HomeMy WebLinkAbout20190828final_order_no_34427.pdfOffice of the Secretary
Service Date
August 28,2019
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE ANNUAL )REVISION OF THE UNIVERSAL SERVICE )CASE NO.GNR-T-19-06
FUND SURCHARGES TO BECOME )EFFECTIVE OCTOBER 1,2019.)ORDER NO.34427
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 availability of 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 12 months starting October 1.See IDAPA
31.46.01.104.As explained below,the Commission finds it is reasonable to maintain the local
exchange surcharge rates ($0.25 per residential line and $0.44 per business line),lower the
intrastate MTS/WATS billed minutes to $0.007,and maintain funding levels for 12 months,
effective October 1,2019.
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 Administrator reviews the fund balance and recommends
changes to the surcharge rates to maintain adequate fundinglevels.The Commission's Staff then
analyzes the report and submits recommendations to the Commission.After reviewing the 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 2018 Order,
current monthlyIUSF rates are $0.25 per residential line,$0.44 per business line,and $0.009 per
intrastate long-distance billed minute.See Order No.34131.
ORDER NO.34427 1
THE 2019 REPORT
A.The 2019 Data and 2020 Proposed Budget
On July 17,2019,the IUSF Administrator filed the Annual Report for the IUSF fiscal
year from July 1,2018,through June 30,2019,includinga proposed budget for fiscal year 2020.
The Administrator reported IUSF surcharge revenue for fiscal year 2019 totaled about $2,227,054.
This amount consisted of:(1)total surcharge revenue from local exchange services of about
$1,197,390,a $142,326 increase from fiscal year 2018;and (2)total long-distance surcharge
revenue of about $1,029,664,a $195,235 increase from fiscal year 2018.About 54%of the total
IUSF revenue was from local exchange services surcharges,and 46%was from long-distance
surcharges.
Annual disbursements to the eight qualifyingtelephonecompanies -unchanged from
2018 -totaled approximately $1,699,000.The fund's annual year-end cash balance,after applying
bank charges and administrative expenses,was about $767,449.
The Administrator had $10,752 in expenses for fiscal year 2019.The Administrator
proposed an annual administrative budget for fiscal year 2020 of $11,445.This amount includes
the Administrator's salary and all other relevant expenses.
According to the Administrator,as of May 1,2019,Idaho's telecommunications
companies had reported that about 106,787 residential lines and 114,073 business lines were in
service each month,for a total of about 220,860 lines.This represents a 13%decrease in residential
wire lines,and a 0.25%decrease in business wire lines,when compared to the prior year.
Long-distance service providers reported intrastate MTS/WATS billed minutes of
117,572,337,a decrease of about 6%,from 2018.The statewide average switched access rate was
$0.032,a decrease from the 2018 rate of $0.043.Based on data from wire-line telephone
companies and long-distance companies,the Administrator calculated the 2019 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.34427 2
2019 Statewide Weighted 125%Statewide Weighted
Type of Service Average Rate Average Rate -2019
Residential Service $22.65 $28.31
Business Service $37.03 $46.28
See Idaho Code §§62-605,-610 and IDAPA 31.46.01.106.
B.The Five 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.Therefore,the
Administrator and Commission Staff asserted that it would be difficult to accurately calculate the
funding needed to maintain adequate fund balances throughout the 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 about $270,762 if current surcharge levels are maintained and no additional IUSF
funding is authorized.Assuming the same disbursement as fiscal year 2019 ($1,698,610),the
year-end fund balance on June 30,2020 is estimated to be about $1,038,211.MTS/WATS services
would contribute about 53%of the surcharge revenue and local exchange services would
contribute 47%of the surcharge revenue.
Option 2-Adjust Surcharge Rates &Maintain Funding:If IUSF surcharges were
reduced to $0.19 per residential line,$0.32 per business line,and $0.006 per intrastate MTS/WATS
billed minute,and if current fundinglevels were maintained,the fund balance would decrease by
about $323,107.MTS/WATS services would contribute about 50%of the surcharge revenue,and
local exchange services would contribute the other 50%.The Administrator projectedthat the year-
end fund balance on June 30,2020 would decrease to about $444,342.
Option 3-Adjust Surcharge Rates &Adjust Funding to Meet Statewide Averages:
IUSF Rule 106.02,IDAPA 31.46.01.106.02,provides that a qualifying telephone company may
need to revise rates to meet or exceed the statewide threshold rates in order to continue receiving
IUSF fundingafter the first year of eligibility.If the company's rate is more than 3%less than the
statewide threshold rate and the annual revenue associated with the company's current rate is over
$6,000 less than the revenue associated with the statewide average threshold rate,the company
must revise its rates to equal or exceed the statewide threshold rate.
ORDER NO.34427 3
If Rule 106 were applied to the eight companies that are eligible to receive IUSF
disbursements,seven would receive reduced disbursements during the next fiscal year,and one
would receive an increased disbursement.The total disbursements would be $1,330,541.If
surcharge levels were reduced to $0.13 per residential line,$0.21 per business line,and $0.004 per
intrastate MTS/WATS billed minute,the fund would decrease by about $417,645.MTS/WATS
services would contribute 51%of the total surcharge revenue,and local exchange services would
contribute the remaining 49%.The fund balance would be about $349,804 on June 30,2020.In
her report,the Administrator recommended the Commission adopt Option 3.
