ARCHIVED -  Telecom Decision CRTC 97-17

Telecom Decision

Ottawa, 18 December 1997

Telecom Decision CRTC 97-17

TELESAT CANADA - RATE REVIEW OF RF CHANNEL SERVICES

References: 96-2372 and Tariff Notices 930/A/B/C

TABLE OF CONTENTS

Paragraph Numbers

1. Rate Determination 1
2. Background 2
3. Satellite Utilization Forecast 13
3.1 Forecasting Methodology 13
3.2 Digital Video Compression (DVC) 17
3.3 Direct to Home (DTH) 20
3.4 Partial Channel Utilization and Rates 27
3.5 Occasional Use Service 29
3.6 Non-Broadcasting Services 31
3.7 Speculative Demand 34
3.8 Utilization Forecast for Rate-setting Purposes 37
4. Phase III Expense Issues 38
4.1 Corporate Restructurings 39
4.1.1 Permanent Staff Reductions 39
4.1.2 Allocation of Restructuring Costs 41
4.2 Productivity Improvement Factors 45
4.3 Space/Non-space Cost Assignments and Allocations 49
4.3.1 Finance and Administration (F&A) General Expenses 50
4.3.2 Cost Centre Assignment of General Expenses 54
4.3.3 Expense Impacts of Telesat's Direct Broadcast Satellite (DBS) Project 59
4.4 Failure and Restoral of Satellites 65
4.4.1 1994 Satellite Recovery Costs 67
4.4.2 Rate of Return on Anik E2 During the Outage 71
4.5 Bad Debt Expenses 74
4.6 Anik F Expenses 77
4.7 In-Orbit Insurance 80
4.7.1 Appropriate Level of Coverage 82
4.7.2 Treatment of Insurance Proceeds 90
4.8 Return on Equity 96
5. Satellite Purchases and Sales 99
5.1 Anik C1 and C2 Sale Proceeds 99
5.2 Repurchase of Anik C1 106
5.3 Resale of Anik D2 108
6. Tracking Results 113
7. Implementation 119

1. Rate Determination

1. Based on its review of satellite utilization, Space Segment expenses, capital costs, the appropriate levels of inclusion of the Anik E1 insurance proceeds and the sale proceeds associated with Anik C1 and C2 and Anik D2, the Commission directs that the RF Channel service rates be reduced by 7% effective 1 January 1998, and these rates are hereby made final effective on that date.

2. Background

2. The Commission, in Telesat Canada - Rates for Space Segment Services and Phase III Costing Manual,Telecom Decision CRTC 92-17, 28 September 1992, (Decision 92-17) established RF Channel service rates for Telesat Canada Inc.'s (Telesat) Anik E satellites.

3. Telesat's RF Channel rates are established using an economic evaluation study (EES) over a ten-year study period, currently 1 January 1991 to 31 December 2000. The proposed rates are intended to recover RF Channel service costs and allow its investors to earn a return on equity (ROE) in the range of 13% to 14% over the ten-year study period.

4. In December 1992, Telesat advised the Commission that it had negotiated the sale of Anik C1 and Anik C2, and sought Commission approval. On 26 January 1993, the Commission approved the sale and made Telesat's rates interim, stating that the issues arising as a result of the sale, such as the disposition of the proceeds and the need for revision of existing RF Channel rates, would be addressed in the context of a proceeding.

5. On 2 July 1993, Telesat filed an application (July 1993 View) requesting a 2.9% rate increase effective 1 January 1996 necessitated by a reduction in the RF Channel utilization forecast offset by the proceeds of the sale of the satellites and a company restructuring.

6. Due to difficulties with Anik E1 and the malfunction of Anik E2 on 20 January 1994, Telesat requested a six-month adjournment of the rate proceeding which was granted. Anik E2 was returned to service in August 1994.

7. The rate proceeding resumed with Telesat filing a revised application in December 1994 (December 1994 View) requesting a 12.4% rate increase effective 1 July 1995, necessitated by a revised utilization forecast, additional costs related to the satellite malfunction and in-orbit insurance, and a further corporate restructuring. An oral hearing was held in May 1995 to review the utilization forecast.

8. On 26 March 1996, Telesat's Anik E1 satellite suffered a major malfunction losing more than half of its RF Channel capacity. On 12 April 1996, Telesat requested that the Commission render a final decision on the rate review proceeding based on the record prior to the malfunction of Anik E1. On 20 June 1996, the Commission indicated that it would be inappropriate to finalize rates based on evidence that was known to be inaccurate due to the partial failure of Anik E1 and directed Telesat to file a proposed procedure for the filing of updated evidence.

9. On 22 July 1996, Telesat filed a proposed procedure for the resolution of the rate proceeding and requested an interim rate increase of 10%. The request for this interim rate increase was denied by the Commission.

10. In a 4 December 1996 letter concerning a request by Telesat for a delay in the date for the filing of updated evidence for the rate review, the Commission indicated that it did not intend to make any retroactive rate adjustments when setting final rates.

11. Telesat filed a revised application on 31 January 1997 (January 1997 View), requesting a rate increase of 11.0% effective 1 July 1997, necessitated by a revised utilization forecast, the impacts of the March 1996 Anik E1 partial failure and the treatment of the insurance proceeds. On 12 June 1997, the company updated its cost evidence, in response to Telesat(CRTC) 12June97-9403(C), to include the impacts associated with the company's proposed Direct Broadcast Satellite (DBS) project. This update resulted in slightly less expenses being assigned to the Space Segment of the company. Under this June 1997 revision (June 1997 View), the proposed rate increase was 10.2% effective 1 January 1998.

12. The Commission notes the participation of interveners in this proceeding who posed interrogatories, questioned at the oral hearing and provided argument. Among the participants were the Canadian Broadcasting Corporation, the Canadian Cable Television Association (CCTA), Canadian Satellite Communications Inc. (Cancom), the Canadian Satellite Users Association (CSUA), ExpressVu Inc. (ExpressVu), and 5th Dimension Communications Inc.

3. Satellite Utilization Forecast

3.1 Forecasting Methodology

13. Telesat's initial utilization forecast in this proceeding was the July 1993 View. In that filing Telesat proposed a revision to the utilization forecast approved in Decision 92-17 as tracking reports indicated a significant shortfall relative to the non-broadcasting demand forecast.

14. Telesat indicated that, in developing its revised forecast, it had abandoned its target forecasting methodology and had reverted to its previous customer-by-customer forecast which is based on existing customer contracts and an outlook by customer of contract renewals. Speculative amounts by market sector as well as purely speculative amounts for unforeseen future opportunities were added.

15. The Commission accepts Telesat's proposed methodology as being appropriate for forecasting utilization by existing customers. However, the Commission notes that by focusing on existing customers, Telesat's methodology does not directly consider opportunities to add new customers or new satellite applications, and must be supplemented by speculative forecasts for these components. The Commission notes the importance of the speculative forecast components under Telesat's methodology.

16. During the course of this proceeding, Telesat provided several revisions to its utilization forecast to reflect the adoption of digital video compression (DVC) technology, the introduction of direct to home (DTH) service, restoral service to U.S. carriers and changes in occasional use, non-broadcast and speculative forecasts, as well as the effects of the satellite malfunctions in 1994 and 1996.

3.2 Digital Video Compression (DVC)

17. DVC is an evolving technology which uses digital processing to enable several video signals to be transmitted on a single satellite channel. This technology has been adopted by most broadcasters in Canada. Parties to this proceeding estimated the range of viable compression ratios to be from four video signals per RF Channel to twelve, depending on the DVC technology being employed, the data rate of the RF Channel carrier, the content of the programming and the desired quality of the resulting video image. As a result, broadcasting utilization of satellite channels is no longer solely related to the number of video signals being carried. Other variables must also be considered. In this proceeding Telesat speculated that the next generation of DVC equipment will increase signal compression ratios from those currently in use.

18. The adoption of DVC has changed the relationship between Telesat, as provider of RF Channel service, and broadcasters. Rather than contracting with Telesat for satellite service, broadcasters generally contract with a DVC provider who, in turn, obtains the satellite capacity from Telesat and provides the compression and packaging of multiple signals to make efficient use of the satellite channel. Telesat's broadcasting utilization forecast has, therefore, largely become a forecast of the demand by DVC providers for RF Channel service. Telesat itself is a DVC provider in competition with other providers. The Commission has forborne from regulation of Telesat's competitive DVC service which obtains RF Channel capacity from Telesat's Space Segment in the same manner as other DVC providers.

19. The lack of an effective DVC standard has led to several non-compatible DVC technologies being used and being supported by Telesat. These technologies are not interoperable and result in many signals being duplicated on Telesat's satellites. This lack of interoperability has acted to mitigate the reduction in satellite demand as a result of the adoption of DVC by broadcasters. Also, with the adoption of DVC, the cost of satellite transmission per video signal has been reduced. This has stimulated the market for satellite service by new specialty television services and pay-per-view movie services, and has further mitigated the reduction in satellite demand due to DVC. The Commission accepts Telesat's January 1997 View of full period broadcasting utilization for rate-setting purposes subject to the Commission's decision, set out below, concerning DTH demand.

3.3 Direct to Home (DTH)

20. The major factors affecting the DTH utilization forecast are the number of DTH services and the lack of DVC interoperability.

21. In Telesat's January 1997 View, the DTH forecast includes a DTH demand of 7 Ku-band RF channels in 1997, 8 channels in 1998 and no demand thereafter. This demand represents the channels for which DTH operators have contracts directly with Telesat. Telesat forecasts that overall DTH utilization on the Anik E satellites will be 17 channels in 1997 and 18 channels in 1998. The additional channels are obtained by the DTH operators through resale by other Telesat customers who have excess capacity under contract.

22. From January 1999 to the end of the study period, Telesat forecast that there will be no DTH demand either through direct contract or through resale. Telesat noted that by January 1999 its proposed DBS is to be in operation and that DTH demand will migrate to the DBS service.

23. Cancom argued that it is not reasonable to assume that all DTH demand will migrate to the proposed new DBS service at the end of 1998. Cancom noted that Telesat has not included any speculative demand in its forecast to provide for even one DTH service to continue on the Anik E satellites beyond 1998. Cancom submitted that it would be reasonable to assume that one DTH service would continue on the Anik E satellites beyond 1998.

24. The CSUA similarly argued that the shift of all DTH demand to the proposed DBS service, as forecast by Telesat, is not reasonable since the transfer may take an extended period and there are likely to be alternate uses for the Ku-band channels vacated by the DTH migration.

25. In its reply argument, Telesat reiterated its earlier position that it remains uncertain whether the Canadian market can support more than one DTH service. Telesat also noted that, with the launch of the DBS service, national Ku-band transponders would be available on Anik E2 which would allow a DTH operator remaining on Anik E2 to reduce its channel requirements by leasing national channels to replace the regional channels now in use by the DTH operators.

26. The Commission is of the view that, while ExpressVu is expected to migrate to the proposed DBS service, DTH service will continue to be provided on the Anik E satellites. The Commission has determined that an adjustment should be made to Telesat's DTH forecast to provide for some continuation of DTH service using the Anik E satellites over the remainder of the study period. The Commission, for rate-setting purposes, has relied on Telesat's January 1997 View but has added two Ku-band RF Channels in each of 1999 and 2000. However, the Commission has made no provision for a delay in Telesat's forecast migration of DTH demand to the DBS service at the end of 1998.

3.4 Partial Channel Utilization and Rates

27. Telesat's January 1997 View for partial channel service has not changed significantly from previous views. There has been a consistent increase in partial channel use, particularly on Ku-band, for the provision of DVC video service where a single signal is being uplinked from a location where other signals are not available to combine into a full-channel DVC service.

28. Telesat proposed a change to the C-band partial channel rate intended to increase C-band utilization. The proposed rate reductions are intended to bring the C-band partial channel rate relationship to full period rates in line with the Ku-band partial channel rate relationship. Telesat submitted that this change would encourage utilization of C-band partial channels rather than occupying Ku-band channels where capacity is currently limited. The Commission approves the proposed rate relationships, between C-band and Ku-band rates, in Telesat's January 1997 View, for Partial RF Channel and Bulk Partial RF Channel service. The approved rate relationships are to be applied to approved Ku-band rates effective 1 January 1998 to derive revised C-band partial channel rates. The Commission accepts Telesat's January 1997 View of partial channel utilization for rate-setting purposes.

3.5 Occasional Use Service

29. Occasional Use demand is subject to competition from terrestrial networks for point-to-point service. Occasional Use utilization of satellite capacity experienced sharp reductions in 1994 and 1996 coincident with the satellite failures and the resulting lack of capacity available for Occasional Use service.

30. Telesat's current forecast is for some recovery in Occasional Use service from the low level experienced in 1996, but that terrestrial competition will limit future Occasional Use demand. Telesat, following the repurchase of Anik C1, has stated that it may use the satellite to carry part of the Occasional Use service if capacity on the Anik E satellites is limited. The Commission accepts Telesat's January 1997 View of Occasional Use utilization for rate-setting purposes.

3.6 Non-Broadcasting Services

31. The utilization forecast for non-broadcasting services proposed by Telesat and used in Decision 92-17 was based on a target forecast for the launch and market acceptance of a range of Telesat Standard Services on Ku-band such as business video and data services. CSUA, Cancom and CCTA argued that Telesat's controlling shareholders, a consortium of major telephone companies, had made a commitment in the proceeding leading to Decision 92-17 to accomplish the Standard Services utilization forecast. Telesat, in this proceeding, admitted that its joint marketing efforts with the telephone companies had not produced significant RF Channel sales. The parties pointed out that the telephone companies' terrestrial network is, in fact, in competition with Telesat services in many cases.

32. Cancom and CSUA argued that Telesat's shareholders should fulfil their commitment to the utilization forecast which was used in Decision 92-17, and that a deemed telephone company utilization, up to available capacity, should be included in the current utilization forecast for rate-making purposes.

33. The Commission notes the change in the Ku-band utilization forecast for Standard Services from 12 channels used in Decision 92-17 to three channels in Telesat's January 1997 View. The Commission also notes that over this same period Telesat has significantly reduced its expenses related to these and other services, and that other satellite applications, notably DTH, have materialized to partially offset the reduction in non-broadcast demand. The Commission finds Telesat's January 1997 View of non-broadcast utilization to be reasonable and accepts it for rate-setting purposes.

3.7 Speculative Demand

34. In its January 1997 View, Telesat lowered its speculative forecast for both C-band and Ku-band relative to earlier forecasts. It noted that its earlier hopes to continue the provision of back-up service to U.S. carriers using C-band have not materialized and that it does not expect any similar future speculative opportunities. Telesat also argued that, as the end of the study period approaches, there is less time available to develop new satellite applications and that it has therefore included a lower speculative component.

35. Cancom and CSUA argued that Telesat had no grounds to reduce its speculative forecast. They argued that the recent World Trade Organization agreement to open U.S. satellite markets to Telesat would provide Telesat with new market opportunities. They also noted that, with DVC, the cost threshold for new services to use satellite technology is lowered, opening a larger market to Telesat. While not offering any estimate of the speculative market potential, both parties argued that Telesat's current speculative demand forecast is too conservative and should be increased.

36. The Commission notes that Telesat has included a total of 2 channels per year of speculative demand for Ku-band in 1999 and 2000, and one channel for C-band in each year, primarily related to the introduction of new specialty television services. For 1998, there is no capacity available on Ku-band for new speculative applications. While Telesat's forecast of speculative demand is a lower amount than was included in previous forecasts, given that there are effectively only three years remaining in the study period, the Commission is of the view that it is reasonable. The Commission accepts Telesat's January 1997 View of speculative utilization for rate-setting purposes.

3.8 Utilization Forecast for Rate-setting Purposes

37. In accordance with the foregoing determinations, the Commission concludes that Telesat's January 1997 View is to be used for rate-setting purposes as adjusted to add two DTH Ku-band channels in 1999 and 2000.

4. Phase III Expense Issues

38. The Commission notes that the EES used to set rates in this proceeding is based on the company's June 1997 View and has been revised to include the 1996 expense actuals and several other adjustments, as discussed in the following sections, corresponding to a present-value after-tax expense reduction of $2.0 million.

4.1 Corporate Restructurings

4.1.1 Permanent Staff Reductions

39. In 1993 and 1994, the company underwent two major corporate restructurings eliminating approximately half of its employee positions and causing considerable expense reductions. Total company restructuring expenses of $12.9 million and $5.0 million were accounted for in the 1993 and 1994 corporate restructurings, of which $5.7 million and $2.2 million were reflected in the Space Segment for 1993 and 1994 respectively. These costs represent the total restructuring costs which were accrued in 1993 and 1994 when the company's two reorganizations took place, but which on a cash flow basis would be paid out in the years 1993 to 2004. In its proposed EES, Telesat included an adjustment labelled "Restructuring Cost Adjustments" to reflect the actual timing of the restructuring costs on a cash flow basis. This adjustment excluded the cash flows that were expected to be paid out in the 2001 to 2004 time-frame.

40. The Commission determines that Telesat's proposed "Restructuring Costs Adjustments" are to be revised to reflect the present value of the sum of additional restructuring costs that will be paid out on a cash flow basis during 1993 to 2004, instead of the 1993 and 1994 restructuring accounting expenses. The restructuring cash flows in the 2001 to 2004 time-frame are included in this analysis to ensure that these impacts associated with the 1993 and 1994 corporate restructurings are not assigned to future study periods but are reflected within this study period.

4.1.2 Allocation of Restructuring Costs

41. Telesat's method to assign the restructuring costs associated with the 1993 corporate restructuring results in a higher percentage Space Segment allocation than the Space Segment percentage allocation of the cost savings associated with this restructuring.

42. Telesat submitted that the proposed calculations fully comply with the Space Segment assignment methodology as per the approved Phase III costing manual. Telesat attributed the differences between the Space Segment restructuring savings and cost allocations to factors such as the transfer of employees between cost centres by which the cost savings would be reflected only in the cost centre in which the position was eliminated, differences in costs between early retirement packages and severance packages, and also differences in Space Segment allocation factors over time.

43. Several parties argued that Telesat's restructuring costs should be allocated over the study period on the same basis as the savings associated with the restructuring, and that the restructuring costs borne by the Space Segment should not exceed the Space Segment's share of restructuring savings.

44. The Commission notes that different Space Segment assignment percentages may result between the restructuring cost and saving components as a result of the Phase III cost assignment methodologies. However, the Commission notes that the estimated Space Segment share of the 1993 restructuring costs of 43.4% is high compared to the Space Segment share of the 1993 restructuring savings of 31.2%. The Commission considers that the Space Segment share of the restructuring costs should be no more than the Space Segment share of the base of expenses to which the restructuring was applied. The Commission notes that the Space Segment percentage associated with the 1993 to 2000 forecast base of General expenses prior to the restructuring is 37.3%. Accordingly, the Commission considers that the Space Segment allocation of 1993 restructuring costs based on the Space Segment percentage of 37.3% is more appropriate and is to be used. The Commission approves other restructuring cost savings estimates incorporated in Telesat's July 1993, December 1994 and June 1997 Views.

4.2 Productivity Improvement Factors

45. Telesat submitted that the Space Segment expense reductions achieved and projected in the company's 1997 forecasts far exceed those contemplated by the 2% target cost reduction factor approved by the Commission in Decision 92-17. Telesat argued that the setting of the target cost reduction factor to zero, as it proposed, simply recognizes the impact of the corporate restructurings.

