20220823Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER ANDERSON
COMMISSIONER CHATBURN
COMMISSIONER HAMMOND
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:JOHAN E.KALALA-KASANDA
RILEY NEWTON
DATE:AUGUST 23,2022
RE:2022 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS;CASE NO.GNR-T-22-04
BACKGROUND
The Idaho Universal Service Fund (USF)rules were adopted under the general legal
authorityof the Telecommunications Act of 1988,Chapter 6,Title 62,Idaho Code,and the
specific authorityof §62-610,Idaho Code.The Commission established a universal service
fund for the purpose of maintaining the universal availabilityof 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(1).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
AnnualReport to the Commission detailing the program activities of the previous year and
recommending 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 twelvemonths beginning October 1.
THE 2022 ANNUAL REPORT
On July 15,2022,the Administrator of the Idaho USF,Alyson Anderson,filed the
AnnualReport for the USF fiscal year from July 1,2021,through June 30,2022.Included with
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the report is the Administrator's proposed budget for the next fiscal year-July 1,2022,through
June 30,2023.
The current USF monthlysurcharge rates are $.25 per residential line,$.44 per business
line,and $.007 per intrastate MTS/WTS billed minute.See Order No.34427.Surcharge
revenues for the year totaled $1,650,870.Local exchange services contributed $972,387 (59%),
and $678,483 (41%)was contributed by MTS/WATS services.Surcharge revenue from local
exchange services decreased by approximately $277,321 and MTS/WATSsurcharge revenue
decreased by approximately $72,633.The Administrative expenses for the year were $19,833.
This amount includes the Administrator's salary,expenses,bank charges.
Currently,eight qualifying 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 1,2022,through June 30,2023).The end-of-year cash balance for fiscal year 2022,
after applying bank charges and administrative expenses,was $1,187,050.
2022-2023 Administrative Budget
Ms.Anderson proposes an annual administrative budget of $27,850.This amount
includes the Administrator's salary and other expenses such as postage/copies,telephone,
banklinvestment charges,letterhead,and the anticipated costs for an audit/legal fees.
Local Residential and Business Service
The USF surcharge is attached to residential and business lines,and long-distance billed
minutes,of wirelinecompanies.Thus,the Administrator annuallyobtains reports from these
companies.As of May 1,2022,companies reported an average monthlyinventoryof 72,811
residential lines and 78,030 business lines,for a total of 150,841 lines.This represents a
decrease from the prior year in both residential lines (25%)and business lines (23%).
DECISION MEMORANDUM -2 -AUGUST 23,2022
The adjusted statewide weighted average rates for one-party single line residential and
business service and the correspondingthreshold average rates are:
2021 Statewide 2022 Statewide 125%Statewide 125%Statewide
Weighted Weighted Weighted Average Weighted Average
AverageRate Average Rate Rate -2021 Rate -2022
Residential Services $24.68 $25.84 $30.85 $32.30
Business Services $39.22 $42.27 $49.02 $52.84
Switched Access Service
Long distance service providers reported intrastate MTS/WATS billed minutes of
89,781,375compared to the 2021 reported minutes of 90,893,786,a 1%decrease.The statewide
average switched access rate is $0.056 per minutes,a change from last year's rate of $0.036.
Funding AdjustmentsReview--Rule 106
The Administrator also reviews the residential,business,and switched access rates of the
recipient ILEC companies to determine eligibilityto receive USF funding.A company's average
one-party,single-line rate must equal or exceed the 125%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.IDAPA 31.46.01.106.If 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 $6,000,the company may need to
revise rates to meet or exceed the statewide threshold rates.The Commission may also calculate
the weighted statewide average rates by using the residence and business basic local exchange
rates in effect on July 1,2005,to determine the eligibilityof ETCs for distributions from the
USF.See Rule 106.04,and Idaho Code §62-605(«).
