ARCHIVED -  Public Notice CRTC 1988-185

This page has been archived on the Web

Information identified as archived on the Web is for reference, research or recordkeeping purposes. Archived Decisions, Notices and Orders (DNOs) remain in effect except to the extent they are amended or reversed by the Commission, a court, or the government. The text of archived information has not been altered or updated after the date of archiving. Changes to DNOs are published as “dashes” to the original DNO number. Web pages that are archived on the Web are not subject to the Government of Canada Web Standards. As per the Communications Policy of the Government of Canada, you can request alternate formats by contacting us.

Public Notice

Ottawa, 10 November 1988
Public Notice CRTC 1988-185
CAPITAL EXPENDITURE RATE INCREASE SUBMISSIONS
The Cable Television Regulations, 1986 (the regulations), which come into effect on 1 August 1986, introduced a new regulatory regime with four distinct methods of increasing the basic monthly fee charged for cable service.
Under subsection 18(6) of the regulations, licensees are able to propose increases in their monthly fees, depending on the level of eligible capital expenditures that they estimate will be incurred during a twelve-month period commencing on 1 September of any given year. Pursuant to subsection 18(9) of the regulations, the Commission may suspend or disallow all or part of such 18(6) capital expenditure increases.
In Public Notice CRTC 1986-182, dated 1 August l986, the Commission stated that it would "monitor systems making capital expenditures using this process to ensure that the projects have been carried out in the twelve month period stipulated". Subsequently, the Commission introduced the Cable Data Collection Package, in which licensees are required to provide information annually to the Commission on a number of items including the capital expenditures carried out pursuant to subsection 18(6) of the regulations.
The Commission has recently completed the processing of numerous submissions from cable licensees proposing to implement this type of rate increase effective 1 September 1988, for estimated capital expenditures to be incurred during the twelve-month period ending 31 August 1989. In assessing these submissions, the Commission also examined actual capital expenditures made by licensees pursuant to previous subsection 18(6) proposals.
This examination revealed that there was often considerable variance between the capital expenditures estimated by a licensee in a subsection 18(6) proposal, and those expenditures actually made during the twelve-month period in question. Some licensees spent more, others spent less than had previously been estimated. Several licensees made capital expenditures for projects which were undertaken either in addition to or instead of specific projects which had been included in a previous subsection 18(6) proposal.
The Commission focused particularly on those situations where the licensee spent less during the twelve month period than had been estimated for specific proposed projects. In such cases, the Commission disallowed a portion of the proposed increase, equivalent to the amount of the underspending in the previous year.
In recent decisions disallowing all or part of a proposed rate increase on the basis of underspending in a previous year, the Commission has stated that it considers the licensees to have already received this portion of the proposed increase. In such cases, the Commission expects licensees to undertake the total capital expenditures estimated for each project in the proposed increase for the 1988/89 fiscal year.
The Commission expects licensees, when submitting rate increase proposals under subsection 18(6), to make every effort to prepare accurate forecasts of anticipated capital expenditures and to ensure that such expenditures relate only to eligible projects which the licensee fully expects to carry out during the twelve-month period in question.
At the same time, the Commission recognizes that, as is the case with all budgetary estimates, actual spending over the twelve month period may be somewhat higher or lower than initially projected. It is also possible that, due to unforeseen circumstances or other circumstances beyond a licensee's control, projects can be delayed, dropped, revised, or otherwise altered from what had been projected, resulting in significant departures from the proposed capital expenditures estimated in a subsection 18(6) proposal.
In a case of overspending or undertaking additional projects, a licensee has the option of filing for an additional subsection 18(6) increase, provided it is done within the twelve-month period in which the additional expenditure is incurred.
However, in the case of underspending on a specific project, or failure to carry out a particular project identified in a subsection 18(6) submission, the net effect is that the licensee has obtained a rate increase during that year which is greater than would otherwise have been justified.
The integrity of the subsection 18(6) process requires that the Commission protect the interests of subscribers while ensuring that cable operators are able to undertake the capital expenditures necessary to carrying out their operations. In a case where there has been underspending for whatever reason, the Commission is of the view that, in addition to disallowing a portion of a subsequent year's increase equivalent to the amount of the underspending, the fact that the licensee has had the use of the funds resulting from the subsection 18(6) increase during the year in which the underspending occurred must also be taken into account.
Therefore, pending further examination of these matters in the review of cable rate increase procedures, tentatively scheduled for the Fall of 1989, the Commission intends to adopt the following practice when assessing subsection 18(6) proposals:
1. When underspending on projects included in a previous year's subsection 18(6) proposal has occurred, the Commission will disallow that portion of a subsequent subsection 18(6) proposal equivalent to the sum of the previous underspending plus 10% of the previous underspending. Notwithstanding such a reduction, licensees will be expected to undertake all of the capital expenditures set forth in the subsequent 18(6) proposal.
2. A licensee that undertakes eligible capital expenditures in addition to those in a subsection 18(6) proposal may file for an additional subsection 18(6) increase, provided it is done during the twelve-month period in which the additional spending occurs.
The Commission will apply the additional 10% reduction where the underspending has arisen out of a subsection 18(6) increase implemented subsequent to 31 August 1988. For underspending arising out of proposals for the twelve-month period ending 31 August 1988, or for any prior twelve-month period, and which has not already been taken into account in a reduction to a subsequent subsection 18(6) proposal, the Commission will disallow a portion of the increase proposed in a future filing only by an amount equivalent to the underspending.
The Commission intends to produce a simple form which licensees will be able to use when filing material in support of future subsection 18(6) rate increases. The new form will provide guidance as to the documentation that must be submitted and the equipment that the Commission treats as eligible, and will make provision for any adjustments required as a result of underspending in a previous year, as discussed above in this public notice. The Commission anticipates that use of this form will simplify the filing of subsection 18(6) submissions and will result in a reduction in the number of instances where the Commission is required to suspend or disallow a proposed rate increase. It is anticipated that this form will be available before the end of the year.
Fernand Bélisle Secretary General

Date modified: