20180823final_order_no_34131.pdf

Office of the Secretary
Service Date
August 23,2018
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE ANNUAL )REVISION OF THE UNIVERSAL SERVICE )CASE NO.GNR-T-18-06FUNDSURCHARGESTOBECOME)EFFECTIVE OCTOBER 1,2018.)ORDER NO.34131
The Idaho Telecommunications Act of 1988 created the Idaho Universal Service Fund
(IUSF)to maintain "the universal availabilityof local exchange service at reasonable rates and to
promote the availabilityof message telecommunication service (MTS)at reasonably comparable
prices throughoutthe state of Idaho."Idaho Code §62-610(1).The IUSF is funded by end-user
surcharges on local exchange service,MTS,and wide area telecommunications service (WATS).
See IDAPA 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.As set out in greater detail below,the Commission finds it is reasonable to
maintain surcharge rates-at $0.25 per residential line,$0.44 per business line,and $0.009 per
intrastate MTS/WATS billed minute--and maintain funding levels for 12 months,effective
October 1,2018.
BACKGROUND
The Commission annually distributes IUSF funds to qualifying high-cost local
exchange telephone companies to supplement their annual revenue requirements.The IUSF
Administrator submits an Annual Report to the Commission.See Idaho Code §62-610 and
IDAPA 31.46.01.102.In the report,the Administratorreviews the fundbalance and recommends
changes to the surcharge rates to maintain adequate fundinglevels.The Commission's Staffthen
analyzes the report and submits recommendations to the Commission.After reviewingthe report
and recommendations,the Commission issues an Order prescribing IUSF surcharge rates for the
next 12 months.See IDAPA 31.46.01.104-106.As set forth in the Commission's 2017 Order,
current monthly IUSF rates are $0.25 per residential line,$0.44 per business line,and $0.009 per
intrastate long-distance billed minute.See Order No.33851.
ORDER NO.34131 1
THE 2018 REPORT
A.The 2018 Data and 2018 Proposed Budget
On July 17,2018,the IUSF Administrator filed the Annual Report for the IUSF fiscal
year from July 1,2017,throughJune 30,2018,including a proposed budget for fiscal year 2019.
The Administrator reported that IUSF surcharge revenue for the past year totaled approximately
$1,889,493.The surcharge revenue from local exchange services during the reporting year totaled
approximately $1,055,064,an increase of approximately $407,397 from fiscal year 2017,and the
long-distance surcharge revenue increased to approximately $834,429,an increase of
approximately $190,564 from 2017.Approximately56%of the total IUSF revenue was from local
exchange services surcharges,and 44%was from long-distance surcharges.
Annual disbursements to the eight qualifying telephone companies -unchanged from
2017 -totaled approximately $1,699,000.The fund's annual year-endcash balance,after applying
bank charges and administrative expenses,was approximately $249,758.
The Administrator's expenses for the 2018 fiscal year were $21,909.The
Administrator proposed an annual administrative budget for fiscal year 2019 of $16,160.This
amount includes the Administrator's salary and all other relevant expenses.
Based upon data submitted to the Administrator,as of May 1,2018,Idaho's
telecommunications companies reported that,on a monthly basis,approximately 122,347
residential lines were in service and 114,359 business lines were in service,for a total of
approximately 236,706 lines.Comparing this data to the prior year,the Administrator calculated
that the number of residential wire lines decreased by approximately 14%and business wire lines
decreased by approximately 6%.
Long-distance service providers reported intrastate MTS/WATS billed minutes of
110,719,570,a decrease of approximately 12%,from 2017.The statewide average switched
access rate was $0.043,a decrease from the 2017 rate of $0.031.Based on data from wire line
telephone companies and long-distance companies,the Administrator calculated the 2018
statewide weighted average rates for one-party single line residential service and business service,
and the corresponding 125%of the statewide weighted average rates,as set out below:
ORDER NO.34131 2
2018 Statewide Weighted 125%Statewide Weighted
Type of Service Average Rate Average Rate -2018
Residential Service $22.09 $27.62
Business Service $36.94 $46.17
See Idaho Code §§62-605,-610 and IDAPA 31.46.01.106.
B.The Five SurchargeOptions
The Administrator has shown that over the last several years,both local access lines
and intrastate MTS/WATS minutes have,on average,steadily declined.Therefore,the
Administrator and Commission Staff asserted that it would be difficult to accurately calculate the
funding needed to maintain adequate fund balances throughoutthe coming fiscal year.The
Administrator thus proposed five 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 -Status Quo:The Administrator calculated that IUSF revenues would
increase by approximately $252,562 if current surcharge levels are maintained and no additional
IUSF funding is authorized.Assuming the same disbursement as fiscal year 2017 ($1,698,610),
the year-end fund balance on June 30,2019,is estimated to be approximately $502,320.