Option 4-Adjust Inventories,AdjustSurcharge Rates &Maintain Funding Levels:To
more accurately calculate future fund balances,the line inventories would be adjusted to reflect
the most recent five-year trend.Thus,the residential lines would be reduced 12%,the business
lines reduced 12%,and the MTS/WATS billed minutes reduced 5%.If the surcharge rates were
reduced to $0.22 per residential line,$0.36 per business line,and $0.006 per intrastate MTS/WATS
billed minute-and if IUSF disbursements were maintained at current levels--the fund
disbursements would decrease by about $363,044.MTS/WATS services would contribute about
50%of the surcharge revenue,and local exchange services would contribute the other 50%.The
fund would have a balance of about $404,405 on June 30,2020.
Option 5-Adjust Inventories,Adjust Surcharge Rates &Adjust Funding to Meet
Statewide Averages:To more accuratel calculate future fund balances,the line inventories would
be adjusted to reflect the most recent five-year trend.Thus,the residential lines would be reduced
12%,the business lines reduced 12%,and the MTS/WATS billed minutes reduced 5%.If the
surcharge rates were reduced to $0.15 per residential line,$0.24 per business line,and $0.004 per
intrastate MTS/WATS billed minute-and if the IUSF disbursements were adjusted per Rule 106
(see Option 3 explanation)-funddisbursements would decrease by about $440,215.MTS/WATS
services would contribute about 49%of the surcharge revenue,and local exchange services would
contribute the other 51%.The fund would have a balance of about $327,234 at June 30,2020.
STAFF RECOMMENDATIONS
Staff analyzed the Administrator's report and supporting documentation and
recommendations.Staff also analyzed Federal Communications Commission (FCC)rate freezes
and how specific FCC orders interact with IUSF Rules (IDAPA 31.46.01),particularlyRule 106.
Based on its analysis,Staff disagreed with the Administrator's recommendation that the
ORDER NO.34427 4
Commission adopt Option 3.Staff noted that,given the FCC's recent rate-freeze orders,the
Commission should not apply Rule 106.02 to determine eligibilityfor the eight companies that
receive state IUSF disbursements.Staff stated Option 3 would lower the fundinglevel too much
for the upcoming fiscal year.
Staff recommended keeping the local exchange surcharge at current levels ($0.25 per
residential line,$0.44 per business line),lowering the intrastate MTS/WATS billed minutes to
$0.007,and keeping the fund's disbursements the same.Staff's recommendation would decrease
the fund by about $122,107.The fiscal year 2020 fund disbursements would be $1,698,610.
MTS/WATS services would contribute about 49%of the surcharge revenue,and local exchange
services would contribute the other 51%.The fund balance would be about $645,342 on June 30,
2020.
Finally,Staff recommended that the Administrator continue to provide quarterly cash
flow analysis of the IUSF to Staff,as detailed in Order No.33851.
FINDINGS AND DISCUSSION
We again acknowledge that local access lines and intrastate long-distance billed
minutes have generally declined over the last several years.During the 2019 fiscal year,local
business lines declined by 0.25%,local residential lines declined by 13%,and MTS/WATS billed
minutes declined by 6%.Simultaneously,statewide average residential and business rates
increased.These factors continue to make it difficult to predict the necessary IUSF fund balance
for the next fiscal year,and to determine appropriaterates so qualifyingtelephonecompanies can
maintain IUSF eligibility.
To receive IUSF funding,a telephone company providing local exchange 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 qualifyingtelephonecompany'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.
ORDER NO.34427 5
As we have noted before,the true statewide average rate is difficult to determine
becausethe 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 affecting IUSF eligibility.See 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.32637 at 4;and 32883 at 3-4.
Based upon our review of the Administrator's 2019 Annual Report and Staff's
recommendations,we find the IUSF local exchange surcharges should be maintained at $0.25 per
residential line and $0.44 per business line.The surcharge for intrastate MTS/WTS billed minutes
should be reduced to $0.007,and IUSF disbursements should be maintained at current levels.
While the Commission appreciates the Administrator's recommendation and arguments in favor
of it,Option 3 risks being too aggressive of a solution by reducing both the funding to eligible
telecommunications carriers and the IUSF fund balance.Given the complicating factors discussed
above,the Commission finds that Staff's recommended funding option represents a reasonable
surcharge that will fulfill the purposes of Idaho's Telecommunications Act of 1988 and maintain
a prudent IUSF fund balance.
Finally,the Commission accepts the Administrator's proposed budget for fiscal year
2020.We commend her work.We further note it is important for the Commission to strictly
monitor 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 monitoring IUSF balances.See Order No.33851 at 7.
ORDER
IT IS HEREBY ORDERED that the monthlyIUSF surcharge rates shall be $0.25 per
residential line,$0.44 per business line,and $0.007 per MTS/WATS minute,effective for 12
months beginning October 1,2019.The Administrator's proposed fiscal year 2020 budget is
accepted.
ORDER NO.34427 6
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-
626,62-619.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of August 2019.
PARKJELL ER,PRESIDENT
KR INE RAPE UOMMISSIONER
ERIC ANDERSON,COMMISSIONER
Diane M.Hanian
Commission Secretary
I:\Legal\TELEPHONE\GNR-T-19-06\Order\GNRTl906final_mh.doex
ORDER NO.34427 7