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Telecom Letter Decision
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Ottawa, 14 June 1993
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Telecom Letter Decision CRTC 93-11
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To: Northwestel Inc.
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Interested Parties
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Re: Interim Rate Increases, 1993
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In its 13 May 1993 application for a general increase in rates, NorthwestelInc. (Northwestel) proposed interim increases in monthly rates for basic exchange service to be in effect from 1 July 1993 to 31 December 1993. Northwestel expected that the proposed interim increases would generate approximately $2.76 million in additional revenues, allowing it to earn a rate of return on average common equity (ROE) of 12.9% in 1993, as compared to an ROE of 11.6% at existing rates.
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In its Memorandum of Support, Northwestel argued that the unique circumstances justifying its interim rate increase application include, among other things, the suddenness of the current economic downturn, the impact of the volatility of the economy on a company with a very small customer base, and the importance of uninterrupted investment to modernize obsolete equipment and provide new services. Northwestel argued that a forecasted return below its allowable ROE range, coupled with the continuing volatility of its earnings, would unduly harm the company in its ability to meet its obligations to both customers and shareholders.
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The test used by the Commission in considering interim rate increases was first enunciated in Bell Canada, General Increase in Rates, Telecom Decision CRTC 80-7, 25 April 1980, as follows:
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The Commission considers that, as a rule, general rate increases should only be granted following the full public process contemplated by Part III of its Telecommunications Rules of Procedure. In the absence of such a process, general rate increases should not in the Commission's view be granted, even on an interim basis, except where special circumstances can be demonstrated. Such circumstances would include lengthy delays in dealing with an application that could result in a serious deterioration in the financial condition of an applicant absent a general interim rate increase.
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Based on its assessment of the information filed by Northwestel, the Commission considers that, without interim rate increases, the company will not suffer any significant deterioration in its financial position in 1993 and should be able to avoid any material prejudice to its ability to meet its financial obligations and respond to customer requirements. Further, the Commission finds that, if existing rates are made interim and a single test period (1 July 1993 to 31 December 1994) is used to determine the company's revenue requirement, it will be in a position, after a full review of the evidence as contemplated by Part III of the CRTC Telecommunications Rules of Procedure, to take rate action, if appropriate, to ensure that the company has an opportunity to earn a reasonable and appropriate ROE for the 18-month test period.
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Accordingly, Northwestel's request for interim rate increases is denied. All tariffed rates approved prior to 1 July 1993 are made interim effective that date and a single test period 1 July 1993 to 31 December 1994 will be used to determine the company's revenue requirement.
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Allan J. Darling
Secretary General
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