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ARCHIVED -  Telecom Order CRTC 97-676

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Telecom Order

Ottawa, 22 May 1997
Telecom Order CRTC 97-676
On 19 February 1997, the Commission received an application from Telesat Canada (Telesat) for a change in the rate concerning the allowance for funds used during construction (AFC).
File No.: 97-8627-T3-01
1. In Inquiry into Telecommunications Carriers' Costing and Accounting Procedures - Phase I: Accounting and Financial Matters, Telecom Decision CRTC 78-1, 13 January 1978 (Decision 78-1), Directive 22 provides that the Commission may set an AFC rate other than the rate of return earned by the carrier during the preceding fiscal year.
2. Telesat noted that its 1997 AFC rate, calculated according to its rate of return earned during the 1996 fiscal year, would be 7.5%.
3. As per Directive 22 of Decision 78-1, Telesat proposed an AFC rate of 9.9% for its 1997 fiscal year, which is equal to its current weighted average cost of debt.
4. As previously stated in Telesat Canada - Allowance for Funds Used During Construction (AFC), Telecom Letter Decision CRTC 94-4, 8 March 1994, the Commission considers that an AFC rate lower than the cost of debt would result in an erosion of the company's equity because the cost of borrowing would exceed the capitalized AFC to be recovered from future subscribers.
5. In light of the foregoing, the Commission orders that:
An AFC rate of 9.9% for Telesat's 1997 fiscal year is approved.
Allan J. Darling
Secretary General
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