ARCHIVED - Telecom Decision CRTC 2002-33

Telecom Decision CRTC 2002-33

Ottawa, 30 May 2002

Price cap review and related issues, Public Notice CRTC 2001-37 - Application to extend the existing regime on an interim basis and to render all Utility Segment rates interim

Reference: 8661-A4-02/01 and 8678-C12-11/01

Summary

With this decision, the Commission denies an application to make Utility Segment rates interim pending the Commission's determination in the proceeding initiated by Price Cap Review and related issues, Public Notice CRTC 2001-37, 13 March 2001 (PN 2001-37).

The application

1.

On 13 December 2001, the Commission received an application from AT&T Canada Corp. on behalf of itself, AT&T Canada Telecommunications Services and Call-Net Enterprises Inc. (collectively, the Competitors) requesting that the Commission extend the existing price cap regime on an interim basis, including the price cap formula, and specifically render all rates interim for Utility Segment services, effective 1 January 2002.

2.

The Competitors argued that the determinations of the Commission in both Price cap regulation and related issues, Telecom Decision CRTC 97-9, 1 May 1997 (Decision 97-9) and Implementation of price cap regulation - Decision regarding interim local rate increases and other matters, Telecom Decision CRTC 97-18, 18 December 1997 established the effective date of the initial price cap regime as 1 January 1998 and the duration of that regime as four years. Accordingly, the Competitors submitted that the facts clearly indicate that the parameters of the next regime should be effective from 1 January 2002.

3.

The Competitors submitted that in light of the length of the proceeding initiated by PN 2001-37, the Commission would not be able to issue a decision until after 31 December 2001, the date upon which they submitted the current regime would end. They stated that the Commission could only make changes to the current regime and rates on a prospective basis. In their view, absent an order granting the requested interim relief, there would be no clear indication as to the prevailing regulatory regime and no potential for any necessary modifications to the existing regime to be effective from the outset of the next regime.

4.

The Competitors submitted, among other things, that making all incumbent local exchange carrier (ILEC) Utility Segment service rates interim, effective 1 January 2002, would preserve the Commission's flexibility without prejudicing either the final outcome of the Commission's deliberations or the interests of competitors, consumers or ILECs. The Competitors also submitted that failing to grant the relief requested would prejudice all parties to the proceeding. The Competitors argued that if the Commission ultimately decided that modifications were required, parties would be prejudiced by not gaining the benefits of those modifications immediately upon expiry of the existing price cap regime.

Positions of parties

5.

Rogers Wireless Inc. (RWI) supported the application by the Competitors. RWI stated that making rates interim would be consistent with past practices of the Commission, and would strike an appropriate balance between the interests of competitors, consumers and the ILECs.

6.

Action Réseau Consommateur, the Consumers' Association of Canada, Fédération des associations coopératives d'économie familiale, and the National Anti-Poverty Organization (collectively, ARC et al.) stated that it understood, based on past Commission rulings and statements, that the term of the first price cap regime would end 31 December 2001. ARC et al. argued that it fully expected the Commission to make Utility rates interim as of 1 January 2002, similar to what had been done in 1997 when, according to ARC et al., it became clear that the new price cap regime could not be established in time for the 1 January 1998 start date.

7.

ARC et al. submitted, among other things, that ratepayers were expecting that rate increases attributable to past exogenous factor adjustments to the price cap index, where the exogenous impact had expired, would no longer be permitted as of 1 January 2002. Further, ARC et al. submitted that extending the ILEC price cap indices past 31 December 2001 would permit unjustified rate increases. ARC et al. argued that doing so without providing parties an opportunity to comment in a timely way would be contrary to the dictates of procedural justice.

8.

Aliant Telecom Inc., Bell Canada, MTS Communications Inc. and Saskatchewan Telecommunications (collectively, the Companies) claimed that the application for rates to be made interim was entirely unfounded and should be denied. The Companies submitted that it was based on the faulty notion that the price cap regime established in Decision 97-9 would come to an abrupt halt on 1 January 2002. The Companies argued that the price cap regime established in Decision 97-9 would remain in place until such time as the Commission established the new regime to go into effect sometime in 2002. The Companies submitted, among other things, that to grant the applicants' request would create substantial uncertainty and unfairness to the Companies and to customers.

9.

The Companies noted that, throughout the price cap regime established in Decision 97-9, the Commission required annual price cap filings to be effective no earlier than 1 May of each year. The Companies also noted that, consistent with Decision 97-9, all filings associated with capped services were required to demonstrate compliance with the price cap indices established in the previous annual filing. The last such annual filing was effective 1 May 2001. The Companies stated that accordingly, the initial regime would run to 30 April 2002.

