|
Telecom Public Notice
|
|
Ottawa, 28 November 1988
|
|
Telecom Public Notice CRTC 1988-48
|
|
PROPOSED REVISIONS TO CERTAIN PHASE I DIRECTIVES CONCERNING DEPRECIATION
|
|
The Commission's current directives concerning depreciation were issued in Inquiry into Telecommunications Carriers' Costing and Accounting Procedures Phase 1: Accounting and Financial Matters, Telecom Decision CRTC 78-1, 13 January 1978 (Decision 78-1) and Inquiry into Telecommunications Carriers' Costing and Accounting Procedures Phase 1: Accounting and Financial Matters - Revision to Certain Directives Contained in Telecom Decision CRTC 78-1, Telecom Decision CRTC 79-9, 8 May 1979 (Decision 79-9).
|
|
Directives 1 through 3, dealing with depreciation records, read as follows:
|
|
1. All carriers shall identify plant additions and retirements by depreciation categories. The depreciation categories shall be established in sufficient detail to reflect life characteristics of the plant within the respective categories. Whenever, in the judgment of the Commission, it is economically practicable to do so, the carriers shall record and maintain additions, retirements, transfers and adjustments by vintage.
|
|
2. Each carrier shall maintain continuous records that will permit the identification of accumulated depreciation, exclusive of salvage accruals, for each main asset account and, where feasible, for each depreciation category. Each carrier shall also maintain sufficient data so that the accumulated depreciation can be appropriately allocated to the vintages of plant.
|
|
3. All carriers shall submit a document detailing the content and structure of the records identified in Directives 1 and 2 and their implementation schedule for Commission approval within six months of the date of this Decision.
|
|
As circumstances have changed over the years since their approval, the documents submitted in accordance with Directive 3 have become outdated. Accordingly, the Commission proposes that the carriers be required to file updates to these documents for approval and that Directive 3 be changed to read as follows:
|
|
3. All carriers shall submit a document detailing the content and structure of the records identified in Directives 1 and 2 and their implementation schedule for Commission approval within six months of the date of this Decision. All carriers shall submit any proposed changes to the content and structure of the identified records, (i.e. the introduction or deletion of a depreciation category) to the Commission for approval prior to their implementation.
|
|
Directives 4 and 5, dealing with life studies, read as follows:
|
|
4. Life analysis shall employ state of the art methods of statistical analysis or where appropriate, may include life span analysis, making use of standard survivor curves such as Iowa and Kimball curves. Life studies shall merge past experience with future expectations. The result of the life studies shall be given in terms of average service life and specific mortality dispersion pattern and shall be supported with detailed documentation and reasons for the estimated life characteristics determined by the study. These documents shall be available for audit by the Commission.
|
|
5. All carriers shall develop schedules for life studies which recognize appropriate study periods for various accounts. The maximum interval between life studies shall be five years. These schedules shall be submitted for Commission approval within six months of the date of this Decision.
|
|
In order to assess the reasonableness of depreciation expense, the Commission must assess the reasonableness of the life studies used to develop life characteristics (average service life and mortality dispersion), which in turn are used to develop the depreciation rates. The Commission has found, however, because of the number of life studies involved, that they cannot always be analyzed in adequate detail during the course of an audit to permit such an assessment to be made. Accordingly, the Commission proposes that Directives 4 and 5 be changed to read as follows:
|
|
4. Life analysis shall employ state of the art methods of statistical analysis or where appropriate, may include life span analysis, making use of standard survivor curves such as Iowa and Kimball curves. Life studies shall merge past experience with future expectations. The result of the life studies shall be given in terms of average service life and specific mortality dispersion pattern and shall be supported with detailed documentation and reasons for the estimated life characteristics determined by the study.
|
|
Study reports shall be submitted to the Commission as they are completed. At a minimum, these reports shall contain a brief history and future outlook of the category, substantiation of the survivor curve selected, and the actual and theoretical depreciation reserve. Backup documentation shall be available for audit by the Commission.
|
|
5. All carriers shall develop and revise as necessary schedules for life studies which recognize appropriate study periods for various accounts. The maximum interval between life studies shall be five years. These schedules shall be submitted for Commission approval within six months of the date of this Decision and annually thereafter.
|
|
The Commission has been approving depreciation rates and life characteristics either specifically, in response to a specific application, or implicitly in the context of general rate increase or revenue requirement proceedings. The Commission considers the former of these two approaches to be the more desirable and, accordingly, proposes that the carriers adopt the procedure of making a specific application to the Commission for approval of life characteristics or depreciation rates.
|
|
The Commission invites comments on the above proposals in accordance with the following procedure:
|
|
1. Bell Canada, British Columbia Telephone Company, CNCP Telecommunications, Northwestel Inc., Teleglobe Canada Inc., Telesat Canada and Terra Nova Telecommunications Inc. are made parties to this proceeding.
|
|
2. Interested persons wishing to participate in this proceeding must notify the Commission of their intention to do so by writing to Mr. Fernand Bélisle, Secretary General, CRTC, Ottawa, Ontario K1A 0N2 by 28 December 1988. The Commission will issue a list of parties and their mailing addresses.
|
|
3. Comments by parties must be filed with the Commission and served on all other parties by 27 January 1989.
|
|
4. Reply comments must be filed with the Commission and served on all other parties by 16
February 1989.
|
|
Fernand Bélisle
Secretary General
|
|
|