File No.: 32607
SUPREME COURT OF CANADA (ON APPEAL FROM THE FEDERAL COURT OF APPEAL)
BETWEEN: BELL CANADA APPELLANT - and-
BELL ALiANT REGIONAL COMMUNICATIONS, LIMITED PARTNERSHIP, CONSUMERS' ASSOCIATION OF CANADA, NATIONAL ANTI-POVERTY ORGANIZATION and PUBLIC INTEREST ADVOCACY CENTRE, MTS ALLSTREAM INC., SOCIETE EN COMMANDITE TELEBEC and TELUS COMMUNICATIONS INC. RESPONDENTS - and-
CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION INTERVENER (Respondent) AND BETWEEN: TELUS COMMUNICATIONS INC. APPELLANT - and-
BELL CANADA, ARCH DISABILITY LAW CENTRE, BELL ALiANT REGIONAL COMMUNICATIONS, LIMITED PARTNERSHIP, CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION, CONSUMERS' ASSOCIATION OF CANADA, NATIONAL ANTI-POVERTY ORGANIZATION and PUBLIC INTEREST ADVOCACY CENTRE, MTS ALLSTREAM INC., SASKATCHEWAN TELECOMMUNICATIONS and SOCIETE EN COMMANDITE TELEBEC RESPONDENTS
MEMORANDUM OF ARGUMENT OF THE RESPONDENTS, CONSUMERS' ASSOCIATON OF CANADA, NATIONAL ANTI-POVERTY ASSOCIATION and PUBLIC INTEREST ADVOCACY CENTRE on both Appeals Date: February 12, 2009
Paliare Roland Rosenberg Rothstein Burke - Robertson LLP LLP Barristers & Solicitors Barristers & Solicitors 70 Gloucester Street 250 University Avenue, Suite 501 Ottawa, ON Toronto, Ontario K2P OA2 M5H 3E5
Richard P. Stephenson LSUC #286750 Robert E. Houston, Q.C. Ph.: (416) 646-4325 Ph.: (613) 566-2058 Fax: (416) 646-4335 Fax: (613) 235-4430 Email: [email protected] Email: [email protected] Ottawa Agents for Counsel for the Solicitors for the Respondents, the Respondents, Consumers' Association of Consumers' Association of Canada and Canada, National Anti-Poverty the National Anti-Poverty Organization Organization and Public Interest Advocacy Centre ORIGINAL TO: THE REGISTRAR
COPIES TO:
Blake Cassels & Graydon LLP Gowling Lafleur Henderson LLP Barristers and Solicitors Barristers & Solicitors Box 25 Commerce Court West 2600 - 160 Elgin Street 199 Bay Street Ottawa, ON Toronto ON M5L 1A9 K1P 1C3
Neil Finkelstein LSUC# 21640K Brian A. Crane, Q.C. Tel: 416-863-2266 Fax: 416-863-2653 Ph.: (613) 233-1781 n.t;lilJinf<~I~tGjn@Rlgk~§,~Qm Fax: (613) 563-9869 Email: [email protected][ David Kidd LSUC #18185R Tel: 613-788-2203 Ottawa Agents for Counsel for Bell David Kidd@l;>lakes.com Canada Catherine Beagan Flood LSUC #43013U Tel: 416-863-2269 Fax: 416-863-2653 c;;bt;l@Ql?kej).C::;.Qm
Solicitors for Bell Canada
Burnet, Duckworth & Palmer LLP Gowling Lafleur Henderson LLP Barristers and Solicitors Barristers & Solicitors 350 yth Ave. S.W., Suite 1400 2600 - 160 Elgin Street Calgary AB T2P 3N9 Ottawa, ON K1P 1C3 John E. Lowe Tel: 403-260-0257 Fax: 403-260-0332 Henry S. Brown, Q.C. [email protected] Ph.: (613) 233-1781 Fax: (613) 788-3433 Solicitors TEL US Communications Inc. Email: lJt;lNy.brQ\f\.In@gQwling~.~9n}
Ottawa Agents for Counsel for Telus Communications Inc. AND TO:
Torys LLP Anthony Mcintyre Barristers and Solicitors Canadian Radio-Television and Suite 3000, 79 Wellington St. W. Telecommunications Commission Toronto-Dominion Centre 1 Promenade du Portage P.O. Box 270, Stn. Toronto Dom. Gatineau, Quebec Toronto ON M5K 1 N2 K1A 4B1 Telephone: (819) 994-7572 Jo h n Laski n 119§_~h@tQ[Y~,.QQm FAX: (819) 953-0589 Afshan Ali aali@tory§~com E-mail: [email protected] Tel: 416-865-0040 Fax: 416-865-7380 Ottawa Agent for the Intevener, Canadian Solicitors for the Respondent, Canadian Radio-Television and Telecommunications Radio-Television and Telecommunications Commission Commission
Cox & Palmer Barristers and Solicitors 1100 Purdy's Wharf Tower One 1959 Upper Water Street, P.O. Box 2380 Central Halifax NS B3J 3E5
Daniel M. Campbell, Q.C. Tel: 902-421-6262 Fax: 902-421-3130 dC_cJ[DQQ~Q2 Solicitors for the Respondent, Bell Aliant Regional Communications, Limited Partnership Goodmans LLP Nelligan O'Brien Payne, LLP Barristers and Solicitors 1900 - 66 Slater Street 250 Yonge Street, Suite 2500 Ottawa ON K1 P 5H1 Toronto ON M5B 2M6 Dougald E. Brown Michael Koch Tel: 613-231-8210 Fax: 613-788-3661 Tel: 416-587-5156 Fax: 416-979-1234 [email protected] mKQQb@gQQcJfl19!l§.QQ Ottawa Agents for Counsel for the Solicitors for the Respondent, MTS Respondent, MTS Allstream Inc. Allstream Inc. Arch Disability Law Centre South Ottawa Community Legal 425 Bloor Street East Services Suite 110 406 - 1355 Bank Street Toronto ON M4W 3R5 Ottawa ON K1YH 8K7 Ivana Petricone, Executive Director Chantal Tie Tel: 416-482-8255 ext 226 Fax: 416- Tel: 613-733-0140 Fax: 613-733-0401 482-2981 Ottawa Agents for the Respondent, ARCH [email protected],Qg Disability Law Centre [email protected] Solicitor for the Respondent, ARCH Disability Law Centre Saskatchewan Telecommunications 2121 Saskatchewan Drive 1ih Floor Regina, Saskatchewan S4P 3Y2 Robert Hearsche RottGrt hearsche@§gsktel. S~~E Brian Armstrong Tel: 306-777-4509 Fax: 306-359-7475 Respondent Societe En Commandite Telebec 7151 Jean Talon Street East yth Floor Anjou, Quebec H1 M 3N8 Allen Mercier Tel: 514-493-5340 Fax: 514-493-5379 [email protected] Respondent TABLE OF CONTENTS PART 1- STATEMENT OF FACTS •••••.•...... •..••••.•.••...•..••..•••..••...••••..•.••••.•....•....•••••••.••...... •.....•...... •....•.•...... •...•.....•..•. 1 A. OVERVIEW ...... 1 B. BACKGROUND FACTS ...... 4 (i) The Creation of the Deferral Accounts .. , ...... 4 (ii) Application of the Price Caps Decision to Locol Telephony Tariffs ...... 6 (iii) Disposition of the Deferral Accounts ...... 7 (iv)Judicial History ...... 8 PART 11- QUESTIONS IN ISSUE ..••.••••.•••.•...... •...••.•..•..•...•..•.•••••.••...••....•••••••.•...... ••..•.•....•..•.•...... •.....••••..•••...... •..•.•.•..••.. 9 PART 111- STATEMENT OF ARGUMENT •.•....•••••.•••.....•••.••••••••..•....•••••••.•...•.•.•.•.•..•.••....•.•.••••••••.•.•.•..•.•••.••...•.•...... ••.•••..•.•.. 10 A. STANDARD OF REVIEW ...... 10 (i) The Question in Issue ...... 10 (ii) Applicoble Standard of Review ...... 10 B. THE OPERATION AND RECONCILIATION OF DEFERRAL ACCOUNTS DOES NOT CONSTITUTE RETROACTIVE RATEMAKING ...... 11 (i) Purpose and Effect of Deferral Accounts ...... 11 (ii) Deferral Accounts Consistent with the Achievement ofJust and Reasonable Rates ...... 15 (iii) None of the Appellants' Authorities Deal with the Issue in Question ...... 16 (iv) Deferred Taxes as an Example of the Operation of Deferral Accounts ...... 16 (v) U.S. Authorities ...... 18 C. THE PRICE CAP DEFERRAL ACCOUNTS WERE AN INTRINSIC ELEMENT OF THE PRICE CAPS SCHEME ...... 20 (i) Purpose and Effect of Deferral Accounts within the Price Cops Scheme ...... 20 (ii) The Possibility of Consumer Rebates in the Event of Positive Deferral Account Bolances was Always Understood... 2l (iii) Bell's Over-Collection of Taxes was Included in its Deferral Account ...... 23 D. THE APPELLANTS' CONDUCT THROUGHOUT THE PRICE CAP PERIOD IS INCONSISTENT WITH THE JURISDICTIONAL LIMITATION NOW ALLEGED ...... 25 (i) The Appellants Never Challenged the CRTC's Jurisdiction to Order Customer Rebates ...... 25 (ii) The /LECs Continued to Apply to the CRTC to Approve Disposition of Funds in the Deferral Accounts, Long After the Rates were made Final ...... 27 E. SPECIFIC RESPONSES TO THE APPELLANTS' SUBMISSIONS REGARDING THE CRTC'S JURiSDICTION ...... 28 (i) The Distinction between Interim and Final Rates has no Impact on the Disposition of Deferral Accounts ...... 28 (ii) No Improper Reliance on Section 7 of the Act...... 30 (iii) Telus' Submission that Authority to Create Deferral Accounts does not Include the Authority to order Rebates ...... 31 (iv) Jurisdiction to Order a One-Time Credit ...... 32 E. CONCLUSION ...... 33 (i) The CRTC's Decisions Raise no Jurisdictional Issue ...... 33 PART IV - ORDER ON COSTS ..•.•••.••...... ••..••.•••••••..••...•••..••••..•..•.....••••••....••...•••••.••...... ••••••••.•.•••..•.....••••..•..•••..••••••••..•.•... 35 PART V - ORDER SOUGHT .••••••.•..•.•..•...••.••.••••.•...... ••••.••••...•..•.••••••....•••.••.••••.•....•••.•..•••••..••..••.••..••••••..•...... ••••••••.•....•.•.••• 35 PART VII- TABLE OF STATUTORY AUTHORITIES ..•...... •••...... •...... ••.•...... •.....••••••.•...... •••••...... ••.••••...... •••••...... •..•.. 39 File No.: 32607 SUPREME COURT OF CANADA (ON APPEAL FROM THE FEDERAL COURT OF APPEAL) BETWEEN: BELL CANADA APPELLANT - and- BELL ALiANT REGIONAL COMMUNICATIONS, LIMITED PARTNERSHIP, CONSUMERS' ASSOCIATION OF CANADA, NATIONAL ANTI-POVERTY ORGANIZATION and PUBLIC INTEREST ADVOCACY CENTRE, MTS ALLSTREAM INC., SOCIETE EN COMMANDITE TELEBEC and TELUS COMMUNICATIONS INC. RESPONDENTS - and- CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION INTERVENER (Respondent) AND BETWEEN: TELUS COMMUNICATIONS INC. APPELLANT - and- BELL CANADA, ARCH DISABILITY LAW CENTRE, BELL ALiANT REGIONAL COMMUNICATIONS, LIMITED PARTNERSHIP, CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION, CONSUMERS' ASSOCIATION OF CANADA, NATIONAL ANTI-POVERTY ORGANIZATION and PUBLIC INTEREST ADVOCACY CENTRE, MTS AllSTREAM INC., SASKATCHEWAN TELECOMMUNICATIONS and SOCIETE EN COMMANDITE TElEBEC RESPONDENTS MEMORANDUM OF ARGUMENT OF THE RESPONDENTS, CONSUMERS' ASSOCIATON OF CANADA, NATIONAL ANTI-POVERTY ASSOCIATION and PUBLIC INTEREST ADVOCACY CENTRE on both Appeals PART 1- STATEMENT OF FACTS A. OVERVIEW 1. In this factum the respondents Consumers' Association of Canada, National Anti-Poverty Organization and Public Interest Advocacy Centre (collectively the "Consumer Groups") respond to both the appeal brought by Bell Canada ("Bell") and the appeal brought by Telus Communications Inc. ("Telus,,)1. 2. There are two matters at stake in these appeals. First, there is an amount in excess of $200 million which has been paid by local telephone customers to the Appellants and which has been recorded by them in a deferral account (the "Price Cap Deferral Account") pursuant to an order of the Canadian Radio television and Telecommunication Commission (the "CRTC" or the "Commission"). The more than $200 million represents a fraction of the total 1 Collectively referred to herein as the "ILECs". 1 funds recorded in the Price Cap Deferral Account, and is the residue remaining after the use of the other funds for various purposes authorized by the CRTC, including the funds at issue in SCC File No. 32611.2 The CRTC ordered that this residue be paid to customers in the form of rebates in Telecom Decision CRTC 2006-9 (the "Deferral Accounts Decision,,).3 The Appellants seek to overturn that decision. 3. Secondly, this appeal will also determine the future use of deferral accounts as a regulatory device employed by regulators and regulated utilities across Canada. Deferral accounts have a long history and are commonly used by a wide variety of Canadian and international regulators. The CRTC's Deferral Accounts Decision is entirely consistent with that history, and with the underlying regulatory purpose of deferral accounts. If successful, this appeal would seriously undermine, if not eliminate, the future use of this long accepted regulatory device. 4. In the Telecom Decision CRTC 2002-34 (the "Price Caps Decision") the CRTC established a new regulatory regime for the ILECs. It had a number of key components. First, it was intended to have a duration of four years. Secondly, the Price Cap Deferral Account was an intrinsic element of that regime. It was anticipated that there might be ongoing contributions to the deferral account through the duration of the price caps regime. Thirdly, it was explicitly contemplated that contributions made to the Price Cap Deferral Account would be used for the benefit of customers, including potential customer rebates. 5. Notwithstanding these three explicit elements of the regime imposed by the CRTC, the ILECs now claim irrevocable ownership of the funds recorded in the Price Cap Deferral Account, and further claim that the CRTC forever lost its jurisdiction to make customer rebates out of the Price Cap Deferral Account less 2 See Appellant Factum of Bell Canada [Bell Factum], para. 26, Appellant Factum of TELUS Communications Inc. [Telus Factum], para. 37. In particular, these are the amounts referable to residential customers in non-High Cost Service Areas ("non-HCSAs"). 3 Disposition of funds in the deferral accounts, Telecom Decision CRTC 2006-9 (February 16, 2006) [Deferral Accounts Decision], Joint Appellants' Record, Vol. 1, pp. 6-47. 2 than one year into the four year price caps period (the "Price Caps Period"). In substance, this appeal is an impermissible collateral attack on the Price Caps Decision, a decision which the ILECs never sought to appeal. 