20180810Decision Memo.pdf

DECISION MEMORATTDUM
TO COMMISSIONER KJELLAIYDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM: DAIYIEL KLEIN
DATE: AUGUST 9,2018
RE:2OI8 IDAHO UNTVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMBNDATIONS; CASE NO. GNR-T-18-06
BACKGROUND
The Idaho Univqrsal 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 ldaho Code $ 62-610. 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 ldaho. Idaho Code $ 62-61 0(l ). The USF is
funded through a statewide end-user surcharge on local exchange services and intrastate MTS
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
recommcnding 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 effcct for the next twelve months beginning October l.
THE 2OI8 ANNUAL BEPORT
On July 17,2018, the Administrator of the ldaho USF, Alyson Anderson, filed the
Annual Report for the USF fiscal year from July 1, 2017, through June 30, 2018. Included with
the report is the Administrator's proposed budget for the next fiscal year-July 1, 2018 through
June 30, 2019.
DECISION MEMORANDUM AUGUST 9,2018I
The current USF monthly surcharge rates are $.25 per residential line, $.44 per business
line, and $.009 per intrastate MTS/WTS billed minute. See Order No. 33851. Surcharge
revenue for the year totaled $1,889,493. Local exchange services contibuted $1,055,064 (56%),
and $834,429 (44%) was contributed by MTSAMATS services. Surcharge revenue from local
exchange services increased by approxirnately $407,397 and MTS/WATS surcharge revenue
increased by approximately $190,564. The Administrative expenses for the year were $21,909.
This amount includes the Adrninistrator's doy, expenses, bank eharges, and a tri-annual audit
expense of approximately $7,700.
Currently, eight qualifuing 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 1,2018 through June 30, 2019). The end-of-year cash balance for fiscal year 2018,
after applying bank charges and administrative expenses, was $249,758.
2016-2017 Administrative Budget
Ms. Anderson proposes an annual administrative budgel of $16,160. This amount
includes the Administrator's salary and other expenses.
Local Residential and Business Seruice
The USF surcharge is attached to residential and business lines, and long-distance billed
minutes, of wireline companies. Thus, the Adrninistrator annually obtains reports from these
companies. As of May 1,2018, companies reported an average monthly inventory af 122,347
residential lines and 114,359 business lines, for a total of 236,706lines. This is a decrease in
lines of approximately 37,593 QA%o) with residential lines decreasing by 6% and business lines
decreasing by l4%.
The adjusted statewide weighted average rates for one-party single line residential and
business service and the corresponding threshold average rates are:
DECISION MEMORANDUN{a AUGUST 9,2018
Residential Services
Business Services
20I7 Statewide
Weighted
Average Rate
2018 Statewide
Weighted
Average Rate
1257o Statewide
Weighted Average
Rate - 2017
1257" Statewide
Weighted Average
Rate - 201E
$21.83
$37.77
$22.09
$36.94
$27.28
$47.42
$27.62
$46.17
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 l25o/o statewide weighted average line rate
and the average rates per minute for MTSAMATS access rate must exceed 100% of the statewide
weighted average access rate. IDAPA 31.46.01.106, tf 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 $6,000, the company may need to
revise rates to meet or exceed the statewide threshold rates. The Commission may also calculate
the '*eighted statewide average rates by using the residence and business basic local exchange
rates in effect on July l, 2005, to determine the eligibility of ETCs for distributions from the
USF. .See Rule 106.04, and ldaho Code $ 62-605(e).
ADMINISTRATOR'S OPTIONS
The Administrator reports that over the last several year, both the nurnber of local access
lines and intrastate MTS/WATs billed minutes have, on the average, steadily declined. As a
result, it is difficult to accurately calculate the fi.rnding requirements necessary to maintain
adequate fund balances throughout the fiscal year. With this in mind, the Administrator presents
the following funding options.
DECISION MEMORANDUM -3 -AUGUST 9,2418
Switched Access Seryice
Long distance service providers reported intoastate MTS/WATS billed minutes of
110,719,570 compared to the 2017 reported minutes of 125,154,200, a lTYo decrease. The
statewide average switched access rate was $0.043, a change from last year's rate of $0.031.
ADMINISTRATOR'S OPTIONS
OPTION l: STATUS QUO
If curent surcharge levels ($.25 per residential line, $.44 per business line, and $.009 per
intrastate MTSIWATS billed minute) are maintained and no additional ruSF funding is
authorized, the fund will increase by approximately $252,562 (page 76). The 2018-2019 IUSF
authorized disbursements will be $1,698,610. MTS/WATS services would contribute
approximate$ SAYo of the surcharge revenue and local exchange services would contribute 50%
of the surcharge revenue. The fund would have a balance of approximately $502,320 al June 30,
20t9.
