20090828Decision Memo.pdf

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DECISION MEMORAUM
TO:COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKNG FILE
FROM:GRACE SEAMAN 6ivJe ...:i- () f(-oS-
DATE:AUGUST 28,2009
RE:2009 IDAHO UNIVERSAL SERVICE FUND ANUAL REPORT AND
RECOMMENDATIONS.
BACKGROUN
The Idaho Universal Service Fund (IUSF) rues were adopted under the general legal
authority of the Telecommuncations 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 purose of maintaning the universal availabilty of local exchage service at
reasonable rates and to promote the availabilty of message telecommunications service (MTS) at
reasonably comparable rates throughout the stte of Idaho. The IUSF is funded though a
statewide end user surcharge on local exchange servces and intrastate MTS and Wide Area
Telephone Servce (W A TS) type servces. The IUSF Administrtor, Ms. Anderson, submits an
Anua Report to the Commission that detals the progr activities of the previous year and
provides recommended surcharge rates to meet the next year's fuding 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 issuace of the Order.
THE 2009 ANNUAL REPORT
On July 16,2009, Alyson Anderson, the Administrtor of the Idaho Universal Service
Fund (IUS F), fied her Annua Report to the Commission for the period of July 1, 2008 though
DECISION MEMORANDUM 1 AUGUST 28, 2009
June 30,2009. Included in the Report was the proposed IUSF 2009-2010 Administative
Budget. Staff has reviewed the caculations, supporting documentation, and recommendations
contaned in the Adminstrator's Anual Report.
The curent IUSF monthly surchage rates are $.10 per residential line, $.17 per
business line, and $.003 per intrte MTSIWS biled miute, estblished in Order No. 30635.
Ms. Anderson report surchage revenue for the year in the amount of $1,658,656. Loc
exchange serices contrbuted $968,594 (58%) and $690,061 (42%) was contributed by
MTSIW ATS services. This is a decrease in local exchange surharge revenue of approximately
$177 ,863 (from $1,146,457 in 2008) and a decrease in MTS/W ATS surcharge revenue of
approximately $202,257 (frm $892,318 in 2008).
Anual disburements to the eight quaifyg incumbent local exchange carers (lLECs)
remained unchanged for a tota of $1,943,523 as of June 30, 2009. The ending cash balance,
afr applying ban charges, adistrtive expenses, and interest received, was $207,678 on
June 30, 2009. For the next year, beginning July 1,2009, anua disbursements are expected to
remain the same, unless the Commission approves changes to the IUSF fuding.
2009..2010 Administrative Budget
Ms. Anderson proposes an anua admsttive budget of$16,750. Ths amount
includes the Administrtor's salar and other adinstrtive expenses such as offce supplies and
ban and brokerage fees. Ths year's budget is $6,650 less than the previous year's actu
budget of approx~ately $23,400 due to the expenses associated with the independent audit
conducted in 2008. No charges associated with audits wil be incured in the next year.
Local Residential and Business Service
As of May 1,2009, companies reported an inventory of371,114 residential lines and
225,161 business lines, for a tota of 596,275 lines. This is a net decree in lines of
approximately 55,105 (8.5%) with residential lines decreasing by nealy 11 % and business lines
decreasing by alost 3% from the pror year.
The IUSF Rule 106 states that in order to continue receivig USF fudig afr the first
year of eligibilty, each telephone company must revise its rates to meet the thesholds for
fuding eligibilty based on sttewide average rates calculated anually by the Admnisttor
pursuat to Rule 302.
DECISION MEMORADUM 2 AUGUST 28, 2009
The newly calculated statewide weighted average rates for one-par single line
residential and business service and the corrsponding theshold average rates are:
Business Servces
2008 Current 2009 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
Averae:e Rate Avente Rate Rate-2008 Rate- 2009
$19.47 $20.61 $24.34 $25.76
$32.95 $32.43 $41.9 $40.54
Residential Services
The increase in the weighted average rate for residential line rates appea to be the result
of increases imposed by the larger companies during the last reportng period as well as a
residua effect from Qwest and Verzon rate increases in 2007.
Switched Access Service
Long distace servce providers reported intrastate MTS/W A TS total biled minutes of
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 th the rate during six of the last ten
year.
Rule 106 Continuation of Eligibilty
A company's average one-pary, single-line rate must be revised to equal or exceed the
125% theshold line rate if the difference in the company's curent average rate and the statewide
average theshold rate is greater th thee percent (3%), and the difference in the anual revenue
associated with the company's curent rate and the revenue àssociated with the statewide average
thshold rates is over $6,000. The company may need to revise rates to meet or exceed the
statewide theshold rates or the Commission on its own motion may by order change a telephone
company's IUSF fuding in connection with the recalculation of the statewide average rates. See
Rule 106.04.
Ms. Anderson reviewed the residential, business, and access rates of the companes
receiving IUSF fuding in accordance with Rule i 06 and discusses the results in Option 2.
DECISION MEMORANDUM 3 AUGUST 28, 2009
ADMINSTRATOR'S OPTIONS
The Adminstrtor presented four fuding options to meet the projected anual
disburements and expenses for the coming year. These options are as follows:
Option 1: Status Quo - Ms. Anderson report that if curent surchage levels are
maintained and no additiona IUSF fuding is authorized, the fud balance will be an estimated
$64,534 on June 30,2010. Surcharge revenue contrbution would be approxiately 50% from
MTS/W A TS services and 50% from loca exchange seces.