46. Several parties were of the view that Telesat's expense forecast should be adjusted to include the required 2% cost reduction factor for all cost centres. Parties also argued that the sharp decreases in the Compensation/Non-Compensation General expense ratios should be investigated by the Commission.

47. The Commission notes that, despite its lower forecast of expenses in its January 1997 View and June 1997 View, Telesat is forecasting that its Space Segment General expenses will increase from $16.2 million in 1997 to $19.0 million in 2000, an annualized increase of 5.5% over this period. The Commission further notes that in Price Cap Regulation and Related Issues Telecom Decision CRTC 97-9, 1 May 1997, the Commission established price caps for the major telephone companies' capped services based on annual productivity improvement factors that were in excess of 2%.

48. The Commission determines that it is appropriate to apply an annual 2% productivity improvement factor to the Compensation and Non-compensation General expenses for all cost centres for the years 1998 to 2000. The Commission notes that, for the Space Systems department, this productivity factor is to be reflected in the labour requirements forecast for the years 1998 to 2000.

4.3 Space/Non-space Cost Assignments and Allocations

49. The company's approved Phase III costing manual stipulates the methods to determine the Space/Non-space cost assignments of the various expense items within each cost centre.

4.3.1 Finance and Administration (F&A) General Expenses

50. The appropriate allocation of F&A expenses between the Space and Non-space Segments the (F&A split ratio) was an issue in this proceeding due to questions raised about the proper treatment of the activities associated with the 1994 restoration of service on Anik E2 and other activities.

51. Telesat submitted that it had calculated the F&A split ratio in accordance with the methods stipulated in the company's approved Phase III costing manual. Following the Anik E malfunctions in 1994, Telesat argued that considerably more efforts and costs were dedicated to Space Segment-related activities in order to return the satellites to operation and restore customer service. Telesat contended that the same level of administrative expenses can be expected for these activities and, therefore, all of the 1994 Anik E restoral costs should flow through to the F&A split calculation.

52. Several parties argued that the extraordinary 1994 Anik E failure-related costs should not flow through to the F&A split calculation. Parties contended that, at a maximum, only 10% of these costs should be included in the F&A split calculation.

53. The Commission notes that for most expense items that are incurred externally, such as in-orbit insurance, the current practice is to include only 10% of these expenses in the F&A split calculation. The Commission considers that, consistent with this current treatment, only 10%, and not 100%, of the U.S. satellite standby-leased expenses associated with satellite failures in 1994 should be allowed in the F&A split calculation in order to reflect the reduced levels of F&A support associated with external expenses. The Space F&A split calculation is, therefore, to be based on Telesat's June 1997 View, as amended by the other expense adjustments made by the Commission in this Decision, and including only 10% of the expenses for stand-by satellite capacity leased from other carriers.

4.3.2 Cost Centre Assignment of General Expenses

54. Questions were raised in this proceeding concerning the appropriate assignment of DVC development expenses and Telesat's expenses related to joint marketing with the telephone companies.

55. Telesat submitted that full explanations have been provided to explain the cost centre assignment process and the Commission has the necessary information to establish the validity of the company's expense assignment methods. With respect to DVC development expenses, Telesat stated that these cost centre activities were incurred to promote interoperability among competing DVC technologies in order to increase the efficiency of the Anik E satellites and were not causally related to the provision of Telesat's own competitive DVC service. Telesat indicated that the treatment of the expenses associated with its joint marketing initiative with the telephone companies is in accordance with the Marketing and Sales (M&S) assignment provisions of the Phase III costing manual and is appropriate. Telesat added that when the Space Segment revenues from this joint marketing venture are taken over the full length of the service contracts, such revenues recover the majority of the related expenses.

56. Several parties argued that DVC service is a competitive service offering which the Commission has forborne from regulating and, therefore, DVC development expenses should not be allocated to the Space Segment. Parties further submitted that the costs of Telesat's joint marketing venture with the telephone companies should not be allowed as a regulatory expense since it has been unprofitable for the Space Segment.

57. The Commission finds that adjustments are required for certain cost centre items. For DVC Development (cost centre 5110) the Commission notes that, while these expenses are related to the provision of a competitive service, they have been incurred to promote interoperability among competing DVC technologies and to increase the efficiency of the Anik satellites. Accordingly, the Commission considers it appropriate to assign 50% of these expenses, which were incurred in 1993 and 1994, to the Space Segment. The Commission determines that with respect to expenses for Technical Support Groups 1 and 2 (cost centres 7210 and 7230) adjustments to the Space Segment assignments, consistent with Telesat's budgeted expense estimates and the 40% M&S allocation, are appropriate. The resulting percentage Space Segment assignments of total cost centre expenses are 24% for Technical Support Group 1 for expenses incurred in 1996 to 2000, 22% for Group 2 1996 expenses and 27% for Group 2 expenses incurred in 1997 to 2000. With respect to Telesat's joint marketing initiatives with the telephone companies, the Commission finds the 40% M&S allocation percentage to be appropriate, given the relative success and short duration of this initiative.

58. The Commission further determines that, in its annual tracking report, Telesat is to report any change to individual cost centre causal Space Segment percentage assignments, relative to its previous annual forecast, with supporting rationale.

4.3.3 Expense Impacts of Telesat's Direct Broadcast Satellite (DBS) Project

59. On 23 May 1997, Telesat filed an application for the approval of DBS special facility agreements with two customers, which has since been approved by the Commission. In responses to Commission interrogatories, Telesat submitted that it has treated all DBS expenses as consulting expenses and that all of the incremental expenses associated with the DBS project have been allocated to the Non-space Segment. This in turn has resulted in less variable common expenses being assigned to the Space Segment based on the reduced F&A split and headquarters floor space ratios. Accordingly, the post-DBS June 1997 View includes forecast reductions of Space Segment expenses of $907,000 in 1999 and $499,000 in 2000 in comparison with the January 1997 View. Telesat submitted that the expenses removed from the Space Segment more than compensate the Space Segment since the DBS project will cause only minimal administrative expense to provide service to its two customers under fixed contracts. Parties argued that the entire costs associated with Telesat's DBS project should be removed from the Space Segment.

60. The Commission concurs that all of the expenses associated with the company's proposed DBS initiatives are to be removed from the Space Segment. This is to include the Space Segment expenses supporting the 1996 DBS venture, submitted in response to the Commission's 16 May 1997 decision regarding deficiency and confidentiality requests, and any additional Space Segment expenses supporting the 1997 DBS activities. Accordingly, all expenses associated with DBS initiatives included in the Space Segment are excluded for rate-setting purposes.

