Bell Canada v. Bell Aliant Regional Communications

Abella J. — The Telecommunications Act , S.C. 1993, c. 38 , sets out certain broad telecommunications policy objectives. It directs the Canadian Radio-television and Telecommunications Commission (“CRTC”) to implement them in the exercise of its statutory authority, balancing the interests of consumers, carriers and competitors in the context of the Canadian telecommunications industry. The issue in these appeals is whether this authority was properly exercised.

While distinct questions arise in each of the appeals before us, the common problem is whether the CRTC, in the exercise of its rate-setting authority, appropriately directed the allocation of funds to various purposes. In the Bell Canada and TELUS Communications Inc. appeal, the challenged purpose is the distribution of funds to customers, while in the Consumers’ Association of Canada and National Anti-Poverty Organization appeal, the impugned allocation was directed at the expansion of broadband infrastructure. For the reasons that follow, in my view the CRTC’s allocations were reasonable based on the Canadian telecommunications policy objectives that it is obliged to consider in the exercise of all of its powers, including its authority to approve just and reasonable rates.

Background

As part of its decision, the CRTC ordered the affected carriers to create separate accounting entries in their ledgers. These were called “deferral accounts”. The funds contained in these deferral accounts were derived from residential telephone service revenues in non‑high cost serving areas (“non‑HCSAs”), which are mainly urban. Under the formula established by the Price Caps Decision, any increase in the price charged for these services in a given year was limited to an inflationary cap, less a productivity offset to reflect the low degree of competition in that particular market.

More specifically, the effect of the inflationary cap was to bar carriers from increasing their prices at a rate greater than inflation. The productivity offset, on the other hand, put downward pressure on the rates to be charged. While market forces would normally serve to encourage carriers to reduce both their costs and their prices, the low level of competition in the non-HCSA market led the CRTC to conclude that an offsetting factor was necessary as a proxy for the effect of competition.

Given the countervailing factors at work in the Price Caps Decision formula, there was the potential for a decrease in the price of residential services in these areas if inflation fell below a certain level. Rather than mandating such a decrease, however, the CRTC concluded that lower prices, and therefore the prospect of lower revenues, would constitute a barrier to the entry of new carriers into this particular telecommunications market. It therefore ordered that amounts representing the difference between the rates actually charged, not including the decrease mandated by the Price Caps Decision formula, and the rates as otherwise determined through the formula, were to be collected from subscribers and recorded in deferral accounts held by each carrier. These accounts were to be reviewed annually by the CRTC. The intent of the Price Caps Decision was, therefore, that prices for these services would remain at a level sufficient to encourage market entry, while at the same time maintaining the pressure on the incumbent carriers to reduce their costs.

The principal objectives the CRTC intended the Price Caps Decision to achieve were the following:

a) to render reliable and affordable services of high quality, accessible to both urban and rural area customers;

b) to balance the interests of the three main stakeholders in telecommunications markets, i.e., customers, competitors and incumbent telephone companies;

c) to foster facilities‑based competition in Canadian telecommunications markets;

d) to provide incumbents with incentives to increase efficiencies and to be more innovative; and

e) to adopt regulatory approaches that impose the minimum regulatory burden compatible with the achievement of the previous four objectives. [para. 99]

The CRTC discussed the future use of the deferral account funds as follows:

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 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 funding of initiatives that would benefit residential customers in other ways. [Emphasis added; para. 412.]

At the time, it did not specifically direct how the deferral account funds were to be used, leaving the issue subject to further submissions. While some participants objected to the creation of the deferral accounts, no one appealed the Price Caps Decision (Bell Canada v. Canadian Radio-television and Telecommunications Commission, 2008 FCA 91, 80 Admin. L.R. (4th) 159, at para. 14).

After considering the various policy objectives outlined in the applicable statute, the Telecommunications Act , and the purposes set out in the Price Caps Decision, the CRTC concluded that all funds in the deferral accounts should be targeted for disposal by a designated date in 2006:

The attachment to this Decision provides preliminary estimates of the deferral account balances as of the end of the fourth year of the current price cap period in 2006. The Commission notes that the deferral account balances are expected to be very large for some ILECs. It also notes the concern that allowing funds to continue to accumulate in the accounts would create inefficiencies and uncertainties.

. . .

Accordingly, the Commission considers it appropriate not only to provide directions on the disposition of all the funds that will have accumulated in the ILECs’ deferral accounts by the end of the fourth year of the price cap period in 2006, but also to provide directions to address amounts recurring beyond this period in order to prevent further accumulation of funds in the deferral accounts. The Commission will provide directions and guidelines for disposing of these amounts later in this Decision. [Emphasis added; paras. 58 and 60.]

The CRTC further decided that the deferral accounts should be disbursed primarily for two purposes. As a priority, at least 5 percent of the accounts was to be used for improving accessibility to telecommunications services for individuals with disabilities. The other 95 percent was to be used for broadband expansion in rural and remote communities. Proposals were invited on how the deferral account funds should be applied. If the proposal as approved was for less than the balance of its deferral account, an affected carrier was to distribute the remaining amount to consumers.

In summary, therefore, the CRTC decided that the affected carriers should focus on broadband expansion and accessibility improvement. It also decided that if these two objectives could be fulfilled for an amount less than the full deferral account balances, credits to subscribers would be ordered out of the remainder. It should be noted that customers were not to be compensated in proportion to what they had paid through these credits because of the potential administrative complexity of identifying these individuals and quantifying their respective shares. Instead, the credits were to be provided to certain current subscribers. Prospective rate reductions could also be used to eliminate recurring amounts in the accounts.

At the time, the balance in the deferral accounts established under the Price Caps Decision was considerable. Bell Canada’s account was estimated to contain approximately $480.5 million, while the TELUS account was estimated at about $170 million.

It is helpful to set out how the CRTC explained its decision on the allocation of the deferral account funds. Referencing the importance of telecommunications in connecting Canada’s “vast geography and relatively dispersed population”, it stressed that Canada had fallen behind in the adoption of broadband services (paras. 73-74). It contrasted the wide availability of broadband service in urban areas with the less developed network in rural and remote communities. Further, it noted that the objectives outlined in the Price Caps Decision and in the Telecommunications Act at s. 7(b) provided for improving the quality of telecommunications services in those communities, and that their social and economic development would be favoured by an expansion of the national broadband network. In its view, this initiative would also provide a helpful complement to the efforts of both levels of government to expand broadband coverage. It therefore concluded that broadband expansion was an appropriate use of a part of the deferral account funds (paras. 73-80).

The CRTC also explained that while customer credits would be consistent with the objectives set out in s. 7 of the Telecommunications Act and with the Price Caps Decision, these disbursements should not be given priority because broadband expansion and accessibility services provided greater long-term benefits. Nevertheless, credits effectively balanced the interests of the “three main stakeholders in the telecommunications markets” (para. 115), namely customers, competitors and carriers. It concluded that credits did not contradict the purpose of the deferral accounts, and contrasted one‑time credits with a reduction of rates. In its view, credits, unlike rate reductions, did not have a sustained negative impact on competition in these markets, which was the concern the deferral accounts were set up to address (paras. 112-16).

A dissenting Commissioner expressed concerns over the disposition of the deferral account funds. In her view, the CRTC had no mandate to direct the expansion of broadband networks across the country. The CRTC’s policy had generally been to ensure the provision of a basic level of service, not services like broadband, and she therefore considered the CRTC’s reliance on the objectives of the Telecommunications Act to be inappropriate.

Bell Canada, as well as the Consumers’ Association of Canada and the National Anti-Poverty Organization, appealed the CRTC’s Deferral Accounts Decision to the Federal Court of Appeal. The Deferral Accounts Decision was stayed by Richard C.J. in the Federal Court of Appeal on January 25, 2008. The decision requiring further submissions on plans to distribute the deferral account balances was also stayed by Sharlow J.A. pending the filing of an application for leave to appeal to this Court on April 23, 2008. Both stay orders were extended by this Court on September 25, 2008. The stay orders do not apply to the funds allocated for the improvement of accessibility for individuals with disabilities.

In a careful judgment by Sharlow J.A., the court unanimously dismissed the appeals (2008 FCA 91, 80 Admin. L.R. (4th) 159), concluding that the Price Caps Decision regime always contemplated the future disposition of the deferral account funds as the CRTC would direct, and that the CRTC acted within its broad mandate to pursue its regulatory objectives. For the reasons that follow, I agree with the conclusions reached by Sharlow J.A.

Analysis

The parties have staked out diametrically opposite positions on how the balance of the deferral account funds should be allocated.

Bell Canada argued that the CRTC had no statutory authority to order what it claimed amounted to retrospective “rebates” to consumers. In its view, the distributions ordered by the CRTC were in substance a variation of rates that had been declared final. TELUS joined Bell Canada in this Court, and argued that the CRTC’s order for “rebates” constituted an unjust confiscation of property.

In response, the CRTC contended that its broad mandate to set rates under the Telecommunications Act includes establishing and ordering the disposal of funds from deferral accounts. Because the deferral account funds had always been subject to the possibility of disbursement to customers, there was therefore no variation of a final rate or any impermissible confiscation.

The Consumers’ Association of Canada was the only party to oppose the allocation of 5 percent of the deferral account balances to improving accessibility, but abandoned this argument during the hearing before the Federal Court of Appeal. Together with the National Anti-Poverty Organization, it argued before this Court that the rest of the deferral account balances should be distributed to customers in full, and that the CRTC had no authority to allow the use of the funds for broadband expansion.

These arguments bring us directly to the statutory scheme at issue.

The Telecommunications Act lays out the basic legislative framework of the Canadian telecommunications industry. In addition to setting out numerous specific powers, the statute’s guiding objectives are set out in s. 7. Pursuant to s. 47(a), the CRTC must consider these objectives in the exercise of all of its powers. These provisions state:

7. It is hereby affirmed that telecommunications performs an essential role in the maintenance of Canada’s identity and sovereignty and that the Canadian telecommunications policy has as its objectives

(a) to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;

(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;

(d) to promote the ownership and control of Canadian carriers by Canadians;

(e) to promote the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada;

(f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective;

(g) to stimulate research and development in Canada in the field of telecommunications and to encourage innovation in the provision of telecommunications services;

(h) to respond to the economic and social requirements of users of telecommunications services; and

(i) to contribute to the protection of the privacy of persons.

. . .

47. The Commission shall exercise its powers and perform its duties under this Act and any special Act

(a) with a view to implementing the Canadian telecommunications policy objectives and ensuring that Canadian carriers provide telecommunications services and charge rates in accordance with section 27;

The CRTC relied on these two provisions in arguing that it was required to take into account a broad spectrum of considerations in the exercise of its rate‑setting powers, and that the Deferral Accounts Decision was simply an extension of this approach.

The Telecommunications Act grants the CRTC the general power to set and regulate rates for telecommunications services in Canada. All tariffs imposed by carriers, including rates for services, must be submitted to it for approval, and it may decide any matter with respect to rates in the telecommunications services industry, as the following provisions show:

24. The offering and provision of any telecommunications service by a Canadian carrier are subject to any conditions imposed by the Commission or included in a tariff approved by the Commission.

25. (1) No Canadian carrier shall provide a telecommunications service except in accordance with a tariff filed with and approved by the Commission that specifies the rate or the maximum or minimum rate, or both, to be charged for the service.

. . .

32. The Commission may, for the purposes of this Part,

. . .

(g) in the absence of any applicable provision in this Part, determine any matter and make any order relating to the rates, tariffs or telecommunications services of Canadian carriers.

The guiding rule of rate-setting under the Telecommunications Act is that the rates be “just and reasonable”, a longstanding regulatory principle. To determine whether rates meet this standard, the CRTC has a wide discretion which is protected by a privative clause:

27. (1) Every rate charged by a Canadian carrier for a telecommunications service shall be just and reasonable.

. . .

(3) The Commission may determine in any case, as a question of fact, whether a Canadian carrier has complied with section 25, this section or section 29, or with any decision made under section 24, 25, 29, 34 or 40.

. . .

(5) In determining whether a rate is just and reasonable, the Commission may adopt any method or technique that it considers appropriate, whether based on a carrier’s return on its rate base or otherwise.

. . .

52. (1) The Commission may, in exercising its powers and performing its duties under this Act or any special Act, determine any question of law or of fact, and its determination on a question of fact is binding and conclusive.

In addition to the power under s. 27(5) to adopt “any method or technique that it considers appropriate” for determining whether a rate is just and reasonable, the CRTC also has the authority under s. 37(1) to order a carrier to adopt “any accounting method or system of accounts” in view of the proper administration of the Telecommunications Act . Section 37(1) states:

37. (1) The Commission may require a Canadian carrier

(a) to adopt any method of identifying the costs of providing telecommunications services and to adopt any accounting method or system of accounts for the purposes of the administration of this Act;

The CRTC has other broad powers which, while not at issue in this case, nevertheless further demonstrate the comprehensive regulatory powers Parliament intended to grant. These include the ability to order a Canadian carrier to provide any service in certain circumstances (s. 35(1)); to require communications facilities to be provided or constructed (s. 42(1)); and to establish any sort of fund for the purpose of supporting access to basic telecommunications services (s. 46.5(1)).

This statutory overview assists in dealing with the preliminary issue of the applicable standard of review. Although the Federal Court of Appeal accepted the parties’ position that the applicable standard of review was correctness, Sharlow J.A. acknowledged that the standard of review could be more deferential in light of this Court’s decision in Council of Canadians with Disabilities v. VIA Rail Canada Inc., 2007 SCC 15, [2007] 1 S.C.R. 650, at paras. 98-100. This was an invitation, it seems to me, to clarify what the appropriate standard is.

Bell Canada and TELUS concede that the CRTC had the authority to approve disbursements from the deferral accounts for initiatives to improve broadband expansion and accessibility to telecommunications services for persons with disabilities, and that they actually sought such approval. In their view, however, this authority did not extend to what they characterized as retrospective “rebates”. Similarly, in the Consumers’ appeal the crux of the complaint is with whether the CRTC could direct that the funds be disbursed in certain ways, not with whether it had the authority to direct how the funds ought to be spent generally.

This means that for the Bell Canada and TELUS appeal, the dispute is over the CRTC’s authority and discretion under the Telecommunications Act in connection with ordering credits to customers from the deferral accounts. In the Consumers’ appeal, it is over its authority and discretion in ordering that funds from the deferral accounts be used for the expansion of broadband services.

A central responsibility of the CRTC is to determine and approve just and reasonable rates to be charged for telecommunications services. Together with its rate-setting power, the CRTC has the ability to impose any condition on the provision of a service, adopt any method to determine whether a rate is just and reasonable and require a carrier to adopt any accounting method. It is obliged to exercise all of its powers and duties with a view to implementing the Canadian telecommunications policy objectives set out in s. 7.

The CRTC’s authority to establish the deferral accounts is found through a combined reading of ss. 27 and 37(1). The authority to establish these accounts necessarily includes the disposition of the funds they contain, a disposition which represents the final step in a process set in motion by the Price Caps Decision. It is self-evident that the CRTC has considerable expertise with respect to this type of question. This observation is reflected in its extensive statutory powers in this regard and in the strong privative clause in s. 52(1) protecting its determinations on questions of fact from appeal, including whether a carrier has adopted a just and reasonable rate.

In my view, therefore, the issues raised in these appeals go to the very heart of the CRTC’s specialized expertise. In the appeals before us, the core of the quarrel in effect is with the methodology for setting rates and the allocation of certain proceeds derived from those rates, a polycentric exercise with which the CRTC is statutorily charged and which it is uniquely qualified to undertake. This argues for a more deferential standard of review, which leads us to consider whether the CRTC was reasonable in directing how the funds from the deferral accounts were to be used. (See Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 54; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339, at para. 25; and VIA Rail Canada, at paras. 88-100.)

This brings us to the nature of the CRTC’s rate-setting power in the context of this case. The predecessor statute for telecommunications rate-setting, the Railway Act, R.S.C. 1985, c. R-3, also stipulated that rates be “just and reasonable” (s. 340(1)). Traditionally, those rates were based on a balancing between a fair rate for the consumer and a fair return on the carrier’s investment. (See, e.g., Northwestern Utilities Ltd. v. City of Edmonton, [1929] S.C.R. 186, at pp. 192-93, and ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140, at para. 65.)

Even before the expansive language now found in the Telecommunications Act , regulatory agencies had enjoyed considerable discretion in determining the factors to be considered and the methodology that could be adopted for assessing whether rates were just and reasonable. For instance, in dismissing a leave application in Re General Increase in Freight Rates (1954), 76 C.R.T.C. 12 (S.C.C.), Taschereau J. wrote:

[I]f the Board is bound to grant a relief which is just to the public and secures to the railways a fair return, it is not bound to accept for the determination of the rates to be charged, the sole method proposed by the applicant. The obligation to act is a question of law, but the choice of the method to be adopted is a question of discretion with which, under the statute, no Court of law may interfere. [Emphasis added; p. 13.]

In making this determination, he relied on Duff C.J.’s judgment in Canadian National Railways Co. v. Bell Telephone Co. of Canada, [1939] S.C.R. 308, for the following proposition in the particular statutory context of that case:

The law dictates neither the order to be made in a given case nor the considerations by which the Board is to be guided in arriving at the conclusion that an order, or what order, is necessary or proper in a given case. True, it is the duty of all public bodies and others invested with statutory powers to act reasonably in the execution of them, but the policy of the statue [sic] is that, subject to the appeal to the Governor in Council under section 52, in exercising an administrative discretion entrusted to it, the Board itself is to be the final arbiter as to the order to be made. [p. 315]

(See also Michael H. Ryan, Canadian Telecommunications Law and Regulation (loose-leaf), at §612.)

The CRTC’s already broad discretion in determining whether rates are just and reasonable has been further enhanced by the inclusion of s. 27(5) in the Telecommunications Act permitting the CRTC to adopt “any method”, language which was absent from the Railway Act.

Even more significantly, the Railway Act contained nothing analogous to the statutory direction under s. 47 that the CRTC must exercise its rate-setting powers with a view to implementing the Canadian telecommunications objectives set out in s. 7. These statutory additions are significant. Coupled with its rate-setting power, and its ability to use any method for arriving at a just and reasonable rate, these provisions contradict the restrictive interpretation of the CRTC’s authority proposed by various parties in these appeals.

This was highlighted by Sharlow J.A. when she stated:

Because of the combined operation of section 47 and section 7 of the Telecommunications Act . . ., the CRTC’s rating jurisdiction is not limited to considerations that have traditionally been considered relevant to ensuring a fair price for consumers and a fair rate of return to the provider of telecommunication services. Section 47 of the Telecommunications Act expressly requires the CRTC to consider, as well, the policy objectives listed in section 7 of the Telecommunications Act . What that means, in my view, is that in rating decisions under the Telecommunications Act , the CRTC is entitled to consider any or all of the policy objectives listed in section 7 . [para. 35]

It is true that the CRTC had previously used a “rate base rate of return” method, based on a combination of a rate of return for investors in telecommunications carriers and a rate base calculated using the carriers’ assets. This resulted in rates charged for the carrier’s services that would, on the one hand, provide a fair return for the capital invested in the carrier, and, on the other, be fair to the customers of the carrier.

In Edmonton (City) v. 360Networks Canada Ltd., 2007 FCA 106, [2007] 4 F.C.R. 747, leave to appeal refused, [2007] 3 S.C.R. vii, the Federal Court of Appeal drew similar conclusions, observing that the Telecommunications Act should be interpreted by reference to the policy objectives, and that s. 7 justified in part the view that the “Act should be interpreted as creating a comprehensive regulatory scheme” (para. 46). A duty to take a more comprehensive approach was also noted by Ryan, who observed:

Because of the importance of the telecommunications industry to the country as a whole, rate‑making issues may sometimes assume a dimension that gives them a significance that extends beyond the immediate interests of the carrier, its shareholders and its customers, and engages the interests of the public at large. It is also part of the duty of the regulator to take these more far‑reaching interests into account. [§604]

This leads inevitably, it seems to me, to the conclusion that the CRTC may set rates that are just and reasonable for the purposes of the Telecommunications Act through a diverse range of methods, taking into account a variety of different constituencies and interests referred to in s. 7, not simply those it had previously considered when it was operating under the more restrictive provisions of the Railway Act. This observation will also be apposite later in these reasons when the question of “final rates” is discussed in connection with the Bell Canada appeal.

I see nothing in this conclusion which contradicts the ratio in Barrie Public Utilities v. Canadian Cable Television Assn., 2003 SCC 28, [2003] 1 S.C.R. 476. In that case, the issue was whether the CRTC could make an order granting cable companies access to certain utilities’ power poles. In that decision, the CRTC had relied on the Canadian telecommunications policy objectives to inform its interpretation of the relevant provisions. In deciding that the language of the Telecommunications Act did not give the CRTC the power to grant access to the power poles, Gonthier J. for the majority concluded that the CRTC had inappropriately interpreted the Canadian telecommunications policy objectives in s. 7 as power‑conferring (para. 42).

The circumstances of Barrie Public Utilities are entirely distinct from those at issue before us. Here, we are dealing with the CRTC setting rates that were required to be just and reasonable, an authority fully supported by unambiguous statutory language. In so doing, the CRTC was exercising a broad authority, which, according to s. 47, it was required to do “with a view to implementing the Canadian telecommunications policy objectives”. The policy considerations in s. 7 were factors that the CRTC was required to, and did, take into account.

Nor does this Court’s decision in ATCO preclude the pursuit of public interest objectives through rate-setting. In that case, Bastarache J. for the majority, took a strict approach to the Alberta Energy and Utilities Board’s powers under the applicable statute. The issue was whether the Board had the authority to order the distribution of proceeds by a regulated company to its subscribers from an asset sale it had approved. It was argued that because the Board had the authority to make “further orders” and impose conditions “in the public interest” on any order, it therefore had the ability to order the disposition of the sale proceeds.

In holding that the Board had no such authority, Bastarache J. relied in part on the conclusion that the Board’s statutory power to make orders or impose conditions in the public interest was insufficiently precise to grant the ability to distribute sale proceeds to ratepayers (para. 46). The ability of the Board to approve an asset sale, and its authority to make any order it wished in the public interest, were necessarily limited by the context of the relevant provisions (paras. 46-48 and 50). It was obliged too to adopt a rate base rate of return method to determine rates, pursuant to its governing statute (paras. 65-66).

Unlike ATCO, in the case before us, the CRTC’s rate-setting authority and its ability to establish deferral accounts for this purpose are at the very core of its competence. The CRTC is statutorily authorized to adopt any method of determining just and reasonable rates. Furthermore, it is required to consider the statutory objectives in the exercise of its authority, in contrast to the permissive, free-floating direction to consider the public interest that existed in ATCO. The Telecommunications Act displaces many of the traditional restrictions on rate-setting described in ATCO, thereby granting the CRTC the ability to balance the interests of carriers, consumers and competitors in the broader context of the Canadian telecommunications industry (Review of Regulatory Framework decision, at pp. 6 and 10).

In my view, it follows from the CRTC’s broad discretion to determine just and reasonable rates under s. 27, its power to order a carrier to adopt any accounting method under s. 37, and its statutory mandate under s. 47 to implement the wide-ranging Canadian telecommunications policy objectives set out in s. 7 , that the Telecommunications Act provides the CRTC with considerable scope in establishing and approving the use to be made of deferral accounts. They were created in accordance both with the CRTC’s rate-setting authority and with the goal that all rates charged by carriers were and would remain just and reasonable.

A deferral account would not serve its purpose if the CRTC did not also have the power to order the disposition of the funds contained in it. In my view, the CRTC had the authority to order the disposition of the accounts in the exercise of its rate‑setting power, provided that this exercise was reasonable.

I therefore agree with the following observation by Sharlow J.A.:

The Price Caps Decision required Bell Canada to credit a portion of its final rates to a deferral account, which the CRTC had clearly indicated would be disposed of in due course as the CRTC would direct. There is no dispute that the CRTC is entitled to use the device of a mandatory deferral account to impose a contingent obligation on a telecommunication service provider to make expenditures that the CRTC may direct in the future. It necessarily follows that the CRTC is entitled to make an order crystallizing that obligation and directing a particular expenditure, provided the expenditure can reasonably be justified by one or more of the policy objectives listed in section 7 of the Telecommunications Act . [Emphasis added; para. 52.]

This general analytical framework brings us to the more specific questions in these appeals. In the first appeal, Bell Canada relied on Gonthier J.’s decision Bell Canada v. Canada (Canadian Radio‑television and Telecommunications Commission), [1989] 1 S.C.R. 1722 (“Bell Canada (1989)”), to argue that “final” rates cannot be changed and that the funds in the deferral accounts could not, therefore, be distributed as “rebates” to customers.

In Bell Canada (1989), the CRTC approved a series of interim rates. It subsequently reviewed them in light of Bell Canada’s changed financial situation, and ordered the carrier to credit what it considered to be excess revenues to its current subscribers. Arguing against the CRTC’s authority to do so, Bell Canada contended that the CRTC could not order a one-time credit with respect to revenues earned from rates approved by the CRTC, whether the rate order was an interim one or not. Gonthier J. observed that while the Railway Act contemplated a positive approval scheme that only allowed for prospective, not retroactive or retrospective rate‑setting, the one-time credit at issue was nevertheless permissible because the original rates were interim and therefore inherently subject to change.