OPTION 2: ADJUST FTINDING TO MEET STATEWIDE AVERAGES & MAINTAIN
SURCHARGE RATES
Idaho lJniversal Service Fund Rule 106.A2 indicates that to continue receiving IUSF
funding after the first year of eligibility, the company may need to revise rates to meet or exceed
the statewide threshold rates. If the rate is below the statewide threshold rate, and the difference
between the rate is greater than 3Yo and $6,000, the company must revise rates equal or exceed
100% of the statewide average for MTS/WAI'S access service, and l25o/o of the statewide
average for local exchange service. The following applies Rule 106 to each company currently
drawing from the [USF.
. ATC Communications should increase local residential and business rates. ATC
Communications annual IUSF draw would be reduced by $68,103.
. Cambridge Telephone Company should reduce toll switched access rates and increase
local residential and business rates. Carnbridge Telephone Company annual IUSF
draw would be reduced by $18,260.
. Columbine Telephone lSilver Star Telecom should increase toll switched access,
local residential, and business rates. Silvcr Star Telecom annual IUSF draw would be
reduced by $107,550.
. Direct Communications Rockland should increase local residential and business rates.
Direct Communications Rockland annual IUSF draw would be reduced by $24,401.
. Fremont'I'elecom should increase toll switched access rates, and increase local
residential and business rates. Fremont Telecom annual IIJSF draw would bc
decreased by $89,973.
DECISION MEMORANDUM . 4 . AUGUST 9, 2OI8
. Inland Telephone Company should decrease toll switched access rates. Inland
Telephone Company annual IUSF draw would be increasedby $12,312.
. Midvale Telephone Company should increase local residential and business rates.
Midvale'Ielephone Company amual IUSF draw would be reduced by $26,403.
. Rwal Telephone Company should increase losal residential rates. Rural Telephone
Company annual IUSF draw wouid be reduced by $13,11 l.
The20l8-2019IUSF authorized disbursements, including the adjustments to company
funding per Rule 106, will be $1,363,121. If current surcharge levels are maintained at $.25 per
residential line, $.44 per business line, and $.009 per intrastate MTSAVATS billed minute, the
furd will increase by approximately $588,052 $tage 76). MTS/WATS services would contribute
50% of the total surcharge revenue and local exchange services would contribute 50% of the
total surcharge revenue. The fund would have a balance of approximately $837,809 at June 30,
2019.
OPTION 3: ADJUST INVENTORIES, MAINTAIN FUNDING LEVELS & MAINTAIN
SITRCHARGE RATES
In order to more accurately calculate future fund balances, the inventories have been
adjusted according to the most recent five-year trend. Thus, the residential lines have been
reduced l2Yo,the business lines reduced 12% and the MTS/WATS billed minutes have been
reduced 9%o. lf the surcharge rates are maintained at $.25 per residential line, $.44 per business
line, and $.009 per intrastate MTS/WATS billed minute and IUSF disbursements are maintained
at current levels, the fund will increase by approximately 546,206 (page77). MTSAVATS
serviccs would contribute approximately 52% of the surcharge revenue and local exchange
services would contribute 48% of the surcharge revenue. The fund would have a balance of
approxirnately $295,96j at June 3O,2Olg.
OPTION 4: ADJUST INVENTORIES, MAINTAIN FUNDING
& MAINTAIN SURCHARGE RATES
In order to more accurately calculate fi,rture fund balances, the inventories have been
adjusted according to the most recent five-year trend. Thus, the residential lines have been
reduced 72o/o, the business lines reduced 12% and the MTS/WATS billed minutes have been
reduced 9Yo. lf the surcharge rates are maintained at $.25 per residential line, $.44 per business
DECISTON MEMORANDUM 5 AUGUST 9,2018
line, and $.009 per intrastate MTSIWAT'S billed minute and IUSF disbursements are maintained
at current levels, the fund will increase by approximately $381,695 (page 77). MTSAilATS
services would contribute approximately 48Yo of the surcharge revenue and local exchange
services would contribute 52%o of tbe surcharge revenue. The fund would have a balance of
approximately S631,452 al June 30, 2019.