MTS/WATS services would contribute approximately 50%of the surcharge revenue and local
exchange services would contribute 50%of the surcharge revenue.
Option 2 -AdjustFundingto Meet StatewideAverages &Maintain Surcharge Rates:
If current IUSF charges were maintained and disbursements to the eight IUSF
recipients were adjusted to meet the 125%statewide averages,seven recipients would receive
reduced disbursements and one recipient would receive an increased disbursement.The
Administrator projected that Option 2 IUSF disbursements would be approximately $1,453,792,
while the year-end fund balance on June 30,2019,would decrease to approximately negative
$259,218 and obligations would not be met.Under this option,MTS/WATS services would
contribute approximately 55%of the total surcharge revenue and the local exchange services
would contribute approximately 45%.
Option 3 -AdjustInventories,Maintain FundingLevels &Maintain Surcharge Rates:
In order to more accurately calculate future fund balances,Option 3 inventories were adjusted
according to the most recent five-year trend.As a result,residential lines were reduced 12%,
business lines by 12%and intrastate MTS/WATS billed minutes by 9%.If the surcharge rates
ORDER NO.34131 3
were maintained at $0.25 per residential line,$0.44 per business line,and $0.009 per intrastate
MTS/WATS billed minute and IUSF disbursements were maintained at current levels,the fund
would increase by approximately $46,206.MTS/WATS services would contribute about 52%of
the surcharge revenue,local exchange services would contribute about 48%of the surcharge
revenue,and the fund balance would be about $295,963 on June 30,2019.
Option 4 -AdjustInventories,AdjustFunding &Maintain Surcharge Rates:As with
Option 3 above,the Administrator adjusted inventories based on the previous five-yearaverages.
As a result,residential lines were reduced 12%,business lines by 12%and MTS/WATS billed
minutes by 9%.If the surcharge rates were maintained at $0.25 per residential line,$0.44 per
business line,and $0.009 per intrastate MTS/WATS billed minute and IUSF disbursements were
maintained at current levels,the fund would increase by approximately $381,695.MTS/WATS
services would contribute approximately 48%of the surcharge revenue and local exchange
services would contribute 52%of the surcharge revenue.The fund would have a balance of
approximately $631,452 on June 30,2019.
Option 5 --Adf ust Inventories,AdjustFundingto Meet Statewide Averages &Decrease
Surcharge Rates:Again,if inventories are adjusted according to the most recent five-yeartrend,
and local surcharge rates are decreased to $0.22 per residential line and to $0.37 per business line,
the MTS/WATS rate is decreased to $0.007 per intrastate billed minute,and IUSF disbursements
are adjusted per Rule 106,then the fund would increase by approximately $57,069.MTS/WATS
services would contribute approximately 49%of the surcharge revenue and local exchange
services would contribute 51%of the surcharge revenue.The fund would have a balance of
approximately $306,826 on June 30,2019.
In summary,given continued declines in residential and business lines and in billed
minutes,and the pending review of the IUSF in Case No.GNR-T-17-05,the Administrator
recommended that the Commission adopt Option 3,which would maintain company
disbursements at the current level,and the surcharge rates at $0.25 per residential line,$0.44 per
business line,and $0.009 per intrastate MTS/WATS billed minute.Under that option,the fund
balance on June 30,2019 would be about $295,963,which would allow the fund to meet all
obligations and provide a reserve balance.Further,the Administrator recommended that the new
surcharge rates should be made effective October 1,2018.
ORDER NO.34131 4
STAFF RECOMMENDATIONS
Staff analyzed the Administrator's findings and supporting documentation and
recommendations.Staff also analyzed Federal Communications Commission (FCC)rate freezes
and how specific FCC orders interact with USF Rules (IDAPA 31.46.01).Based on its analyses,
Staffconcurred with the Administrator that Option 3 is the most reasonable option and should take
effect on October 1,2018.Staff also concurred with the Administrator that IUSF fundingelements
continue to be temporary and difficult to predict and,therefore,current surcharge rates should be
maintained.Staff concluded that Option 3 would provide an adequate funding level for the 2018-
2019 IUSF fiscal year.
More generally,Staff concurred with the Administrator that it is becoming harder to
fund the IUSF when the industry is declining as land lines become obsolete in the face of
technologies like cellular and VoIP technologies.Staff believesthat increasing the surcharge rates
would drive up the costs to be recovered from Idaho's dwindling traditional land line and long-
distance using populations.
