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ARCHIVED - Order CRTC 2000-531

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Order CRTC 2000-531

Ottawa, 9 June 2000
Télébec ltée - Rate restructuring
Tariff Notice 239
The Commission approves, by majority decision, Télébec ltée's application to restructure its rates for basic residential local service. Most of Télébec's residential subscribers will experience monthly basic rate increases ranging from $0.47 to $4.00 effective 1 July 2000.

1.

The Commission received an application from Télébec ltée dated 18 February 2000, that proposed to consolidate its rate groups for basic residential local service effective 1 May 2000.

2.

Télébec indicated that the main reason for the proposed rate restructuring was to make up for the revenue reduction due to the depletion of an accounting reserve for pole rental, beginning in 2000. As directed by the Commission, Télébec amortized the balance of $6,000,000 in the accounting reserve over two years, including $2,900,000 in 1998 and $3,100,000 in 1999. The proposed rate restructuring would generate additional revenues of $3,245,000 annually for the company.

3.

Télébec indicated that the restructuring would simplify the rate schedule by consolidating the current total of 32 rate groups into four rate groups, including the extended area service component. The proposal would also bring rates closer to the cost of providing service.

4.

Télébec's residential customers currently pay between $22.93 and $34.43 a month (an average of $29.09) for residential local service. With the proposed restructuring, the average rate for residential local service would be $31.03, i.e., an average increase of $1.93 or 6.6 percent.

5.

To avoid rate shock, Télébec decided to limit subscriber rate increases to a maximum of $4.00. Thus, most subscribers will face rate increases ranging from $0.47 to $4.00. For some exchanges, the company proposes to maintain the current rates.

6.

Two interested parties filed comments: Action Réseau Consommateur (ARC) and the Association coopérative d'économie familiale des Bois-Francs (ACEF). In addition, written comments were received from over 70 subscribers, as well as petitions and form letters containing in excess of 3,600 signatures. All interventions related to this application opposed the rate increases arising from the proposed restructuring.

7.

ACEF suggested that Télébec was confusing rate rebalancing with rate restructuring. Both ACEF and ARC noted that the company is merely using rate restructuring (which should not be used to generate additional revenues) as a pretext to generate additional revenues that were denied in Time-frame for the implementation of price cap regulation and rate rebalancing for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 99-19, dated 10 December 1999.

8.

Télébec replied that it was proposing changes that were carefully designed to minimize rate increases for customers in exchanges where rates are the least compensatory, and at the same time make up for the loss of revenue from the accounting reserve.

9.

Télébec currently has one of the most complex rate schedules in Canada. The Commission is of the view that this rate schedule should be simplified to accommodate a gradual transition from the current earnings-based regulation regime to price cap regulation in the near future.

10.

The Commission considers that the rate group consolidation is justified. A simpler rate schedule, as proposed by Télébec, would allow the company to move residential rates closer to costs, particularly in groups paying lower than average rates.

11.

The Commission notes that the rate restructuring proposed by Télébec generates additional revenues, which results in departure from the Commission's usual practice that such rate restructuring be revenue neutral.

12.

The Commission notes, however, that the accounting reserve is depleted, which creates a revenue shortfall for the company. Indeed, Télébec proposes to use the additional revenues generated by the rate group consolidation to offset the loss of revenue associated with the depletion of the accounting reserve.

13.

The Commission considers it reasonable for Télébec to be compensated for this revenue shortfall through the proposed rate restructuring.

14.

In light of the foregoing, the Commission, by majority decision, orders that:
a)     the rate amendments proposed by Télébec under Tariff Notice 239 are approved effective 1 July 2000; and
b)     Télébec is directed to issue forthwith revised tariff pages reflecting the above approval.
Secretary General
This document is available in alternate format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca  
Dissenting opinion of Commissioner Barbara Cram
I respectfully disagree with my colleagues in the majority for the following reasons:
a)     the majority decision is inconsistent with the Commission's findings in Time-frame for the implementation of price cap regulation and rate rebalancing for Québec-Téléphone and Télébec ltée , Telecom Decision CRTC 99-19, 10 December 1999.
b)     There are no special circumstances to justify the departure from the Commission's policy that generally rate restructuring should be revenue neutral.
c)     In my view the rates approved are not just and reasonable and they strike an inappropriate balance between Télébec's shareholders and its subscribers.
As a result I would have denied the application.
Context
Télébec already has the highest average residential rates in Canada at $29.09 per month. Indeed, the cumulative impact on Télébec's residential subscribers is such that the average rate has risen to 172% of the 1995 average rate.
In its application, Télébec submitted that the increases were necessary in order for the company to be within its approved rate of return range of 10.4% to 12.4%. Télébec argued that absent approval of its application, the company's rate of return would be 10.3% for the Utility segment, i.e. 0.1% below the bottom of the range. In my view, Télébec's financial assumptions, upon which the company predicates its assertion, are flawed. For example, contrary to normal practice, the company's application failed to take into account any potential revenues from rate increase applications pending before the Commission. If Télébec had taken into account all revenues that are typically taken into account in applications of this nature, I am persuaded that the company's forecast ROE would have been within the approved range. Accordingly, in my view, Télébec does not require rate relief. Moreover, with approval of this application, the rate of return for the Utility segment may well be in excess of the midpoint of the authorized range. In stating this I do not wish to imply that I would have approved this application given my view that Télébec's forecast ROE is within the authorized range. It is stated simply to illustrate the size of the transfer of monies from Télébec's residential subscribers to the company's shareholders as a result of approval of this application.
Decision 99-19
Approximately six months ago the Commission established the time frame and made certain findings with respect to the transition period prior to the implementation of price cap regulation for Télébec. Among the Commission's findings were the following:
a)     at paragraph 10, "The Commission finds that it is not appropriate at this time to introduce rate rebalancing in 2000 and 2001."
b)     at paragraph 11,"The Commission notes that it has already approved substantial increases in local residential rates for ... Télébec in recent years. The Commission considers that the subscribers ... of Télébec have already contributed significantly to the reduction of the companies' contribution requirements."
c)     at paragraph 13, "Québec-Téléphone and Télébec are permitted to apply to increase their rates if the companies consider that they will not have the opportunity to achieve a reasonable rate of return on the Utility segment. If the companies do apply, the Commission will review their applications in a revenue requirement proceeding, including a full examination of their financial projections."
d)     at paragraph 16, the Commission stated that it would permit Télébec to submit rate restructuring applications but that any such applications should be revenue neutral.
In my respectful view, the majority decision is inconsistent with Telecom Decision 99-19.
No special circumstances to justify departure from Commission policy
To date, the Commission's policy has been to deny rate restructuring proposals that are not revenue neutral unless there were special circumstances to justify a departure from this policy. In my view, Télébec failed to demonstrate that it would be appropriate to depart from the Commission's policy in this particular instance.
The wrong balance
As stated previously, residential subscribers have already seen their rates increased by 72% in five years. This application represents a further 6.6%. I am not persuaded by the company's application that Télébec's residential subscribers should have to absorb an additional increase in this case. Further, I am of the view that approval of Télébec's application will lead to rates that are neither just nor reasonable.
For these reasons, I respectfully disagree with the majority. I would have denied the application.s
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