OPTION 5: ADJUST INVI]NTORIES, ADJUST FUNDING TO MEET STATEWIDE
AVERAGSS & DECREASE SURCHARGE RATES
In order to more accurately calculate future fund balances, the inventories have been
adjusted according to the most recent five-year trend. Thus, the residential lines have been
reduced llYo,the business lines reduced l2o/o and the MTSAMATS billed minutes have been
reduced 9o/a. lf the local surcharge rates are decreased to $.22 per residential line, $.37 per
business line and the MTS/WATS rate are increased to $.007 per intrastate billed minute, as r,',ell
as iUSF disbursements adjusted per Rule 106, the fund will increase by approximately $57,069
(page 78). MTS/WATS services would contribute approximately 49% of the surcharge revenue
and local exchange services would contribute 5l % of the surcharge revenue. The fund would
have a balance of approximately $306,826 at June 30,2019.
ADMINISTRATOR' S, RECOMMENDATION
The Administrator recommends that the Commission adopt Option 3; maintain the
company disbursements at the currcnt level, and maintain the surcharge rates at $.25 per
residential line, $.44 per business line, and 5.009 per inlrasiate MTS/WATS billed minute. The
fnnd balance on June 30,2019, would be approximately $295,963, an amount that would allow
the fund to meet all obligations as wcll as provide a reserye balance.
STAFF ANALYSIS AND RECOMMENDATION
Staffhas 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) USF/ICC Transformation Order, FCC 11-161,
released on November 18, 20i l, 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 terrninating access rates, including transport and reciprocal cornpensation, to
DECISION MEMORANDUM .6. AUGUST 9,2418
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. In April,
2017,the FCC froze the rates at $18.00 and issued aNotice of Proposed Rulemaking and Order
seeking comments on the rate for basic voice services. Stakeholder's argued that higher prices
for basic voice service in rural high cost areas created a significant and legitimate rate shock for
rural customers. Therefore, the FCC has provided afreeze on the rate floor at $18.00 pending
further review and comments.
Given these Orders and uncertainty at the FCC, it makes it impractical for the
Comrnission to apply Rule 106 to determine eligibility for the eight companies that receive state
USF disbursements. All eight USF-funded companies have residential rates of $25.76r. If Rule
I06 is stictly applied, all eight companies would be required to increase the residential local
exchange rate from the current 925.76to $27.62 and the business local exchange rate to $46.17.
Staff acknowledges that the funding elements are impermanent and difficult to predict. Staff,
therefore, agrees with N&. Anderson's recommendation to the Commission to adopt Option 3 to
maintain the current swcharge rates of $.25 per residential line, $.44 per business line, and $.009
per intrastate MTS/WATS billed minute. This option will provide an adequate flmding level for
the 2018-2019 USF fiscal year.
A very important concern of Staffand the Administrator has been trying to fund the IUSF
in a declining industry where land lines are being replaced with new technologies such as VoIP
and cell phones. Per Commission Order No. 33851 the Staff and the Administrator initiated a
generic docket before the Commission in order to allow a public forum for stakeholders to
participate in a discussion of the IUSF as it relates to the curent legal and regulatory framework,
its place in the evolving telecommunications landscape, and universal telecommunications
services in ldaho generally. Staff convened a workshop on January 17,2018, Stakeholders filed
position papers by January 31,2018, Stafffiled a summary report on April 4,2A18, Stakeholders
filed reply comments on April 25, Slailwill be filing a furthu report in August, and will be
scheduling a workshop in September. Line counts and MTSAI/ATs minutes continue to decline
each year. All parties agree that legislative changes are needed to the current IUSF Statutes,
I On September 2,2009, Commission Order No. 30894 was issued noti$ing the USF recipient companies that
residential rales must be increased to the state\ryide threshold rate of $25.76 to continue to receive funding. All eight
companies complied by increasing the residential rates.
DECISION MEMORANDUM -7 AUGUST 9,2018
Staff would like Stakeholders to bring legislative language changes to the upcoming workshop in
hopes of coming to agreement on a path forward to bring before the Idaho Legislature in 2019.
Finally, Staffrecommends that the Administrator continue to provide quarterly cash flow
analysis to it. The quarterly cash flow review will allow Staff to monitor any anomalies that may
arise and to proactively iespond to any unforeseen cash flow impacts due to further declines in
line counts or minutes.
COMMISSION DECISION
Does the Commission wish to approve the Administrator's USF 2018-2019 budget?
Does the Commission wish to adopt the Administrator and Staff s recommended funding
Option 3?
Does the Commission wish to adopt a different funding option?
Does the Commission wish to continue the requirement for the Administrator to file
quarterly cash flow reports to monitor revenue impacts from unforeseen changes in line counts or
access minutes?
Daniel Klein
i:udmemosl20l8 IUSF Report DM
j2
DECISION MEMORANDUM -8-AUGUST 9,2018
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