ADMINISTRATOR'S OPTIONS
The Administrator reports that during the past year,there was a significant decrease in
local residential lines of 25%and in local business lines of 23%.MTS/WATS billed minutes
also decreased by a minimal 1%.The local access lines and toll minutes will continue to decline
DECISION MEMORANDUM -3 -AUGUST 23,2022
due to the continued migration toward broadband,wireless,cellular and VOIP services,as well
as the shift from stand-alone residential service to bundled packages.This affects the statewide
average rate calculations,as well as the application of Rule 106 to the companies funded by the
IUSF.In light of FCC orders and continuing industry changes,the administrator recognizes that
it is becoming more difficult to accurately calculate the funding requirements necessary to
maintain adequate fund balances throughout the fiscal year.With this in mind,the Administrator
presents the followingfunding options:
OPTION 1:STATUS QUO
If current surcharge rates ($.25 per residential line,$.44 per business line,and $.007 per
intrastate MTS/WATS billed minute)are maintained and no additional Idaho USF funding is
authorized,the fund will decrease by approximately $260,565 (page 51).The 2022-2023 Idaho
USF authorized disbursements will be $1,698,610.MTS/WATS services would contribute
approximately 50%of the surcharge revenue and local exchange services would contribute 50%
of the surcharge revenue.-The fund would have a balance of approximately $719,490 on
June 30,2023.
OPTION 2:ADJUST SURCHARGE RATES &MAINTAIN FUNDING
If surcharge rates are reduced to $.20 per residential line,$.33 per business line,and
$.005 per intrastate MTS/WATS billed minute and current funding levels are maintained,the
fund will decrease by approximately $793,808 (page 51).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
$393,241 on June 30,2023.
OPTION 3:ADJUST SURCHARGE RATES &ADJUST FUNDING TO MEET STATEWIDE
AVERAGES
Idaho Universal Service Fund Rule 106.02 indicates that to continue receiving Idaho USF
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 3%and $6,000,the company must revise rates equal or exceed
DECISION MEMORANDUM -4 -AUGUST 23,2022
100%of the statewide average for MTS/WATS access service,and 125%of the statewide
average for local exchange service.The followingapplies Rule 106 to each company currently
drawing from the Idaho USF.
ATC Communications should increase local residential and business rates.Toll
switched access rates do not need to be adjusted.ATC Communications annual
Idaho USF draw would be reduced by $155,312.
Cambridge Telephone Company should increase toll switched access,local
residential,and business rates.Cambridge TelephoneCompany annual Idaho
USF draw would be reduced by $191,934.
Columbine Telephone/Silver Star Telecom should increase toll switched access,
local residential and business rates.Silver Star Telecom annual Idaho USF draw
would be reduced by $248,254 and thus eliminate the Silver Star Telecom's
annual IUSF draw of $155,677.
Direct Communications Rockland did not file the Idaho Universal Service Fund
2022 Annual Report Request.Direct Communications Rockland annual IUSF
draw would be eliminated and reduce total disbursements by $202,401.
Fremont Telecom should increase toll switched access rates,local residential and
business rates.Fremont Telecom annual IUSF draw would be decreased by
$128,718 and thus eliminate Fremont Telecom's annual IUSF draw of $57,258.
Inland Telephone Company should increase local residential rates.Inland
TelephoneCompany annual Idaho USF draw would be reduced by $13,535.
Midvale Telephone Company should increase local residential and business rates.
Midvale Telephone Company annual Idaho USF draw would be reduced by
$65,372.
Rural TelephoneCompany should increase local residential and business rates.
Rural Telephone Company annual Idaho USF draw would be reduced by $64,173.
The 2022-2023 Idaho USF authorized disbursements,including the adjustments to
company funding per Rule 106,will be $875,104.If surcharge rates are suspended,the fund will
decrease by approximately $875,104 (page 52).The fund would have a balance of
approximately $311,946 on June 30,2023.
DECISION MEMORANDUM -S -AUGUST 23,2022
OPTION 4:ADJUST INVENTORIES.ADJUST SURCHARGE RATES &MAINTAIN
FUNDING LEVELS
In order to calculate future fund balances more accurately,the inventories have been
adjusted according to the most recent five-year trend.Thus,the residential lines have been
reduced 13%,the business lines reduced 7%and the MTS/WATS billed minutes have been
reduced 6%.If the surcharge rates are reduced to $.22 per residential line,$.37 per business line,
and $.006 per intrastate MTS/WATSbilled minute and IUSF disbursements are maintained at
current levels,the fund will decrease by approximately $733,066 (page 52).MTS/WATS
services would contribute approximately 51%of the surcharge revenue and local exchange
services would contribute 49%of the surcharge revenue.The fund would have a balance of
approximately $453,983 on June 30,2023.
