20200828Final_Order_No_34765.pdf

ORDER NO. 34765 1
Office of the Secretary
Service Date
August 28, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE ANNUAL
REVISION OF THE UNIVERSAL SERVICE
FUND SURCHARGES TO BECOME
EFFECTIVE OCTOBER 1, 2020.
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CASE NO. GNR-T-20-12

ORDER NO. 34765

The Idaho Telecommunications Act of 1988 created the Idaho Universal Service Fund
(IUSF) 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 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), maintain the
intrastate MTS/WATS billed minutes to $0.007, and maintain funding levels for 12 months,
effective October 1, 2020.
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 funding levels. 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 2019 order,
current monthly IUSF rates are $0.25 per residential line, $0.44 per business line, and $0.007 per
intrastate long-distance billed minute. See Order No. 34427.

ORDER NO. 34765 2

THE 2020 REPORT
A. The 2020 Data and 2021 Proposed Budget
On July 15, 2020, the IUSF Administrator filed the Annual Report for the IUSF fiscal
year from July 1, 2019, through June 30, 2020, including a proposed budget for fiscal year 2021.
The Administrator reported IUSF surcharge revenue for fiscal year 2020 totaled about $1,917,737.
This amount consisted of: (1) total surcharge revenue from local exchange services of about
$1,134,438, a $62,952 decrease from fiscal year 2019; and (2) total long-distance surcharge
revenue of about $783,299, a $246,365 decrease from fiscal year 2019. About 59% of the total
IUSF revenue was from local exchange services surcharges, and 41% was from long-distance
surcharges.
Annual disbursements to the eight qualifying telephone companies – unchanged from
2019 – totaled approximately $1,699,000. The fund’s annual year-end cash balance, after applying
bank charges and administrative expenses, was about $972,125.
The Administrator had $14,452 in expenses for fiscal year 2020. The Administrator
proposed an annual administrative budget for fiscal year 2021 of $26,750. This amount includes
the Administrator’s salary and all other relevant expenses, including a fund audit that is anticipated
to cost $7,500.
According to the Administrator, as of May 1, 2020, Idaho’s telecommunications
companies had reported that about 94,556 residential lines and 87,586 business lines were in
service each month, for a total of about 182,142 lines. This represents a 12% decrease in residential
wire lines, and a 23% decrease in business wire lines, when compared to the prior year.
Long-distance service providers reported intrastate MTS/WATS billed minutes of
107,374,568, a decrease of about 6.5%, from 2019. The statewide average switched access rate
was $0.042, an increase from the 2019 rate of $0.032. Based on data from wire-line telephone
companies and long-distance companies, the Administrator calculated the 2020 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:
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ORDER NO. 34765 3

Type of Service
2020 Statewide Weighted
Average Rate
125% Statewide Weighted
Average Rate – 2020
Residential Service $23.56 $29.45
Business Service $38.21 $47.77

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
decrease by about $227,616 if current surcharge levels are maintained and no additional IUSF
funding is authorized. Assuming the same disbursement as fiscal year 2020 ($1,698,610), the
year-end fund balance on June 30, 2021 is estimated to be about $744,509. MTS/WATS services
would contribute about 50% of the surcharge revenue and local exchange services would
contribute 50% of the surcharge revenue.
Option 2—Adjust Surcharge Rates & Maintain Funding: If IUSF surcharges were
reduced to $0.24 per residential line, $0.30 per business line, and $0.006 per intrastate MTS/WATS
billed minute, and if current funding levels were maintained, the fund balance would decrease by
about $493,482. MTS/WATS services would contribute about 52% of the surcharge revenue, and
local exchange services would contribute the other 48%. The Administrator projected that the year-
end fund balance on June 30, 2021 would decrease to about $478,643.
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 funding after 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. 34765 4
If Rule 106 were applied to the eight companies that are eligible to receive IUSF
disbursements, each would receive reduced disbursements during the next fiscal year. The total
disbursements would be $1,221,882. If surcharge levels were reduced to $0.15 per residential line,
$0.19 per business line, and $0.003 per intrastate MTS/WATS billed minute, the fund would
decrease by about $556,611. MTS/WATS services would contribute 46% of the total surcharge
revenue, and local exchange services would contribute the remaining 54%. The fund balance
would be about $415,514 on June 30, 2021.
Option 4—Adjust Inventories, Adjust Surcharge Rates & Maintain Funding Levels: To
calculate future fund balances more accurately, 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 16%, and the MTS/WATS billed minutes reduced 6.5%. 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 $531,459. 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 $440,667 on June 30, 2021.
Option 5—Adjust Inventories, Adjust Surcharge Rates & Adjust Funding to Meet
Statewide Averages: To calculate future fund balances more accurately, 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 16%, and the MTS/WATS billed minutes reduced 6.5%. 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)—fund disbursements would decrease by about $486,154. MTS/WATS
services would contribute about 52% of the surcharge revenue, and local exchange services would
contribute the other 48%. The fund would have a balance of about $485,972 on June 30, 2021. In
her report, the Administrator recommended the Commission adopt Option 5.
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), particularly Rule 106.
Based on its analysis, Staff disagreed with the Administrator’s recommendation that the
ORDER NO. 34765 5
Commission adopt Option 5. Staff noted that, given the FCC’s recent rate-freeze orders, the
Commission should not apply Rule 106.02 to determine eligibility for the eight companies that
receive state IUSF disbursements. Staff stated Option 5 would lower the funding level 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), maintaining 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 $385,864. The fiscal year 2021 fund disbursements would be $1,698,610.
MTS/WATS services would contribute about 52% of the surcharge revenue, and local exchange
services would contribute the other 48%. The fund balance would be about $586,261 on June 30,
2021.
Staff observed that a “very important concern of Staff and 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.” Staff Decision Memorandum at 8. Staff noted that
even though the stakeholders agree that a legislative solution is necessary, the stakeholders have
not come together on a legislative change. See Case No. GNR-T-17-05, Order No. 34524.
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 declined over the last several years. During the 2020 fiscal year, local business lines
declined by 23%, local residential lines declined by 12%, and MTS/WATS billed minutes declined
by 6.5%. 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 appropriate rates so qualifying telephone companies 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
ORDER NO. 34765 6
IUSF Administrator. See IDAPA 31.46.01.106.01 and 31.46.01.302. The Commission may
revise a qualifying telephone 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 before, the true statewide average rate is difficult to determine
because the large deregulated companies – 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 only required 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 maintained at $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 5 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
2021. 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 NO. 34765 7
O R D E R
IT IS HEREBY ORDERED that the monthly IUSF 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, 2020. The Administrator’s proposed fiscal year 2021 budget is
accepted.
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 (or in issues finally decided
by this order) may petition for reconsideration within twenty-one (21) days of the service date of
this order regarding 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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 28th
day of August 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary
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