ARCHIVED -  Telecom Order CRTC 99-942

Telecom Order

Ottawa, 30 September 1999

Telecom Order CRTC 99-942

In the matter of Québec-Téléphone and Télébec ltée - 1998 Contribution Rate, Telecom Public Notice CRTC 98-9, 11 May 1998 (PN 98-9).

File No.: 8695-C12-05/98

Background

1.In PN 98-9, the Commission directed Québec-Téléphone and Télébec ltée (Télébec) to file, among other things, their respective proposed final per-minute 1998 contribution rates based on the companies' 1998 forecast contribution requirements reflected in the split rate base results, taking into consideration the 1998 local rate increases of $3.25 per month for Québec-Téléphone and of $2.00 per month for Télébec.

2.PN 98-9 also directed the companies to file their respective proposals with regards to the:

·treatment of any 1997 excess earnings;

·deemed earnings from directory operations; and

·accounting reserve for pole rental (Télébec only).

3.AT&T Canada Long Distance Services Company [now AT&T Canada Corp.] (AT&T Canada), fONOROLA Inc. and Sprint Canada Inc./Call-Net Enterprises Inc. (Call-Net) were made parties to this proceeding and directed to file their respective forecasts of 1998 contribution-eligible minutes.

Companies' Proposals

4.Québec-Téléphone filed a proposed final 1998 per-minute contribution rate of $0.0556 based on a forecast contribution requirement of $45.5 million which was calculated using the split rate base assignment methodologies set out in Implementation of Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 97-21, 18 December 1997 (Decision 97-21), except for the assignment of broadband investments.

5.Québec-Téléphone's proposed final 1998 contribution rate is lower than its approved final 1997 rate of $0.0778 per minute approved in Telecom Order CRTC 99-740, 29 July 1999, and slightly lower than the 1998 interim rate of $0.0561 per minute approved in Decision 97-21.

6.Télébec filed a proposed final 1998 per-minute contribution rate of $0.0587 based on a forecast contribution requirement of $30.1 million which was calculated based on the Commission's determination in Decision 97-21.

7.Télébec's proposed final 1998 contribution rate is lower than its approved final 1997 rate of $0.0865 per minute approved in Telecom Order CRTC 98-596, 19 June 1998 (Order 98-596), and slightly lower than the 1998 interim rate of $0.0588 per minute approved in Decision 97-21.

Issues

(a) Québec-Téléphone - Treatment of 1997 Deferral Account

8.In Telecom Order CRTC 96-1611, 31 December 1996 (Order 96-1611), the Commission ordered Québec-Téléphone to implement, effective 1 January 1997, a local rate increase of $2.00 per month and toll rate reductions of $5.5 million. Of the $5.5 million toll rate reductions, about $2.1 million resulted from the reduction of Other Line Charges to half their level as directed by the Commission in Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996. The remaining $3.4 million in toll rate reductions were required to bring Québec-Téléphone's return on equity (ROE) to the midpoint of 11.8% of its approved ROE range of 11.25% to 12.25% for 1997.

9.In this proceeding, Québec-Téléphone submitted that, by the end of 1997, the company had an unrealized portion of $2.7 million of the mandated $3.4 million toll rate reductions because a number of its proposed toll rate reduction applications did not meet the Commission's imputation test prior to the toll forbearance decision (Forbearance - Regulation of Toll Services Provided by Incumbent Telephone Companies, Telecom Decision CRTC 97-19, 18 December 1997) which eliminated the imputation test effective 1 January 1998.

10.Québec-Téléphone recorded the unrealized portion of $2.7 million in a deferral account as directed by the Commission in Order 96-1611.

11.The unrealized portion of $2.7 million was used by Québec-Téléphone to reduce toll rates during the first part of 1998.

12.Call-Net submitted that the Commission should direct Québec-Téléphone to apply the $2.7 million to reduce the 1998 contribution requirement instead of reducing 1998 toll rates.

13.AT&T Canada did not comment on this issue.

14.In its reply, Québec-Téléphone indicated that although the $3.4 million reduction had not been fully used in 1997 to reduce toll rates, the residual $2.7 million had been charged to the 1997 financial results and recorded as a liability to its toll subscribers as at 31 December 1997.

15.The Commission considers that the deferral account represents a liability to the company's toll subscribers and should be properly allocated to the Competitive segment.

16.The Commission is of the view that it would be unreasonable to discharge a liability to Québec-Téléphone's toll subscribers by reducing the company's contribution requirement for 1998 which is based on the company's Utility segment shortfall.

17.In light of the above, the Commission approves Québec-Téléphone's utilization of the $2.7 million. The Commission reminds Québec-Téléphone that a company should seek prior approval concerning the disposition of amounts in a deferral account.

(b) Télébec - Accounting Reserve for Pole Rental

18.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.

19.In this proceeding, Télébec requested that the Commission confirm its preliminary view that the balance of the accounting reserve should be spread over a two-year period as stated in Decision 97-21.

20.In Telecom Order CRTC 99-88, 29 January 1999 (Order 99-88), the Commission approved the use of a two-year (1998-1999) amortization period for the balance of $5.8 million in the accounting reserve as at 31 December 1997 and its related accumulated interest.

21.Given the determinations in Order 99-88, the Commission considers that this issue has been dealt with.

(c) Directory Operations

22.In Decision 97-21, the Commission agreed with Québec-Téléphone and Télébec that earnings related to their respective directory operations should be included with their Utility segment earnings. The Commission also noted that this determination was consistent with Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21).

