Telus denied leave to appeal contribution decision, but still sees light at end of tunnel

The Federal Court of Canada has denied Telus Corp leave to appeal the CRTC’s contribution decision, but the western telco doesn’t view the ruling as a major setback. "I’m not sure you could even consider it a loss for Telus," VP government and regulatory affairs Willie Grieve told Network Letter. "Even the commission’s factum itself I think confirms our position and I think that’s probably why the court didn’t grant leave to appeal." Telus argued that the CRTC had erred by not permitting Telus, and other phone companies, to recover embedded costs when it issued Decision 2000-745 . This is contrary to the commission’s obligation to set just and reasonable rates, the firm maintained. "There is an arguable case that the CRTC acted beyond its jurisdiction by failing to take into account the highly relevant consideration of whether rates are just and reasonable," Telus wrote to the court. "The statutory imperative to set just and reasonable rates is central to the Telecommunications Act as well as to public utility legislation governing natural gas and electric utilities in Canada." After the company launched its legal proceeding late last December, statements were filed by the CRTC, as well as by Call-Net Enterprises Inc, AT&T Canada Corp and RSL Com Canada Inc. All opposed granting the leave to appeal, although the commission did hold out a glimmer of hope that Telus may get some of what it wanted down the line. "Our principle point here, that we’re entitled to recovery of embedded costs, the commission never denied," Grieve explains to Network Letter. "All the commission said was it doesn’t have to consider just and reasonable rates when setting the amount of the subsidy. In other words, the subsidy itself is not a rate. But they did go on to say that they’re going to have a proceeding this year to set the price cap and it will be setting just and reasonable rates in that price cap proceeding for 2002." In a joint submission, Call-Net and AT&T Canada disputed the narrow claims Telus made in its filing. Subsidy requirements and rates for local service are only part of the revenue stream, the companies alleged. An ILEC receives money when local subscribers purchase options such as call waiting or call answer, which are priced above cost. The CRTC assumes the old telcos will earn such money and sets an annual target of $60 per subscriber for optional local revenues. As well, incumbents in high-cost serving areas can bring in revenue from LD, DA and by charging new entrants for subscriber access. Since the commission did not reduce the subsidy in 2000-745, these revenue streams provide additional opportunities for Telus and other ILECs to recover embedded costs and other investments. "Contrary to Telus’ claim at paragraph 3 of their memorandum of fact and law that they have no opportunity besides the subsidy amount to recover their embedded costs," Call-Net and AT&T Canada told the court, "the ILECs enjoy significant additional opportunities and regulatory flexibility to recover their investments and an upcoming proceeding will specifically determine what costs will be recovered through rates for primary local exchange service. The decision only addresses one component of the complex economic regulatory scheme applicable to Telus." RSL Com Canada offered that the costing in 2000-745 was merely for quantifying the size of the contribution fund to support service in high-cost areas. Despite Telus’ protests to the contrary, the CRTC did not abdicate its statutory responsibility, according to RSL Com Canada. "Even if it could be said that Decision 2000-745 requires an immediate reassessment of whether or not Telus’s tariffed rates are just and reasonable, which is not conceded, the determination of what is a ‘just and reasonable’ rate is a question of fact to be determined by the regulator," the competitor asserted. "This means that a court is not entitled to review it so long as the regulator addresses the right question, namely the justness and reasonableness of rates, and does not base its decision on irrelevant considerations." Telus cited several cases where it was decided that the earnings of a utility must be considered if a regulator is to set just and reasonable rates. But RSL Com Canada countered that the Telecommunications Act explicitly gives the CRTC discretion to set any method it wants, based on whatever calculations it sets, when determining just and reasonable rates. The commission is not required to use an earnings-based model for regulation. "Even if the argument proffered by Telus to the effect that the setting of ‘just and reasonable’ rates entitles a carrier to earn a return sufficient to pay reasonable dividends and attract capital, which is not conceded, Telus has tendered no evidence demonstrating that Decision 2000-745 will prevent it from continuing to attain these objectives," RSL Com Canada claimed. "In fact, Telus’s tariffed rates were not rendered unjust or unreasonable by Decision 2000-745 for the reasons described above, and there is nothing preventing the CRTC from ensuring that any tariffed rates to be charged by Canadian carriers will be just and reasonable on January 1, 2002, when the costing methodology employed for the purpose of quantifying the TSR (total subsidy requirement) takes effect." In responding, Telus accused RSL Com Canada of misrepresenting both Telus’ position and the findings of the court cases cited. "These cases stand, and are cited by Telus, for the proposition that where a public utility is fixed with an obligation to provide service, and incurs expenses and invests in plant to discharge that obligation, it is entitled to a return of and on that investment, and a rate which does not provide for a return of investment, let alone a return on that investment, is not just and reasonable." Grieve tells Network Letter that his company has a series of options left. "One is to appeal to the Supreme Court and that’s unlikely. We have 60 days to consider that and it’s not on the top of my list of things to do right now" he says. "Another thing we could do is seek a review and variance with the CRTC of its decision and the third one is just to wait and deal with it in the price cap proceeding." Telus will decide its next step within a month, he adds. The CRTC is already considering a review & vary application from Bell over other aspects of the decision.

Telus denied leave to appeal contribution decision, but still sees light at end of tunnel

News | February 26, 2001

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