ARCHIVED -  Telecom Order CRTC 99-88

Telecom Order

Ottawa, 29 January 1999

Telecom Order CRTC 99-88

An application, dated 22 June 1998, filed by Télébec ltée (Télébec) in response to a directive by the Commission in Québec-Téléphone and Télébec ltée - 1998 Contribution Rate, Telecom Public Notice CRTC 98-9, 11 May 1998 (PN 98-9), related to Télébec's accounting reserve for pole rental.

File No.: 8695-C12-05/98

1.In Implementation of Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 97-21, 18 December 1997, the Commission considered the issue of an appropriate amortization period for Télébec's accounting reserve for pole rental. For purposes of calculating the interim 1998 contribution rate, the Commission set a two-year amortization period for the accounting reserve balance as at 31 December 1997. The Commission indicated that the amortization period would be finalized in the proceeding to determine Télébec's final 1998 contribution rate. The Commission also noted that Télébec intended to purchase a large number of poles before the end of 1997 and to treat the related expenses as it would any other operating expense. The Commission stated that it intended to re-assess, in the same proceeding, the need to maintain the accounting reserve.

2.In PN 98-9, the Commission initiated a proceeding to finalize, among other things, the 1998 contribution rate for Télébec. In PN 98-9, the Commission directed Télébec to file a proposal, with supporting arguments, relating to the amortization period of its accounting reserve for rental of poles as well as the need to maintain this accounting reserve.

3.By letter dated 22 June 1998, Télébec filed its proposal related to its accounting reserve for pole rental, as described above, as part of its overall submission relating to the finalization of its 1998 contribution rate.

4.Télébec proposed to amortize the $5.8 million balance of its accounting reserve, as at 31 December 1997, over a two-year period.

5.Furthermore, Télébec stated that there was no longer a need to maintain an accounting reserve as it had reached a settlement with Hydro-Québec to acquire its share of the poles and that all determinations relating to expenses for the use of poles are now known and part of the current business of the company.

6.The Commission received no comments related to these issues as part of the PN 98-9 proceeding.

7.The Commission notes that, if the balance of the accounting reserve is used to reduce the contribution shortfall in one particular year, all other things being equal, the contribution requirement would need to increase by an equivalent amount in the following year as this represents a source of revenue, which will not recur in subsequent years.

8.The Commission also notes that in Telecom Order CRTC 98-596, 19 June 1998, it accepted, for regulatory purposes, Télébec's creation of a special fund to accumulate the accounting reserve balance with related interest as long as the fund earns reasonable returns consistent with prevailing market rates.

9.The Commission concludes that the two-year amortization period for the balance of the accounting reserve and its related interest is reasonable given that it would appropriately spread the impact of this non-recurrent source of revenue.

10.The Commission notes that the accounting reserve was originally created in order to accumulate the differences between the amounts Télébec was projecting for the rental of poles for revenue requirement purposes and the actual amounts paid to Hydro-Québec following a resolution of the litigation between the companies.

11.The Commission is of the view that the rationale for the creation of this accounting reserve, which was to recognize the difficulties in accurately forecasting the expenses relating to pole rentals due to ongoing litigation between the two parties, no longer applies given that, in 1998, Télébec reached a settlement with Hydro-Québec and is in a better position to forecast its expenses for the shared use of poles.

12.In light of the foregoing the Commission approves:

(i) The use of a two-year (1998-1999) amortization period for the balance of the $5.8 million in the accounting reserve as at 31 December 1997 and its related accumulated interest; and

(ii) The discontinuation of the use of the accounting reserve related to the rental of poles starting 1 January 1998, with the exception of the amortization of the balance as at 31 December 1997 and its related accumulated interest.

Secretary General

This document is available in alternative format upon request and may also be viewed at the following Internet site: www.crtc.gc.ca