20070824Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
73/V~
t-o/-
FROM:GRACE SEAMAN
DATE:AUGUST 22, 2007
RE:2007 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS.
On July 19 2007, Alyson Anderson, the Administrator of the Idaho Universal Service
Fund (IUSF), filed her Annual Report to the Commission for the period of July 1 , 2006 through
June 30 2007. Included in the report was the proposed IUSF 2007-2008 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 $.12 per residential line
, $.
20 per business
line, and $.004 per intrastate MTSIWTS billed minute. Ms. Anderson reports surcharge revenue
for the year in the amount of$2 164 119. Local exchange services contributed $1 183 242
(55%) and $980 877 (45%) was contributed by MTSIWATS services. This is an increase in
local exchange surcharge revenue of approximately $81 400 (from $2 082 684 in 2006) and a
decrease in MTS/W A TS surcharge revenue of approximately $9 000 (from $989 930 in 2006).
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
remained unchanged for a total of$I 943 523 as ofJune 30 2007. The ending cash balance
after applying bank charges, administrative expenses, and interest received, was $417 972 on
June 30 2007. For the next year, beginning July 2007 annual disbursements are expected to
remain the same, assuming no changes are made to the IUSF draw.
DECISION MEMORANDUM AUGUST 22, 2007
2007-2008 Administrative Budget
For the 2007-2008 period, Ms. Anderson proposes an annual administrative budget of
$25 700. This amount includes the Administrator s salary, other administrative expenses such as
office supplies and audit and legal fees. This year s budget represents an increase of $700 due to
increased postage and banking charges. All other expenses are expected to remain relatively
unchanged.
Local Service
As of May 1 2007, companies reported an inventory of 458 089 residential lines and
195 729 business lines, for a total of 653 818 lines. This represents a net decrease in lines of
approximately 36,800 (5%) with residentiallines decreasing by nearly 5% and business lines
decreasing by almost 6% from the prior year. These figures are based on corrected line counts
for 2006 and 2007.
The newly calculated statewide weighted average rates and threshold average rates are:
Residential
2006 Current 2007 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
Averaee Rate Average Rate Rate - 2006 Rate - 2007
$17.$17.$22.$22.31
$31.96 $31.$39.$39.Business Services
Switched Access Service
Long distance service providers reported intrastate MTS/WATS total billed minutes of
304 175 225 compared to the 2006 revised minutes of 315 388 045, a 3.6% decrease. The
statewide average switched access rate decreased to $0.047 per minute from last year s average
of $0.05.
Funding Adjustments Review
Ms. Anderson also reviewed the residential, business, and access rates of the recipient
ILEC companies in accordance with Rule 31.46.01.106. Of the eight companies receiving IUSF
funding, the Administrator recommends and Staff agrees that no adjustments to residential or
DECISION MEMORANDUM AUGUST 22, 2007
business rates are necessary at this time. Ms. Anderson does, however, recommend an access
rate adjustment for two companies.
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 comments that if current surcharge levels are
maintained and the disbursements remain the same, the fund balance will be an estimated
$812 847 on June 30 2008. Surcharge revenue contribution would be approximately 52% from
MTSIW A TS services and 48% from local exchange services.
Option 2: Adjust Funding to Meet Statewide Averages and Maintain Surcharge Rates
In this option, Ms. Anderson proposes to maintain the surcharges rates. Ms. Anderson states that
according to Rule 31.46.01.106, ATC Communications does not need to adjust local rates, but
could reduce switched access rates and increase the IUSF draw by $8 563. Additionally,
Cambridge Telephone Company does not need to adjust local rates, but could reduce switched
access rates and increase the IUSF draw by $8 244. Under this proposal, Ms. Anderson projects
the IUSF disbursements would increase to $1 960 331 from $1 943 523 and the fund balance on
June 30, 2008 would be approximately $796 040. With this option, MTSIW A TS services would
contribute 52% of the total surcharge revenue and local exchange services contribution would be
48%.
Option 3: Decrease Surcharge Rates and Maintain Funding Levels - In this scenario
Ms. Anderson considers decreasing the surcharges to $.10 per residential line
, $.
19 per business
line, and $.003 per intrastate MTSIWATS minute. This option would result in a fund balance of
approximately $375 243 on June 30, 2008. MTSIW A TS service would contribute 48% of the
surcharge revenue and local exchange services would contribute 52%.
Option 4: Adjust Funding Levels Per Rule 106 and Decrease Surcharge Rates - In this
discussion, Ms. Anderson proposes a decrease in the residential, business and MTSIW A TS
surcharge rates to $.11 per line
, $.
19 per line, and $.003 per intrastate minute. In addition, she
recommends a decrease in the access rates and a corresponding increase in the IUSF funding for
ATC Communications and Cambridge Telephone Company, thereby decreasing the fund by an
estimated $4 565. Under this proposal, the fund balance would be approximately $413 407 on
DECISION MEMORANDUM AUGUST 22, 2007
June 30 2008. MTSIWATS service would contribute 47% of the surcharge revenue and local
exchange services would contribute 53%.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends that the Commission adopt Option 4, which would decrease
the surcharge rates to $ .11 per residential line
, $ .
19 per business line and $.003 per intrastate
MTSIW A TS billed minute. This option shows A TC Communications and Cambridge Telephone
Company reducing access rates, which would increase the IUSF funding by $4 565. The
projected balance of$413 407 will allow the fund to meet all obligations as well as provide an
adequate reserve balance.
STAFF ANALYSIS AND RECOMMENDATION
The IUSF surcharge rates have remained stable for the last two years. The revenue
disbursements were unchanged for the same period. Ms Anderson assumes the line count will be
relatively stable during the next year, and if the surcharge rates remain unchanged, the fund
balance will grow to an excessive amount by the end of June 2008. This suggests that the
surcharge rates should be adjusted downward. Staff supports the Administrator
recommendation to reduce surcharge rates as outlined in both Option 3 and Option 4.
With respect to the Administrator s recommendation regarding ATC Communications
and Cambridge Telephone Company, Staff does not believe the slight adjustment to the access
rates, nor the corresponding increase to the distribution amounts are warranted ~t this time.
Intrastate MTSIW A TS usage has fluctuated up and down over the past five 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 in order for that company to stay at or below
the IUSF threshold of the 125% statewide weighted average rate.
No significant changes are anticipated in the coming year that may substantially impact
the IUSF fund. Assuming all factors remain the same, Staff recommends adopting Option 3
which decreases the surcharge rates while maintaining the current IUSF company disbursements.
This option would provide a reasonable 2 Y2-month reserve balance of approximately $375 243
on June 30, 2008.
DECISION MEMORANDUM AUGUST 22, 2007
COMMISSION DECISION
Does the Commission wish to approve the IUSF 2007-2008 budget?
Does the Commission wish to adopt the Administrator s recommended Option 4, a
decrease in the surcharge rates to $0.11 for residential lines, to $0.19 for business lines, and
$0.003 per intrastate MTSfW A TS minute?
Does the Commission wish to approve a switched access rate decrease forATC
Communications and Cambridge Telephone Company to the statewide threshold level and
increase the corresponding IUSF contribution to these ILECs?
Does the Commission wish to approve Staff's recommendation to adopt Option 3 and
reduce surcharge rates to $0.10 for residential lines, to $0.19 for business lines, and $0.003 per
intrastate MTSfWATS minute, and maintain the current access rate and IUSF draw for ATC
Communications and Cambridge Telephone Company?
Does the Commission wish to adopt a different funding option?
~~4 ;k tUM-
Grace Seaman
i:udememoslusf2007
DECISION MEMORANDUM AUGUST 22, 2007