In the current case, Bell Canada argued that the rates had been made final, and that the disposition of the deferral accounts for one-time credits was therefore impermissible. More specifically, it argued that the CRTC’s order of one-time credits from the deferral accounts amounted to retrospective rate-setting as the term was used in Bell Canada (1989), at p. 1749, namely, that their “purpose is to remedy the imposition of rates approved in the past and found in the final analysis to be excessive”.

In my view, because this case concerns encumbered revenues in deferral accounts (referred to by Sharlow J.A. as contingent obligations or liabilities), we are not dealing with the variation of final rates. As Sharlow J.A. pointed out, Bell Canada (1989) is inapplicable because it was known from the outset in the case before us that Bell Canada would be obliged to use the balance of its deferral account in accordance with the CRTC’s subsequent direction (para. 53).

It would, with respect, be an oversimplification to consider that Bell Canada (1989) applies to bar the provision of credits to consumers in this case. Bell Canada (1989) was decided under the Railway Act, a statutory scheme that, significantly, did not include any of the considerations or mandates set out in ss. 7 , 27(5) and 47 of the Telecommunications Act . Nor did it involve the disposition of funds contained in deferral accounts.

In my view, the credits ordered out of the deferral accounts in the case before us are neither retroactive nor retrospective. They do not vary the original rate as approved, which included the deferral accounts, nor do they seek to remedy a deficiency in the rate order through later measures, since these credits or reductions were contemplated as a possible disposition of the deferral account balances from the beginning. These funds can properly be characterized as encumbered revenues, because the rates always remained subject to the deferral accounts mechanism established in the Price Caps Decision. The use of deferral accounts therefore precludes a finding of retroactivity or retrospectivity. Furthermore, using deferral accounts to account for the difference between forecast and actual costs and revenues has traditionally been held not to constitute retroactive rate-setting (EPCOR Generation Inc. v. Energy and Utilities Board, 2003 ABCA 374, 346 A.R. 281, at para. 12, and Reference Re Section 101 of the Public Utilities Act (1998), 164 Nfld. & P.E.I.R. 60 (Nfld. C.A.), at paras. 97-98 and 175).

The Deferral Accounts Decision was the culmination of a process undertaken in the Price Caps Decision. In the Price Caps Decision, the CRTC indicated that the amounts in the deferral accounts were to be used in a manner contributing to achieving the CRTC’s objectives (paras. 409 and 412). In the Deferral Accounts Decision, the CRTC summarized its earlier findings that draw‑downs could occur for various purposes, including through subscriber credits (para. 6). When the CRTC approved the rates derived from the Price Caps Decision, the portion of the revenues that went into the deferral accounts remained encumbered. The deferral accounts, and the encumbrance to which the funds recorded in them were subject, were therefore an integral part of the rate-setting exercise ensuring that the rates approved were just and reasonable. It follows that nothing in the Deferral Accounts Decision changed either the Price Caps Decision or any other prior CRTC decision on this point. The CRTC’s later allocation of deferral account balances for various purposes, therefore, including customer credits, was not a variation of a final rate order.

The allocation of deferral account funds to consumers was not, strictly speaking, a “rebate” in any event. Instead, as in Bell Canada (1989), these allocations were one‑time disbursements or rate reductions the carriers were required to make out of the deferral accounts to their current subscribers. The possibility of one-time credits was present from the inception of the rate-setting exercise. From the Price Caps Decision onwards, it was understood that the disposition of the deferral account funds might include an eventual credit to subscribers once the CRTC determined the appropriate allocation. It was precisely because the rate-setting mechanism approved by the CRTC included accumulation in and disposition from the deferral accounts pursuant to further CRTC orders, that the rates were and continued to be just and reasonable.

