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Order CRTC 2001-641
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Ottawa, 10 August 2001 |
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TELUS Québec final 2001 contribution requirement and rate
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Reference: 8695-C12-15/01 |
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The Commission approves the service improvement plan for
Murdochville and Basse-Côte-Nord regions. |
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The Commission does not accept TELUS Québec's estimated 2001
contribution requirement of $38.6 million and after various
adjustments, estimates the requirement to be $32.6 million. |
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In September 2000, the Commission approved a mechanism to cap the
contribution rate. Based on this capped rate and the estimated 2001
minutes, the Commission determines that the 2001 contribution amount
is $30.5 million. |
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The Commission also approves the withdrawal in 2001 of $2.1
million from TELUS Québec's deferral account to cover the
difference between the $32.6 million contribution requirement and
the capped contribution amount of $30.5 million. |
1. |
TELUS Communications (Québec) Inc. (TELUS Québec) filed its
proposed final 2001 contribution requirement and rate on
6 April 2001. |
2. |
The Commission did not receive any comments from any interested
parties regarding TELUS Québec's filing. |
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Contribution-eligible minutes
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3. |
TELUS Québec provided an estimate of 1,262 million
contribution-eligible minutes for the year 2001. |
4. |
The Commission finds TELUS Québec's proposed
contribution-eligible minutes to be reasonable for the purpose of
calculating the final 2001 contribution rate. |
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Service improvement plan
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5. |
In its 2001 contribution requirement and rate proposal, TELUS
Québec included a service improvement plan (SIP) for its
Murdochville exchange and for the Basse-Côte-Nord region.
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6. |
The Commission finds that TELUS Québec's proposed improvements
in these regions are necessary for the company to meet the criteria
of the basic services objectives.
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7. |
Therefore, the Commission approves the SIP for Murdochville and
the Basse-Côte-Nord region.
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Contribution requirement and rate
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8. |
TELUS Québec filed its proposed 2001 contribution requirement
using the approved mid-point rate of return on average common equity
(ROE) of 11.3%. |
9. |
TELUS Québec proposed a 2001 contribution requirement of $38.6
million and proposed a withdrawal of $8.1 million from its deferral
account to comply with the final 2001 capped contribution rate of
$0.0242 and the corresponding contribution amount of $30.5 million.
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10. |
The Commission notes that TELUS Québec's final 2000 contribution
requirement was $29.1 million with a corresponding contribution rate
of $0.0242. TELUS Québec's 2001 contribution rate is capped at the
final 2000 rate. Given the 2001 estimated minutes of 1,262 million,
the 2001 capped contribution requirement base is $30.5 million.
Therefore, TELUS Québec's proposed 2001 contribution requirement of
$38.6 million exceeds the cap by $8.1 million.
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11. |
In letter Decision CRTC 2001-203, Ex parte requests dated 23
February 2001 with respect to the interim approval of a service
improvement plan (SIP) and revenue requirement, dated
29 March 2001, the Commission indicated, among other things,
that TELUS Québec's revenue requirement would be addressed in the
proceeding to determine its final 2001 contribution requirement.
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12. |
The letter also indicated that the Commission would consider
granting access to funds currently held in a deferral account if the
company exceeded its contribution cap.
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13. |
The Commission's assessment of the revenue-requirement in the
proposed 2001 contribution requirement of $38.6 million resulted in
the following adjustments.
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Adjustments due to reductions in proposed expenses
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Telecommunications, gas and electricity tax
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14. |
In response to various interrogatories, TELUS Québec revised its
estimate of its 2001 obligations under the telecommunications, gas
and electricity (TGE) tax amount from $7.2 million to $6.6 million.
The revised estimate results in a reduction of expenses of $0.5
million in the Utility segment and reduces the contribution
requirement by the same amount. Therefore, the Commission decreases
TELUS Québec's estimated 2001 contribution requirement by $0.5
million.
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Taxation reserve
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15. |
TELUS Québec indicated that a $0.7 million taxation reserve is
allocated in the Utility segment to provide contingency funding in
the event of unfavourable tax rulings in 2001. Although such a
reserve may be appropriate from a budgeting perspective, the
Commission considers that this is not an appropriate justification
to increase the 2001 contribution requirement above the cap.
Therefore, the Commission decreases TELUS Québec's estimated 2001
contribution requirement by $0.7 million.
