ARCHIVED - Order CRTC 2000-861

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Order CRTC 2000-861

Ottawa, 19 September 2000
Télébec 1999 final contribution rate approved
Reference: 8695-C12-10/99
The Commission approves Télébec's proposed final 1999 contribution rate of $0.0437 per minute, effective 1 January 1999.


In Québec-Téléphone and Télébec ltée – 1999 contribution rates, Telecom Public Notice CRTC 99-27, dated 23 December 1999, the Commission directed Télébec ltée to file its proposed final 1999 contribution rate.


Télébec filed its proposed 1999 contribution rate on 25 February 2000. In its assessment of Télébec's proposal, the Commission also considered the treatment of excess earnings and the capping of the contribution requirement.


The Commission has addressed the final 1999 contribution rate for Québec-Téléphone in a separate order.
Télébec 1999 contribution rate proposal


Télébec filed a proposed final 1999 contribution rate of $0.0437 per minute based on a forecast contribution requirement of $28.1 million.
Treatment of excess earnings


In Implementation of regulatory framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 97-21, dated 18 December 1997, the Commission directed Télébec to accumulate excess earnings in a deferral account should its Utility segment achieve earnings above the upper limit of the company allowed rate of return on
average equity range during the split rate base regime.


In Telecom Order CRTC 99-942, dated 30 September 1999, the Commission indicated that the disposition of any 1998 excess earnings would be addressed in the proceeding to finalize the 1999 contribution rates.


Télébec did not report any excess earnings for its Utility segment in 1998.


The Commission considered various options for the disposition of excess earnings including those filed by Québec-Téléphone and Télébec, in accordance with PN 99-27, in order to address the disposition of excess earnings reported by Québec-Téléphone in 1998.


Télébec proposed that the contribution requirement to be paid by the toll carriers be reduced by the amount of the previous year's excess earnings.


Consistent with the approach adopted for the major incumbent companies in Implementation of price cap regulation and related issues, Telecom Decision CRTC 98-2, dated 5 March 1998, the Commission has determined that the excess earnings be returned to the subscribers.


The Commission has determined that the most efficient way to return the excess earnings to the subscribers is to mitigate any future residential local rate increases during the transition period or at the start of the price cap regime.


The Commission reiterates its previous directive to Télébec to accumulate any excess earnings in a deferral account.


The Commission also considers it appropriate, effective immediately and on a going forward basis, to impute interest on any excess earnings held in the deferral account at a rate equivalent to the redeemable Guaranteed Investment Certificate annual interest rate with a three-year maturity date.


The Commission notes that should Télébec realize excess earnings and subsequently request and substantiate a residential local rate increase during the transition period prior to the introduction of price caps, the Commission may consider allowing the use of excess earnings and imputed accumulated interest to defer or reduce the need for residential local rate increases.


In the absence of such a requirement, any excess earnings would be used at the start of the price cap period to reduce any required residential local rate increases.


This approach is to be used for all excess earnings realized prior to the introduction of price caps.
Capping the contribution requirement


In the past, the Commission has imposed some form of contribution cap on both the major incumbent telephone companies and the small independent telephone companies.


In PN 99-27, Télébec was directed to show cause as to why its contribution requirement should not be capped at its approved 1999 level.


In reply, Télébec indicated that it was opposed to a capping mechanism. The company argued that 1) it has demonstrated in the past that it has been efficient by achieving reductions in its contribution rate; 2) it could impact its ability to provide quality and diversified telecommunication services; 3) it would have little impact on the development of competition; and 4) its shareholders would be required to absorb any extraordinary expenses.


The Commission is of the view that, although Télébec demonstrated fiscal responsibility in the past by reducing its contribution rate, a cap mechanism is still appropriate to ensure a contribution rate in line with the Commission's expectation in connection with the implementation of price cap regulation. This expectation was articulated 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, prior to the implementation of a new regime.


The Commission determined in Regulatory framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, dated 7 August 1996, that the same basic framework that applies to the major incumbent telephone companies will apply to Télébec. In Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994, the Commission imposed a cap on the contribution rates of the major incumbent companies.


In light of the above, the Commission approves a mechanism that caps the contribution rate, effective with the year 2000, at the approved rate of the previous year minus an adjustment to reflect the impact of any rate increases specifically approved to reduce the contribution requirement.

Final 1999 contribution rate


In light of the above, the Commission approves, effective 1 January 1999, a final 1999 contribution rate of $0.0437 per minute. This represents a $0.0148 reduction from the 1998 approved contribution rate of $0.0585.


The company is to issue tariff pages reflecting its approved contribution rate within 10 days of the date of this order.
Filing of the final 2000 contribution rate


Télébec is directed to file, within 45 days of the date of this order, its proposed final 2000 contribution rate based on the company's forecast 2000 split rate base results and forecast 2000 minutes.

Secretary General
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