ARCHIVED -  Telecom Order CRTC 97-1330

Telecom Order

Ottawa, 15 September 1997

Telecom Order CRTC 97-1330

An application by Northern Telephone Limited (Northern) dated 31 January 1997, for approval of depreciation life characteristics for implementation in 1996 and approval of depreciation life characteristics for implementation in 1997.

File No.: 8630-N3-01/97

1. On 31 January 1997, Northern filed an application for approval of proposed changes to depreciation life characteristics for three accounts to be implemented in 1996, and for 16 accounts to be implemented in 1997, as set out in Tables A and B, respectively, to this Order.

2. By letter dated 2 May 1997, Ontario Northland Telecommunications (O.N. Tel), (a division of the Ontario Northland Transportation Commission) objected to the proposed changes in life characteristics on the basis that Northern was seeking to recover, through its 1997 Carrier Access Tariff (CAT), an increase of $927,300 in depreciation expense as a result of the proposed changes for 1997.

3. O.N. Tel submitted that the shortening of service lives proposed by Northern was not supported by the depreciation studies and stated that an increase of $927,300 in 1997 depreciation expense resulting from the proposed life changes was excessive when compared to the estimated change in depreciation expense of $52,700 claimed for 1996 resulting from the proposed changes to depreciation life characteristics.

4. O.N. Tel further submitted that the $3 million that it paid to Northern in 1987 towards the purchase of DMS100 switching equipment should not be included in the calculation of Northern's depreciation expense for contribution calculation purposes.

5. By letter dated 15 May 1997, Northern responded to O.N. Tel's comments stating that O.N. Tel failed to consider the impact of future expectations for the assets in question and misconstrued the Commission's approach to the determination of depreciation life characteristics, i.e., to take into account both historical retirement patterns and future expectations.

6. Northern stated that none of the $3 million capital investment made by O.N. Tel towards Northern's DMS100 switching equipment has been included in the calculation of depreciation expense that is recoverable through Northern's contribution rate.

7. Northern also submitted that O.N. Tel's comparison of the $927,300 increase for 1997 and the $52,700 for 1996 is incorrect in that it significantly understates the depreciation expense changes for which Northern received approval in Telecom Order CRTC 96-419, 14 May 1996 (Order 96-419).

8. Northern noted that, in Order 96-419, the Commission approved changes in life characteristics which resulted in depreciation expense of $435,000 for 1996.

9. Northern stated that, in the present application, approval is sought for an additional depreciation expense of $52,700 resulting from the proposed life changes to be implemented in 1996 for the Aerial, Buried and Underground Cable accounts, thus resulting in a total change in 1996 depreciation expense of $487,700 ($435,000 + $52,700) which is the amount which should be used as a point of comparison to any changes in depreciation expense claimed for 1997.

10. The Commission is satisfied with Northern's explanation regarding the differential between 1996 and 1997 depreciation expense amounts. The Commission notes that, in any event, year to year comparisons of depreciation expense may not be appropriate because the number and the type of accounts studied in any given year may differ from the accounts studied in another year.

11. The Commission is of the view that Northern's proposed life characteristics contained in attached Tables A and B are fully supported by the historical retirement data, reflect the future expectations for the accounts in question, and are in compliance with the Commission's Phase I Depreciation Directives.

12. With respect to O.N. Tel's concern that the $927,300 will be recovered in Northern's 1997 CAT, the Commission notes that, as stated by Northern, in Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (Except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), Telecom Decision CRTC 96-6, 7 August 1996, the revenues and expenses associated with Northern's Competitive Terminal Broad Service Category will be excluded from the determination of its 1997 revenue requirement, and therefore not all changes in depreciation expense will be included in calculating Northern's 1997 CAT rate.

13. The Commission accepts Northern's statement that none of the $3 million DMS100 switching investment by O.N. Tel has been included in the calculation of depreciation expense which is recoverable through Northern's contribution rate.

14. In light of the foregoing, the Commission orders that:

The accounts listed in attached Tables A and B be depreciated using the depreciation life characteristics contained therein.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.

NORTHERN TELEPHONE LIMITED Table A
1996 DEPRECIATION LIFE CHARACTERISTICS

Account Description Dispersion ASL

2421 Outside Plant - Aerial Cable Iowa R-1 20 yrs

2423 Outside Plant - Buried Cable Iowa R-3 27 yrs

2422 Outside Plant - Underground Cable Iowa R-2 30 yrs

ASL: Average Service Life

NORTHERN TELEPHONE LIMITED Table B
1997 DEPRECIATION LIFE CHARACTERISTICS

Account Description Dispersion ASL

2215 C.O. - Circuit Equipment Iowa R-2.5 15 yrs

2221 C.O. - DMS10 Iowa R-3 16 yrs

2222 C.O. - DMS100 Iowa R-3 16 yrs

2311/08-19 Station Apparatus - Teletype Iowa S-5 7 yrs

2311/25-26 Station Apparatus - Telephones Iowa S-4 8 yrs

2311/34-68 Station Apparatus - Data Sets Iowa S-6 7 yrs

2320 Station Apparatus - Station Iowa R-1 22 yrs
Connections

2421 Outside Plant - Aerial Cable Iowa L-1 19 yrs

2423 Outside Plant - Buried Cable Iowa O-1 24 yrs

2422 Outside Plant - Underground Cable Iowa S-1 26 yrs

2424 Outside Plant - Submarine Cable RECT 19 yrs

2610/46C Furniture & Office Equipt. - Iowa S-1 6 yrs
Microcomputer

2642 Tools Iowa S-0 16 yrs

2340 Large PBX Iowa O-1 6 yrs

2410 Outside Plant - Pole Lines Iowa R-1 9 yrs

2610/51C Furniture & Office Equipt. - Iowa S-1 5 yrs
Mainframe Computer

ASL: Average Service Life