20200814Decision Memo.pdf

DECISION MEMORANDUM
TO COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM: DANIEL KLEIN
DATE: AUGUST 14,2020
RE:2O2O IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS; CASE NO. GNR-T-20-12
BACKGROUND
The Idaho Universal 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 $ 62-61 0, Idaho Code. 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 Idaho. Idaho Code $ 62-610(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
recorlmending 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 effect for the next twelve months beginning October l.
THE 2018 ANNUAL REPORT
On July 15,2020, the Administrator of the Idaho USF, Alyson Anderson, filed the
Annual Report for the USF fiscal year from July 1 ,2019 through June 30, 2020. Included with
the report is the Administrator's proposed budget for the next fiscal year-July 1,2020 through
June 30,2021.
1DECISION MEMORANDUM AUGUST I4,2O2O
The current USF monthly surcharge rates are $.25 per residential line, $.44 per business line, and
$.007 per intrastate MTS/WTS billed minute. See Order No.34427. Surcharge revenue for the
year totaled $1,917 ,737. Local exchange services contributed $ 1,134,438 (59%), and $783,299
(41%) was contributed by MTS/WATS services. Surcharge revenue from local exchange
services decreased by approximately $62,952 and MTS/WATS surcharge revenue decreased by
approximately $246,365. The Administrative expenses for the year were $14,452. This amount
includes the Administrator's salary, expenses, bank charges.
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 1,2020 through June 30, 2021). The end-of-year cash balance for fiscal year2020,
after applying bank charges and administrative expenses, was$972,125.
2019 -2020 Adm inistrative Bud get
Ms. Anderson proposes an annual administrative budget of $26,750. This amount
includes the Administrator's salary and other expenses along with an audit that is anticipated to
cost $7,500.
Local Residential and Business Service
The USF surcharge is attached to residential and business lines, and long-distance billed
minutes, of wireline companies. Thus, the Administrator annually obtains reports from these
companies. As of May 1,2020, companies reported an average monthly inventory of 94,556
residential lines and 87,586 business lines, for a total of 182,142lines. This is a decrease in lines
of approximately 38,718 (18%) with residential lines decreasing by 12% and business lines
decreasing by 23%.
The adjusted statewide weighted average rates for one-party single line residential and
business service and the corresponding threshold average rates are:
DECISION MEMORANDUM 1 AUGUST 14,2O2O
Residential Services
2018 Statewide
Weighted
Average Rate
2019 Statewide
Weighted
Average Rate
l25o/o Statewide
Weighted Average
Rate - 2019
l25oh Statewide
Weighted Average
Rate - 2020
$22.6s
$37.03
$23.s6
$38.21
$28.31
$46.28
$29.4s
$47.77Business Services
Switched Access Service
Long distance service providers reported intrastate MTS/WATS billed minutes of
107,374,568 compared to the 2019 reported minutes of 117,572,337, a 6.5%o deuease. The
statewide average switched access rate was $0.042, a change from last year's rate of $0.032.
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 125o/o statewide weighted average line rate
and the average rates per minute for MTS/WATS access rate must exceed 100% of the statewide
weighted average access rate. IDAPA31.46.01.106. Ifthe 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 weighted statewide average rates by using the residence and business basic local exchange
rates in effect on July 1,2005 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 years, both the number 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 funding requirements necessary to maintain
adequate fund balances throughout the fiscal year. With this in mind, the Administrator presents
the following funding options.
DECISION MEMORANDUM -J-AUGUST I4,2O2O
ADMINISTRATOR'S OPTIONS
OPTION I: STATUS QUO
If current surcharge levels ($.25 per residential line, $.44 per business line, and $.007 per
intrastate MTS/WATS billed minute) are maintained and no additional IUSF funding is
authorized, the fund will decrease by approximately $227,616 (page 53). The 2020-2021IUSF
authorized disbursements will be $1,698,610. MTS/WATS services would contribute
approximately 50%o of the surcharge revenue and local exchange services would contribute 50%
of the surcharge revenue. The fund would have a balance of approximately $744,509 at
June 30, 2021.
