20090831_2695.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KEMPTON
COMMISSIONER SMITH
CO MMISSI 0 NER RED FO RD
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 28, 2009
RE:2009 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS.
BACKGROUND
The Idaho Universal Service Fund (IUSF) rules were adopted under the general legal
authority of the Telecommunications Act of 1988, Chapter 6, Title 62 Idaho Code and the
specific authority of~ 62-610 Idaho Code. The Commission established a universal service
fund for the purpose of maintaining the universal availability of local exchange service at
reasonable rates and to promote the availability of message telecommunications service (MTS) at
reasonably comparable rates throughout the state of Idaho. The IUSF is funded through a
statewide end user surcharge on local exchange services and intrastate MTS and Wide Area
Telephone Service (W A TS) type services. The IUSF Administrator, Ms. Anderson, submits an
Annual Report to the Commission that details the program activities of the previous year and
provides recommended surcharge rates to meet the next year s funding requirements. On or
before September 1 of each year the Commission shall issue an Order in response to the
Administrator s report, which will establish statewide end-user surcharges to be in effect for the
twelve months beginning October 1 following issuance of the Order.
THE 2009 ANNUAL REPORT
On July 16 2009, Alyson Anderson, the Administrator of the Idaho Universal Service
Fund (IUSF), filed her Annual Report to the Commission for the period of July 1 , 2008 through
DECISION MEMORANDUM AUGUST 28 , 2009
June 30, 2009. Included in the Report was the proposed IUSF 2009-2010 Administrative
Budget. Staff has reviewed the calculations, supporting documentation, and recommendations
contained in the Administrator s Annual Report.
The current IUSF monthly surcharge rates are $.10 per residential line
, $.
17 per
business line, and $.003 per intrastate MTS/WTS billed minute, established in Order No. 30635.
Ms. Anderson reports surcharge revenue for the year in the amount of$I 658 656. Local
exchange services contributed $968 594 (58%) and $690 061 (42%) was contributed by
MTS/W A TS services. This is a decrease in local exchange surcharge revenue of approximately
$177 863 (from $1 146 457 in 2008) and a decrease in MTS/W ATS surcharge revenue of
approximately $202 257 (from $892 318 in 2008).
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
remained unchanged for a total of$I 943 523 as of June 30, 2009. The ending cash balance
after applying bank charges, administrative expenses, and interest received, was $207 678 on
June 30, 2009. For the next year, beginning July 1 2009, annual disbursements are expected to
remain the same, unless the Commission approves changes to the IUSF funding.
2009-2010 Administrative Budget
Ms. Anderson proposes an annual administrative budget of$16 750. This amount
includes the Administrator s salary and other administrative expenses such as office supplies and
bank and brokerage fees. This year s budget is $6 650 less than the previous year s actual
budget of approximately $23 400 due to the expenses associated with the independent audit
conducted in 2008. No charges associated with audits will be incurred in the next year.
Local Residential and Business Service
As of May 1 , 2009, companies reported an inventory of 371 114 residential lines and
225 161 business lines, for a total of 596 275 lines. This is a net decrease in lines of
approximately 55 105 (8.5%) with residential lines decreasing by nearly 11 % and business lines
decreasing by almost 3% from the prior year.
The IUSF Rule 106 states that in order to continue receiving USF funding after the first
year of eligibility, each telephone company must revise its rates to meet the thresholds for
funding eligibility based on statewide average rates calculated annually by the Administrator
pursuant to Rule 302.
DECISION MEMORANDUM AUGUST 28, 2009
The newly calculated statewide weighted average rates for one-party single line
residential and business service and the corresponding threshold average rates are:
Business Services
2008 Current 2009 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
A vera2;e Rate A vera2;e Rate Rate - 2008 Rate - 2009
$19.47 $20.$24.34 $25.
$32.$32.43 $41.19 $40.
Residential Services
The increase in the weighted average rate for residential line rates appears to be the result
of increases imposed by the larger companies during the last reporting period as well as a
residual effect from Qwest and Verizon rate increases in 2007.