61. With respect to the anticipated impacts of the DBS project on Telesat's common resources, the Commission considers that the Space Segment allocations associated with Fixed Common expenses and floor space-related expenses should be modified.

62. The Commission notes that the acquisition of the DBS service is expected to cause significant incremental operational and capital expenses. The Commission, accordingly, considers that, with the addition of this significant DBS project in the Non-space Segment, more of the company's common resources and expenses will be required in order to support the increased Non-space Segment activities. The Commission therefore determines that, consistent with the proportionate drop in the Space Segment asset share due to the DBS project, a reduction of the 60% Fixed Common Space Segment allocation percentage to a level of 50% is a more appropriate allocation of Fixed Common expenses to the Space Segment for the year 1999 and beyond.

63. The Commission notes that in its June 1997 View, Telesat projected that the Non-space Segment floor space would increase in 1999 due to the projected incremental floor space use by the personnel associated with the DBS project. In contrast, the incremental DBS-related floor space use forecast in 2000 represented a fraction of that assumed for 1999. The Commission notes the long-term nature of the DBS project and considers that the incremental floor space use associated with the DBS operations will be relatively constant from year to year and determines that Telesat's 1999 DBS floor space impact should be applied for the year 2000. The Space Segment floor space-related expenses for 2000 are revised accordingly.

64. The Commission notes Cancom's concerns regarding the Space Segment allocation of costs related to resources allocated to TMI Inc. (TMI) and, accordingly, directs that the company file, with its annual tracking report, any future M&S resources allocated to TMI.

4.4 Failure and Restoral of Satellites

65. On 20 January 1994 one balance wheel on Anik E1 and both balance wheels on Anik E2 were damaged. As a result of this failure, which put Anik E2 out of service, Telesat undertook a comprehensive restoral plan which included the temporary use of U.S. satellite capacity, at a cost of $4.8 million, the transfer of traffic associated with the emergency restoral of the Anik E1/E2 services, at a cost of $1.5 million, and the development and implementation of a Ground Loop Attitude Control System (GLACS) at a cost of $7.0 million, which enabled the successful operational recovery of the Anik E2 satellite in August of 1994.

66. On 26 March 1996, the Anik E1 satellite suffered a major malfunction, losing approximately 60% of its capacity. Despite the sizeable loss in capacity, Telesat was able to restore most of its customers' services on either Anik E1 or E2 within hours of the failure. On Ku-band, the exception was 14 channels leased to a DTH service provider, which have to date only been partially restored. On C-band, only the eight channels under contract to a U.S. customer could not be restored as this capacity was re-acquired for Telesat's Canadian customers. No replacement capacity was required nor additional costs incurred due to the failure.

4.4.1 1994 Satellite Recovery Costs

67. Telesat submitted that all necessary steps were taken under difficult circumstances to comply with regulatory requirements and to restore service to its customers with respect to the Anik E failures. GLACS was implemented within 6 months of the failure, at a cost which compares favourably to the alternative of replacing the entire satellite at a cost in excess of $300 million with a delay measured in years. Telesat argued that the company had successfully restored RF Channel service in the most cost effective manner and qualifies fully for the recovery of expenses through RF Channel service rates under the established regulatory framework.

68. Several parties argued that customers should not be required to pay all GLACS costs in that the Non-space Segment should bear a portion of the costs commensurate with the increased revenues that Telesat has received as a result of the development of GLACS expertise. Parties also argued that customers should not be required to pay for U.S. standby capacity in excess of amounts actually used. Parties contended that Telesat should not be made whole through RF Channel rates in order to ensure that it has an incentive to pursue third party liability claims in respect of the satellite failures.

69. With respect to additional Non-space revenues which Telesat has earned as a result of its GLACS expertise, the Commission determines that revenues associated with GLACS-related contracts, such as those provided in response to Telesat(CRTC)27Jan95-4224 associated with a 1994 GLACS contract, are to be reflected in the EES.

70. The Commission shares the views of parties that third-party liability is a factor with respect to the satellite failures which should be considered. Telesat provided information in this proceeding concerning possible third-party liability claims. The Commission has upheld Telesat's claim for confidentiality for such information due to the fact that the harm would outweigh the public interest in its disclosure. The Commission posed confidential interrogatories to Telesat to assess the best and worst case scenarios associated with third-party liability claims. The Commission has made an adjustment to the EES reflecting an amount, between the best and worst case scenarios, which it finds to be appropriate.

4.4.2 Rate of Return on Anik E2 During the Outage

71. Several parties argued that Telesat should not be permitted to earn a return on Anik E2 during the period that it was not available for commercial service. In the alternative, should rates be set to provide Telesat with a return on Anik E2 during the outage, some parties argued that customers should not be required to pay the satellite recovery costs.

72. Telesat submitted that, while the Commission, in Telesat Canada - Application to Review Telecom Decision 84-9, Telecom Decision CRTC 85-13, 22 July 1985, (Decision 85-13), had indicated that the return on investment is to be disallowed in the event of a permanent failure, Anik E2 has not been retired and the company should be allowed a rate of return given the company's efforts and success in returning Anik E2 to service.

73. The Commission is of the view that previous decisions which addressed the circumstance of a complete satellite failure do not apply to the temporary outage of Anik E2. The Commission determines that, in addition to the satellite recovery costs, the rate of return on Anik E2 should be allowed during the outage period given the company's efforts and success in returning the satellite to service in a cost effective manner, with a minimal impact on the satellite's original life expectancy.

4.5 Bad Debt Expenses

74. To determine bad debt expense forecasts the Commission has approved a calculation using 0.25% of the Space Segment revenue forecast. This formula for forecasts of annual bad debt expenses was based on a historical profile of Telesat's bad debt expenses. In its June 1997 View the company filed actual bad debt expenses for the years 1993, 1994 and 1995.

75. Several parties argued that the forecast level based on 0.25% should be used and that actual results which exceed this forecast average should be lowered to avoid overestimation of bad debt expenses. Telesat submitted that actual bad debt results, available during the period of interim rates, should be used as they demonstrate that the 0.25% average may be too low during this period when there has been a general increase in the level of bankruptcies.

76. The Commission is of the view that the inclusion of actual bad debt expenses during the period in which rates were interim is in compliance with the provisions for actual cost recognition during a period of interim rates. The Commission determines that actual results are to be used during the period of interim rates for 1993 to 1996 coupled with the use of 0.25% of revenues during the forecast period. The bad debt expense forecast has been revised to reflect the rates approved in this Decision.

4.6 Anik F Expenses

77. Direct expenses associated with Anik F construction are forecast as capitalized engineering and are excluded from the current EES and deferred to a future study period. However, certain other expenses related to the Anik F construction such as floor space-related expenses and capital taxes, are indirectly allocated to the Space Segment and were included in the proposed EES.

78. Telesat argued that the company would be prevented from recovering the allocated expenses if they are deferred since for tax purposes they cannot be deferred. Telesat also noted that similar costs for the Anik E satellites had been recovered in the previous study period. Other parties submitted that any allocation of Anik F expenses should be removed from the current economic study.

79. The Commission notes that the adjustments to the Phase III allocation methodologies to remove the Anik F expenses that are indirectly assigned to the Space Segment expenses would result in negligible changes to the Space Segment expenses. The Commission further notes that the removal of these expenses would be inconsistent with the current treatment of the Anik E indirect costs that were incurred prior to 1991. Accordingly, the Commission determines that no changes to Anik F expenses are required.

4.7 In-Orbit Insurance

80. Following the sale of the Anik C1 and C2 satellites, the malfunction of both Anik E1 and E2 in January 1994 and an assessment of the relatively limited availability of U.S. satellite spare capacity, Telesat acquired in-orbit insurance to secure the confidence of its lenders and RF Channel service customers. The satellites were initially insured for sums of $150 million U.S. each at a combined annual expense of $7.7 million. Following the partial failure of Anik E1 in March of 1996, insurance for Anik E1 was obtained for coverage of up to $40 million U.S., while that of Anik E2 was left unchanged at $150 million U.S.. Under the current terms of the in-orbit insurance policy, the annual in-orbit insurance expense for the two Anik E satellites is approximately $6.7 million. The company has projected annual in-orbit insurance expense of approximately $6.6 million for the remainder of the study period under assumptions of fixed coverage levels.

81. On 1 July 1996, Telesat received insurance proceeds of $192 million as a result of the Anik E1 failure in March of 1996. Telesat amortized all of the insurance proceeds over the revised service life of Anik E1.

82. Several parties argued that in previous decisions, namely Telesat Canada - Final Rates for 14/12 GHz Satellite Service and General Review of Revenue Requirements, Telecom Decision CRTC 84-9, 20 February 1984, and Decision 85-13, the Commission indicated that the costs of in-orbit insurance should be capped, for regulatory purposes, at the premium levels required to cover the unamortized value of the insured satellite. Parties contended that any additional coverage in excess of the unamortized value of the satellites relate to risks which have been allocated to Telesat's shareholders and should be borne by Telesat's shareholders.

83. Telesat submitted that the anticipated costs of replacing a failed satellite, including any interim leasing arrangements, justify the level of coverage included in the company's application. Telesat argued that there is no Commission decision or precedent to suggest that the appropriate coverage level is tied to the unamortized asset balance. Telesat contended that with respect to Anik E1, interveners have ignored the hidden cost of the reduced life and revenue-generating capacity as a result of the failure and the significant mitigating impact which the insurance proceeds have had in insulating RF Channel ratepayers from these factors. Telesat added that had it not pursued its strategy of a fixed level of coverage starting in 1994, Space Segment rates would have had to increase. Telesat concluded that the fixed level of coverage to the end of the study period is necessary and justifiable.

84. The Commission considers it appropriate for in-orbit insurance to cover the risk exposures faced by Telesat. The two major types of exposure are the recovery of the unamortized investment of the failed asset and compensation for any temporary replacement capacity costs to allow for the continued provision of service until a replacement satellite can be made available for service. To separate these exposures, the insurance coverage associated with the asset value will be referred to as "the asset" insurance and that associated with continued service as the "business interruption" insurance.

85. The Commission is of the view that business interruption insurance should cover the incremental costs associated with the leasing of temporary capacity from another broadcasting satellite carrier which, in addition to any remaining capacity left after the failure, would enable continued service to customers who were receiving service from the failed satellite. The level of business interruption insurance should therefore vary with the availability of back-up spare capacity on the company's own satellites.

86. The Commission is of the view that asset insurance should provide for the recovery of the remaining value of the failed satellite. Under Telesat's approved uniform amortization method this would be the unamortized value of the asset. The Commission further considers that an appropriate level of asset insurance that complements the business interruption insurance would consist of the unamortized value discounted for the length of the replacement satellite's construction period, during which temporary capacity is relied upon, to take into account the interest accrued on the insured amount during the construction period.

87. The Commission is of the view that any uninsured loss resulting from the failure of an in-orbit satellite should be borne by Telesat's shareholders. The customers' obligation is to cover the cost of the appropriate insurance and not to cover the cost of any uninsured loss. An exception to this responsibility would occur if the total insurance market were not to provide Telesat with the coverage which it required and sought.

88. Although the current insured sums may not be sufficient to cover both the asset and business interruption exposures, the Commission considers that Telesat's proposed insurance reflects the maximum coverage that the insurance market will bear for the Anik E satellites and is appropriate. The Commission is of the view that, near the year 2001, the current level of coverage will be excessive in the event of a failure given the significantly reduced asset and business interruption exposures, as the Anik F construction program nears completion.

89. In view of the foregoing, the Commission approves Telesat's proposed in-orbit insurance coverage and associated premiums for rate determination purposes. The Commission requires Telesat to file annually, in its annual tracking report, any change to its in-orbit insurance expense forecast outlining the associated changes to the insured sums and premium rates, with supporting rationale.

4.7.2 Treatment of Insurance Proceeds

90. Several parties contended that if premium levels to provide coverage in excess of the unamortized value are allowed for rate-setting purposes and funded by RF Channel customers, any insurance proceeds relating to the excess coverage represent "windfall" revenues which should benefit customers in the study period in which they are received and not be amortized to future periods.

91. Telesat submitted that the most appropriate treatment of the insurance proceeds is to apply the amount of proceeds, whether a surplus or shortfall, against the unamortized balance of the entire asset, regardless of the amount, and to amortize the proceeds over the remaining life of the asset to benefit equally all current and future users of the satellite.

92. Telesat further submitted that the rationale in Decision 85-13 for the Commission to assign to the failed satellite its pre-failure amortization period is that there is no alternative, short of recovering the costs immediately, as the satellite's life is assumed to have ended and been retired immediately. In the current case of Anik E1, it is not being retired.

93. The Commission is of the view that, in the event of a failure, satellite insurance coverage would normally be used to recover the unamortized costs of the failed satellite and the temporary capacity costs incurred until the satellite is replaced. The Commission notes that due to the unique circumstances surrounding the 1996 Anik E1 partial failure, where service was restored with the remaining capacity of Anik E1 and Anik E2, no incremental costs were incurred to provide temporary replacement capacity nor was permanent replacement capacity required. The Commission therefore considers that the insurance claim proceeds received by the company provided benefits that were in excess of the failed portion of the asset value and that this excess insurance benefit constitutes additional revenues that should be returned to RF Channel ratepayers within the current study period and not amortized to future periods.

94. The Commission notes that, under the assumption that 36 of Anik E1's 56 channels have failed, the unamortized value associated with the failed portion of Anik E1 would be approximately $87 million after tax as at 1 July 1996. In contrast, the 1996 insurance proceeds received by the company based on the latest estimates were reported at $110 million after tax. Accordingly, the excess insurance benefit of $23 million after-tax is to be removed from the Anik E1 amortization calculation. The corresponding impact is an increase in the Anik E1 end-of-study terminal value of $6.5 million after-tax.

95. With respect to the issue of future insurance claims, the Commission considers that the appropriate treatment of future insurance proceeds should be considered on a case-by-case basis.

4.8 Return on Equity

96. The Commission, in Decision 92-17, established an ROE range of 13% to 14%, with rates for Telesat set to achieve an ROE of 13.5%. Cancom submitted that Telesat's allowed ROE should be reduced or set at the lower bound of the allowed range, in recognition of changed circumstances since Decision 92-17. Cancom cited the extended period of interim rates during the study period wherein actual, rather than forecast, results were relied upon, thereby reducing risk. The purchase of insurance and the receipt of the Anik E1 insurance proceeds were also noted as reducing risk. CSUA argued that Telesat's shareholders, controlled by a consortium of major telephone companies, had promised to encourage the use of Telesat's satellites but have actually introduced services in competition with Telesat. CSUA was of the view that the shareholders should assume the full risk of Telesat achieving its target ROE.

97. Telesat noted that the Commission had ruled earlier during this rate review proceeding that it did not intend to consider ROE as an issue at this time. Telesat argued that to set the allowed ROE at the lower end of the approved range would be inconsistent with Decision 92-17. Telesat noted that the Commission has already made the determination of the appropriate allowed ROE for Telesat over the study period and that the regulatory bargain between the company and its ratepayers has already been struck. Telesat argued that it would be unfair to the company's shareholders and damaging to Telesat's future prospects and those of its customers to vary the terms or entitlements of that bargain.

98. The Commission notes that the ROE range approved in Decision 92-17 was established within the context of the entire 1991 to 2000 study period after taking into account, among other things, the overall risk profile and projections of long-term interest rates over the 10-year period. The Commission further notes that the purchase of in-orbit insurance was a matter considered by the Commission in Telesat Canada - General Rate Increase for 6/4 GHz and 14/12 GHz Space Segment Services, Phase III Costing Manual, Telecom Decision CRTC 90-28, 18 December 1990, to be a reasonable expense for Telesat. Concerning the receipt of the Anik E1 insurance proceeds, the Commission notes that these proceeds have been fully included in the rate determination to benefit Telesat's Space Segment. The Commission confirms that there is no compelling justification to consider a revision to Telesat's ROE in this proceeding.

5. Satellite Purchases and Sales

5.1 Anik C1 and C2 Sale Proceeds

99. On 26 January 1993, the Commission approved the sale of Telesat's Anik C1 and C2 satellites to Paracomsat of Argentina. The total sale amount, as revised, included asset sales proceeds of $36 million for 90% of the two satellites, a four-year contract for Telesat's stationkeeping services, an additional amount for Telesat's 10% equity interest in Paracomsat and additional rental revenues for the use of the company's Anik C1/C2 satellite control facilities over the period of the stationkeeping contract. Telesat's proposed net sales proceeds excluded the estimated stationkeeping service contract revenues and expenses, which the company treated entirely as a consulting activity and which was accordingly classified in the Non-space Segment.

100. Several parties argued that the full revenue from the sale of the satellites and associated amounts for the provision of stationkeeping services, together with a fair market value of the 10% interest in Paracomsat, should be included as Space Segment revenues. Telesat argued that its consulting and stationkeeping activities have directly contributed to the successful conclusion of these asset sales. Telesat further argued that the costs of these activities have historically been classified in the Non-space Segment category and, correspondingly, the revenues from consulting and stationkeeping activities should also be classified in the Non-space Segment. Telesat also argued that the calculation of the value of the 10% interest in Paracomsat is a generous estimate of its market value at the time of the sale.

101. The Commission notes that, in Decision 92-17, the Commission approved an approach with respect to the treatment of the sale of Anik D2 whereby the difference between a used satellite's sale value and its unamortized value, whether a cost or a benefit, was to be included in the Space Segment. In that case, a residual difference associated with Anik D2 was included as a cost to be recovered in RF Channel rates approved in Decision 92-17.

102. The Commission agrees with Telesat that the consulting and stationkeeping expenses associated with the Anik C1 and C2 satellite sale should be classified in the Non-space Segment category in accordance with currently approved cost assignment methodology. However, the Commission is of the view that the associated consulting and stationkeeping revenues arose, in part, from Telesat's acquired expertise and capital assets funded by the Space Segment. The Commission notes that, absent the sale of these satellites, Telesat would not have benefited from the stationkeeping contracts. Accordingly, the Commission considers Telesat's proposed pricing approach related to stationkeeping services to be inappropriate. The Commission is of the view that an approach which is based on the latest estimates and which first determines revised quarterly stationkeeping and consulting revenues equal to the quarterly expenses marked up by 50%, and which then flows through the remaining quarterly proceeds from the satellite sale and associated stationkeeping and consulting services to the Space Segment, will allow for a more equitable treatment of the stationkeeping and consulting revenues associated with the sale of the Anik C1 and C2 satellites.

103. The Commission considers that Telesat's proposed method of calculating a value for its 10% equity interest in Paracomsat, using 1/9 of the net sale amount for 90% of the asset value, would equate to 10% of the total asset value and is appropriate. The Commission determines that the proposed value of the 10% equity interest should be revised to incorporate the revised net sale estimate and the deemed revenue estimates for consulting and stationkeeping services.

104. Under the approach determined by the Commission, the after-tax present value of the net sale amount for the Anik C1 and C2 satellites that is assigned to the Space Segment, including the revised 10% equity interest, is $22.1 million in contrast with $17.0 million as proposed by Telesat. The Commission finds the revised sale amounts to be reasonable given the remaining fuel life estimates for the satellites at the time of sale. The Commission notes that, under its revised pricing approach, the Space Segment sale revenues include the use and recovery of the associated Anik C1 and C2 control facilities and, therefore, the inclusion of an additional rental revenue component for this use is not required.

