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Telecom Public Notice
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Ottawa, 23 December 1985
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Telecom Public Notice CRTC 1985-85
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BELL CANADA - REVIEW OF REVENUE REQUIREMENTS
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In Bell Canada - General Increase in Rates - Interim Rate Increase, Telecom Decision CRTC 84-28, 19 December 1984, (Decision 84-28), the Commission approved, effective 1 January 1985, interim increases it. rates of 2% for all Bell Canada (Bell) services in respect of which rate increases were requested by the company in its 4 September 1984 application. In that decision, in order to permit a review of the 1985 interim rate increases, the Commission directed Bell to file its proposed general rate increase application to be heard in the Fall of 1985 (1985 Fall Hearing) on the basis of two test years, 1985 and 1986.
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In a letter to the Commission dated 20 March 1985, Bell indicated that it no longer anticipated requiring a general rate increase to be effective on 1 January 1986. Accordingly, the company requested the Commission to amend its Directions on Procedure and to postpone the proposed 1985 Fall Hearing to 27 May 1986. The company also requested the Commission to grant final approval of the 1985 interim rate increases without further process.
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In CRTC Telecom Public Notice 1985-30, dated 16 April 1985 (Public Notice 1985-30), the Commission approved Bell's proposed amendments to the earlier Directions on Procedure and postponed the filing of the company's application for a general increase in rates from 4 June 1985 to 10 February 1986. With respect to Bell's request for final approval of the interim increases of 2%, the Commission stated that it did not consider it appropriate to grant the company final approval without further process. The Commission stated that it would review the 1985 interim increases in the 1986 proceeding.
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In addition, in view of the improving trend in Bell's financial performance, the Commission directed the company to file, on a monthly basis, a full year forecast of revenues and expenses for 1985. The Commission also noted that it would monitor the company's financial performance during 1985, in order to determine whether any further rate action might be necessary.
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After a review of Bell's 2 July 1985 filing covering the year-to-date results to May 1985, the Commission sent a letter to the company on 19 July 1985 inviting it to provide explanations in writing by 6 August 1985 as to why the 2% interim increases granted in Decision 84-28 should not be suspended, effective 1 September 1985.
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In its 6 August 1985 reply, the company provided a Current Expectation of its 1985 results as well as year-to-date actuals for the first half of 1985. Bell also included explanations as to why it believed that suspension of the interim rate increases would not be justified.
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In Bell Canada - Suspension of Interim Rate Increase, Telecom Decision CRTC 85-18, 14 August 1985, the Commission suspended the 2% interim increases effective 1 September 1985. In arriving at its decision the Commission estimated that, with interim rates in effect for the complete year, the company would earn a rate of return on average common equity for regulatory purposes (ROE) of approximately 14.5 in 1985, a return well in excess of the 13.7% that had been considered appropriate for determining the 2% interim rate increases in Decision 84-28. The Commission also projected that interest coverage would be approximately 3.9 times. This would improve on the actual 1984 coverage of 3.8 times. These estimates were not significantly different from Bell's expectation of its 1985 results provided in its 6 August 1985 letter.
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The Commission stated that it would make its final determination of Bell's revenue requirement for the year 1985 in the general rate proceeding scheduled to commence with an application to be filed on 10 February 1986.
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In a letter dated 31 October 1985 Bell indicated to the Commission that, as a result of substantial productivity improvements coupled with higher than anticipated demand for its services, it expected to earn an ROE of 14.2% for 1985 and 14.0% for 1986. Bell also anticipated its interest coverage to be 3.9 times in 1985 and 4.0 times in 1986. In light of these forecasts and the degree to which the company's rate structure is expected to be considered in separate proceedings, Bell stated that it wished to refrain from proceeding with the application scheduled to be filed on 10 February 1986. Accordingly, the company requested the withdrawal of the amended Directions on Procedure issued by the Commission in Public Notice 1985-30.
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With respect to the revenue requirement for 1985, Bell noted that the interim rate increases are no longer in force and stated that it believes the expected financial results for 1985 are not in excess of just and reasonable levels.
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The Commission notes that the appropriate rate of return for Bell has not been reviewed in an oral hearing since the proceeding which culminated in Bell Canada - General Increase in Rates, Telecom Decision CRTC 81-15, 20 September 1981 (Decision 81-15). The Commission considers that, given Bell's current forecasts, it would be appropriate to review the company's cost of equity for the years 1985, 1986 and 1987 in the proceeding scheduled for 1986. Such a review would allow consideration of the changing financial and economic conditions since Decision 81-15 and the impact of Bell's corporate reorganization on its rate of return. The Commission notes that other issues arising from the reorganization would also be addressed in the 1986 proceeding.
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The Commissions therefore, concludes that the schedule announced in the amended Directions on Procedure enumerated in Public Notice 1985-30 is still appropriate with the exception of items 5 and 6 which will now read as follows:
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5. Provided the application file is completed to the satisfaction of the Commissions the central
hearing will commence in the Conference Centres Phase IVs Place du Portage, 140
Promenade du Portage, Hull, Quebec on 2 June 1986.
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6. Regional hearings will be held in the period from 20 May to 23 May 1986, if considered
necessary, in locations to be announced.
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The Commission directs Bell to file on 10 February 1986 the Memoranda of Support contemplated by section 38(1)(b) of the CRTC Telecommunications Rules of Procedure to address the test years 1985, 1986 and 1987. The Commission will make a final determination regarding Bell's revenue requirements for the years 1985, 1986 and 1987, and establish an acceptable range for Bell's ROE for the years 1986 and 1987 in that proceeding. In this context, Bell is directed to file appropriate information on the company's cost of common equity and revenue requirements, including 1985 financial results and forecasts for 1986 and 1987, in its submission of 10 February 1986.
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Fernand Bélisle
Secretary General
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