10.

The Companies argued that the fact that the current price cap regime would run into 2002 was reinforced by the Commission in CRTC approves increases to Bell Canada's residential rates, Order CRTC 2001-278, 30 March 2001 (Order 2001-278). In that order, the Commission approved changes to Bell Canada's primary exchange service rates intended to enable recovery of a portion of the additional contribution payments resulting from changes, effective 1 January 2001, to the contribution regime. Specifically, the Commission stated as follows:

The Commission does not expect the rates approved in this order will be reduced when a lower revenue charge is approved effective 1 January 2002. Therefore, the revenues generated by the rate increases approved in this order will continue to flow to the company at the level set to recover the interim revenue charge for 2001. Accordingly, with an exogenous factor of 4.5%, the company will have a reasonable opportunity to recover an appropriate amount with respect to the 2001 interim revenue charge and the 2002 revenue charge applicable to capped services in the period from now until the new price regulatory regime is implemented.

11.

The Companies submitted that it was clear from this passage that the Commission contemplated the new regulatory regime coming into effect not on 1 January 2002, but rather, sometime later in 2002, likely on or about one year from the effective date of the ILECs' last annual price cap filings.

12.

Finally, the Companies submitted that since the Commission had decided not to establish going-in rates for the next price regime, the new regime could be regarded as an extension of the previous regime, with any rate changes to be implemented on or about 1 May 2002. The Companies stated that there was absolutely no justification for granting the applicants' request for interim relief.

13.

TELUS Communications Inc. (TELUS) submitted, among other things, that the Competitors' application should be categorically denied, because it was premised on a misinterpretation of the intent of the Commission's determinations in Decision 97-9, in Implementation of price cap regulation and related issues, Telecom Decision CRTC 98-2, 5 March 1998, and in all tariff rulings since then. TELUS argued that the requested relief was impractical, if not impossible, to effectively implement and would, if implemented, cause significant and irreparable harm to the ILECs.

14.

TELUS also submitted that, unlike the case at the outset of the initial price cap period, the ILECs were no longer subject to earnings regulation. Thus, there was no requirement to re-calibrate going-in rates relative to some allowable rate of return on equity (ROE). Consequently, TELUS suggested that the notion that Utility Segment rates should be made interim as of 1 January  2002 was a vestige of ROE regulation and would not be consistent with the principles of the initial price cap framework. TELUS suggested that on this basis alone, the applicants' requested remedy should be rejected.

15.

In their reply comments, the Competitors submitted, among other things, that the ILECs' opposition was not founded on any public interest or legal argument but on an expectation that the new regulatory regime might be less favourable to them. The Competitors stated that granting an order to make all Utility Segment rates interim was a means previously used by the Commission to ensure key stakeholders would be held harmless without prejudicing the Commission's ultimate decision. Finally, the Competitors submitted that the Commission should disregard the ILECs' comments and render all Utility Segment rates interim as early as possible in 2002.

Conclusions

16.

The Commission's intention has been that the initial price cap regime would remain in place until such time as the Commission establishes the next regulatory regime to go into effect sometime in 2002. This intention has been reflected in several ways.

17.

As noted by the Companies, the annual price cap filings themselves have had an effective date no earlier than 1 May of each year. To the extent that prices pursuant to last year's price cap filing were effective on or after 1 May 2001, the Commission considers that the initial regime clearly did not expire on 31 December 2001.

18.

Further, Order 2001-278 stated that the rates approved in that order would remain in effect at least throughout the first part of 2002 "until the new price regulatory regime is implemented". Clearly, the Commission considered that the initial price cap regime would remain in place until the next regime was established.

19.

The Commission notes that the review of the initial price cap regime has been completed with today's release of Telecom Decision CRTC 2002-34 and that the next price cap regime will go into effect 1 June 2002.

20.

In addition, with respect to the issue of making rates interim at the outset of the initial price cap regime, the Commission notes that the ILECs, when entering the initial price cap regime, were departing from a rate of return form of regulation. The primary reason for making rates interim at that time was to ensure that appropriate going-in rates could be established from a revenue requirement perspective. In the current proceeding, no revenue requirement assessments were undertaken. As such, the main reason for having rates interim at the start of the initial price cap regime is not applicable in the current situation.

21.

In light of the above, the Commission denies the Competitors' application.

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