Therefore, rather than viewing Bell Canada (1989) as setting a strict rule that subscriber credits can never be ordered out of revenues derived from final rates, it is important to remember Gonthier J.’s concern that the financial stability of regulated utilities could be undermined if rates were open to indiscriminate variation (p. 1760). Nothing in the Deferral Accounts Decision undermined the financial stability of the affected carriers. The amounts at issue were always treated differently for accounting purposes, and the regulated carriers were aware of the fact that the portion of their revenues going into the deferral accounts remained encumbered. In fact, the Price Caps Decision formula would have allowed for lower rates than the ones ultimately set, were it not for the creation of the deferral accounts. Those lower rates could conceivably have been considered sufficient to maintain the financial stability of the carriers and were increased only in an effort to encourage market entry by new competitors.

TELUS argued additionally that the Deferral Accounts Decision constituted a confiscation of its property. This is an argument I have difficulty accepting. The funds in the accounts never belonged unequivocally to the carriers, and always consisted of encumbered revenues. Had the CRTC intended that these revenues be used for any purposes the affected carriers wanted, it could simply have approved the rates as just and reasonable and ordered the balance of the deferral accounts turned over to them. It chose not to do so.

For the above reasons, I would dismiss the Bell Canada and TELUS appeal.

The premise underlying the Consumers’ Association of Canada appeal is that the disposition of some deferral account funds for broadband expansion highlighted the fact that the rates charged by carriers were, in a certain sense, not just and reasonable. Consumers can only succeed if it can demonstrate that the CRTC’s decision was unreasonable.

At its core, Consumers’ primary argument was that the Deferral Accounts Decision effectively forced users of a certain service (residential subscribers in certain areas) to subsidize users of another service (the future users of broadband services) once the expansion of broadband infrastructure was completed. In its view, this was an indication that the rates charged to residential users were not in fact just and reasonable, and that therefore the balance in the deferral accounts, excluding the disbursements for accessibility services, should be distributed to customers.

As previously noted, the deferral accounts were created and disbursed pursuant to the CRTC’s power to approve just and reasonable rates, and were an integral part of such rates. Far from rendering these rates inappropriate, the deferral accounts ensured that the rates were just and reasonable. And the policy objectives in s. 7, which the CRTC is always obliged to consider, demonstrate that the CRTC need not limit itself to considering solely the service at issue in determining whether rates are just and reasonable. The statute contemplates a comprehensive national telecommunications framework. It does not require the CRTC to atomize individual services. It is for the CRTC to determine a tolerable level of cross-subsidization.

Nor does the traditional approach to telecommunications regulation support Consumers’ argument. Long‑distance telephone users have long subsidized local telephone users (Price Caps Decision, at para. 2). Therefore, while rates for individual services covered by the Telecommunications Act may be evaluated on a just and reasonable basis, rates are not necessarily rendered unreasonable or unjust simply because there is some cross-subsidization between services. (See Ryan, at §604, for the proposition that the CRTC can determine the appropriate extent of cross-subsidization for a given telecommunications carrier.)

In my view, the CRTC properly considered the objectives set out in s. 7 when it ordered expenditures for the expansion of broadband infrastructure and consumer credits. In doing so, it treated the statutory objectives as guiding principles in the exercise of its rate‑setting authority. Pursuing policy objectives through the exercise of its rate-setting power is precisely what s. 47 requires the CRTC to do in setting just and reasonable rates.

In deciding to allocate the deferral account funds to improving accessibility services and broadband expansion in rural and remote areas, the CRTC had in mind its statutorily mandated objectives of facilitating “the orderly development throughout Canada of a telecommunications system that serves to . . . strengthen the social and economic fabric of Canada” under s. 7(a); rendering “reliable and affordable telecommunications services . . . to Canadians in both urban and rural areas” under s. 7(b); and responding “to the economic and social requirements of users of telecommunications services” pursuant to s. 7(h).

The CRTC heard from several parties, considered its statutorily mandated objectives in exercising its powers, and decided on an appropriate course of action. Under the circumstances, I have no hesitation in holding that the CRTC made a reasonable decision in ordering broadband expansion.

I would therefore conclude that the CRTC did exactly what it was mandated to do under the Telecommunications Act . It had the statutory authority to set just and reasonable rates, to establish the deferral accounts, and to direct the disposition of the funds in those accounts. It was obliged to do so in accordance with the telecommunications policy objectives set out in the legislation and, as a result, to balance and consider a wide variety of objectives and interests. It did so in these appeals in a reasonable way, both in ordering subscriber credits and in approving the use of the funds for broadband expansion.

I would dismiss the appeals. At the request of all parties, there will be no order for costs.