Staff noted it is currently studying the IUSF under a generic docket (per Commission
Order No.33851)"in order to allow a public forum for stakeholders to participate in a discussion
of the IUSF as it relates to the current legal and regulatory framework,its place in the evolving
telecommunications landscape,and universal telecommunications services generally."See Staff
Decision Memorandum at 7;and Order No.33851.Staff said it plans to file a progress report in
August of 2018 that will propose another stakeholder workshop for September 2018.As part of
that workshop,Staff will suggest that interested stakeholders propose amendments to the IUSF's
controlling statute in September 2018 that could potentiallybe presented to the Idaho Legislature
in 2019.
Finally,Staff recommended that the Administrator continue to provide quarterly cash
flow analysis of the IUSF to Staff,as detailed in Order No.33851.
DISCUSSION
We again acknowledge that local access lines and intrastate long-distance billed
minutes have generally declined over the last several years.During the 2017-2018 fiscal year,
local business lines have declined by 14%,local residential lines have declined by 6%,and
MTS/WATS billed minutes have decreased by 12%.Simultaneously,statewide average
residential and business rates have increased.These factors continue to make it difficult to predict
ORDER NO.34131 5
the necessary IUSF fund balance for the next fiscal year,and to determine appropriate rates so
qualifying telephone companies can maintain IUSF eligibility.
To receive IUSF funding,a telephone company providinglocal 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 for a distribution,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 IUSF Administrator.See IDAPA 31.46.01.106.01 and 31.46.01.302.The Commission
may revise a qualifyingtelephone company's rates so the company can maintain IUSF eligibility,
based 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 deregulatedcompanies -those 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,and 32637 at 3.
The IUSF Annual Report and the threshold rate calculations do not reflect this shift to bundled
services because companies are onlyrequired to report stand-alone residential rates.Also,in 2011
and 2014,the FCC capped inter-carrier compensation rates and caused statewide average switched
access rates to decrease,further impacting IUSF eligibility.See In the Matter ofConnect 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.32637 at 4;and 32883 at 3-4.
Based upon our review of the 2018 Annual Report and the recommendations of
Commission Staff and the fund Administrator,the Commission finds that the IUSF surcharges
should be maintained at $0.25 per residential line,$0.44 per business line,and $0.009 per intrastate
MTS/WTS services,with IUSF disbursements maintained at current levels.Given the
complicating factors discussed above,the Commission finds that Option 3 represents a reasonable
surcharge that will fulfill the purposes of Idaho's Telecommunications Act of 1988 and maintain
a prudent IUSF fund balance.
We acknowledge and appreciate the work occurring because of Case No.GNR-T-17-
05,and look forward to Staff's pending report on the IUSF's continued viability.We are anxious
ORDER NO.34131 6
to review Staff and Stakeholderrecommendations for a possible legislative solution to be presented
to the Idaho Legislature in 2019.
Finally,the Commission accepts the Administrator's proposed fiscal year 2019
administrative budget.We commend her work.We further note it is important for the Commission
to maintain strict oversight of the IUSF balance to avoid unforeseen cash flow impacts due to
diminishing line counts and minutes.The Administrator should continue to provide Staff with
quarterly cash flow analysis to assist us in monitoringIUSF balances.See Order No.33851 at 7.
ORDER
IT IS HEREBY ORDERED that the monthly IUSF surcharge rates shall be $0.25 per
residential line,$0.44 per business line,and $0.009 per MTS/WATS minute,effective for 12
months beginning October 1,2018.The Administrator'sproposed fiscal year 2018-2019 budget
is accepted.
IT IS FURTHER ORDERED that Staff and the Administrator continue to lead and
participate in Case No.GNR-T-17-05 with the ultimate goal of bringing a negotiated solution for
potential universal service reform to the Idaho Legislature during its 2019 session.
IT IS FURTHER ORDERED that the Administrator provide to Commission Staff
quarterly cash flow reports,as outlined above and in Order No.33851.
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.34131 7
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of August 2018.
PAUL KJ LLAND SIDENT
KRI INE RAPER,CO MISSIONER
ERIC ANDERSON,COMMISSIONER
ATTEST:
Diane M.Hanian
Commission Secretary
liegal\TELEPHONE\GNR-T-18-06\GNRTl806 final_sc docx
ORDER NO.34131 8