20160908final_order_no_33582.pdf

Office of the Secretary
Service Date
September 8, 2016
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE ANNUAL
REVISION OF THE UNIVERSAL SERVICE
FUND SURCHARGES TO BECOME
EFFECTIVE OCTOBER 1, 2016.
)
) CASE NO. GNR-T-16-12
)
) ORDER NO. 33582 __________________ )
The Idaho Telecommunications Act of 1988 created a Universal Service Fund (USF)
to maintain "the universal availability of local exchange service at reasonable rates and to
promote the availability of message telecommunication service (MTS) at reasonably comparable
prices throughout the state ofldaho." Idaho Code § 62-610(1). The USF is funded by end-user
surcharges on local exchange service, message telecommunication service (MTS), and wide area
telecommunications service (WA TS). See ID APA 31.46.01.103-104. Each year, the
Commission establishes the monthly surcharges levied upon local exchange service and
intrastate MTS/WATS (long-distance) service. See Idaho Code § 62-610(2). The surcharges are
in effect for a 12-month period starting October 1. See IDAPA 31.46.01.104 (Telecom Rule
104). As set out in greater detail below, the Commission finds that it is reasonable to maintain
the current USF surcharges for 12 months, effective October 1, 2016.
BACKGROUND
The Commission annually distributes USF funds to qualifying high-cost local
exchange telephone companies to supplement their annual revenue requirements. The USF
Administrator submits an Annual Report to the Commission. See Idaho Code § 62-610 and
ID AP A 31.46.01.102. In the report, the Administrator reviews the fund balance and
recommends changes, if any, to the surcharge rates in order to maintain adequate funding levels.
After reviewing the report, the Commission issues an Order prescribing USF surcharge rates for
the next 12 months beginning annually on October 1. See IDAPA 31.46.01.104-106. As set
forth in the Commission's 2015 Order, current monthly USF rates are $0.12 per residential line,
$0.20 per business line, and $0.005 per intrastate long-distance billed minute. See Order No.
33378.
THE 2016 REPORT
A. The 2016 Data and 2017 Proposed Budget
On July 15, 2016, the USF Administrator filed the Annual Report for the USF fiscal
year from July 1, 2015 through June 30, 2016. The Administrator reported that USF surcharge
ORDER NO. 33582 1
revenue for the past year totaled approximately $1,645,000 - a decrease of approximately
$401,000 from 2015. The surcharge revenue from local exchange services during the reporting
year totaled approximately $844,000 - a decrease of approximately $238,000 from 2015 -and
the long-distance surcharge revenue decreased to approximately $801,000 - a decrease of
approximately $163,000 from 2015. Approximately 51 % of the total USF revenue was from
local exchange services surcharges, and 49% was from long-distance surcharges.
Annual disbursements to the eight qualifying telephone companies -unchanged from
2015 -would total approximately $1,699,000. The fund's annual year-end cash balance, after
applying bank charges and administrative expenses, was approximately $501,000. The
Administrator estimated that if current surcharge levels are maintained, and no additional USF
funding is authorized, the fund will decrease by approximately $22,000.
The Administrator's expenses for the 2016 fiscal year were $12,841. The
Administrator proposed an annual administrative budget for fiscal year 2017 of $16,050. This
amount includes the Administrator's salary and all other relevant expenses.
Based upon data submitted to the Administrator, as of May 1, 2016, Idaho's
telecommunications companies reported that, on a monthly basis, approximately 170,000
residential lines were in service and 193,000 business lines were in service, for a total of
approximately 363,000 lines. Comparing this data to the prior year, the Administrator calculated
that the number of residential wire lines decreased by approximately 7% and business wire lines
decreased by approximately 14%.
Long-distance service providers reported intrastate MTS/WATS billed minutes of
197,135,000, an increase of approximately 18% from 2015. The statewide average switched
access rate was $0.035, a slight change from last year's rate of $0.036. Based upon the data
submitted by the wire line telephone companies and the long-distance companies, the
Administrator calculated the statewide weighted average for one-party single line residential and
business service and the corresponding 125% statewide weighted average as set out below:
2016 Statewide Weighted 125% Statewide Weighted
Type of Service Average Rate Average Rate-2016
Residential Service $21.77 $27.21
Business Service $36.94 $47.42
See Idaho Code§§ 62-605, -610 and IDAPA 31.46.01.106.
ORDER NO. 33582 2
B. The Four Surcharge Options
The Administrator has shown that over the last several years, both local access lines
and intrastate MTS/WATS minutes have, on average, steadily declined. However, the 2016
fiscal year brought some unexpected increases in the number of MTS/WA Ts billed minutes.
Therefore, the Administrator and Commission Staff asserted that it would be difficult to calculate
the funding requirements necessary to maintain adequate fund balances throughout the coming
fiscal year. Consequently, the Administrator proposed four surcharge options for the
Commission's review, all reflecting the decline in current line inventories and minutes of use by
the average percentage decline over the last five years.
Option 1 -Maintain Current USF Rates: The Administrator calculated that USF
revenues will decrease by about $22,000 if current surcharge levels are maintained and no
additional USF funding is authorized. Assuming the same disbursements as fiscal year 2015
($1,698,610), the year-end fund balance on June 30, 2017, is estimated to be approximately
$479,000. Surcharge revenues would be approximately 42% from MTS/WATS services and
58% from local exchange services.