23.In Decision 97-21, the Commission indicated that the reasonableness of the deemed earnings from directory operations would be addressed in the proceedings to finalize the 1998 contribution rates for Québec-Téléphone and Télébec.

24.In this proceeding, Québec-Téléphone proposed to include, in its Utility segment for 1998, $956,000 in earnings for directory operations from its affiliate Les Annuaires du Québec.

25.In this proceeding, Télébec submitted that a distinction should be made between basic directory listings and directory advertising. Télébec stated that revenues and expenses associated with the basic directory listings should be allocated to the Utility segment whereas revenues and expenses associated with directory advertising provided in both White and Yellow Pages directories should be allocated to the Competitive segment.

26.Notwithstanding its view on directory advertising, Télébec proposed to include, in its Utility segment for 1998, $900,000 earnings for directory operations from its affiliate Télé-Direct (Services) Inc.

27.Parties did not comment on this issue.

28.The Commission is satisfied that the proposed earnings noted above related to the directory operations are reasonable and appropriately assigned to the Utility segment as directed in Decision 97-21. The Commission has taken these amounts into account in setting the final 1998 contribution rates for Québec-Téléphone and Télébec.

(d) Télébec - 1997 Contribution Refund

29.In Order 98-596, the Commission approved a final 1997 contribution rate of $0.0865 for Télébec. This represented a reduction over the approved interim 1997 contribution rate of $0.0944 per minute approved in Telecom Order CRTC 97-313, 6 March 1997.

30.In Order 98-596, the Commission directed Télébec to make the necessary adjustments to amounts already billed to interexchange carriers (IXCs) to reflect the difference between the interim and final 1997 contribution rates.

31.In this proceeding, Télébec included an amount of $205,000 in its Utility segment representing the total amount refunded to the alternate providers of long distance services (APLDS) arising from the difference between final 1997 and interim 1997 contribution rates.

32.The Commission considers that Télébec's proposal to include this 1997 contribution refund as an expense in its Utility segment for 1998 would result in the company recovering this amount through its 1998 contribution requirement. The Commission notes that the refund mechanism was developed to ensure that any excess contribution payment made by the IXCs as a result of the finalization of the contribution rate for any given year is properly reflected in the company's earnings for that year.

33.The Commission is of the view that it is inappropriate for a company to recover the difference between the previous year's interim and final contribution rates in the subsequent year's contribution requirement and therefore denies Télébec's proposed treatment of the 1997 contribution refund.

(e) Québec-Téléphone and Télébec - Broadband and Transfer Pricing - Cost Assignment Principles

34.In Decision 97-21, Québec-Téléphone and Télébec were directed to assign all costs associated with fibre optic transmission equipment and facilities installed prior to 1 January 1998 in accordance with the existing Phase III costing procedures. The Commission also directed Québec-Téléphone and Télébec to assign new broadband investments and related expenses made on or after 1 January 1998 to the Competitive segment as set out in Decision 95-21 and further clarified in Telecom Order CRTC 97-144, 31 January 1997, for the Stentor-member companies.

35.The Commission notes that Télébec's treatment of broadband investments and related expenses in the forecast 1998 split rate base results is in accordance with Decision 97-21.

36.The Commission notes that Québec-Téléphone's assignment of broadband-related investments and expenses in the forecast 1998 split rate base results is not fully consistent with Decision 97-21. Instead, Québec-Téléphone assigned all broadband investments and related expenses (both pre and post split rate base regime) to the Competitive segment and charged a transfer price to the Utility segment for the usage of broadband-capable equipment and facilities.

37.In Telecom Order CRTC 99-637, 9 July 1999, the Commission noted that the proposed treatment of broadband-related investments and expenses is the subject of a separate proceeding involving the former Stentor-member companies, and indicated that in its view, the final disposition of the treatment of broadband-related investments and expenses for both Québec-Téléphone and Télébec should await its findings as it relates to the former Stentor-member companies.

38.The Commission considers that Québec-Téléphone's proposed treatment of broadband-related investments and expenses has a minimal impact on the 1998 contribution rate.

39.In Telecom Order CRTC 99-940 dated 30 September 1999 (Order 99-940), the Commission directed certain of the former Stentor-member companies to assign all costs associated with the deployment of broadband-capable equipment and facilities including support structures to the Utility segments on the basis of relative usage. In Order 99-940, Québec-Téléphone and Télébec were directed to show cause as to why this cost assignment methodology should not apply to them.

40.In light of the above, the Commission approves, for 1998 only, the company's proposed treatment of broadband-related investments and expenses for the purpose of finalizing its 1998 contribution rate.

Final 1998 Contribution Rates

41.In light of the above, the Commission orders as follows:

(a) Québec-Téléphone is to issue forthwith revised tariff pages reflecting a final contribution rate of $0.0556 per minute, effective 1 January 1998;

(b) Télébec is to issue forthwith revised tariff pages reflecting a final contribution rate of $0.0585 per minute, effective 1 January 1998;

(c) both companies are to proceed with billing adjustments as expeditiously as possible; and

(d) both companies are to calculate, based on audited financial results for 1998, any excess earnings for the Utility segment, as per Decision 97-21; and to record the excess earnings in a deferral account. The disposition of the excess earnings will be addressed in the proceeding to finalize the 1999 contribution rates.

Secretary General

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