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Adjustments due to changes in the equity base
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16. |
The Commission notes that revenue requirements include a
reasonable ROE. |
17. |
The Commission further notes that TELUS Québec's equity base,
specifically its working capital, has increased substantially since
the beginning of the split rate base transition period in 1998 and
particularly in the Utility segment. As a result, the Commission
analysed the changes in the 2001 working capital resulting in the
following adjustments. |
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Inter-company receivables
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18. |
TELUS Québec's evidence showed an increase in working capital of
$39.7 million in the Utility segment associated with inter-company
receivables. |
19. |
The Commission has deemed that TELUS Québec's working capital is
financed approximately 55% by equity and 45% by debt. |
20. |
The Commission considers that the working capital associated with
the inter-company receivables relates to TELUS Québec's investments
in affiliates. These affiliates do not relate to the Utility
operations of the company, and therefore, the Commission considers
that financing costs for these receivables in the Utility segment is
not justified. In light of the above, the Commission has reduced the
Utility segment working capital by $39.7 million for regulatory
purposes resulting in a decrease of $5.8 million to TELUS Québec's
estimated 2001 contribution requirement. |
21. |
The Commission noted in the company's submission that it receives
interest revenues on these receivables, but also noted that these
are largely offset by additional administrative costs incurred by
the Utility segment.
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Income tax receivable
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22. |
The Utility segment working capital also contains $19.8 million
relating to an income tax receivable in 2001 as a result of a
write-down of assets for tax purposes and TELUS' acquisition of
Québec-Téléphone in 2000. |
23. |
The Commission notes that TELUS Québec has not reduced the value
of these assets for regulatory purposes and as such, the company
continues to earn an ROE on the undepreciated value of the asset for
regulatory purposes. In the Commission's view, including the income
tax receivable in the Utility segment working capital is not
justified. Therefore, the Commission has reduced the Utility segment
working capital by $19.8 million for regulatory purposes resulting
in a decrease of $2.9 million to TELUS Québec's estimated 2001
contribution requirement. |
24. |
The Commission notes that removing the income tax receivable from
the working capital results in a corresponding decrease to deferred
income tax of $19.4 million resulting in an increase to the
investment base. In addition, the Commission notes that the company
had included the accrued interest on the income tax receivable in
its estimation of the 2001 contribution requirement. The Commission
considers that adjustments are necessary to reflect the impact of
the increase in the investment base and the removal of the accrued
interest revenue. |
25. |
Therefore, the Commission increases TELUS Québec's estimated
2001 contribution requirement by $2.8 million relating to the
deferred income tax and by $1.1 million relating to the interest
revenue adjustment.
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26. |
The net effect of these adjustments in paragraphs 23 and 25 is an
increase of $1.0 million to TELUS Québec's estimated 2001
contribution requirement. |
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Summary of the Commission's adjustments
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27. |
The following table summarizes the Commission's adjustments: |
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(million) |
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TELUS Québec's estimated 2001 contribution requirement: |
$38.6 |
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Less: TGE tax |
($ 0.5) |
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Taxation reserve
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($ 0.7) |
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Inter-company receivables
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($ 5.8) |
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Plus: Income tax receivable |
$ 1.0 |
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Adjusted contribution requirement |
$32.6 |
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2001 contribution cap |
$30.5 |
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Requirement above cap
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$ 2.1
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28. |
In Order CRTC 2000-860, Québec-Téléphone 1999 final
contribution rate approved, dated 19 September 2000, the
Commission directed the company to hold its excess earnings in a
deferral account and to impute interest on these earnings.
Furthermore, the Commission stated that it might consider allowing
the use of the deferral account to obviate the need for residential
local rate increases.
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29. |
TELUS Québec's 2001 expenses in the Utility segment increased by
$6.4 million due to the new revenue-percentage charge stemming from
Decision CRTC 2000-745, Changes to the contribution regime,
dated 30 November 2000. The Commission had indicated that it would
consider rate applications to recover the new revenue-percentage
charge applicable to the Utility segment revenues.
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30. |
In letter Decision 2001-203, the Commission indicated that it
would consider granting access to the deferral account to bring the
company's ROE to within its approved range of 10.3% to 12.3%.
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31. |
The Commission considers that the use of the deferral account
will mitigate the need for TELUS Québec to propose a local
residential rate increase to offset the portion of the $6.4 million
revenue-percentage charge that the company was unable to absorb
within their 2001 contribution cap. |
32. |
Therefore, the Commission approves the withdrawal in 2001 of $2.1
million from TELUS Québec's deferral account to allow the company
to recover the Commission's estimated 2001 contribution requirement
that is above the contribution cap identified in paragraph 27.
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33. |
With the adjustments and the withdrawal from the deferral
account, the TELUS Québec final 2001 contribution amount is set at
$30.5 million for an equivalent rate of $0.0242.
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Implementation
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34. |
In light of the foregoing, the Commission orders that TELUS
Québec issue revised tariff pages within 15 days of the date
of this order to reflect the approved contribution rate. |
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Secretary General
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This document is available in alternative format upon request
and may also be examined at the following Internet site: http://www.crtc.gc.ca
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