Option 2 -Adjust Funding Disbursement to the USF Recipients and Maintain the
Current Surcharges: If current USF charges were maintained and disbursements to the eight
USF recipients were adjusted to meet the 125% statewide averages, all eight recipients would
receive reduced disbursements. The Administrator projected that Option 2 USF disbursements
would be approximately $1,344,249, while the year-end fund balance on June 30, 2017, would
increase to approximately $833,000. Under this option, MTS/WATS services would contribute
approximately 58% of the total surcharge revenue and the local exchange services would
contribute approximately 42%.
Option 3 -Maintain Funding Levels and Adjust Surcharge Rates: Under this option,
USF disbursement amounts would remain the same, but the USF surcharge rates would increase
to $0.14 per residential line and $0.25 per business line, and decrease to $0.004 per intrastate
MTS/WATS billed minute. Overall, the Administrator projected that USF funding would
decrease by approximately $137,000 and the year-end balance on June 30, 2017, would be
approximately $364,000. Total surcharge revenues raised from MTS/WATS services versus
local exchange services would be approximately equal.
ORDER NO. 33582 3
Option 4 -Adjust Funding to Meet Statewide Averages and Decrease Surcharge
Rates: Under Option 4, the Administrator decreased the amount of USF disbursements and also
proposed to decrease the surcharge rates to $0.10 per residential line, $0.17 per business line, and
$0.003 per intrastate MTS/WATS billed minutes. Under Option 4, funding would decrease by
approximately $444,000 and the year-end balance would be approximately $56,000. Under this
option, MTS/WATS services would contribute approximately 58% of the total surcharge revenue
and the local exchange services would contribute approximately 42%.
Given the anticipated decline in the number of local access lines and long-distance
minutes, the Administrator and Commission Staff have recommended that the Commission adopt
Option 1, which would have the effect of maintaining USF disbursements at the current level.
Again, the Administrator calculated that the Option 1 year-end balance on June 30, 2017, would
be approximately $479,000. The Administrator opined, and Commission Staff agreed, that
Option 1 would allow the USF fund to meet all of its obligations as well as provide an
appropriate reserve balance.
DISCUSSION
Over the last several years, local access lines and intrastate long-distance billed
minutes have generally declined. For fiscal year 2017, the Administrator has projected that the
number of residential lines will decrease by approximately 10%, the number of billed long­
distance minutes will decrease by approximately 4%, and the number of business lines will
decrease by 2.5%. Simultaneously, the statewide average residential and business rates have
steadily increased. These factors make it difficult to both predict the necessary USF fund
balance for the next fiscal year, and to determine appropriate rates in order that qualifying
telephone companies maintain USF eligibility.
To receive USF funding, a telephone company providing local exchange services and
access services to long-distance providers must qualify for a distribution. See Idaho Code §§ 62-
605, -610 and IDAPA 31.46.01.106. To qualify, a telephone company's average rates for one­
party, residential and business services, and per minute for long-distance access services must
meet or exceed the weighted statewide averages -or threshold rate -as calculated by the USF
Administrator. See IDAPA 31.46.01.106.01, 31.46.01.302. The Commission may revise a
qualifying telephone company's rates in order for the company to maintain USF eligibility, based
ORDER NO. 33582 4
on the company's average rate or annual revenue as compared to the threshold rate or threshold
rate's associated annual revenue. See IDAPA 31.46.01.106.02.
As we have noted in prior years, the true statewide average rate is difficult to
determine because the large deregulated companies -with the greatest market share and greatest
impact on the threshold rate -have increased their stand-alone residential rates to encourage
purchase of bundled services that include local residential service. See Order Nos. 32883 at 3;
32637 at 3. The shift to bundled services is not reflected in the USF Annual Report or the
threshold rate calculations because companies are only required to report stand-alone residential
rates. Also, in 2011 and 2014, the Federal Communications Commission (FCC) issued orders
that had the effect of capping inter-carrier compensation rates, causing a decline in statewide
average switched access rates, further impacting USF eligibility. In the Matter of Connect
America Fund, 26 F.C.C.R. 17663 (2011); In the Matter of Connect America Fund, etc., 29
F.C.C.R. 8769 (2014), and see Order Nos. 32637at 4; 32883 at 3-4.
Based upon o1 review of the 2016 Annual Report and the recommendations of Staff
and the fund Administrator, the Commission finds that the USF surcharges should be maintained
at the current, or fiscal year 2016, rates. Given the various complicating factors discussed above,
the Commission finds that Option 1 represents a reasonable surcharge that will fulfill the
purposes of the Telecommunications Act of 1988 and maintain a prudent USF fund balance.
The Commission also accepts the Administrator's proposed fiscal year 2017
administrative budget. We commend her work as Administrator.
ORDER
IT IS HEREBY ORDERED that the monthly USF surcharge rates shall be $0.12 per
residential line, $0.20 per business line, and $0.005 per MTS/WATS minute, effective for 12
months beginning October 1, 2016. The Commission also accepts the Administrator's proposed
fiscal year 2017 budget.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code§§ 61-
626 and 62-619.
ORDER NO. 33582 5
gfh DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of September 2016.
ERIC ANDERSON, COMMISSIONER
ATTEST:
O:GNR-T-I6-02_sc
ORDER NO. 33582 6