6. The Consumer Groups submit that the Appellants raise no jurisdictional issue, and certainly no jurisdictional error in their appeals. In particular, the Consumer Groups submit: a. The CRTC has the clear jurisdiction to require the creation, operation and disposition of deferral accounts, both as an intrinsic aspect of its authority to maintain just and reasonable rates, and of its authority over the accounting methodology used by ILECs; b. Deferral accounts are an important tool used by regulators to facilitate the achievement and maintenance of just and reasonable rates. Among other things, their use assists regulators in managing the negative consequences to utilities and customers ariSing from the risks associated with the uncertainties of predicting future events; c. The operation of deferral accounts inherently involves the shifting of the recognition of costs or expenses from one regulatory period to another. So long as the reconciliation of the deferral account is undertaken on a prospective basis, that reconciliation will constitute prospective, not retroactive ratemaking; d. The operation of deferral accounts is unaffected by the existence of a final rate order. They would be superfluous if only permitted to operate while rates remained "interim"; e. The creation, operation and disposition of the Price Cap Deferral Accounts by the CRTC, including the Deferral Accounts Decision 3 was entirely consistent with both its statutory authority 4 and recognized regulatory practice; f. It is not disputed that the ILECs rates were made "final" in March 2003. However, it was an express term of the governing rate order that those rates were always subject to the ILECs' obligation to maintain the deferral accounts for the CRTC's ongoing supervision and ultimately their disposition; g. The ILECs rely on an event which occurred in March 2003 as having fundamentally and permanently altered the CRTC's jurisdiction over the Price Cap Deferral Account. This position was never asserted by the ILECs in numerous proceedings before the CRTC in relation to the Price Cap Deferral Accounts for years thereafter, and their conduct throughout the price caps period was completely inconsistent with this position. B. BACKGROUND FACTS 7. The Consumer Groups accept the facts set out by Bell in paragraphs 8, 10-12, and 17-29 of its factum and those set out by Telus in paragraphs 7-42 of its factum. The following additional facts are relevant to the issues on appeal. (i) The Creation of the Deferral Accounts 8. The Price Cap Deferral Accounts were created by the Price Caps Decision in 2002. The effect of the specific formula established in the Price Caps Decision for residential telephone services in non-HCSAs would have resulted in price decreases in any year where inflation was lower than 3.5%.5 No party has ever disputed that this formula produces a rate which is "just and reasonable", from the perspective of both the ILECs and their customers. 4 As outlined below, this authority is provided by ss. 25, 27 and 37 of the Telecommunications Act, S.C. 1993, c. 38 [Telecommunications Act]. 5 Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34 (May 30, 2002) at para. 638 [Price Caps Decision], Book of Authorities of the Appellant Bell Canada [Bell Book of Authorities], Vol. 3, Tab 18. 4 9. However, the ILECs and AT&T Canada argued against mandated rate reductions to residential local service rates on the grounds that such reductions would negatively impact on the CRTC's goal of encouraging the emergence of competition in local telephony services in the non-HCSA market. The CRTC accepted this argument. 6 10. Therefore, the CRTC concluded that, rather than requiring ILECs to reduce rates when inflation was lower than 3.5%, ILECs would be required to track an amount equal to the revenue reduction that would have otherwise occurred, pursuant to the price cap formula, and to record it in a deferral account: 403. The Commission notes, however, that the ILECs and AT&T Canada argued against mandated reductions to residential local service rates on the grounds that such reductions would have a negative impact on competition in the local market. The Commission agrees that there is the potential for adverse effects on local competition as a result of mandated rate reductions. Consequently, the Commission has decided to implement a deferral account mechanism to mitigate these potential effects. 404. In this proceeding, the Commission explored the use of a deferral account in the context of an overall price cap constraint. With a deferral ~ccount mechanism, an amol,!!1t egual to the revenuEu:.eduction reguired RY. a basket constraint is assigned to the deferral account and. retained in that accoyntJnstead of reducing the revenues of the basket by means of rate reductions. The monies in the deferral account are then available for other p~rposes, including possible subscriber rebates.? .. ~- 11. It is apparent that, but for the CRTC's concerns regarding the potential adverse impact on the development of competition in local telephony, the amount determined by the CRTC to be adequate to fully compensate the ILECs for the provision of the local telephony services was the rate actually imposed, less the amount, if any, to be recorded in the deferral account. 12. For that reason, in the Price Caps Decision, the CRTC anticipated that any deferral account balance would be drawn down in the form of rate reductions, rebates, or other subscriber benefits: 6 Price Caps Decision, ibid. at paras. 403 and 407, Bell Book of Authorities, Vol. 3, Tab 18. 7 Price Caps Decision, ibid. at paras. 403-404 [emphasis added], Bell Book of Authorities, Vol. 3, Tab 18. 5 412. The Commission anticipates that an adjustment to the deferral account would be made whenever the Commission approves rate reductions for residential local services that are proposed by the ILECs as a result of competitive pressures. The Commission also antic:jpates that the !!~ferral account would be drawn down to mitigate rate increases for residential service that could result from the aQQroval of exogenous factors or when inflation exceeds Qroductivity. Other draw downs could occur. for examQle. through subscriber rebates orthe funding of initiatives that would benefit residential customers in other ways.8 13. The Price Caps Decision was not appealed by any party. (ii) Application of the Price Caps Decision to Local Telephony Tariffs 14. Throughout the price cap period, the CRTC reviewed each ILEG's annual price cap filings and rendered tariff decisions on the rates for each ILEC. These decisions included directions regarding the disposition of aspects of the ILEC's deferral account balances.9 15. One such decision was Telecom Decision CRTC 2003-15, the CRTC's decision in respect of Bell's 2002 annual price cap filing. The decision resulted from an application from Bell in which it, among other things, sought a determination from the CRTC as to the disposition of certain tax savings which had accrued to Bel1. 10 In accordance with the price caps scheme, Bell would have been required to adjust rates downward to reflect the exogenous tax savings. 11 However, the CRTC determined that Bell should pay the adjustment amount into its deferral account instead. 12 The CRTC also approved, in part, Bell's proposed rate changes to meet its price caps obligations. The CRTC 8 Price Caps Decision, ibid. at para. 412 [emphasis added], Bell Book of Authorities, Vol. 3, Tab 18. 9 Bell Canada - 2002 Annual price cap filing, Telecom Decision CRTG 2003-15 (March 18, 2003) [Telecom Decision CRTC 2003-15], Bell Book of Authorities, Vol. 3, Tab 19; Review and disposition of deferral accounts for the second price cap period, Telecom Public Notice GRTG 2004-1 (March 24, 2004) [Telecom Public Notice CRTC 2004-1], Joint Appellant's Record, Vol. 1, reP. 82-86. Telecom Decision CRTC 2003-15, ibid., Bell Book of Authorities, Vol. 3, Tab 19. 11 Unlike the constraint on rate reductions in circumstances where inflation was less than 3.5%, the Price Caps Decision contained no constraint on rate reductions in circumstances where the ILEG experienced an event which qualified for "exogenous" treatment and reduced the ILEG's costs. 12 Price Caps Decision, supra note 5 at paras. 653-4, Bell Book of Authorities, Vol. 3, Tab 18; Telecom Decision CRTC 2003-15, supra note 9 at para. 32, Bell Book of Authorities, Vol. 3, Tab 19. 6 rendered certain of Bell's rates, including its rates for residential local services in non-HCSAs, final. 16. In Telecom Decision CRTC 2003-18, the CRTC's decision with respect to Telus' 2002 annual price cap filing, the CRTC rendered certain of Telus' rates, including its rates for residential local services in non-HCSAs, final. 13 17. The Bell and Telus rates which the CRTC approved as final remained subject to Bell's obligation to maintain a deferral account as directed in the Price Caps Decision, pending a final determination by the CRTC on the disposition of the balance of that account. 14 Indeed, following Telecom Decisions 2003-15 and 2003-18, Bell and Telus participated in the CRTC's ongoing process for determining the disposition of the deferral account balances. That process culminated in the Deferral Accounts Decision. 15 (iii) Disposition of the Deferral Accounts 18. Following the Deferral Accounts Decision, in Telecom Decision CRTC 2008-1, the CRTC considered Bell and Telus' proposals to use their deferral account balances for broadband expansion, but approved the proposals only in part. 16 The CRTC determined that, in accordance with the Deferral Accounts Decision, the remaining accumulated balance in Bell and Telus' deferral accounts must be distributed in the form of consumer rebates. 17 13 TELUS Communications Inc. - 2002 Annual price cap filing Telecom Decision 2003-18 (March 18,2003) [Telecom Decision 2003-18], Book of Authorities of the Appellant TELUS Communications Inc. [Telus Book of Authorities], Tab 37. 14 Telecom Decision CRTC 2003-15, supra note 9 at para. 65, Bell Book of Authorities, Vol. 3, Tab 19; Reasons for Judgment of the Federal Court of Appeal dated March 7, 2008 in Bell Canada v. Canadian Radio-Television and Telecommunications Commission, 2008 FCA 91 at para. 16 [FCA Reasons], Joint Appellants' Record, Vol. 1, p. 60. 15 Telecom Public Notice CRTC 2004-1, supra note 9, Joint Appellants' Record, Vol. 1, pp. 82-86; Deferral Accounts Decision, supra note 3, Joint Appellants' Record, Vol. 1, pp. 6-47. 16 Use of deferral account funds to improve access to telecommunications services for persons with disabilities and to expand broadband services to rural and remote communities, Telecom Decision CRTC 2008-1 (January 17, 2008) at para. 113 [Telecom Decision CRTC 2008-1], Telus Book of Authorities, Tab 39. 17 Telecom Decision CRTC 2008-1, ibid., Telus Book of Authorities, Tab 39. 7 19. Therefore, the CRTC required Bell and Telus to submit, by March 25, 2008, proposals for the appropriate method to rebate the funds to residential subscribers in non-HCSAs of record as of January 17, 2008. 18 However, neither Bell nor Telus chose to submit any rebate distribution proposal and, consequently, the CRTC did not make any final order with respect to the method in which the deferral account balance would be distributed to subscribers. 19 (iv) Judicial History 20. Bell and Telus sought leave to appeal the Deferral Accounts Decision to the Federal Court of Appeal. Leave was granted and the appeals were heard by the Federal Court of Appeal on January 23 and 24, 2008. 21. The Federal Court of Appeal dismissed the appeals in its decision issued March 7, 2008.20 With respect to Bell and Telus' argument that the distribution of rebates to consumers would constitute impermissible retroactive ratemaking, the Federal Court of Appeal held: [21] In practical terms, it is helpful to think of the balance in an ILEC's deferral account as an amount representing the amount of a contingent obligation of the ILEC to use a certain portion of the rates collected from residential local subscribers in non-high cost service areas in the manner that the CRTC would direct. .. [B]ut for the need, perceived by the CRTC, to encourage competitors to enter the market for residential local subscribers in non-high cost service areas, the permitted rate would have been lower. [23] The word "rebate" normally means a refund or repayment of money to the person who paid it. However, in the Deferral Account Decision the word "rebate" is used in a slightly different sense, to connote a method, yet to be determined, whereby the amount to be "rebated" is used to benefit the relevant class of subscribers as it is constituted on some date after May 31, 2007 (in the case of Bell Canada, the chosen date in January 17, 2008; see Telecom Decision CRTC 2008-1). For example, a "rebate" might be made by a one-time credit, after May 31,2007, to the accounts of persons who as of some future date are residential local subscribers in non-high cost service 18 Telecom Decision CRTC 2008-1, ibid. at para. 114, Telus Book of Authorities, Tab 39. 