OPTION 2: ADJUST SURCHARGE RATES & MAINTAIN FUNDING
If surcharge rates are reduced to $.24 per residential line, $.30 per business line, and
$.006 per intrastate MTS/WATS billed minute and current funding levels are maintained, the
fund will decrease by approximately $493,482 (page 53). MTS/WATS services would
contribute approximately 52o/o of the surcharge revenue and local exchange services would
contribute 48%o of the surcharge revenue. The fund would have a balance of approximately
$478,643 at June 30,2021.
OPTION 3: ADJUST SURCHARGE RATES & ADJUST FUNDING TO MEET STATEWIDE
AVERAGES
Idaho Universal Service Fund rule 106.02 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 than3%o and $6,000, the company must revise rates equal or exceed
100% of the statewide average for MTS/WATS access service, and 125%o of the statewide
average for local exchange service. The following applies rule 106 to each company currently
drawing from the IUSF.
. ATC Communications should increase local residential and business rates. Toll
switched access rates do not need to be adjusted. ATC Communications aru:ual
IUSF draw would be reduced by $90,964.
DECISION MEMORANDUM -4-AUGUST I4,2O2O
a
o
o
a
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Cambridge Telephone Company should increase toll switched access,local
residential, and business rates. Cambridge Telephone Company annual IUSF
draw would be reduced by $67,628.
Columbine Telephone /Silver Star Telecom should increase toll switched access,
local residential, and business rates. Silver Star Telecom annual IUSF draw
would be reduced by $137,052.
Direct Communications Rockland should increase local residential and business
rates. Toll switched access rates do not need to be adjusted. Direct
Communications Rockland annual IUSF draw would be reduced by $36,128.
Fremont Telecom should increase toll switched access rates, local residential and
business rates. Fremont Telecom annual IUSF draw would be decreased by
$101,397.
Inland Telephone Company should decrease toll switched access and increase
local residential rates. Inland Telephone Company annual IUSF draw would be
reduced by $54.
Midvale Telephone Company should increase local residential and business rates.
Midvale Telephone Company annual IUSF draw would be reduced by $43,505.
Rural Telephone Company should increase local residential and business rates.
Rural Telephone Company annual IUSF draw would be reduced by $33,279.
o
a
The2020-2021 IUSF authorized disbursements, including the adjustments to company
funding per Rule 106, will be $1,221,882. If surcharge rates are reduced to $.15 per residential
line, g.19 per business line, and $.003 per intrastate MTS/WATS billed minute, the fund will
decrease by approximately $556,61I (page 54). MTS/WATS services would contribute 46oh of
the total surcharge revenue and local exchange services would contribute 54o/o of the total
surcharge revenue. The fund would have a balance of approximately $415,514 at June 30,2021
OPTION 4: ADJUST INVENTORIES, ADJUST SURCHARGE RATES & MAINTAIN
FUNDING LEVELS
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 l2oh,the business lines reduced 16% and the MTS/WATS billed minutes have been
DECISIONMEMORANDUM -5- AUGUSTI4,2O2O
reduced 6.5%. If the surcharge rates are reduced to $.22 per residential line, $.36 per business
line, and $.006 per intrastate MTS/WATS billed minute and IUSF disbursements are maintained
at current levels, the fund will decrease by approximately $531,459 (page 54). MTSAMATS
services would contribute approximately 50% of the surcharge revenue and local exchange
services would contribute 50%o of the surcharge revenue. The fund would have a balance of
approximately $440,667 at June 30,2021.
OPTION 5: ADJUST INVENTORIES, ADJ(IST SURCHARGE RATES & ADJUST FUNDING
TO MEET STATEWIDE AVERAGES
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 l2%o,the business lines reduced l6oh and the MTS/WATS billed minutes have been
reduced 6.5%. If the local surcharge rates are reduced to $.15 per residential line, $.24 per
business line and $.004 per intrastate MTS/WATS billed minute, as well as IUSF disbursements
adjusted per rule 106, the fund will decrease by approximately $486,154 (page 66). MTS/WATS
services would contribute approximately 52% of the surcharge revenue and local exchange
services would contribute 48%o of the surcharge revenue. The fund would have a balance of
approximately $485,972 at June 30,2021.