Switched Access Service
Long distance service providers reported intrastate MTS/W A TS total billed minutes
304 154 937 compared to the 2008 reported minutes of 313,436 250, a 6% decrease. The
statewide average switched access rate increased slightly from last year s $0.0476 to a 2009
average of$0.05. This access rate is the same or less than the rate during six of the last ten
years.
Rule 106 Continuation of Eligibility
A company s average one-party, single-line rate must be revised to equal or exceed the
125% threshold line rate if the difference in the company s current average rate and the statewide
average threshold rate is greater than three percent (3%), and the difference in the annual revenue
associated with the company s current rate and the revenue associated with the statewide average
threshold rates is over $6 000. The company may need to revise rates to meet or exceed the
statewide threshold rates or the Commission on its own motion may by order change a telephone
company s IUSF funding in connection with the recalculation ofthe statewide average rates. See
Rule 106.04.
Ms. Anderson reviewed the residential, business, and access rates of the companies
receiving IUSF funding in accordance with Rule 106 and discusses the results in Option 2.
DECISION MEMORANDUM AUGUST 28, 2009
ADMINISTRATOR'S OPTIONS
The Administrator presented four funding options to meet the projected annual
disbursements and expenses for the coming year. These options are as follows:
Option 1: Status Quo - Ms. Anderson reports that if current surcharge levels are
maintained and no additional IUSF funding is authorized, the fund balance will be an estimated
$64 534 on June 30, 2010. Surcharge revenue contribution would be approximately 50% from
MTS/W A TS services and 50% from local exchange services.
Option 2: Adjust Funding to Meet Statewide Averages per Rule 106 and Maintain
Surcharge Rates With this option, the current surcharge rates are maintained and Rule 106
adjustments are applied to companies that currently receive funds from the IUSF:
. A TC Communications (A TC) must increase both local residential rates and switched
access rates. The company s annual IUSF funding would be reduced by $70 812.
Cambridge Telephone Company must increase local residential rates and does not need to
adjust switched access rates. The company s annual IUSF funding would be reduced by
$29 218.
Direct Communications Rockland must increase local residential rates and does not need
to adjust switched access rates. The company s annual IUSF funding would be reduced
by $19,446.
Fremont Telecom must increase local residential rates and does not need to adjust access
rates. The company s IUSF funding would be reduced by $66 636.
Inland Telephone Company must increase local residential rates and switched access
rates. The company s annual IUSF funding would be reduced by $26 453.
Midvale Telephone Company must increase local residential rates and does not need to
adjust access rates. The company s IUSF funding would be reduced by $28 875.
Rural Telephone Company must increase local residential rates and does not need to
adjust switched access rates. The company s IUSF funding would be reduced by
$13 907.
Silver Star Telecom must increase local residential rates, and does not need to adjust
switched access rates. The company s annual IUSF draw would be reduced by $7 424.
DECISION MEMORANDUM AUGUST 28 , 2009
Under this proposal, Ms. Anderson projects the annual IUSF disbursements would
decrease by $246 021 from $1 943 523 to $1 697 502 and the fund balance on June 30, 2010
would be approximately $327 306. With this option, MTS/W A TS services would contribute
50% of the total surcharge revenue and local exchange services contribution would be 50%.
Option 3: Increase Surcharge Rates and Maintain Funding Levels - In this scenario
Ms. Anderson considers increasing the surcharges to $.12 per residential line
, $.
20 per business
line, and $.004 per intrastate MTS/W A TS billed minute. Assuming no residential service rate
increases are authorized pursuant to Rule 106 and the current funding levels remain unchanged;
this option would result in a fund balance of approximately $538 814 on June 30, 2010.
MTS/WATS service would contribute 53% of the surcharge revenue and local exchange services
would contribute 47%.
