange County was evaluated by the consultants to determine whether <br /> the operator calculated benchmark rafts consistent with the procedures prescribed by the <br /> Federal Communication Commission. Data provided by CV1 in the form of FCC-1220 <br /> worksheets were entered into a computer program prepared by the FCC for this purpose. <br /> Original computations were performed by the consultants and compared against those filed by <br /> the company. <br /> OBSERVATIONS: <br /> CV1 chose to use a rate of return on investment which exceeds the current 11.25% benchmark <br /> rate. The program service rates proposed by the company incorporate a higher rate of return: <br /> 15.0%, which reflects CVI's cost of capital. <br /> Cablevisiom.Industries, Inc. is organized as a C-corporation; its federal and state income tax <br /> rates are 35% and 7.82% respectively. <br />