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ARCHIVED - Order CRTC 2001-216

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Order CRTC 2001-216

  Ottawa, 14 March 2001
 

CRTC approves an application to review and vary Order CRTC 2000-531 - Télébec ltée - Rate restructuring

  Reference: 8662-A65-01/00

1.

Further to an application by Action Réseau Consommateur and the Association Co-opérative d'économie familiale des Bois-Francs (ARC/ACEF-BF or the applicants) the Commission, by majority decision, reviews and varies Order 2000-531 and finds that:
 
  • the rate restructuring which consolidated 32 rate groups into four rate groups should remain unchanged;
 
  • past and future revenues generated as a result of the rate restructuring are to be placed in a deferral account;
 
  • the deferral account will bear interest at the company's short-term cost of debt, starting from the date of this order; and
 
  • the amounts placed in the deferral account will be used for the benefit of Télébec's residential subscribers to mitigate future local rate increases that would have otherwise been approved by the Commission.

2.

On 9 June 2000, the Commission issued Order 2000-531 approving, by majority decision, an application by Télébec Ltée to restructure its rates for basic residential local service, effective  July 2000. The rate restructuring was proposed in order to simplify the company's rate schedule by consolidating its 32 rate groups, including the extended area service component, into four rate groups. As part of Télébec's proposed rate restructuring, most of its residential subscribers experienced monthly basic rate increases ranging from $0.47 to $4.00 with the exception of those subscribers paying at the higher end ($34.43). The rate increases were implemented on 1 July 2000 and were forecast to generate additional annualized revenues of $3.2 million.

3.

In a letter dated 23 October 2000, the ARC/ACEF-BF jointly filed an application, under part VII of the CRTC Telecommunications Rules of Procedure (the Rules) and section 62 of the Telecommunications Act (the Act), to review and vary Order CRTC 2000-531.

4.

ARC/ACEF-BF submitted that Order 2000-531 set tariffs that are contrary to section 27 of the Act, which, among other things, provides that all rates must be just and reasonable. As such, substantial doubt exists as to the correctness of Order 2000-531. The arguments raised by the applicants to review and vary Order 2000-531 were as follows:
 
  • the procedures followed during the proceeding led to an error in law; and
 
  • Order 2000-531 is inconsistent with past Commission rulings, which set out that rate restructuring should be revenue neutral. In this case, the revenues from the increased rates brought the Utility segment return on equity (ROE) to the mid-point of the ROE range.

5.

ARC/ACEF-BF requested that the Commission:
 
  • declare Order 2000-531 void and without effect;
 
  • order Télébec to immediately cease charging the tariffed rates that were approved in Order 2000-531;
 
  • order Télébec to refund or to credit any amounts collected from its subscribers under Order 2000-531; and
 
  • order any measure that the Commission considers is just and appropriate in the circumstances under section 60 of the Act.

6.

Télébec's comments on the application were as follows:
 
  • ARC/ACEF-BF failed to demonstrate that there is reasonable doubt as to the correctness of Order 2000-531;
 
  • there is a need for regulatory certainty and fairness, and there would be a negative impact on Télébec if the Order were to be reversed, since the rate increases have already been implemented;
 
  • as a result of implementing the rate restructuring, the company has modified its billing system, started to work out its commercial strategy, invested in its network and planned its future investments; and
 
  • rescinding the Order would not be in the public interest and would have an extremely destabilising effect on Télébec.
 

Procedure followed during the proceeding

7.

ARC/ACEF-BF submitted that an error in law was made because the original application should have been filed and dealt with under part III of the Rules (general rate increases) and not part II of the Rules (new or amended tariff pages).

8.

Télébec was of the view that the purpose of the tariff notice that led to Order 2000-531 was not to establish an overall revenue requirement but rather to replace a revenue shortfall associated with the depletion in 1999 of a deferral account that had arisen from the settlement of a dispute with Hydro-Québec. The company also noted that no procedural arguments had been raised during the proceeding that led to Order 2000-531.

9.

The Commission notes that under section 28 of the Rules, it may vary or supplement any of the provisions of the Rules.

10.

Indeed, in the original proceeding the Commission supplemented the procedures set out in part II of the Rules to ensure that all affected subscribers received notice of the application, through a billing insert, which set out the procedure and deadline for all parties to provide comments. In addition, the Commission sent interrogatories to Télébec and placed the non-confidential responses on the public record. As noted in Order 2000-531, the Commission received a number of interventions on the application.

11.

The Commission also notes that it sometimes changes the procedures under part III of the Rules by, for example, deciding not to hold an oral public hearing.

12.

As a result, the Commission concludes that the process followed during the original proceeding was fair and, therefore, there was no procedural error in law.
 

Inconsistency with previous Commission rulings

13.

ARC/ACEF-BF was of the view that Order 2000-531 is tainted by an error in law in that it contravenes previous Commission policies and decisions regarding rate restructurings. In particular, such restructurings should be revenue neutral.

14.

ARC/ACEF-BF also submitted that the Commission must refrain from approving tariff increases when the ROE is below the mid-point but still within the approved ROE range.

15.

Télébec replied that the arguments raised in the review and vary application are the same as those raised during the proceeding that led to Order 2000-531. Télébec also suggested that the Commission was aware of its previous determinations, had all the arguments on hand and made its decision based on what it viewed as being just and reasonable. In Télébec's view the opinion of ARC/ACEF-BF does not constitute a valid motive to approve the review and vary application.

16.