Option 4: Adjust Funding Levels per Rule 106 and Increase Surcharge Rates - In this
discussion, Ms. Anderson looks at increasing the surcharge rates to $.12 per residential line
, $.
per business line, maintaining the current intrastate MTS/W A TS rate at $.003 per billed minute
and increasing the residential service rates per Rule 106. The fund will increase by
approximately $236 715 with MTS/WATS contributing approximately 53% of the surcharge
revenue and local exchange services would contribute 47%. The fund would have a balance of
approximately $443 392 on June 30, 2010.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends that the Commission adopt Option 2; maintaining the current
local surcharge rates at $.10 per residential line
, $.
17 per business line and $.003 per intrastate
MTS/W A TS billed minute. She states that consistency in the surcharge rates is desirable.
Option 2 also complies with Rule 106 eligibility requirements by increasing the residential
service rates. If the current surcharge rates are maintained, the residential rates are increased
and the IUSF funding is decreased, then the fund balance should provide approximately two
months of the newly calculated disbursement levels and would approximate a 50-50 contribution
of surcharge revenues from local residential and business service and MTS/W A TS services.
Option 2 would provide a fund balance on June 30, 2010 of approximately $327 306.
DECISION MEMORANDUM AUGUST 28 , 2009
ST AFF ANALYSIS AND RECOMMENDATION
The surcharge rates for residential and business lines and for the MTS/W A TS billed
minutes have decreased or remained stable for the last four years. Ms Anderson assumes
disbursements and the surcharge revenue sources (line count and billed minutes) will be
relatively stable during the next year. If the surcharge rates remain unchanged, the fund balance
will decrease significantly to $64 534, a figure that is approximately 40-45% of the amount
needed for a one-month disbursement to the eight IUSF recipients. Ms. Anderson recommends
that the surcharge rates should remain unchanged, but the residential rates and switched access
rates should be adjusted to comply with Rule 106.
Staff supports the Administrator s recommendation. However, Staff does not believe the
slight adjustment to the switched access rates for A TC and Inland is warranted at this time as the
impact of an increase or decrease is unpredictable over a 12-month period. Last year
adjustments to meet the statewide averages suggested that Inland's local rates and access rates
did not need to be adjusted, while A TC should decrease access rates and increase the IUSF draw
by $6 636. This is opposite of what is recommended for the ATC access rate in this year
report. The numbers of lines and intrastate MTS/W A TS minutes have fluctuated up and down
over the past years, and it is difficult to discern whether these fluctuations are a result of changes
in consumer calling patterns or anomalies in company reporting. Likewise, it is difficult to
determine the amount of adjustment a company must make to the access rate for that company to
stay at or below the IUSF threshold of the 100% statewide weighted average rate for
MTS/W A TS.
Rule 106 also states that no Order altering a telephone company s funding from the USF
will be issued without notice that USF funding is at issue and companies are given appropriate
opportunity to be heard in person or in writing. Staff, therefore, recommends that the
Commission issue a Notice providing a 21-day comment period to allow the telephone
companies opportunity to provide input.
No other significant changes are anticipated in the coming year that may substantially
impact the IUSF fund. Assuming all factors remain relatively stable, Staff recommends adopting
Option 2 , which maintains the current surcharge rates, complies with Rule 106 requiring an
increase in the residential rates to the threshold level, and a corresponding adjustment ofthe
current IUSF funding to the eight telephone companies. This option would result in a reasonable
reserve balance of approximately $538 814 on June 30, 2010.
DECISION MEMORANDUM AUGUST 28 , 2009
COMMISSION DECISION
Does the Commission wish to approve the IUSF 2009-2010 budget?
Does the Commission wish to adopt the Administrator s recommended Option 2?
Does the Commission wish to approve a switched access rate increase for A
Communications and Inland Telephone Co. to the statewide threshold level?
Does the Commission wish to approve Staff s recommendation to maintain the current
surcharge rates, maintain the current switched access rates, adjust the residential service rates in
compliance with Rule 106 and the corresponding IUSF funding for the eight IUSF recipients
and issue a Notice for comments?
Does the Commission wish to adopt a different funding option?
/lz.
~~~
Grace Seaman
i:udmemosl209 usf annual report
DECISION MEMORANDUM AUGUST 28, 2009