Option 2: Adjust Funding to Meet Staewide Averages per Rule 106 and Maitain
Surcharge Rates -With this option, the curent surcharge rates are maintaned and Rule 106
adjustments are applied to companies tht curntly receive funds from the IUSF:
. A TC Communications (A TC) must increase both local residential rates and switched
access rates. The company's anual IUSF fuding would be reduced by $70,812.
. Cambridge Telephone Company mus increase local residential rates and does not need to
adjust switched access rates. The company's anua IUSF fudig would be reduced by
$29,218.
. Direct Communcations Rockland mus increase local residential rates and does not need
to adjust switched access rates. The company's anua IUSF fuding 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 anua IUSF fudig 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 fuding 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 fuding would be reduced by
$13,907.
. Silver Sta Telecom must incree local reidential rates, and does not need to adjust
switched access rates. The company's anua IUSF drw would be reduced by $7,424.
DECISION MEMORANDUM 4 AUGUST 28, 2009
Under ths proposal, Ms. Anderson projects the annual IUSF disbursements would
decrease by $246,021 from $1,943,523 to $1,697,502 and the fud balance on June 30, 2010
would be approximately $327,306. With this option, MTS/WATS services would contribute
50% of the tota surchage revenue and local exchange. services contribution would be 50%.
Option 3: Increase Surharge Rates and Maintan Funding Levels - In ths scenario,
Ms. Anderson considers increasing the surcharges to $.12 per residential line, $.20 per business
line, and $.004 per intrastate MTSIW ATS biled minute. Assuming no residential service rate
increases are authorized puruat to Rule 106 and the curent fuding levels remai unchanged;
this option would result in a fud balance of approximately $538,814 on June 30, 2010.
MTSIWATS service would contribute 53% of the surcharge revenue and local exchage servces
would contrbute 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, $.18
per business line, maintaining the curent intrtate MTSIW A TS rate at $.003 per biled minute,
and increasing the residential service rates per Rule 106. The fud will increase by
approximately $236,715 with MTSIWATS contributing approximately 53% of the surcharge
revenue and local exchange services would contribute 47%. The fud would have a balance of
approximately $443,392 on June 30, 2010.
ADMIISTRTOR'S RECOMMENDATION
Ms. Anderson recommends that the Commssion adopt Option 2; mantag the curent
loca suharge rates at $.10 per residential line, $.17 per business line and $.003 per intrastate
MTS/W A TS biled minute. She states that consistency in the surcharge rates is desirable.
Option 2 also complies with Rule 106 eligibilty requirements by increasing the residential
service rates. If the curent surcharge rates are maintaned, the residential rates are increased,
and the IUSF fuding is decreased, then the fud balance should provide approximately two
months of the newly calculated disbursement levels and would approximate a 50..50 contrbution
of surcharge revenues from local residential and business serice and MTS/W A TS servces.
Option 2 would provide a fund balance on June 30, 2010 of approximately $327,306.
DECISION MEMORADUM 5 AUGUST 28, 2009
STAFF ANALYSIS AND RECOMMENDATION
The surcharge rates for residential and business lines and for the MTSIW A TS biled
minutes have decreased or remaied stable for the last four years. Ms Anderson assumes
disbursements and the surchage revenue sources (line count and biled minutes) will be
relatively stable during the next yea. If the surharge rates remain unchanged, the fud balance
will decrease significantly to $64,534, a figure tht is approximately 40-45% of the amount
needed for a one-month disbursement to the eight IUSF recipients. Ms. Anderson recommends
that the surchage rates should remain unchaged, but the residential rates and switched access
rates should be adjusted to comply with Rule 106.
Sta support the Administrtor's recommendation. However, Sta does not believe the
slight adjustment to the switched access rates for ATC and Inland is wated at ths time as the
impact of an increase or decrease is unpredictable over a 12-month period. Last year's
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 decreae access rates and increase the IUSF drw
by $6,636. This is opposite of what is recommended for the A TC access rate in this yea's
report. The numbers of lines and intrastate MTSIW A TS minutes have fluctuated up and down
over the past years, and it is diffcult to discer whether these fluctutions are a result of changes
in consumer calling patterns or anomaies in company reportg. Likewise, it is difficult to
determine the amount of adjustment a company mus make to the access rate for that company to
stay at or below the IUSF thshold of the 100% statewide weighted average rate for
MTSIWATS.
Rule 106 also sttes that no Order alterg a telephone company's funding from the USF
wil be issued without notice that USF fuding is at issue and companes are given appropriate
opportunity to be heard in person or in wrting. Sta, therefore, recommends tht the
Commission issue a Notice providing a 21-day comment period to allow the telephone
companes opportunity to provide input.
No other significant changes are anticipated in the coming year tht may substtially
impact the IUSF fud. Assuing all factors remain relatively stable, Staf recommends adopting
Option 2, which maintas the curent surharge rates, complies with Rule 106 requiring an
increase in the residential rates to the threshold level, and a corresponding adjustment of the
current IUSF fuding to the eight telephone companies. This option would result in a reasonable
reserve balance of approxitely $538,814 on June 30, 2010.
DECISION MEMORADUM 6 AUGUST 28, 2009
" , .. .
COMMSSION 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 increas for A TC
Communications and Inland Telephone Co. to the statewide theshold level?
Does the Commission wish to approve Staffs recommendation to maintan the curent
surcharge rates, maintain the curent switched access rates, adjust the residential service rates in
compliance with Rule 106 and the corresponding IUSF fuding for the eight IUSF recipients,
and issue a Notice for comments?
Does the Commission wish to adopt a different fuding option?
/h~~
Grace Seaman
i:udmemosl09 usf annual report
DECISION MEMORANDUM 7 AUGUST 28, 2009