ADMINISTRATOR'S RECOMMENDATION
The Administrator recommends that the Commission adopt Option 3,suspending the
surcharge rates and applying Rule 106.02 to adjust fundingto the companies.As the surcharge
rates are suspended in this option,there is no need to adjust the inventories for the five-year
average decline.Under Option 3,the fund balance would be adequate to meet the fund
obligations.The fund balance on June 30,2023,would approximate $312,480.
If the Commission is inclined to maintain company fundinglevels until changes are made
to the underlyingrules and statutes,then the administrator recommends the adoption of Option 2.
This option reduces the surcharge rates to $.20 per residential line,$.33 per business line,and
$.005 per intrastate MTS/WATS billed minute.Under Option 2,the fund balance would be
adequate to meet the fund obligations,and approximate $393,241 on June 30,2023.
STAFF 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)USF/ICC Transformation Order,FCC 11-161,
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
reduce intrastate terminating access rates,including transport and reciprocal compensation,to
DECISION MEMORANDUM -6 -AUGUST 23,2022
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 a Notice of Proposed Rulemaking and Order
seeking comments on the rate for basic voice services.Stakeholders 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 a freeze 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 eligibilityfor the nine companies that receive state
USF disbursements.All eight USF-funded companies have residential rates of $25.76.'If Rule
106 is strictly applied,all nine companies would be required to increase the residential local
exchange rate from the current $25.76 to $30.85 and the business local exchange rate to $49.02.
Staff is very concerned with increasing local residential exchange service rates by 20%.Staff
believes it is important to complete a more in-depth analysis of potential changes in the federal
high-cost support in relationship to the Idaho USF before increasing local rates by this
magnitude.
Staff acknowledges that the funding elements are impermanent and difficult to predict.
Staff,however,does not agree with Ms.Anderson's recommendation to the Commission to
adopt Option 3 to adjust surcharge rates and adjust funding to meet statewide averages.Staff
believes this option has the potential to lower the funding level too greatly for the 2022-2023
USF fiscal year and require the surcharges to be raised again within a year or two as line counts
continue to decline.Additionally,Staff does not agree with Ms.Anderson's recommendation of
Option 2 to adjust surcharge rates and maintain funding.This is because,this option will also
results in significant decrease in funding level within a year or two due to decline in line counts.
Staff recommends adopting Option l 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.With this option,the fund will only decrease by
approximately $260,565.The 2022-2023 Idaho USF authorized disbursements will be
i On September 2,2009,Commission Order No.30894 was issued notifying the USF recipient companies that
residential rates must be increased to the statewide threshold rate of $25.76 to continue to receive funding.All nine
companies complied by increasing the residential rates.
DECISION MEMORANDUM -7 -AUGUST 23,2022
$1,698,610.MTS/WATS services would contribute approximately 50%of the surcharge
revenue and local exchange services would contribute 50%of the surcharge revenue.The fund
would have a balance of approximately $719,490 on June 30,2023.
A very important concern of Staff is that the Administrator has been trying to fund the
Idaho USF in a declining industry where land lines are being replaced with new technologies
such as VolP 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 Idaho USF as it relates to the current legal and
regulatory framework,its place in the evolvingtelecommunications 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 April 25.Staff filing a second summary
and report on September 7,2018,as well as Stakeholders Memorandum invitingparties 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 Staff
and 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.
Staff does not want to see the fund return to the dire fundinglevels it was facing in 2017
and 2018.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.
DECISION MEMORANDUM -8 -AUGUST 23,2022
COMMISSION DECISION
Does the Commission wish to approve the Administrator's USF 2022-2023 budget?
Does the Commission wish to adopt Staff's recommended funding Option or one of the
Administrator's recommended funding Options?
Does the Commission wish to accept Staff's final recommendationfor quarterly cash
flow reports to monitor revenue impacts from unforeseen changes in line counts or access
minutes?
han E.Kalala-Kasan a
Udmcmos/GNR-T-22-04 IUSF Annual Report Decmon Memo
DECISIONMEMORANDUM -9 -AUGUST 23,2022