ADMINISTRATOR' S RECOMMENDATION
The Administrator recommends that the Commission adopt Option 5; adjust surcharge
rates and adjust funding to meet statewide averages. Surcharge rates would adjust to $.15 per
residential line, $. 24 per business line, and $.004 per intrastate MTS/WATS billed minute. The
fund balance on June 30, 2021 would be approximately $485,972, an amount that would allow
the fund to meet all obligations as well as provide a reserve balance.
STAF'F ANALYSIS AND RECOMMENDATION
Staff has 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) USFiICC Transformation Order, FCC 1l-161,
released on November 18, 2011, and the subsequent FCC 14-54, Seventh Order on
Reconsideration, released on June 10,2014. The first FCC Order established a schedule to
DECISION MEMORANDUM -6-AUGUST 14,2020
reduce intrastate terminating access rates, including transport and reciprocal compensation, to
bill-and-keep by July l, 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 S18.00 and issued a Notice 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 pending
further review and comments.
Given these Orders and uncertainty at the FCC, it makes it impractical for the
Commission 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 $25.76.1 If Rule
106 is strictly applied, all eight companies would be required to increase the residential local
exchange rate from the current $25.76 to $29.45 and the business local exchange rate to $47.77.
Staff acknowledges that the funding elements are impermanent and difficult to predict. Stafl
however, does not agree with Ms. Anderson's recommendation to the Commission to adopt
Option 5 to adjust surcharge rates and adjust funding to meet statewide averages. Staff feels this
option will lower the funding level too greatly for the 2020-2021USF fiscal year and require the
surcharges to be raised again within a year or two as line counts continue to decline.
Staff recommends adopting a hybrid Option I to maintain the current surcharge rates of
$.25 per residential line, $.44 per business line, $.007 per intrastate MTS/WATS billed minute,
and keeping the companies draws the same. Using projected declining inventories instead of
current inventory levels as the administrator did, the fund will decrease by approximately
$385,864. The2020-2021 IUSF authorized disbursements will be $1,698,610. MTS/WATS
services would contribute approximately 52oh of the surcharge revenue and local exchange
services would contribute 48o/o of the surcharge revenue. The fund would have a balance of
approximately $586,261 at June 30,2021. Staff understands that due to the COVID-19
pandemic, now is not the time to raise rates or surcharge amounts.
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
I On September 2,2009, Commission Order No. 30894 was issued notifoing the USF recipient companies that
residential rates must be increased to the statewide threshold rate of $25.76 to continue to receive funding. All eight
companies complied by increasing the residential rates.
-7 -DECISION MEMORANDUM AUGUST 14,2020
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 current legal and regulatory framework,
its place in the evolving telecommunications landscape, and universal telecommunications
services in Idaho generally. Staff convened a workshop on January 17,2018, Stakeholders filed
position papers by January 31,2018, Staff filed a summary report on April 4,2018, Stakeholders
filed reply comments on April25. Staff filing a second summary and report on September 7,
2018 as well as Stakeholders Memorandum inviting parties to bring proposed legislative
language to a workshop in October. Three parties responded on October 4,2018, and the parties
agreed to work on legislative language separately from Commission staffand then bring back
what they work out as a group. Thus far, the parties have failed to come to agreement and are
still working towards that end. Staff is still waiting on the parties to come together on legislative
changes.
Finally, Staff recommends that the Administrator continues to provide quarterly cash
flow analysis to the Staff. The quarterly cash flow review will allow Staff to monitor any
anomalies that may arise and to proactively respond 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 2020-2021budget?
Does the Commission wish to adopt Staff s recommended funding Option?
Does the Commission wish to accept Staff s final recommendation for quarterly cash
flow reports to monitor revenue impacts from unforeseen changes in line counts or access
minutes?
Udmemos/2020 IUSF Report DM
DECISION MEMORANDUM -8-
Daniel Klein
AUGUST I4,2O2O