105. The Commission also determines that Telesat is to file reports of annual Space Segment revenues and expenses for sales and/or the provision of consulting and stationkeeping services associated with its used satellites, along with the supporting rationale and necessary derivations, in its annual tracking report.

5.2 Repurchase of Anik C1

106. Telesat's repurchase of Anik C1 from Paracomsat has been reflected as a $4.8 million capital investment in March 1997. This investment has been amortized over 15 months, beyond which time the satellite would be used for only very limited inclined orbit applications. Several parties submitted that the repurchase of Anik C1 represents a speculative investment. Telesat argued that the purchase was justified, given the acute shortage of Ku-band capacity in North America, the availability of the satellite at a reasonable price and its applicability for short-term DTH capacity, limited back-up for Anik E customers and Occasional Use service.

107. The Commission considers the acquisition of Anik C1 to be a prudent investment, given the reasonable price and the current limited excess capacity of the Anik E satellites. Accordingly, the Commission determines that Anik C1 should be treated as a Space Segment asset and approves the inclusion of the costs associated with the satellite repurchase in the current EES.

5.3 Resale of Anik D2

108. Following an earlier sale, Telesat re-acquired Anik D2 and subsequently resold the satellite to Arabsat. The sale initially included a 33-month contract to provide stationkeeping service for the Anik D2 satellite. Due to an earlier than expected end to the life of Anik D2, Telesat ceased to provide stationkeeping service for Anik D2 but subsequently secured a stationkeeping service contract associated with a replacement satellite acquired by Arabsat. Under the June 1997 View, Telesat's proposed EES only includes the rental revenues associated with the use of the company's Anik D2 satellite control facilities over the period of the contract to provide stationkeeping services.

109. Telesat argued that the risk of repurchasing and reselling the satellite was assumed by the company and that ratepayers have benefited from the unexpected source of revenues from use of the Anik D2 satellite control facilities which otherwise would have remained idle. Telesat submitted that the sales proceeds and the proceeds associated with the Anik D2 consulting and stationkeeping services should be excluded from the Space Segment. Other parties submitted that since Space Segment customers have paid, and continue to pay, rates which compensate Telesat for the difference between the proceeds of the initial Anik D2 sale and the outstanding unamortized value of the satellite, it would be inappropriate to deny the Space Segment the benefit of the revenues associated with the resale of Anik D2. These parties claimed that all of the revenues flowing from the resale of Anik D2 and the associated stationkeeping services should be included in the Space Segment.

110. The Commission notes that, in the initial sale of Anik D2, the sale price was less than the unamortized value and the corresponding difference is being compensated by RF Channel rate payers. The Commission also notes that, at the time of the Anik D2 resale, there was a significant residual value and use to Telesat and to the satellite purchaser of this asset, as demonstrated by the sales contract period and the remaining fuel life estimates (for inclined operation), both in excess of two years. Accordingly, the Commission considers that Anik D2 should continue to be viewed as a Space Segment asset, and the associated sales proceeds should be treated in accordance with the treatment of a satellite sale as described in Section 5.1 of this Decision. The Commission further notes that in Section 5.2 of this Decision, it is recognizing the re-acquisition of another of Telesat's used satellites as a Space Segment asset.

111. The Commission determines that, consistent with the approach decided upon for the sale of Anik C1 and C2, the net Anik D2 sales proceeds to be included in the Space Segment are to be based on the latest estimates and to reflect the quarterly asset sales proceeds and quarterly stationkeeping service revenues less the deemed stationkeeping expenses, equal to the associated quarterly causal expenses marked up by 50%.

112. Under this approach, the after-tax present value of the net sale amount for the Anik D2 satellite that is assigned to the Space Segment is $3.4 million in contrast with $1.2 million as proposed by Telesat. The Commission notes that, under its revised pricing approach, the Space Segment sale revenues include the use and recovery of the associated Anik D2 control facilities and, therefore, the inclusion of an additional rental revenue component for this use is not required.

6. Tracking Results

113. CSUA and Cancom submitted that the format of the tracking results currently filed by Telesat pursuant to the requirements of Decision 92-17 do not provide information which allows parties to effectively monitor Telesat's performance relative to the forecast used for rate-setting purposes.

114. The Commission notes that Telesat, in several instances in this proceeding, noted the importance of the tracking requirements in that they provide parties and the Commission with visibility of Telesat's ongoing operations and its performance relative to forecasts.

115. The current tracking requirements established in Decision 92-17 include quarterly reports (Section 1) of revenue, expense and utilization as well as an annual report (Section 2) and a revised forecast for the remainder of the study period (Section 3).

116. The Commission is of the view that tracking results should be revised to be as meaningful as possible for the purpose of monitoring the performance of Telesat's Space Segment over the study period.

117. The Commission directs Telesat to provide, as part of its annual tracking report, by 30 June of each year, for the most recent complete calendar year, under Section 2 (b, c, and d) of Decision 92-17, tracking requirements, a comparison of actual revenue, expense and utilization results with the corresponding forecast values used for rate-setting purposes for that year. In addition, Telesat is to provide a reconciliation of actual revenues with actual RF Channel utilization noting any discounts or adjustments to tariffed rates.

118. The Commission directs, as noted elsewhere in this Decision, that Telesat is to provide, as part of its annual tracking report, by 30 June of each year, for the most recently completed calendar year, the following additional information:

(a) the reporting in confidence of any proceeds or settlement received in respect of third-party liability claims associated with any satellite failure, and corresponding EES impacts and associated derivations;

(b) the reporting of any sales of used satellites and associated consulting and stationkeeping service proceeds and expenses and/or changes to existing consulting and stationkeeping service contracts related to used asset sales, and corresponding EES impacts and associated derivations;

(c) the reporting of any financial and administrative services or other support contracts with TMI, and corresponding EES impacts;

(d) the reporting of cost centre causal Space Segment assignment changes, on an actual or forecast basis, along with supporting rationale, and corresponding EES impacts and associated derivations;

(e) the reporting of any changes to the forecast satellite in-orbit insurance coverage and premiums, and corresponding EES impacts and associated derivations;

(f) the reporting of the recovery (or settlement) associated with any past bad debt; and

(g) the reporting of the status of the planned construction program for the next series of satellites, with supporting rationale.

7. Implementation

119. Pursuant to Telesat TNs 930, 930A, 930B and 930C, Telesat is directed to issue forthwith revised tariff pages to give effect to the RF Channel rate determinations made in this Decision.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.

DEC97-17_1