19 A schematic depiction of the various CRTC decisions from 2002 through 2008 which touch on these appeals is set out at Appendix 1 of this factum. 20 Judgment of the Federal Court of Appeal dated March 7, 2008 in Bell Canada v. Canadian Radio-Television and Telecommunications Commission, Court File No. A-516-06 [FCA Judgment], Joint Appel/ants' Record, Vol. 1, pp. 48-49. 8 areas. Alternatively, a "rebate" might be made by means of a reduction in the rates payable by those subscribers for some future period.21 22. Ultimately, the Federal Court of Appeal concluded that the rebate order was "entirely prospective" since it did not, "in intent or effect", reduce any rates previously determined to be just and reasonable. 22 PART II - QUESTIONS IN ISSUE 23. Bell raises the following issue on its appeal: (a) Whether the CRTC has jurisdiction to order Bell to give rebates in respect of rates that the CRTC had previously approved as just and reasonable on a final basis? 24. Telus raises the following issues and sub-issues on its appeal: (a) What standard of review should the Court adopt in reviewing the decision in this case? (b) Does the CRTC have the jurisdiction to order a rebate of rates approved as just and reasonable on a final basis? (i) Does the CRTC have the authority to retrospectively revise rates that it has approved as just and reasonable? (ii) Does the CRTC have the express or implied authority to confiscate the proceeds of final rates? 21 FCA Reasons, supra note 14 at paras. 21 and 23, Joint Appellants' Record, Vol. 1, p. 69. 22 FCA Reasons, ibid. at para. 55, Joint Appellants' Record, Vol. 1, p. 76. 9 PART III - STATEMENT OF ARGUMENT A. STANDARD OF REVIEW (i) The Question in Issue 25. Identifying the applicable standard of review requires the Court to identify the question at issue. However, the questions posed by the Appellants proceed on a false premise. The Appellants argue strenuously that the CRTC has no jurisdiction to engage in retroactive ratemaking once it has made a final rate order. However, neither the Consumer Groups, nor anyone else, suggest otherwise. 26. The issue in this appeal is not whether the CRTC has the jurisdiction to engage in retroactive ratemaking; rather the issue is whether the impugned decision constitutes, as a matter of fact and law, retroactive ratemaking. The Consumer Groups submit it does not. To the contrary, the Deferral Accounts Decision is precisely what its name suggests it is: the entirely legitimate exercise of the CRTC's undoubted jurisdiction to make an order reconciling and resolving a deferral account, created pursuant to a prior order of the Commission. (ii) Applicable Standard of Review 27. The Consumer Groups submit that the essence of the ILECs' appeal is their position that deferral accounts can never operate once a final rate order has been made, because they inevitably constitute retroactive ratemaking. The Consumer Groups acknowledge that, if that proposition is an accurate statement of the law, then that is a question to which the correctness standard applies. 28. On the other hand, if it is the ILECs' position that there may be circumstances where deferral accounts can lawfully operate within the context of a final rate order, but that the specific design, operation or disposition of the Price Cap Deferral Account was flawed, then that is a question to which the 10 reasonableness standard of review is applicable, and to which considerable deference ought to be shown. 29. The CRTC is an expert tribunal. The design and oversight of regulatory regimes is a highly technical undertaking. The design, operation and disposition of deferral accounts are intrinsic aspects of that technical undertaking. The CRTC is responsible for ensuring that all rates that are charged for telecommunications services are just and reasonable. This Court has held that the CRTC has "broad powers" to set just and reasonable rates?3 30. The breadth of the CRTC's jurisdiction to determine just and reasonable rates reflects the polycentric nature of the exercise. The CRTC is called upon to balance the interests of the ILECs, competitors and customers. In balancing these interests the CRTC must have regard to the policy objectives and the overall scheme of its constituent statute: Deference will usually result where a tribunal is interpreting its own statute or statutes closely connected to its function, with which it will have particular familiarity. 24 31. In ATGO Electric Ltd. v. Alberta (AEU8) the Alberta Court of Appeal determined that "reasonableness" was the proper standard of review of a decision of the tribunal regarding the scope of the permissible disposition of a deferral account in that regulatory regime. 25 B. THE OPERATION AND RECONCILIATION OF DEFERRAL ACCOUNTS DOES NOT CONSTITUTE RETROACTIVE RATEMAKING (i) Purpose and Effect of Deferral Accounts 32. Deferral accounts are a longstanding and widely used feature of the economic regulation of utilities. By their nature, deferral accounts are used to 23 Bell Canada v. Canada (CRTC), [1989] 1 S.C.R. 1722 at para. 23 [Bell Canada 1989], Telus Book of Authorities, Tab 11. 24 Dunsmuir v. New Brunswick, 2008 SCC 9 at para. 54, Telus Book of Authorities, Tab 19. 25 A TCO Electric Ltd. v. Alberta (EUB), [2004] A.J. No. 823 at para. 59, 2004 ABCA 215 [A TCO], Book of Authorities of the Respondents, Consumers' Association of Canada, National Anti Poverty Association and Public Interest Advocacy Centre [Book of Authorities], Tab 2. 11 assist in the achievement of just and reasonable rates by shifting (i.e. "deferring") the recognition of costs or revenue from one period to another. The use of the deferred cost account in a ratemaking context is so common and so fundamental that no agency is likely to consider it necessary to study whether as a matter of "policy" costs should be deferred; however, it will insist that a proper record be made pointing to the need for a specific cost deferral. 26 33. In Heritage Gas (Re), the Nova Scotia Utility and Review Board (the "NSURB") received expert evidence with respect to the role of deferral accounts by Canadian rate regulated utilities and made the following observations: 16 Ms. McShane testified, and the Board has observed, that deferral accounts are a common feature of Canadian gas utilities. 17 The purpose of deferral accounts is described by Ms. McShane in her evidence at page 77 of the application: Under what circumstances are deferral accounts generally used by Canadian utilities? Deferral accounts are generally used to record differences between forecast and actual revenues or costs. The difference between the forecast amount (included in current rates) and the actual amounts are typically either refunded to, or collected from, customers in a subsequent period. Deferral accounts may be related to revenues or costs and may be either permanent in nature (e.g., weather variations), or for company-specific events (e.g., Y2K expenses). Are there accepted criteria for determining whether the revenues or costs should be subject to a deferral account? There are no universally accepted criteria. The Alberta Energy and Utilities Board has recently stated that, "The Board does not consider there to be a definitive Board policy regarding the use of deferral accounts. Rather, the Board's practice has been to evaluate the use of a deferral account on a case-by-case basis, on its own merit." (A TCO Pipelines, Decision 2003-100, December 2, 2003). However, in that decision, the Board did note a number of criteria put forth by various parties in that proceeding, and concluded that the suggested criteria were reasonable. These criteria were: * Materiality of the forecast amount, 26 Leonard Saul Goodman, The Process of Ratemaking (Vienna, Virginia: Public Utilities Reports, Inc., 1998) at 322 [Goodman], Book of Authorities, Tab 12. 12 * Uncertainty regarding the accuracy and ability to forecast the amount, * Whether or not the factors affecting the forecast are beyond the utility's control, * Whether or not the utility is typically at risk with respect to the forecast amount. How common are deferral accounts generally among Canadian utilities? Deferral accounts are a very common feature of the regulatory framework of most mature Canadian utilities. However, the extent to which individual utilities rely on deferral accounts varies widely. At one end of the spectrum lies Foothills Pipeline (a National Energy Board regulated gas pipeline) which has a full cost of service tariff. Foothills accrues all differences between annual forecast and actual revenues and costs. The accumulated balances are recovered from/refunded to customers, so that the pipeline always earns its allowed return on equity. At the other end of the spectrum are the Alberta gas and electric distribution utilities and Nova Scotia Power which have a relatively limited number of deferral accounts.27 34. As observed by the NSURB, the need to deal with uncertainties related to forecasts of future events is one of the rationales for the use of deferral accounts in utility regulation. When regulators set rates for utilities they are often required to base their analysis on forecasts of future events, both with respect to future revenues and future expenses of the utility. Forecasts of future events inevitably come with uncertainty as to whether the forecast will be realized. 28 35. Regulators have determined that it is reasonable for utilities to internalize the risks and benefits of some future uncertainties. However, regulators have determined that it is not appropriate for some other types of future risks to be borne by either the utility or its customers. In such cases, rates are set on the basis of forecast costs (or revenues, as the case may be) and the utility is 27 Heritage Gas Ltd. (Re) , [2004] N.S.U.R.BD. No. 66 (Nova Scotia Utility and Review Board) at ~aras. 16-17 [Heritage Gas], Book of Authorities, Tab 11; 8 Maritimes & Northeast Pipeline Limited Partnership (Re) , 2000 LNCNEB 20 (Canada National Energy Board) at paras. 97-116 [Maritimes], Book of Authorities, Tab 13; ATGO, supra note 25 at para 25-31, Book of Authorities, Tab 2. 13 required to track actual costs (or revenues) in a deferral account. On a periodic basis, the utility is permitted (or required) to return to the regulator with a reconciliation of the variance (positive or negative) between the forecast and the actual results, as reflected in the deferral account.29 36. In the case of the Price Cap Deferral Accounts, the CRTC recognized a number of uncertainties that would play out over the course of the four year Price Caps period, including: a. the actual rate of inflation, and particular whether it would be above or below the productivity factor of 3.5% per year; b. whether and when competitive pressures would develop in the non HCSAs, motivating ILECs to seek rate reductions in these areas; c. whether there would be cost increases from approved "exogenous factors" which would require mitigation; d. whether it would approve customer rebates; or e. whether it would approve the funding of other initiatives that would benefit residential customers in other ways.3D 37. Many deferral accounts are symmetrical in nature, in the sense that there is a risk of both a "positive" variance (i.e. forecast cost exceeds actual) or a "negative" variance (i.e. forecast cost lower than actual).31 Where there is a negative variance, the utility has "under-recovered" from customers, and it will seek the regulator's permission to recover the shortfall from customers during a future period, in the form of an adder to the rates that would otherwise be payable by them. Where there is a positive variance, the utility has "over recovered" from customers, and the regulator will seek to reconcile the deferral 29 Heritage Gas, supra note 27 at paras. 18-34, Book of Authorities, Tab 11; Goodman, supra note 26 at 321-328, Book of Authorities, Tab 12. 30 Price Caps Decision, supra note 5 at para. 412, Bell Book of Authorities, Vol. 3, Tab 18. 31 In the case of revenues being recorded in a deferral account, the situation will be reversed. Where forecast revenues are lower than actual, positive variances will occur, and vice versa. 14 account by awarding the balance to customers in a future period, through a reduction in the rates otherwise payable by them. 32 38. The effects of under-recovery and over-recovery are identical - in each case there is a reconciliation, or "true-up" between the forecast and the actual results. However, the reconciliation, whether positive or negative, is achieved, not through a retroactive adjustment to rates previously paid, but rather through an adjustment to rates to be paid in the future. 33 (ii) Deferral Accounts Consistent with the Achievement of Just and Reasonable Rates 39. The deferral account mechanism in no way derogates from "just and reasonable" rates. To the contrary, deferral accounts complement and reinforce the achievement of just and reasonable rates. By their nature, deferral accounts deal with circumstances where the regulator is satisfied that it would be unfair, unjust and unreasonable to saddle the utility and/or its customers with the financial risks associated with specific circumstances, including uncertain future events. 34 40. Deferral accounts always create the risk of shifting costs or revenues between one financial period and another. As a result, they will often result in a failure to perfectly match the incurrence of those costs or revenues and the provision of the associated utility service. 35 Nevertheless, these accounts are regularly used by utilities and regulators in order to achieve other, more pressing objectives. The management of the uncertainties with respect to particular future events is one such objective. 32 FortisAlberta Inc. (Re) [2008] A.E.U.B.D. No. 44 at paras. 59-71 (Alberta Utilities Commission), Book of Authorities, Tab 10; Maritimes, supra note 28, Book of Authorities, Tab 13; Changes to the contribution regime, Telecom Decision CRTC 2000-745 (November 30,2000) at paras. 78- 79, Book of Authorities, Tab 6; A TCO, supra note 25 at paras. 25-31, Book of Authorities, Tab 2. 33 Ibid. 34 A TCO, supra note 25 at paras. 25-31, Book of Authorities, Tab 2. 35 Town of Norwood Mass. v. FER.C., 53 F.3d 377 (D.C. Cir. 1995) [Town of Norwood], Book of Authorities, Tab 18. 15 (iii) None of the Appellants' Authorities Deal with the Issue in Question 41 . Neither the decision of this Court in Bell Canada 198936 nor the other authorities relied upon by the Appellants in support of the non-controversial proposition regarding the jurisdictional limitations on retroactive rates assist the Appellants' position on this appeal. None of the cases relied upon by the Appellants deal with the central issue in this case - the intrinsic quality of deferral accounts in shifting the recognition of costs or revenues from one regulatory period to another. 42. On the other hand, Canadian courts have specifically recognized that deferral accounts are a legitimate technique for setting just and reasonable rates. 37 The CRTC has the jurisdiction to establish deferral accounts under s. 37(1) of the Telecommunications Act (the "Acf').38 A necessary incident of that statutory authority is the authority to deal with the disposition of those deferral accounts. As one court described it, in the absence of such authority, the regulator would be a "toothless tiger".39 (iv) Deferred Taxes as an Example of the Operation of Deferral Accounts 43. The regulatory treatment of deferred taxes is a useful illustration of the operation of deferral accounts by utilities generally, and by the ILECs specifically. Deferred taxes arise because utilities collect taxes from customers through rates in one financial period which are not payable to the taxing authority until a later financial period. Reconciliation issues can arise if tax rates change between financial periods such that there has been an under-collection or over-collection relative to the amount of taxes actually payable in the future period. 36 Bell Canada 1989, supra note 23, Telus Book of Authorities, Tab 11. 37 Epcor Generation Inc. v. Alberta (Energy and Utilities Board), [2003] A.J. No. 1573 at para. 2, 2003 ABCA 374, Book of Authorities, Tab 9; Newfoundland (Board of Commissioners of Public Utilities) (Re), [1998] N.J. No. 168 at paras. 99,102 (CA) [Newfoundland Re], Bell Book of Authorities, Vol. 2, Tab 12; Direct Energy Regulated Services v. Alberta (Energy and Utilities Board), [2006] A.J. No. 562 at para.12, 2006 ABCA 165, Book of Authorities, Tab 8. 38 Telecommunications Act, supra note 4, s. 37(1). 39 Newfoundland Re, supra note 37 at paras. 94-95, 99, 102-103, Bell Book of Authorities, Vol. 2, Tab 12; TransCanada Pipelines Ltd. v. Canada (National Energy Board), [1987] 2 WW.R. 253 at 14-15 (F.CA) (QL), Book of Authorities, Tab 19. .. 16 44. This precise issue was dealt with by the CRTC in its regulation of ILEC rates. In particular, in Telecom Decision 89-9 the CRTC dealt with the impact of a significant reduction of federal taxes as it pertained to a large number of ILECs across Canada. 40 As a result of the tax reduction, there had been an over collection of deferred taxes through the ILECs' approved revenue requirements in previous years. The CRTC required the ILECs to file proposals with it regarding the appropriate division of the adjustment to the deferred tax liability ("DTL"). The CRTC concluded that: The Commission agrees with most of the parties that, in general, the adjustment to the DTL should go to the benefit of subscribers. The carriers' income tax expenses, computed at the higher income tax rates, formed part of the carriers' 'past revenue requirements. Those tax expenses were passed on to subscribers in the rates they paid for the carriers' services. Except as noted below, the benefit of the excess DTL should therefore be returned to subscribers. Further, the Commission finds that the benefit should go to subscribers in the form of rate reductions. Those reductions are discussed in part IV of this decision. 41 45. Moreover, the CRTC specifically considered and rejected the submission made by one of the carriers that the CRTC lacked the jurisdiction to order the rate reductions: Telesat argued that the Commission does not have the authority to make a retroactive adjustment that would benefit subscribers. The Commission, however, does not regard the adjustment to the DTL and any corresponding rate decrease as a "retroactive windfall adjustment", as described by Telesat. Rather, the adjustment is more accurately described as a prospective accounting change based on current tax laws, as well as on historical events (Le. the accumulation of deferred taxes at an income tax rate higher than the rate at which the income taxes will be paid). The adjustment to the DTL and the subsequent benefit to subscribers in future rates constitute prospective, rather than retrospective, regulation.42 The Consumer Groups submit that the CRTC's analysis and conclusions are equally applicable to other deferral accounts and their disposition, including the Price Cap Deferral Accounts. 43 Conversely, if the ILECs' submission were 40 Deferred tax liability, Telecom Decision CRTC 89-9 (July 17,1989) [Telecom Decision CRTC 89-9], Book of Authorities, Tab 7. 41 Telecom Decision CRTC 89-9, ibid. at 5, Book of Authorities, Tab 7. 42 Telecom Decision CRTC 89-9, ibid. at 7, Book of Authorities, Tab 7. 43 Note that at paragraph 74 of its factum Telus relies upon AGT -Issues related to Income Tax, Telecom Decision CRTC 93-9 (July 23, 1993) (Telus Book of Authorities, Tab 1) as reflecting the 17 correct, in the event that taxes were under-collected for a specific period, ILECs would be powerless to recover the shortfall, notwithstanding the existence of a deferral account. (v) U.S. Authorities 46. There are substantial similarities in the law and practice of utility regulation between Canada and the United States. U.S. authorities with respect to utility regulation are frequently referred to by Canadian regulators and courtS.44 The use of deferral accounts by economic regulators and the relationship of such accounts to retroactive ratemaking has been the subject of considerable analysis and review by U.S. regulators and courts. A leading example is Town of Norwood v. F.E.R.e. 45 ("Town of Norwood") where the court specifically considered the issue of whether the creation and reconciliation of a deferral account violated the prohibition on retroactive rates. A change in accounting rules caused the utility to seek to recover its costs for funding the transition from "pay as you go" to accrual accounting for post-employment benefits for current employees. This recovery would result in increased rates for the next twenty years in order to cover the accumulated but unrecognized obligation to present employees. The proposal was opposed on the basis that this was an 46 impermissible retroactive attempt to recover past costS. 47. Although lengthy, the Court's analysis of the issue is instructive because it confronts the very issue before this Court: Nor does the transition obligation violate the proscription against retroactive ratemaking. The retroactive ratemaking doctrine prohibits the Commission from authorizing or requiring a utility to adjust current rates to make up for past errors in projections. If a utility includes an estimate of appropriate limits of the legitimate use of deferral accounts. However, in that the case, the CRTC specifically reaffirmed and applied its decision in Telecom Decision CRTC 89-9, including the requirement that potential surpluses in deferral accounts could be rebated to customers in the form of reductions to future rates. 44 Newfoundland Re, supra note 37 at fn. 12, Bell Book of Authorities, Vol. 2, Tab 12; Union Gas Ltd. v. Ontario (Energy Board) (1983), 43 O.R. (2d) 489 at 11 (Div. Ct) (QL), Book of Authorities, Tab 20. 45 Town of Norwood, supra note 35, Book of Authorities, Tab 18. 46 Town of Norwood, ibid. at 4, Book of Authorities, Tab 18. 18 certain costs in its rates and subsequently finds out that the estimate was too low, it cannot adjust future rates to "recoup past losses." City of Piqua v. FERC, 610 F.2d 950, 954 (O.C.Cir.1979) (quoting Nader v. FCC, 520 F.2d 182, 202 (D.C.Cir.1975)). As detailed below, however, the transition obligation does not run afoul of the retroactive ratemaking proscription, because NEP has not shifted any costs that it tried but failed to collect in the past: it always planned to collect these costs from future ratepayers, the only shift is timing within the future. In Public Service, this court concluded that the collection of deferred costs did not constitute retroactive ratemaking so long as those costs were intended to be deferred all along. See id. at 950. Only if the company is not, in fact, collecting deferred costs, but instead attempting to make up for errors in earlier approximations of actual costs, does it engage, in impermissible retroactive ratemaking. See id. Public Service involved a company's transition between two methods of setting fuel costs. Under its original system, the company used a formula based on prior fuel costs to compute current fuel charges. Under the new system, the company used a formula that incorporated the actual cost of the fuel in the current billing month. In making the transition, the company sought to impose a temporary surcharge to make up for what it described as "deferred charges" still due under the earlier system: charges to make up the difference between the estimated and the actual cost. FERC disallowed this surcharge as retroactive ratemaking, and this court agreed. This court explained that if the old system had simply been one of deferred billing, in which the intent all along was that the purchaser should pay the actual cost-of-service, but, due to difficulties in ascertaining that cost, the purchaser paid the prior cost on delivery and subsequently made up the difference - or deferred charge - then the companies could have collected the deferred costs after the transition. The court concluded, however, that this was not the intent of the old system. Rather, the old system used a formula based on the prior cost, but it was intended to approximate the actual cost. Because the old system was designed as a proxy, the company could not now go back and say, "Our estimate was wrong, so make up the difference now." Thus, in the court's words, "[w]hether approval of the proposed surcharges would be retroactive ratemaking depends upon one's characterization of the superseded fuel adjustment clauses": If those clauses are viewed (as [the company does]) as cost of service tariffs with deferred billing, then the requested surcharges - which merely assure that the utilities recover their fuel costs - would not be retroactive rate increases. But if the superseded clauses are viewed (as the Commission does) as fixed rate tariffs which used past costs as a proxy for the actual current cost, then the proposed surcharges would indeed be retroactive rate increases. 600 F.2d at 950. The court agreed with FERC that the earlier charges were intended as proxies for the actual costs and that the surcharges were thus impermissible retroactive ratemaking. Thus, it is permissible for a company to defer collection of certain charges until the point at which they become ascertainable, so long as the 19 ratepayers have notice that the charges will be collected in the future. It is not, however, permissible for a company to devise a formula intended to estimate actual charges - to serve as a proxy for actual charges - and then go back and collect any shortfall caused by imperfections in that proxy.47 48. Although the analysis of the court in Town of Norwood dealt with a situation where there had been an under-recovery from customers in the past, the logic, and the principles, are identical in the circumstances of past over recovery. It is not impermissible for the regulator to defer the allocation of an over-recovery until a point when an appropriate division is ascertainable and the utility has been given notice of that fact. In this case, the ILECs were given clear notice in the Price Caps Decision that a customer rebate of some or all of the Price Cap Deferral Account could occur upon the final settlement of that account. C. THE PRICE CAP DEFERRAL ACCOUNTS WERE AN INTRINSIC ELEMENT OF THE PRICE CAPS SCHEME (i) Purpose and Effect of Deferral Accounts within the Price Caps Scheme 49. The ILECs' deferral accounts were a critical component of the CRTC's methodology for capping the rates that ILECs could charge to customers during the Price Caps period. 50. In the Price Caps Decision, the CRTC explicitly recognized a number of uncertainties that could affect the reasonableness of rates over the course of the Price Caps Period. 48 In particular, the CRTC noted the possibility that the rate of inflation would be above or below the productivity factor of 3.5% per year. If the inflation dropped below the productivity factor, the rates collected from customers would be in excess of what would constitute a just and reasonable return for the ILECs.49 47 Town of Norwood, ibid. at 6-8, Book of Authorities, Tab 18; see also: Public Advocate v. Public Utilities Commission, 718 A.2d 201, 1998 ME 218, Book of Authorities, Tab 14. 48 Price Caps Decision, supra note 5 at para. 412, Bell Book of Authorities, Vol. 3, Tab 18. 49 Price Caps Decision, ibid. at para. 638, Bell Book of Authorities, Vol. 3, Tab 18. 20 51. However, to avoid negative effects on local competition, the CRTC chose not to require ILECs to reduce rates when inflation was lower than 3.5%.50 Instead, the ILECs were required to track an amount equal to the revenue reduction that would have otherwise occurred, pursuant to the price cap formula, and to record it in a deferral account. In the Price Caps Decision, the CRTC made clear that deferral account balances would be cleared to the benefit of subscribers, including possible customer rebates. 51 Consequently, the deferral accounts operated to ensure that rates charged to customers would ultimately be rendered just and reasonable, without requiring any reduction of rates during the Price Caps period. 52. The deferral accounts were, therefore, a fundamental component of the Price Caps scheme, without which the fixed rates collected by ILECs would not have been just and reasonable during periods in which inflation was lower than 3.5%. (ii) The Possibility of Consumer Rebates in the Event of Positive Deferral Account Balances was Always Understood 53. Throughout the Price Caps period, the ILECs understood that any positive deferral account balance might be drawn down in the form of rate reductions, rebates, or other subscriber benefits. The CRTC stated as much in the Price Caps Decision: The Commission also anticipates that the deferral account would be drawn down to mitigate rate increases for residential service that could result from the approval of exogenous factors or when inflation exceeds productivity. Other draw downs could occur, for example, through subscriber rebates or the fundin~ of initiatives that would benefit residential customers in other ways.5 54. It is submitted that, in substance, the ILECs' appeals are nothing more than a collateral attack on the Price Caps Decision. Upon receipt of that decision, the ILECs knew: 50 Price Caps Decision, ibid. at paras. 403, 407, Bell Book of Authorities, Vol. 3, Tab 18. 51 Price Caps Decision, ibid. at para. 412, Bell Book of Authorities, Vol. 3, Tab 18. 52 Price Caps Decision, ibid., Bell Book of Authorities, Vol. 3, Tab 18. 21 a. the CRTC was requiring that they establish deferral accounts and those accounts might have a positive balance over time; b. the deferral accounts were intended to exist through the four year Price Caps Period; c. the deferral accounts would survive the hearing in which the ILECs rates would be made final; d. contributions to and/or draw downs from the deferral accounts would continue to be made through the four year Price Caps Period; and e. positive balances in the deferral accounts would be used to benefit customers through a variety of means, including potential customer rebates. 55. Notwithstanding this information, the ILECs did not appeal the Deferral Accounts Decision. Nevertheless, the substance of these appeals is that the CRTC actually did the very thing that it said it would do. The ILECs should not be permitted to make this collateral attack. 56. Furthermore, in Telecom Public Notice CRTC 2004-1, which was released more than a year after the decisions which rendered certain of 8ell and Telus' rates "final", the CRTC reaffirmed the possibility of subscriber rebates: 13. In Decisions 2002-34 and 2002-43, the Commission stated that it anticipated that an adjustment to the deferral account would be made whenever the Commission approves rate reductions for residential local services that are proposed by the ILECs as a result of competitive pressures. The Commission also anticipated that the deferral account would be drawn down to mitigate rate increases for residential service that could result from the approval of exogenous factors or when inflation exceeds productivity. The Commission further stated that other draw downs could occur, for example, through subscriber rebates or the funding of initiatives that would benefit residential customers in other ways.53 53 Telecom Public Notice CRTC 2004-1, supra note 9 at para. 13, Joint Appel/ants' Record, Vol. 1, p. 83. 22 57. The possibility of customer rebates was an unambiguous constant throughout the Price Caps Period. The CRTC's eventual decision to order the rebates could not have come as a surprise to any party involved. (iii) Bell's Over-Collection of Taxes was Included in its Deferral Account 58. The regulatory treatment of over or under-collection of taxes is not simply an illustrative example of how deferral accounts are used to facilitate the achievement of just and reasonable rates. Rather, it is an intrinsic element of the issue on this appeal. In the case of Bell, part of the funds recorded in its Price Cap Deferral Account are monies received by Bell as an over-collection from customers of Bell's Quebec and Ontario tax liabilities.54 Consistent with Telecom Decision CRTC 89-9, the CRTC required the tax savings to be returned to the benefit of customers through reductions in future rates. 55 An exception was the tax savings attributable to the residential non-HCSA service basket. In that case, the tax savings were ordered to be recorded in the deferral account.56 Ultimately, $24.7 million in tax savings allocated to residential local services in non-HCSAs were recorded in the Price Cap Deferral Account. 57 59. The crystallization of the amount to be recorded in Bell's Price Cap Deferral Account in respect of the tax savings attributable to residential local services in non-HCSAs was made by the CRTC in Telecom Decision CRTC 2003-15.58 This is the very same decision that made Bell's rates "final", the event that Bell now relies upon as the basis for its position that the CRTC ceased to 54 This issue was addressed in the Price Caps Decision, supra note 5 at paras. 685-689, Bell Book of Authorities, Vol. 3, Tab 18. The over-collection arose due to a reduction in particular Ontario and Quebec tax rates. 55 Telecom Decision CRTC 2003-15, supra note 9 at para. 33, Bell Book of Authorities, Vol. 3, Tab 19. 56 Price Caps Decision, supra note 5 at para. 686, Bell Book of Authorities, Vol. 3, Tab 18. Consistent with the Commission's analysis with respect to the productivity factor, the deferral account was used rather than rate reductions because the Commission was concerned about the negative impact that rate reductions in non-HCSAs could have on the development of competition in those areas. 57 Telecom Decision CRTC 2003-15, supra note 9 at para. 32, Bell Book of Authorities, Vol. 3, Tab 19; Bell Canada - 2002 Annual price cap filing, Erratum: Telecom Decision CRTC 2003-15, Telecom Decision CRTC 2003-15-1 (April 15, 2003) at paras. 3, 4, Book of Authorities, Tab 3. 58 Telecom Decision CRTC 2003-15, ibid., Bell Book of Authorities, Vol. 3, Tab 19. 23 have the jurisdiction to order it to refund any portion of the Price Cap Deferral Account to customers. 59 60. The coincidence of these events reveals: a. The CRTC intended, and Bell understood that the Price Cap Deferral Account would survive the making of Bell's rates final, and that the scope of the CRTC's jurisdiction over that deferral account was in no way affected by Bell's rates ceasing to be interim rates; and b. Telecom Decision CRTC 2003-15 is completely inconsistent with any aspect of the Price Cap Deferral Account (and in particular the $27.4 million attributable to tax savings) becoming irrevocably vested as Bell's property by virtue of its rates being made final. To the contrary, by ordering the amounts to continue to be recorded in the Deferral Account, the CRTC simply deferred, without limitation, its consideration and determination of the appropriate disposition of the amounts recorded therein. 61. The Consumer Groups submit that Telecom Decision CRTC 89-9 makes it clear that over-collections from customers in respect of tax savings are (at least presumptively) to be refunded to consumers. There is nothing in the CRTC's decisions with respect to the Price Cap Deferral Account, and in particular, nothing in Telecom Decision CRTC 2003-15 which suggests anything to the contrary. Rather, the series of decisions reveals that the CRTC was, quite legitimately, deferring its determination of the ultimate disposition of the tax over collection until a variety of future uncertainties could be resolved. 60 Bell never appealed Telecom Decision CRTC 2003-15. 59 Bell Factum, para. 14. 60 For example, the rate of inflation and the development of local competition (see paragraph 36, above). 24 62. If this appeal were allowed, it would result in $27.4 million collected by Bell from customers in respect of taxes which were never paid by Bell, permanently reverting to Bell's possession. Quite simply, Bell does not have, and has never had, any legal or moral claim in support of its entitlement to these funds. Giving effect to Bell's argument and allowing it to keep these funds would be perverse and unjust. 63. While the specific issue of Bell's over-collection of taxes may be the most obvious example of the injustice that would result if the ILECs' position in this appeal was accepted, it is no different in principle from the other amounts recorded in the deferral accounts. In all cases, the funds in question are funds extracted from customers, in excess of what was required to provide a just and reasonable return to the ILECs. Now that the various uncertainties identified by the CRTC at the time it ordered the creation of the deferral accounts have been resolved, there is no justification for not deploying those funds to the direct benefit of customers. D. THE APPELLANTS' CONDUCT THROUGHOUT THE PRICE CAP PERIOD IS INCONSISTENT WITH THE JURISDICTIONAL LIMITATION NOW ALLEGED (i) The Appellants Never Challenged the CRTC's Jurisdiction to Order Customer Rebates 64. Contrary to the position they now assert, at no time prior to the Deferral Accounts Decision proceeding did the ILECs ever submit that the CRTC would lose the jurisdiction to make customer rebates out of the deferral account. 61 No such argument was advanced: a. During the hearing leading to the Price Caps Decision in May, 2002; 61 See Appendix 1 for a schematic depiction of the various CRTC proceedings related to these matters from 2002 through 2008. 25 b. During the hearing of the ILECs' first Price Cap filing which resulted in the ILEC initial price cap rates being made final in March 200362 ; c. During the hearing of the ILECs' second Price Cap filing which resulted in certain price cap rates being revised in August 2003;63 d. During the hearing of the ILECs' third Price Cap filing which resulted in certain price cap rates being revised in May 2004;64 e. During the hearing where the ILECs sought certain adjustments with respect to the deferral account in June 2004;65 f. During the hearing where the ILECs sought to draw down their deferral account to recover costs for pay telephones and teletypewriters from the deferral account in April 2005;66 or g. During the hearing where Telus sought to draw down its deferral account to recover costs for its service improvement plan capital expenditures in November 2005. 67 65. While the ILECs have consistently opposed the prospect of customer rebates from the deferral account, it was only during the Deferral Accounts Decision proceeding in 2006 that the ILECs asserted for the first time that the 62 Telecom Decision CRTC 2003-15, supra note 9, Bell Book of Authorities, Vol. 3, Tab 19; Telecom Decision 2003-18, supra note 13, Telus Book of Authorities, Tab 37. 63 Bell Canada - 2003 Annual price cap filing, Telecom Order CRTC 2003-349 (August 27,2003), Book of Authorities, Tab 4; TELUS Communications Inc. - 2003 Annual price cap filing, Telecom Order CRTC 2003-352 (August 27, 2003), Book of Authorities, Tab 15. 64 Bell Canada - 2004 Annual price cap filings, Telecom Order CRTC 2004-169 (May 27,2004), Book of Authorities, Tab 5; TELUS Communications Inc. - 2004 Annual price cap filings, Telecom Order CRTC 2004-172 (May 27,2004), Book of Authorities, Tab 16. 65 Annual price cap filings deferral account - related issues, Telecom Decision CRTC 2004-42 ~June 22,2004), Book of Authorities, Tab 1. 6 Follow-up to Access to pay telephone service, Telecom Decision CRTC 2004-47, 15 July 2004: Requests to recover costs associated with upgrading pay telephones with teletypewriter units, Telecom Decision CRTC 2005-23 (April 14,2005), Telus Book of Authorities, Tab 24. 67 TELUS Communications Inc. - 2005 application to increase the capital cost of the service improvement plan and related matters, Telecom Decision CRTC 2005-67 (November 10,2005), Book of Authorities, Tab 17. 26 CRTC had irrevocably lost the jurisdiction to make such an order, and that jurisdiction had been lost more than three years previously.68 (ii) The ILECs Continued to Apply to the CRTC to Approve Disposition of Funds in the Deferral Accounts, Long After the Rates were made Final 66. It is the ILECs' position on this appeal that once the CRTC approved its rates as "final" the proceeds received by it pursuant to those rates irrevocably became their property and the CRTC ceased to have any jurisdiction over those funds. Nevertheless, its conduct in the proceedings before the CRTC in relation to the deferral accounts has been fundamentally inconsistent with this position. 67. In particular, the ILECs applied for and received the approval of the CRTC to direct hundreds of millions of dollars from the deferral accounts to the expansion of their remote and rural broadband internet infrastructure. The CRTC's order approving this use of funds from the deferral account is the subject matter of the companion appeal before this Court. The ILECs have never expressed anything other than their unqualified support for this aspect of the Deferral Accounts Decision. This support is reflected in their opposition to the Consumer Groups' appeal in the companion appeal. 68. However, in order to be consistent with their position in this appeal, it should be the ILECs' position that the CRTC had no jurisdiction to direct them to do anything with respect to any of the funds in the deferral account. The broadband expansion funds stood in precisely the same position as the funds subject to the rebate order. If the rebate funds are irrevocably the property of the ILECs, over which the CRTC has no jurisdiction, the same is equally true of the remote and rural broadband funds. 69. By contrast, the position of the Consumer Groups before this Court with respect to the two companion appeals is entirely consistent. The Consumer 68 During the Deferral Accounts Decision proceeding, only Telus asserted a jurisdictional limitation. Bell raised this issue for the first time in the Federal Court of Appeal. 27 Groups acknowledge the CRTC's ongoing jurisdiction over the deferral account and the funds recorded therein. The Consumer Groups' opposition to the CRTC's order with respect to the remote and rural broadband expansion arises not over the issue of the CRTC's jurisdiction to make an order directing the use of the funds in the deferral account, but rather the CRTC's jurisdiction to make the particular order for which it lacked statutory authority. E. SPECIFIC RESPONSES TO THE APPELLANTS' SUBMISSIONS REGARDING THE CRTC'S JURISDICTION (i) The Distinction between Interim and Final Rates has no Impact on the Disposition of Deferral Accounts 70. The Appellants rely upon their rates having been made final rates in 2003 as the basis for their submission that the Deferral Accounts Decision was made without jurisdiction. Bell and Telus submit that the CRTC's jurisdiction to order customer rebates based on the reconciliation of a deferral account is inextricably linked to rates continuing to be "interim" at the time the customer rebate is ordered. The Consumer Groups submit that the distinction between interim and final rates is irrelevant to the operation of deferral accounts. 71. In every case, the mechanics of deferral accounts are premised on their continued operation after a final rate order has been made. The deferral account mechanism is redundant and superfluous during a period in which rates are "interim". In such cases, the adjustments that would otherwise occur through the reconciliation of the deferral account can be achieved directly, by virtue of the determination of final rates. In these circumstances the deferral account tracking and clearing process is entirely unnecessary. Regulators use deferral accounts in circumstances where it is more reasonable, in their judgment, to track and reconcile revenues or costs over a time frame longer than a single rate-setting period. 72. If the ILECs' position were correct, the only way that the CRTC could have maintained the jurisdiction to implement its legitimate objective of reviewing and reconciling the balances recorded in the Price Cap Deferral Account on a 28 periodic basis throughout the Price Caps Period would have been to maintain the ILECs' rates as interim through the entire four years. One of the consequences of such a scenario would have been that the ILECs would have been subject to the uncertainty that the CRTC could reopen, review and readjust all aspects of the ILECs' rates and regulatory structure on an entirely retroactive basis. This would have defeated one of the fundamental objects of utility regulation - certainty.69 73. This ILECs' submission also ignores the purpose for which rates were initially ordered to be interim in this specific case. The Price Caps Decision is explicit as to the reason it declared rates to be interim. The Price Caps Decision was released on May 30, 2002. While that decision established the framework for the new price cap regime, the actual filings to determine the initial rates for each of the ILECs had not yet been undertaken. As a result, on May 30, 2002 the CRTC declared the ILECs' existing rates to be "interim" effective June 1, 2002, pending the ILECs filing for individual rate orders. 7o The ILECs proceeded to do so, and on March 18, 2003 the CRTC released decisions approving both Bell's and Telus' initial price cap filings. 71 74. By declaring the ILECs' rates interim as of June 1, 2002 the ILECs were given the benefit of the CRTC being able to subsequently review their rate filings and to make their newly approved rates retroactive back to June 1, 2002. In fact, that is what occurred. 72 This history reveals that the initial declaration that the ILECs' rates were interim and the subsequent determination of final rates had nothing to do with the management of the ongoing uncertainties that were anticipated over the Price Caps Period. The suggestion that the purpose or effect of the CRTC making rates interim in May 2002 was to create a limited time 69 Island Telephone Co. (Re), [1988] P.E.I.J. No. 71 at 13 (S.C.A.D.) (QL), Bell Book of Authorities, Tab 17, p. 59. 70 Price Caps Decision, supra note 5 at para. 254, Bell Book of Authorities, Vol. 3, Tab 18. 71 Telecom Decision CRTC 2003-15, supra note 9, Bell Book of Authorities, Vol. 3, Tab 19; Telecom Decision 2003-18, supra note 13, Telus Book of Authorities, Tab 37. 72 Telecom Decision CRTC 2003-18, ibid. at para. 37, Telus Book of Authorities, Tab 37; Telecom Decision CRTC 2003-15, ibid. at para. 65, Bell Book of Authorities, Vol. 3, Tab 19. In the case of non-HCSA Residential Services, no changes in rates were sought. 29 window in which to consider and determine any customer rebates is simply without foundation. 75. The existence of a window of less than one year for the declaration of any customer rebates is also fundamentally inconsistent with the basic structure of the price cap regime created by the CRTC in the Price Caps Decision. In particular, the CRTC specifically considered how long the price cap period should be. Bell submitted that it should be four years. Telus submitted that it should be five years. The Commission ultimately determined that it would be four years, commencing June 1,2002.73 In doing so, the Commission stated: 105. The Commission considers that, going into the next price cap period, there remains a need to balance the benefits inherent in a longer plan with those offered by a shorter plan. A longer plan provides a greater opportunity for the benefits of price cap regulation to materialize, and also provides the stability of a predictable regulatory framework for all stakeholders. A shorter plan has the advantage of limiting the impact of unanticipated outcomes of the price cap regime that could unfairly benefit one group of stakeholders at the expense of another.74 (ii) No Improper Reliance on Section 7 of the Act 76. Contrary to the Appellants' submissions 75 the CRTC's creation and disposition of the Deferral Account was squarely within its statutory jurisdiction to establish just and reasonable rates. In making its determination, it was not necessary for the CRTC to seek to expand its jurisdiction through any reliance upon the provisions of s.7, nor did it purport to do so. 77. For the reasons set out in their factum in the companion appeal,76 the Consumer Groups agree with the Appellants in this appeal that s. 7 is not a grant of jurisdiction to the CRTC which expands its ratemaking authority. However, since the source of the CRTC's jurisdiction to order the creation of and settlement of the deferral accounts is derived from sections 25, 27 and 37 of the 73 Price Caps Decision, supra note 5 at para. 107, Bell Book of Authorities, Vol. 3, Tab 18. 74 Price Caps Decision, ibid. at para. 105, Bell Book of Authorities, Vol. 3, Tab 18. 75 See Telus Factum at paras. 92-95 and Bell Factum, paras. 71-78. 76 See Appellant Factum of The Consumers' Association of Canada and The National Anti Poverty Organization, SCC File No. 32611 at paras. 50-57 [CAC/NAPO Factum]. 30 Act, the ILECs' submissions regarding the jurisdictional impact of s. 7 do not advance their position on this appeal. 78. This is not to say that s. 7 was irrelevant to the CRTC's considerations, both with respect to its order requiring the creation of the deferral accounts, and its order with respect to their disposition. As submitted by the Consumer Groups in their appeal factum,77 s. 47 of the Act imposes two separate and distinct obligations on the CRTC, both of which it must fulfil. In particular, the CRTC must: a. have a "view" to implementing the policy objectives enumerated in s. 7 of the Act; and b. "ensure" that rates charged by Canadian telecommunications carriers are "in accordance with section 27". 79. As a result, even once the CRTC was satisfied that the Deferral Accounts Decision was consistent with the achievement of just and reasonable rates, it had the further obligation under s. 47 to have a view to the policy objectives set out in s. 7 of the Act to determine whether its decision was consistent with the advancement of one or more of those objectives. If the CRTC failed to undertake that consideration, or if it concluded that the proposed order was inconsistent with each and every one of those objectives, and proceeded nonetheless, it would have acted in violation of s. 47. However, in this case, it was obvious that the CRTC did consider the s. 7 objectives, and it was obvious that its decision was consistent with one or more of those objectives. 78 (iii) Telus' Submission that Authority to Create Deferral Accounts does not Include the Authority to order Rebates 80. Telus submits that s. 37(1) of the Act does not grant the CRTC jurisdiction to make rate rebates. It is not necessary to decide this issue in this appeal. That 77 CAC/NAPO Factum, ibid. at paras. 58-64. 78 Deferral Accounts Decision, supra note 3 at paras. 23-24, Joint Appel/ants' Record, Vol. 1, pp. 9-10. 31 is because the CRTC's authority to order the provisions of the rebate in question derives primarily its jurisdiction to determine just and reasonable rates. The Newfoundland Court of Appeal considered and rejected an argument similar to that advanced by T elus in Newfoundland (Board of Commissioners of Public Utilities): 96. . .. I do not find the jurisdiction to deal with excess revenue in the power to prescribe the utility's accounts. That is only a procedural means of exercising powers, the jurisdiction for which must be found elsewhere. 97. I conclude that, bearing in mind the approach to interpretation mandated by s-s. 118(2) of the Act, the Board must of necessity have broad powers to deal with excess revenue earned by a utility in excess of a prescribed rate of return. Inasmuch as the ascertainment of the existence of excess revenue can only be made following a subsequent review, any order dealing with excess revenue will of necessity have certain retrospective elements about it. But that is not the same as saying that an order dealing with excess revenue ascertained by the application of a pre existing concept of what constitutes excess revenue is a retroactive order. It was argued by NLP that the setting up of a reserve account would be the only method that would not involve a trespass on the principle of non retroactivity because the utility would know in advance that it had to set up its reserve account and could therefore provide for it without running the risk of spending or distributing excess revenues in i!Jnorance of the fact that they would have to be held accountable for them. (iv) Jurisdiction to Order a One-Time Credit 81. Assuming this Court agrees that the CRTC's rebate order does not constitute impermissible retroactive ratemaking, the Consumer Groups submit that the selection of the precise mechanism to implement the rebate does not give rise to any jurisdictional issue, but rather constitutes an exercise of discretion that falls within the CRTC's policy role. As this Court noted in Bell Canada 1989: Finally, it is true that the one-time credit ordered by the appellant will not necessarily benefit the customers who were actually billed excessive rates. However, once it is found that the appellant does have the power to make a remedial order, the nature and extent of this order remain within its jurisdiction in the absence of any specific statutory provision on this issue. The appellant admits that the use of a one-time credit is not the perfect way of reimbursing excess revenues. However, in view of the cost and the 79 Newfoundland Re, supra note 37 at paras. 96·97, Bell Book of Authorities, Vol. 2, Tab 12. 32 complexity of finding who actually paid excessive rates, where these persons reside and of quantifying the amount of excessive payments made by each, and having regard to the appellant's broad jurisdiction in weighing the many factors involved in apportioning respondent's revenue requirement amongst its several classes of customers to determine just and reasonable rates, the appellant's decision was eminentl~ reasonable and I agree with Hugessen J. that it should not be overturned.8 82. The Consumer Groups submit that the same analysis is applicable here. In fact, in this case the ILECs position is even less compelling since the CRTC gave the ILECs a specific opportunity to provide input with respect to the mechanics involved in any potential rebate. 81 The ILECs declined to provide any input to the CRTC. E. CONCLUSION (i) The CRTC's Decisions Raise no Jurisdictional Issue 83. It is beyond dispute that the CRTC would have been entirely within its jurisdiction if it had specifically ordered, as part of the Price Caps Decision, that all, or a prescribed portion of amounts recorded in the deferral account were to be refunded to customers in future years. Since the refund order would have been an intrinsic part of the rate order pursuant to which the monies were collected, and would operate on an entirely prospective basis, no issue of retroactivity would arise. For the same reason, no suggestion could be made that the refunds were in any way "confiscatory" since the monies ultimately subject to any refund had been impressed with an obligation on the ILEC that they would be refunded, if the prescribed conditions were met. 82 84. If such an order would have been immune from jurisdictional challenge, the question arises as to how the orders that were actually made by the Commission in the case are in any sense materially different, so as to give rise to 80 Bell Canada 1989, supra note 23 at 1762-63, Telus Book of Authorities, Tab 11. 81 Telecom Decision CRTC 2008-1, supra note 16 at para. 114, Telus Book of Authorities, Tab 39. 82 Such an order would not be typical of orders in relation to deferral accounts. Typically, a regulator will make an order establishing a deferral account and reserve (as it did in this case) the decision with respect to the terms upon which the deferral account would be ultimately reconciled to the subsequent regulatory period. 33 jurisdictional frailty. The Consumer Groups submit there is no material difference between an order made at the outset of the proceeding that positive deferral account balances would be rebated to customers, and an identical order made at the conclusion of the proceeding. In particular: a. the ILECs always knew that the Price Cap Deferral Accounts were an intrinsic aspect of a multi-year ratemaking regime; b. the ILECs always knew that the CRTC planned to review the status and disposition of the deferral accounts in future years; c. the ILECs always knew that it was the intention of the CRTC that positive balances in the deferral accounts would be used for the benefit of customers, including the possibility of customer rebates; and d. any resolution of deferral account balances would be dealt with on a prospective basis, either through an adder on rates otherwise payable, or by a rebate or reduction in future rates otherwise payable. 85. In substance, the only difference between the order described above and the combination of the Price Caps Decision and the Deferral Accounts Decision is that rather than making the disposition order as a part of the initial decision, the CRTC recognized the existence of the various uncertainties, and determined that it was more prudent to track the actual results and defer any decision regarding disposition until better information with respect to the actual results was known. This is a perfectly valid policy choice for the CRTC to make and raises no jurisdictional issues. Both in their design and their effect the Price Caps Decision and the Deferral Accounts Decision constituted prospective, not retroactive ratemaking. 34 PART IV - ORDER ON COSTS 86. The Respondents propose that there be no order as to costs of these appeals, in any event. PART V - ORDER SOUGHT 87. The Respondents respectfully request that these appeals be dismissed. T. 416-646-4325 E. [email protected] T.416-646-7449 E. [email protected] Paliare Roland Rosenberg Rothstein LLP Barristers Suite 501, 250 University Avenue Toronto ON M5H 3E5 Counsel for the Respondents 35 PART VI- TABLE OF AUTHORITIES Authority Factum Para(s) AGT -Issues related to Income Tax, Telecom Decision CRTC 45 93-9 (July 23, 1993) Annual price cap filings deferral account - related issues, 64 Telecom Decision CRTC 2004-42 (June 22,2004) A TCO Electric Ltd. v. Alberta (Energy and Utilities Board), 31,34,37,39 [2004] AJ. No. 823, 2004 ABCA 215 Bell Canada - 2002 Annual price cap filing, Erratum: Telecom 58 Decision CRTC 2003-15, Telecom Decision CRTC 2003-15-1 (April 15, 2003) Bell Canada - 2002 Annual price cap filing, Telecom Decision 14,15,17,58, CRTC 2003-15 (March 18, 2003) 59, 60, 61, 64, 73, 74 Bell Canada - 2003 Annual price cap filing, Telecom Order 64 CRTC 2003-349 (August 27,2003) Bell Canada - 2004 Annual price cap filings, Telecom Order 64 CRTC 2004-169 (May 27,2004) Bell Canada v. Canada (CRTC) , [1989] 1 S.C.R. 1722 29,41,81 Changes to the contribution regime, Telecom Decision CRTC 37 2000-745 (November 30,2000) Deferred tax liability, Telecom Decision CRTC 89-9 (July 17, 44,45,58,61 1989) Direct Energy Regulated Services v. Alberta (Energy and 42 Utilities Board), [2006] AJ. No. 562, 2006 ABCA 165 Disposition of funds in the deferral accounts, Telecom Decision 2, 3, 6, 17, 18, CRTC 2006-9 (February 16, 2006) 20, 26, 55, 64, 65, 67, 70, 79, 85 Dunsmuir v. New Brunswick, 2008 SCC 9 30 Epcor Generation Inc. v. Alberta (Energy and Utilities Board), 42 [2003] AJ. No. 1573,2003 ABCA 374 36 Follow-up to Access to pay telephone service, Telecom 64 Decision CRTC 2004-47, 15 July 2004: Requests to recover costs associated with upgrading pay telephones with teletypewriter units, Telecom Decision CRTC 2005-23 (April 14,2005) FortisAlberta Inc. (Re) , [2008] AE.U.B.D. No. 44 (Alberta 37 Utilities Commission) Heritage Gas Ltd. (Re) , [2004] N.S.U.R.B.D. No. 66 (Nova 33,35, Scotia Utility and Review Board) Island Telephone Co. (Re) , [1988] P.E.I.J. No. 71 (S.C.AD.) 72 Leonard Saul Goodman, The Process of Ratemaking, (Vienna, 32, 35 Virginia: Public Utilities Reports, Inc., 1998) Maritimes & Northeast Pipeline Limited Partnership (Re) , 2000 34,37 LNCNEB 20 (Canada National Energy Board) Newfoundland (Board of Commissioners of Public Utilities) 42,46,80 (Re) , [1998] N.J. No. 168 (C.A) Public Advocate v. Public Utilities Commission, 718 A.2d 201, 47 1998 ME 218 Regulatory framework for second price cap period, Telecom 4,5,8,9, 10, Decision CRTC 2002-34 (May 30,2002) 12, 13, 15, 17, 36,48, 50, 51, 53, 54, 56, 58, 64, 73, 75, 83, 85 Review and disposition of deferral accounts for the second 14,17,56 price cap period, Telecom Public Notice CRTC 2004-1 (March 24, 2004) TELUS Communications Inc. - 2002 Annual price cap filing, 16,17,64,73, Telecom Decision CRTC 2003-18 (March 18, 2003) 74 TELUS Communications Inc. - 2003 Annual price cap filing, 64 Telecom Order CRTC 2003-352 (August 27,2003) 37 TELUS Communications Inc. - 2004 Annual price cap filings, 64 Telecom Order CRTC 2004-172 (May 27,2004) TELUS Communications Inc. - 2005 application to increase 64 the capital cost of the service improvement plan and related matters, Telecom Decision CRTC 2005-67 (November 10, 2005) Town of Norwood Mass. v. F.E.R.C., 53 F.3d 377 (D.C. Cir. 40,46,47,48 1995) TransCanada Pipelines Ltd. v. Canada (National Energy 42 Board), [1987] 2 W.W.R. 253 (F.C.A.) Union Gas Ltd. v. Ontario (Energy Board) (1983), 43 O.R. (2d) 46 489 (Div. Ct.) Use of deferral account funds to improve access to 18,19,82 telecommunications services for persons with disabilities and to expand broadband services to rural and remote communities, Telecom Decision CRTC 2008-1 (January 17, 2008) 38 PART VII- TABLE OF STATUTORY AUTHORITIES Telecommunications Act, 1993, c.38, 55., 7, 25, 27, 37,47 PART I: GENERAL PARTIE I : DISPOSITIONS GENERALES Canadian Telecommunications Policy Politique canadienne de telecommunication Objectives Politique 7. It is hereby affirmed that 7. La presente loi affirme Ie caractere telecommunications performs an essentiel des telecommunications pour I'identite essential role in the maintenance of et la souverainete canadiennes; la politique Canada's identity and sovereignty and canadienne de telecommunication vise a : that the Canadian telecommunications policy has as its objectives a) favoriser Ie developpement ordonne des telecommunications partout au Canada en (a) to facilitate the orderly un systeme qui contribue a sauvegarder, development throughout Canada of enrichir et renforcer la structure sociale et a telecommunications system that economique du Canada et de ses regions; serves to safeguard, enrich and strengthen the social and economic b) permettre I'acces aux Canadiens dans fabric of Canada and its regions; toutes les regions - rurales ou urbaines - du Canada a des services de (b) to render reliable and affordable telecommunication sOrs, abordables et de telecommunications services of qualite; high quality accessible to Canadians in both urban and rural c) accroitre I'efficacite et la competitivite, sur areas in all regions of Canada; les plans national et international, des telecommunications canadiennes; (c) to enhance the efficiency and competitiveness, at the national d) promouvoir I'accession a la propriete des and international levels, of entreprises canadiennes, et a leur contrale, Canadian telecommunications; par des Canadiens; (d) to promote the ownership and e) promouvoir I'utilisation d'installations de control of Canadian carriers by transmission canadiennes pour les Canadians; telecommunications a I'interieur du Canada et a destination ou en provenance de (e) to promote the use of Canadian I'etranger; transmission facilities for telecommunications within Canada f) favoriser Ie libre jeu du marche en ce qui and between Canada and points concerne la fourniture de services de outside Canada; telecommunication et assurer I'efficacite de la regie mentation, dans Ie cas ou celle-ci est (f) to foster increased reliance on necessaire; market forces for the provision of telecommunications services and g) stimuler la recherche et Ie developpement to ensure that regulation, where au Canada dans Ie domaine des required, is efficient and effective; telecommunications ainsi que I'innovation en ce qui touche la fourniture de services dans (g) to stimulate research and ce domaine; development in Canada in the field of telecommunications and to h) satisfaire les exigences economiques et encourage innovation in the sociales des usagers des services de provision of telecommunications telecommunication; services; i) contribuer a la protection de la vie privee (h) to respond to the economic and des personnes. social requirements of users of 39 telecommunications services; and (i) to contribute to the protection of the privacy of persons. PART III: RATES, FACILITIES AND SERVICES PARTIE III : TARIFS, INSTALLATIONS ET SERVICES Provision of Services Fourniture de services Telecommunications Autorisation rates to be 25. (1) No Canadian necessaire pour les 25. (1) L'entreprise canadienne doit approved carrier shall provide a tarifs fournir les services de telecommunications service telecommunication en conformite avec la except in accordance with a tarification deposee aupres du Conseil et tariff filed with and approved approuvee par celui-ci fixant - by the Commission that notamment sous forme de maximum, de specifies the rate or the minimum ou des deux - les tarifs a maximum or minimum rate, imposer ou a percevoir. or both, to be charged for the service. Depot des tarifications (2) Toute tarification commune Filing of joint tariffs communes enterinee par plusieurs entreprises (2) A joint tariff agreed on canadiennes peut etre deposee aupres by two or more Canadian du Conseil par une seule d'entre elles carriers may be filed by any avec attestation de I'accord des autres. of the carriers with an attestation of the agreement Modalites of the other carriers. (3) La tarification est deposee puis publiee ou autrement rendue accessible Form of tariffs au public, selon les modalites de forme (3) A tariff shall be filed et autres fixees par Ie Conseil; celui-ci and published or otherwise peut par ailleurs preciser les made available for public renseignements devant y figurer. inspection by a Canadian carrier in the form and Tarifs non manner specified by the approuves (4) Le Conseil peut cependant Commission and shall include enteriner I'imposition ou la perception de any information required by tarifs qui ne figurent dans aucune the Commission to be tarification approuvee par lui s'il est included. convaincu soit qu'il s'agit la d'un cas particulier Ie justifiant, notamment Special d'erreur, soit qu'ils ont ete imposes ou (4) Notwithstanding circumstances per<;us par I'entreprise canadienne, en subsection (1), the conformite avec Ie droit provincial, avant Commission may ratify the que les activites de celle-ci soient regies charging of a rate by a par une loi federale. Canadian carrier otherwise than in accordance with a tariff approved by the Commission if the Commission is satisfied that the rate (a) was charged because of an error or other circumstance that warrants the ratification; or (b) was imposed in conformity with the laws of 40 a province before the operations of the carrier were regulated under any Act of Parliament. PART III: RATES, FACILITIES AND SERVICES PARTIE III: TARIFS, INSTALLATIONS ET SERVICES Provision of Services Fourniture de services Just and Tarifs justes et reasonable rates 27. (1) Every rate charged by raisonnables 27. (1) Tous les tarifs doivent etre a Canadian carrier for a justes et raisonnables. telecommunications service shall be just and reasonable. Discrimination injuste (2) II est interdit a I'entreprise Unjust canadienne, en ce qui concerne soit la discrimination (2) No Canadian carrier shall, fourniture de services de in relation to the provision of a tEli{;)communication, soit I'imposition ou la telecommunications service or perception des tarifs y afferents, d'etablir the charging of a rate for it, une discrimination injuste, ou d'accorder unjustly discriminate or give an - y compris envers elle-meme - une undue or unreasonable preference indue ou deraisonnable, ou preference toward any person, encore de faire subir un desavantage de including itself, or subject any meme nature. person to an undue or unreasonable disadvantage. Questions de fait (3) Le Conseil peut determiner, Questions of fact comme question de fait, si I'entreprise (3) The Commission may canadienne s'est ou non conformee aux determine in any case, as a dispositions du present article ou des question of fact, whether a articles 25 ou 29 ou a toute decision Canadian carrier has complied prise au titre des articles 24, 25, 29, 34 with section 25, this section or ou 40. section 29, or with any decision made under section 24, 25, 29, Fardeau de la 34 or 40. preuve (4) II incombe a I'entreprise canadienne qui a fait preuve de Burden of proof discrimination, accorde une preference (4) The burden of establishing ou fait subir un desavantage d'etablir, before the Commission that any devant Ie Conseil, qu'ils ne sont pas discrimination is not unjust or injustes, indus ou deraisonnables, selon that any preference or Ie cas. disadvantage is not undue or unreasonable is on the Methodes Canadian carrier that (5) Pour determiner si les tarifs de discriminates, gives the I'entreprise canadienne sont justes et preference or subjects the raisonnables, Ie Conseil peut utiliser la person to the disadvantage. methode ou la technique qu'il estime appropriee, qu'elle soit ou non fondee Method (5) In determining whether a sur Ie taux de rendement par rapport a la rate is just and reasonable, the base tarifaire de I'entreprise. Commission may adopt any Precision method or technique that it (6) Le present article n'a pas pour considers appropriate, whether effet d'empecher I'entreprise canadienne based on a carrier's return on its de fournir, gratuitement ou moyennant rate base or otherwise. un tarif reduit, des services de telecommunication so it a ses Exception (6) Notwithstanding administrateurs, dirigeants, employes et subsections (1) and (2), a anciens employes soit, avec I'agrement 41 Canadian carrier may provide du Conseil, a des organismes de telecommunications services at bienfaisance, a des personnes no charge or at a reduced rate defavorisees ou a toute personne. (a) to the carrier's directors, officers, employees or former employees; or (b) with the approval of the Commission, to any charitable organization or disadvantaged person or other person. PART III: RATES, FACILITIES AND SERVICES PARTIE III: Provision of Information TARIFS, Information INSTALLATIONS ET requirements 37. (1) The Commission may SERVICES require a Canadian carrier Communication de Obligation (a) to adopt any method of renseignements d'information 37. (1) Le identifying the costs of Conseil peut soit providing telecommunications imposer a services and to adopt any I'entreprise accounting method or system canadienne of accounts for the purposes I'adoption d'un of the administration of this mode de calcul Act; or des coOts lies a ses services de (b) to submit to the telecommunication Commission, in periodic et de methodes ou reports or in such other form systemes and manner as the comptables Commission specifies, any relativement a information that the I'application de la Commission considers presente loi, soit necessary for the I'obliger a lui administration of this Act or communiquer any special Act. dans des rapports periodiques - ou Exception (2) Where the Commission selon les believes that a person other than modalites de a Canadian carrier is in forme et autres possession of information that qu'il fixe - tous the Commission considers les necessary for the administration renseignements of this Act or any special Act, the qu'il juge Commission may require that necessaires pour person to submit the information I'application de la to the Commission in periodic presente loi ou reports or in such other form and d'une loi speciale. manner as the Commission Exception specifies, unless the information (2) S'iI croit is a confidence of the executive qu'une personne, council of a province. a I'exception d'une Transmittal entreprise (3) The Commission shall, on canadienne, 42 request, provide the Minister or detient des the Chief Statistician of Canada renseignements with any information submitted to qu'il juge the Commission. necessaires pour 1993, c. 38, s. 37; 1999, c. 31, s. I'application de la 203(F). presente loi ou d'une loi speciale, Ie Conseil peut I'obliger a les lui communiquer dans des rapports periodiques qu'elle etablit ou fait etablir selon Ie cas - ou selon les modalites de forme ou autres qu'il fixe - , sauf s'il s'agit de renseignements confidentiels du conseil executif d'une province. Communication (3) Le Conseil transmet, sur demande, les renseignements reyus au ministre ou au statisticien en chef du Canada. 1993, ch. 38, art. 37; 1999, ch. 31, art. 203(F). PART IV: ADMINISTRATION PARTIE IV : APPLICATION Exercise of Powers Exercice des pouvoirs et fonctions par Ie Conseil Commission Conseii soumis aux subject to orders 47. The Commission shall normes et decrets 47. Le Conseil doit, en se conformant and standards exercise its powers and perform aux decrets que lui adresse Ie its duties under this Act and any gouverneur en conseil au titre de I'article special Act 8 ou aux normes prescrites par arrete du ministre au titre de I'article 15, exercer (a) with a view to les pouvoirs et fonctions que lui implementing the Canadian conferent la presente loi et toute loi telecommunications policy speciale de maniere a realiser les objectives and ensuring that objectifs de la politique canadienne de Canadian carriers provide telecommunication et a assurer la telecommunications services conformite des services et tarifs des and charge rates in entreprises canadiennes avec les accordance with section 27; dispositions de I'article 27. and (b) in accordance with any 43 orders made by the Governor in Council under section 8 or any standards prescribed by the Minister under section 15. 44 fCRTC P~i~~Caps Chr;~;logy I Aug 27, 2003 Year 2 Price Caps Filing Decisions Telecom Order CRTC 2003-349 (8ell) Telecom Order CRTC 2003-352 (Telus) Feb 16, 2006 Mar 7,2008 "Deferral Accounts Decision", Federal Court of Appeal Decision, ITolo~~~ Decision CRTC 2006-9 2008 FCA 91 Mar 18, 2003 Year 1 Price Caps Filing Decisions Telecom Decision CRTC 2003-15 (8ell) Telecom Decision CRTC 2003-18 (Telus) , iJri_-:-::_::-:--::-::-::--:----( Mar 24, 2004 elecom Public Notice Jan 17, 2008 CRTC 2004-1 Telecom Decision CRTC 2008-1 May 30,2002 May 27, 2004 r 3 Price Caps Filing Decisions Telecom Order CRTC 2004-169 (8ell) Telecom Order CRTC 2004-172 (Telus) 2002 2009 Jun 1,2002 - Aug 31,2003 Sep 1, 2003 - May 31, 2004Jun 1, 2004 - May 31,2005 Year 1 Year2 Year 3 Appendix 1 45 Court File No. 32607 BEll CANADA - and - BELL AliANT REGIONAL COMMUNICATIONS, LIMITED PARTNERSHIP et al Appellant Respondents IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE FEDERAL COURT OF APPEAL) MEMORANDUM OF ARGUMENT OF THE RESPONDENTS, CONSUMERS' ASSOCIATON OF CANADA, NATIONAL ANTI-POVERTY ASSOCIATION and PUBLIC INTEREST ADVOCACY CENTRE on both Appeals PALIARE ROLAND ROSENBERG ROTHSTEIN LlP 501-250 University Avenue Toronto, ON M5H 3E5 Richard P. Stephenson LSUC No. 28675D Tel. No.: (416) 646-4325 Fax No.: (416) 646-4301 Email: [email protected] Danny Kastner T.416-646-7449 E. [email protected] Solicitors for the Respondents, Consumers' Association of Canada, National Anti-Poverty Organization and Public Interest Advocacy Centre