Although in most cases, the Commission has approved rate restructuring proposals only in situations where these proposals are revenue neutral, the Commission has, in exceptional cases, permitted rate group consolidations to generate additional revenues without conducting a full revenue requirement assessment. However, in these cases, the extra revenues were applied directly for the benefit of the subscribers, through, for example, service improvement programs, except when the forecast ROE, including the effect of these extra revenues, remained below the authorized ROE range.

17.

Télébec's original application during the proceeding that led to Order 2000-531 forecast that its 2000 Utility segment ROE, without the revenues generated from the rate restructuring, would be 10.3%, just below the bottom of its approved 10.4% to 12.4% ROE range.

18.

Consistent with the Commission's practice and that of other regulated carriers, the Commission considers that Télébec's forecast 2000 Utility segment revenues should have included revenues from pending tariff applications that were before it at the time the rate restructuring application was filed.

19.

Similarly, the forecast 2000 Utility segment revenues should have reflected the most up-to-date forecast contribution revenues.

20.

If both of these revenues streams had been properly included in Télébec's forecast, the Commission is of the view that Télébec's 2000 forecast Utility segment ROE would have been above the bottom of the allowed range.

21.

Rate of return ranges promote balance between the interests of shareholders and subscribers and allow companies to benefit from efficiency gains while protecting subscribers from frequent increases. They also help to reduce the regulatory burden for companies, subscribers and the regulator.

22.

The Commission notes that under rate of return regulation, its practice has been and continues to be to consider applications for local rate increases intended for revenue requirement purposes (e.g., which improve the company's rate of return) only where the company's Utility segment ROE is forecast to be below the ROE range.

23.

On the basis of the foregoing, the Commission, by majority decision, considers that there is substantial doubt as to the correctness of Order 2000-531 and varies the order as set out below.
 

Conclusion

24.

The Commission notes that granting ARC/ACEF-BF's application to rescind Order 2000-531 would have the effect of recreating 32 rate groups instead of the current four rate groups. In the Commission's view, Télébec's previous rate group structure was unnecessarily complicated.

25.

The Commission also recognizes that rate increases may be required of Télébec's customers in the near future as a result of recent decisions such as Telephone service to high-cost serving areas, Telecom Decision CRTC 99-16, dated 19 October 1999 and Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000.

26.

The Commission is concerned that subscribers could be faced with rate instability if they were to receive a refund as suggested by ARC/ACEF-BF, followed soon afterwards by possible rate increases.

27.

The Commission therefore directs that the rate restructuring set out in Order 2000-531 be maintained, but that as of 1 July 2000, funds generated by this rate restructuring be placed in a deferral account to be used for the benefit of Télébec's residential subscribers to mitigate future local rate increases that would have otherwise been approved by the Commission.

28.

The Commission also directs that the amounts in the deferral account bear interest at the company's short-term cost of debt, starting from the date of this order.

29.

The Commission further directs Télébec to submit for approval a proposed customer-billing insert for the purpose of informing its customers of the impact of this order within 15 days of the date of this order.
  Secretary General
  This document is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca 
 

Dissenting opinion of Vice Chair Andrée Wylie

  I cannot agree with the majority of the Commission that Order CRTC 2000-531 (Order 531) be reviewed and varied as ordered in Order CRTC 2001-216 (the review Order).
  Order 531 was issued by the Commission on 9 June 2000 following a public process during which the applicant and other interested parties were heard. The application for review and variance of Order 531 was filed by an intervener of record some four and one half months after its issuance.
  Order 531 approved a restructuring of the rate schedule of Télébec Ltée (Télébec) for basic residential local service, as well as certain increases in monthly basic rates for such service. The increases in rates authorized by the Commission in Order 531 have been levied by Télébec from its subscribers, as approved, since 1 July 2000.
  The review Order leaves the restructuring approved in place but effectively redirects from Télébec to the benefit of its subscribers, through the mechanism of a deferral account, amounts collected since 1 July 2000 pursuant to Order 531, since these amounts will be used by the Commission to mitigate future local rate increases it would have otherwise approved.
  Télébec's utility segment is regulated on a rate of return on equity (ROE) basis. Télébec's authorized ROE is currently 10.4% to 12.4%, with just and reasonable rates set prospectively, according to Commission practice, at a level that allows the company to earn the mid-point of the range authorized, 11.4%.
  The panel of the Commission duly established to hear and determine Télébec's application recognized in Order 531 that its decision to approve the rate increases applied for resulted in a departure from Commission practice but gave reasons for such departure.
  There is no evidence on the record that the rate increases applied for and approved in Order 531 would have allowed Télébec to earn an ROE higher than 11.4% in the year 2000.
  The review Order is supported by a finding that there is substantial doubt as to the correctness of Order 531 because it represents a departure from the Commission's general practice of approving rate restructuring proposals only when they are revenue neutral, except in special circumstances, and that applications for local rate increases for revenue requirement purposes be considered only where a company's ROE is forecast to be below the ROE range approved.
  I cannot find that the reasons given for the review Order support a finding that the panel vested with the authority to hear and determine the application that led to Order 531 exercised its discretion so unreasonably as to raise a substantial doubt as to its correctness and to warrant the variance ordered.
  Section 62 of the Telecommunications Act empowers the Commission to review and vary the decisions of its panels. In my view, regulatory certainty requires that it do so sparingly where a decision was made after a public process where interested parties were heard, where reasons were given for the decision, where an application for review and variance was filed long after the implementation of the decision, and where variance of the decision involves what amounts to retrospective rate adjustments.
  In all the circumstances of this case, and for the reasons given, I would have denied the application for review and variance.

Date Modified: 2001-03-14

Date modified: