20150828Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER RAPER
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 28,2015
RE:2015 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT
AND RECOMMENDATIONS;CASE NO.GNR-T-15-07.
BACKGROUND
The Idaho Universal Service Fund (USF)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 62-6 10,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.Idaho Code §62-610(1).The USF is
funded through a statewide end-user surcharge on local exchange services and intrastate MIS
and Wide Area Telephone Service (WATS)type services.The USF Administrator submits an
Annual Report to the Commission detailing the program activities of the previous year and
recommending surcharge rates to meet the next year’s funding requirements.The Commission
issues an Order in response to the Administrator’s report,establishing statewide end-user
surcharges to be in effect for the next twelve months beginning October 1.
THE 2015 ANNUAL REPORT
On July 15,2015,the Administrator of the Idaho USF,Alyson Anderson,filed her
Annual Report to the Commission for July 1,2014 through June 30,2015,and included a
proposed USF 2015-2016 Administrative Budget.
The current USF monthly surcharge rates are $.16 per residential line,$.25 per business
line,and $006 per intrastate MTS/WTS billed minute.See Order No.33120.Surcharge
DECISION MEMORANDUM 1 AUGUST 28,2015
revenue for the year totaled $2,046,064.Local exchange services contributed $1,081,691 (53%),
and $964,373 (47%)was contributed by MTS/WATS services.Surcharge revenue from local
exchange services decreased slightly by approximately $573 and MTS/WATS surcharge revenue
increased by approximately $99,965.The Administrative expenses for the year were $19,657.
This amount includes the Administrator’s salary,expenses,and the costs associated with an
external audit completed in March 2015 for the three years ended June 30,2012 through 2014.
Currently.eight qualifying incumbent local exchange carriers (ILECs)receive annual
payments from the fund,and those payments remain unchanged at $1,698,610.If no changes
occur,the annual disbursements to the ILECs are expected to remain the same for the next fiscal
year (July 1.2015 through June 30,2016).The end-of-year cash balance for fiscal year 2015,
after applying bank charges,and administrative expenses was S567,282.
2015-2016 Administrative Budget
Ms.Anderson proposes an annual administrative budget of $16,200.This amount
includes the Administrator’s salary and other expenses.
Local Residential and Business Service
Because the USF surcharge attaches to the residential and business lines,and long-
distance service minutes,of wireline companies,the Administrator annually obtains reports from
those companies.As of May 1,2015,companies reported a monthly inventory of 182,038
residential lines and 225,512 business lines,for a total of 407,550 lines.This is a net decrease in
lines of approximately 31,338 (7%)with residential lines decreasing by 10%and business lines
decreasing by 5%.
The newly calculated statewide weighted average rates for one-party single line
residential and business service and the corresponding threshold average rates are:
Residential Services
Business Services
2014 Statewide 2015 Statewide 125%Statewide 125%Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate -2014 Rate -2015
$21.53 $21.79 $26.92 $27.24
$33.70 $36.93 $42.13 $46.16
2DECISIONMEMORANDUM AUGUST 28,2015
Switched Access Scn’ice
Long distance service providers reported intrastate MTS/WATS billed minutes of
167,029,919 compared to the 2014 reported minutes of 172,567,590,a 3%decrease.The
statewide average switched access rate was 50.036,a slight change from last year’s rate of
50.037.
Funding Adjustments Review—Rule 106
The Administrator also reviews the residential,business,and switched access rates of the
recipient ILEC companies to determine eligibility to receive USF funding.A company’s average
one-party,single-line rate must equal or exceed the 125%statewide weighted average line rate
and the average rates per minute for MTS/WATS access rate must exceed 100%of the statewide
weighted average access rate.IDAPA 3 1.46.01.106.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 56,000,the company may need to
revise rates to meet or exceed the statewide threshold rates.The Commission may also calculate
the weighted statewide average rates by using the residence and business basic local exchange
rates in effect on July 1,2005 to determine the eligibility of ETCs for distributions from the
USF.See Rule 106.04,and Idaho Code §62-605(e).
ADMINISTRATOR’S OPTIONS
The Administrator reports that over the last several years,both local access lines and
intrastate MTS/WATS have steadily declined.As a result,it is difficult to calculate the funding
requirements necessary to maintain adequate fund balances throughout the fiscal year.In an
effort to more accurately determine the results of the funding options,Ms.Anderson adjusted the
current inventories by the average percentage decline from the last five years to present the four
funding options described below.
Option 1:Status Quo —Ms.Anderson reports that if current surcharge levels are
maintained and no additional USF funding is authorized,the ffinding will increase by
approximately 5174,754.The 2015-2016 authorized disbursements will be $1,698,610 and the
fund balance is estimated to be $742,036 on June 30,2016.Surcharge revenue contribution
would be approximately 52%from MTS/WATS services and 48%from local exchange services.
DECISION MEMORANDUM 3 AUGUST 28,2015
Option 2:Adiust Funding to Meet Statewide Averages per Rule 106 and Maintain
Surcharge Rates —Idaho USF Rule 106.02 outlines the requirement to continue receiving USF
funding after the first year of eligibility.The following applies Rule 106 to each company
currently receiving USF funding:
•ATC Communications (ATC)—increase local residential and business rates.ATC’s
annual USF funding would be reduced by $74,467.
•Cambridge Telephone Company (Cambridge)—increase local residential and business
rates.Cambridge’s annual USF funding would be reduced by $31,754.
•Direct Communications Rockland (Direct)—increase local residential and business
rates.Direct’s annual USF funding would be reduced by $24,217.
•Fremont Telecom (Fremont)—increase local residential and business rates.Fremont’s
annual USF funding would be reduced by $55,890.
•Inland Telephone Company (Inland)—no adjustments are necessary.
•Midvale Telephone Company (Midvale)—increase local residential rates.Midvale’s
annual USF funding would be reduced by $23,048.
•Rural Telephone Company (Rural)—increase local residential and business rates.
Rural’s annual USF funding would be reduced by $15,158.
•Silver Star Telecom —no adjustments are necessary.’
Under this proposal,Ms.Anderson projects the annual USF disbursements would be
$1,474,076.If current surcharge levels are maintained,the fund will increase by approximately
$399,288.With this option,MTS/WATS services would contribute 48%of the total surcharge
revenue and the local exchange services contribution would be 52%.The fund would have an
end-of-year balance of approximately $906,570 on June 30,2016.
Option 3:Maintain Funding Levels and Decrease Surcharge Rates —In this scenario,
Ms.Anderson considers maintaining the USF disbursement levels and decreasing the surcharge
rates to S.12 per residential line,5.20 per business line,and 5.005 per intrastate MTS/WATS
billed minute.The funding would decrease by approximately $188,646 and the end-of-year
balance as of June 30,2016 would be approximately $378,635.MTS/WATS service would
contribute 50%of the surcharge revenue and local exchange services would contribute 50%.
Adjustments may be subject to change after reviewing the company’s reorganizational plans.
DECISION MEMORANDUM 4 AUGUST 28,2015
Option 4:Adjust Funding to Meet Statewide Averages Per Rule 106 and Decrease
Surcharge Rates —In this discussion,Ms.Anderson looks at decreasing the surcharge rates to
5.08 per residential line,$14 per business line,and maintaining the rate of 5.004 per intrastate
MTS/WATS billed minutes.This option also adjusts the USF disbursements per Rule 106.The
MTS/WATS service would contribute 49%and local exchange services would contribute 51%.
The funding would decrease by approximately $354,575 and the end-of-year balance would be
approximately $212,707 as of June 30,2016.
ADMINISTRATOR’S RECOMMENDATION
The Administrator believes the local access lines and long distance minutes will continue
to decline and the shift away from stand alone residential service to bundled packages will
continue.This affects the statewide average rate calculations,as well as the application of Rule
106 for the companies who receive USF funding.In light of the recent FCC Orders and industry
changes,it is difficult to evaluate the USF funding as it relates to Rule 106.Therefore,the
Administrator recommends that the Commission adopt Option 3;maintain the company
disbursements at the current level,and decrease the surcharge rates to 5.12 per residential line,
5.20 per business line,and $.005 per intrastate MTS/WATS billed minute.Option 3 would
approximate a 50-50 contribution of surcharge revenues between local exchange and
MTS/WATS services.The fund balance on June 30,2016 would be approximately $378,635;an
amount that would allow the hind to meet all obligations as well as provide a reserve balance.
STAFF ANA[NSTS AND RECOMMENDATION
Staff has reviewed the calculations,supporting documentation,and recommendations
contained in the Administrator’s Annual Report.Staff also notes the impact to Rule 106 by the
Federal Communication Commission’s (FCC)USE/ICC Tramformation Order,FCC 11-161,
released on November 18,2011,and the subsequent FCC 14-54,Seventh Order on
Reconsideration,released on June 10,2014.The first FCC Order established a schedule to
reduce intrastate terminating access rates,including transport and reciprocal compensation,to
bill-and-keep by July 1,2019.The second FCC Order established a four-year transition of voice
services to a rate floor of $20.46 for carriers that receive federal high cost support.These Orders
make it impractical for the Commission to apply Rule 106 to determine eligibility for the eight
companies that receive state USF disbursements.All eight USF-funded companies have
DECISION MEMORANDUM 5 AUGUST 28,2015
residential rates of $25.76.2 If Rule W6 is strictly applied,six of the eight companies would be
required to increase the residential local exchange rate from the current rate of $25.76 to $27.24
and five of the companies would be required to increase the business local exchange rate to
$46.16.Finally,because the funding elements are impermanent and difficult to predict.Staff,
therefore,agrees with Ms.Anderson’s recommendation to the Commission to adopt Option 3,
decrease the rates to 5.12 per residential line,5.20 per business line,and 5.005 per intrastate
MTS/WATS billed minute.This option will provide an adequate funding level for the
Administrator.
COMMISSION DECISION
Does the Commission wish to approve the Administrator’s USF 20 15-2016 budget?
Does the Commission wish to adopt the Administrator and Stalls recommended funding
Option 3?
Does the Commission wish to adopt a different funding option?
I
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Grace Seaman
udmcmos/201 5 usi annual report
2 On September 2,2009,Commission Order No.30894 was issued noti’ing the VSF recipient companies that
residential rates must be increased to the statewide threshold rate of $25.76 to continue to receive funding.All eight
companies complied by increasing the residential rates.
DECISION MEMORANDUM 6 AUGUST 28,2015