20030820Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:BIRDELLE BROWN Cf1/R~
/-(/ 3 ~-1
DATE:AUGUST 15, 2003
RE:IDAHO UNIVERSAL SERVICE FUND - 2003 ANNUAL REPORT
On July 14, 2003 , Alyson Anderson, the Administrator of the Idaho Universal Service
Fund, filed her Annual Report to the Commission for the period of July 1 , 2002 through
June 30, 2003. Staff has reviewed the calculations and recommendations in this report and finds
them to be accurate and comprehensive. Once again, Staff commends Ms. Anderson for her
continued outstanding performance as Administrator of this fund.
Ms. Anderson reports surcharge revenue for the year in the amount of $1 655 317 of
which $902,422 (55%) was contributed by local exchange services and $752 894 (45%) was
contributed by MTS/W A TS services. This is a decrease in local surcharge revenue of more than
$300 000 (from $1 231 353 in 2002) and a decrease in toll surcharge revenue of more than
$500 000 (from $1 266 744 in 2002). These decreases are due largely to the Commission
decrease in surcharge rates and due to a decrease in inventory. In 2002 the Commission reduced
surcharge rates from $0.10 for residential lines to the current $0.08 per line, from $0.15 for
business lines to the current $0.13 per line and from $0.0035 per billed toll minute to the current
$0.0025 per minute.
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
remains at $1 898 303. The ending fund cash balance at June 30 2003 after applying bank
charges, administrative expenses, and interest received was $154 721; additionally, investments
carry a cash value of$688 000 with staggered maturity dates through March 31 , 2004.
DECISION MEMORANDUM - 1 -AUGUST 15 2003
Local Service
As of May 1 , 2003 companies reported 519 505 residential lines and 200 050 business
lines, for a total of 719 555 lines. This represents a net decrease in lines of 1 % with residential
declining 2.4% and business increasing 5.1 % from the prior year.
The newly calculated statewide average rates and threshold rates are:
Business Services
2002 Current 2003 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate - 2001 Rate - 2002
$17.$17.$22.$21.98
$32.42 $31.$40.$39.40
Residential
Switched Access Service
Toll access minutes reported by the local exchange companies were 533 011 016, which
represents a 12.5% decrease from 609 012 001 million minutes reported in 2002. The new
statewide average switched access rate has increased to $0.0525 per minute from last year
average of$0.0525.
Of the eight companies receiving Universal Service funds, three have switched access
rates in excess of the statewide threshold rate. According to the numbers reported by A TC, it
must reduce its switched access rates by $14 114 annually and increase its USF draw by a
corresponding amount; Fremont must reduce its rates by $13 813 and increase its USF draw by
that amount and Midvale must reduce its rates by $17 294 and make corresponding increases in
its USF draw. If these adjustments are made to comply with the eligibility rule (Idaho Universal
Service Fund Rule 106.02), total USF draws would increase by $45 221 to $1 943 524.
Toll Minutes
The number of toll minutes reported by the local exchange carriers to the USF decreased
by 6.20% from 297 million minutes in the 2002 report to about 279 million minutes in the 2003
report.
DECISION MEMORANDUM - 2 -AUGUST 15 2003
Disbursements
Total disbursements for the year were $1 898 303. Outside of the possible adjustment
made in the access rates of the three USF companies, no changes are expected in total
disbursements in the coming year.
ADMINISTRATOR'S OPTIONS
The Administrator has presented three funding options for the coming year. These
options are as follows:
Option 1: Status Ouo - Ms. Anderson stated that if current surcharge levels are
maintained and no additional funding is needed, the fund will increase to a balance of
approximately $457 630 by June 30, 2004.
Option 2: Adjust Funding to meet Statewide Averages and Maintain Surcharge Rates - In
this discussion, Ms. Anderson compares the companies' current local and switched access rates
to the statewide threshold rates and applies the eligibility rule (Idaho Universal Service Fund
Rule 106.02) to determine the revisions required by current participants. She notes that ATC'
Fremont's , and Midvale s switched access rates are above the threshold rate and they should
reduce their rates (thus increasing their draw from the Universal Service Fund) by a total of
$45 221. If these adjustments are made and the current assessment is not changed, Ms.
Anderson projects an ending balance of approximately $412,409 by June 20 2004.
Option 3: Adjust Funding to meet Statewide Averages and Increase Surcharge Rates - In
this option, Ms. Anderson proposes an increase in current surcharge rates to $0.09 per residential
line, $0.10 per business line and $0.0029 per toll minute and increasing disbursements resulting
from adjusted access rates as discussed in Option 2. At these rates, the fund would be
approximately $514 204 by June 30 , 2004.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends Option 2, which would maintain the surcharge rates at
$0.0025 per MTS/W ATS billed minute and to $.08 per residential and $.13 per business line.
She also recommends adjustments to Fremont, A TC and Midvale switched access rates. This
would leave the fund with an ending balance by June 30 , 2004 of approximately $412,409.
DECISION MEMORANDUM - 3 -AUGUST 15 2003
COMMISSION DECISION
Does the Commission approve the Administrator s recommended Option No.2 to
maintain surcharge rates at $0.08 for residential lines, $0.13 for business lines and $0.0025 per
toll minute? Does the Commission approve access rate decreases for Albion, Midvale and
Fremont to the statewide threshold level and the corresponding increases in USF draws?
Attachment
udmemos/usf 2003 annual report
T:/ . . . IUSF.2003.decisionmemo
DECISION MEMORANDUM - 4-AUGUST 15 2003
IDAHO UNIVERSAL SERVICE FUND OPTIONS
OPTION 1 - STATUS QUO
BANK BALANCE 7/1/03
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES.
TOLL MINUTES
519 474
196 013
278 681,411
TOTAL IUSF FUNDING FOR YEAR
US TREASURIES REDEEMED
ESTIMATED INTEREST INCOME
ESTIMATED IUSF DISBURSEMENTS
ESTIMATED ADMINISTRATIVE EXPENSES
TOTAL ESTIMATED EXPENSES
PROJECTED INCOME/(DRAWDOWN)
PROJECTED. BALANCE 6/30/04
OPTION 2 - ADJUST RULE 106 &
MAINTAIN SURCHARGE RATES
BANK BALANCE 7/1/03
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
519,474
196 013
278 681 411
TOTAL IUSF FUNDING FOR YEAR
US TREASURIES REDEEMED
ESTIMATED INTEREST INCOME
ESTIMATED IUSF DISBURSEMENTS
ESTIMATED ADMINISTRATIVE EXPENSES
TOTAL ESTIMATED EXPENSES
PROJECTED INCOME/(DRA WDOWN)
PROJECTED BALANCE 6/30/04
Page 39
7/22/2003
33% OF TOTAL SURCHARGE REVENUE
20% OF TOTAL SURCHARGE REVENUE
47% OF TOTAL SURCHARGE REVENUE
33% OF TOTAL SURCHARGE REVENUE
20% OF TOTAL SURCHARGE REVENUE
47% OF TOTAL SURCHARGE REVENUE
REFELCTS INCREASED FUNDING TO ATC
FREMONT AND MIDVALE
IDAHO UNIVERSAL SERVICE FUND OPTIONS
OPTION 3 - ADJUST FUNDING LEVELS PER RULE 106 &
INCREASE SURCHARGE RATES
BANK BALANCE 7/1/03
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
519,474
196 013
278 681,411
TOTAL IUSF FUNDING FOR YEAR
US TREASURIES REDEEMED
ESTIMATED . INTEREST INCOME
ESTIMATED IUSF DISBURSEMENTS
ESTIMATED ADMINJSTRATIVE EXPENSES
TOTAL ESTIMATED EXPENSES
PROJECTED INCOME/(DRA WDOWN)
PROJECTED BALANCE 6/30/04
Page 40
. 7/22/2003
35% OF TOTAL SURCHARGE REVENUE
15% OF TOTAL SURCHARGE REVENUE
50% OF TOTAL SURCHARGE REVENUE
.' ..
ADMINISTRATO S REPO~T
ID:AHO UNIVERSAL SERVICE FUND
YEAR END ED JUNE 30, 2003
ADMINISTRATOR'S REPORT
IDAHO UNIVERSAL SERVICE FUND
YEAR ENDED -- JUNE 30 , 2003
SURCHARGE REVENUES
Surcharge revenues collected during the year totaled $1 655 317 of which
$902 422 , Or 55%, was assessed on local exchange services and $752 894
or 45%, was assessed on MTS/W A TS services. Current monthly surcharge
rates are $.08 per residential line
, $.
13 per business line, and $.0025 perMTS/W A TS billed minute.
DISBURSEMENTS
caMP ANTES RECEIVING DISBURSEMENTS
Authorized disbursements to Local Exchange Companies during the year
ended June 30, 2003 totaled $1 898 303 (page 10). The following table
shows the Local Exchange companies authorized by the Idaho Public
Utilities Commission to receive disbursements from the Idaho Universal
Service Fund.
ADMINISTRATIVE FEES AND EXPENSES
Administrative fees and expenses for the year ended June 30, 2003 were
$11 600. Administrative expenses include bank charges of$629.
Administrative expenses payable at June 30, 2003 are $1 018.
INVESTMENTS AND FUNDS
CASH
At June 30, 2003 , the Idaho Universal Service Fund had a cash balance of
$154 721. The following is a table showing the beginning, ending, and
quarterly fund cash balances for the year ended June 30 , 2002.
INTEREST
Interest earned on funds for the year ended June 30, 2003 totaled $18 902. .
Coupon payments from investments in US Treasury Notes totaled $13 080
and interest earned on funds held in a Merrill Lynch CMA-Government
Securities Fund account, with a current yield of .66%, totaled $5 822.
INVESTMENTS
The Idaho Universal Service Fund currently has investments in US Treasury
Notes (Page 9). The T-Notes are valued at $692 637 (face value $688 000)
have staggered maturity dates through March 31 , 2004.
INVENTO RIES
Total residential and business 'lines at May 1 2003 were 519 505 and
200 050 respectively (pages 34 and 35). This represents a 2.4% decrease in
residential lines and a 5.1 % increase in business lines from the prior year.
Total MTS/W A TS billed minutes of use for the year ended December 31
2002 were 278 681,411 (page 38), a 6.20/0 decrease from the prior year.
STATEWIDE WEIGHTED AVERAGE RATES
A schedule summarizing the total funding eligibility for the local exchange
companies is shown on page 11.
ONE-PARTY, SINGLE LINE SERVICE
The statewide weighted average rates for one-party single-line residential
and business services are shown on pages 23 and 33. The following table
shows the statewide weighted averages for one-party, single line service.
TOLL SWITCHED ACCESS
The statewide weighted average revenue per MTS/W A TS access minute is
shown on page 13. The statewide weighted average revenue is $ .0525 perminute.
FUNDING OPTIONS
GENERAL INFORMATION
OPTION 1: STATUS QUO
If current surcharge levels ($.08 per residential line
, $.
13 per business line
and $.0025 per intrastate MTS/W A TS billed minute) are maintained and no
additional IUSF funding is authorized, the fund will increase by
approximately $302 908 (page 39). The fund would have a balance of
approximately $457 630 at June 30, 2004. Additionally, with current
'surcharge rates , MTS/W A TS services would contribute approximately 47%
of the surcharge revenue and local exchange services would contribute 53%
of the surcharge revenue.
OPTION 2: ADJUST FUNDING TO MEET STATEWIDE AVERAGES &
MAINTAIN SURCHARGE RATES
Idaho Universal Service Fund rule 106.02 indicates that to continue
receiving IUSF funding after the first year of eligibility, the company may
need to revise rates to meet the statewide threshold rates. If the rate is
below the statewide threshold rate, and difference between the rates are
greater than 3% and $6 000, the company must revise it's rates to equal or
exceed 100% of the statewide average for MTS/W A TS access service and
125% of the statewide average for local exchange service. The following
applies rule 106 to each company currently drawing from the IUSF. All of
the companies drawing IUSF funds have had rate proceedings during the
past several years, and the Commission has already reviewed and approved
the rates for local access service. Therefore, I think it is unnecessary to
adjust the local rates to meet the statewide average.
. A TC Communications shows a need to reduce access rates, thereby
increasing the praw from the IUSF by $14 114.
. Cambridge Telephone Company does not need to adjust access rates, orthe IUSF draw at this time.
Direct Communications Rockland does not need to adjust access rates, or
the IUSF draw at this time.
. Fremont Telecom shows a need to reduce access rates, thereby
increasing the draw from the IUSF by $13 813.
Inland Telephone Company does not need to adjust access rates , or the
IUSF draw at this time.
. Midvale Telephone Company shows a need to reduce access rates and
increase the IUSF draw by 17 294.
Rural Telephone Company does not need to adjust access rates, or the
IUSF draw at this time.
Silver Star Telecom does not need to adjust access rates, or the IUSF
draw at this time.
The 2003-2004 IUSF disbursements, including the adjustments to funding
per rule 106, will be $1 943 524.
The current surcharge rates were maintained ($.08 per residential line
, $.
per business line, and $.0025 per intrastate MTS/W A TS billed minute), and
therefore the contribution from local exchange services and MTS/W A TS
services would continue at 53% and 47% respectively. The fund will
increase by approximately $257 687, and have a balance of approximately
$412 409 at June 30, 2004 (page 39).
OPTION 3: ADJUST FUNDING TO MEET STATEWIDE AVERAGES &
INCREASE SURCHARGE RATES
, Increasing the MTS/W A TS surcharge rate to $.0029 per minute, the local
exchange residential surcharge rate to $.09 per line and the local exchange
business surcharge rates to '10 each, will maintain an adequate reserve
balance of $500 000. At these rates, MTS/W ATS services would contribute
50% of the total surcharge revenue and local exchange services would
. contribute 50% of the total surcharge revenue, with a projected income of
$359,482. The fund balance at June 30, 2004 would be approximately
$514 204. Thus , maintaining an adequate reserve balance (page 40).
ADMINISTRATOR'S RECOMMENDATION
I recommend that the Commission adopt Option 2, maintaining the current
surcha!ge rates at $.0025 per MTS/W ATS billed minute
, $.
08 per residential
line, and $.13 per business line. Additionally, the access rates and funding
for A TC Communications, Fremont Telecom, and Midvale Telephone
Company should be adjusted. While this option will provide a reserve less
than the ideal $500 000, it should be adequate. Additionally, this option
provides consistency in the surcharge rates. The fund will cpntinue
investing unused balances in US Treasuries. This option approximates a
50-50 contribution of surcharge revenues from local exchange services and
MTS/W A TS servi~es. The fund balance at June 30 , 2002 should be
approximately $412 409.
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IDAHO UNIVERSAL SERVICE FUND
STATEMENT OF FUND BALANCE
JUNE 30, 2003
REVENUES
SURCHARGE REVENUE
INTEREST REVENUE
TOTAL REVENUE
EXPENSES
DISBURSEMENTS TO COMPANIES
AMORTIZATION EXPENSE
BAN~BROKERAGE CHARGES
ADMINISTRATIVE EXPENSE
TOTAL EXPENSES
CHANGE IN FUND BALANCE
FUND BALANCE JULY 1 , 2002
FUND BALANCE JUNE 30, 2003
655 317
593
898 303
826
629
11 ,085
683 910
919 842
($235 932)
097 213
861 281
Page 7
IDAHO UNIVERSAL SERVICE FUND
BANK ACCOUNT ACTIVITY
FOR YEAR ENDED JUNE 30 , 2003
BEGINNING BALANCE JULY 1 , 2002
RECEIPTS
LOCAL SURCHARGE
TOLL SURCHARGE
TOTAL SURCHARGE COLLECTED
TREASURY NOTE REDEEMED
INTEREST
$902,422
752 894
655 317
$453 000
901
TOTAL RECEIPTS
DISBURSEMENTS
BANK/BROKERAGE CHARGES
PURCHASE US TREASURY BILL
COMPANY DISBURSEMENTS
ADMINISTRATIVE EXPENSES
629
708 880
898 303
971
TOTAL DISBURSEMENTS
ENDING BALANCE JUNE 30, 2003
$646 286
127 218
618 783
$154 721
Page 8
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