20230929Final_Order_No_35940.pdf

ORDER NO. 35940 1
Office of the Secretary
Service Date
September 29, 2023
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE ANNUAL
REVISION OF THE UNIVERSAL SERVICE
FUND SURCHARGES TO BECOME
EFFECTIVE OCTOBER 1, 2023
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CASE NO. GNR-T-23-05

ORDER NO. 35940

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”). 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.
Idaho Code § 62-610(2). The surcharges are effective for 12 months beginning 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 rate to $0.007, and maintain funding levels for 12 months, effective
October 1, 2023.
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. Idaho Code § 62-610 and IDAPA 31.46.01.303.02.
In the report, the Administrator reviews the fund balance and recommends changes to the
surcharge rates to maintain adequate funding levels. Commission Staff (“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. IDAPA 31.46.01.104-106. As set forth in the Commission’s 2022 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. Order No. 35517.

ORDER NO. 35940 2
THE 2023 REPORT
A. The 2023 Data and 2023-2024 Proposed Budget
On July 14, 2023, the Administrator of the IUSF, Alyson Anderson, filed the Annual
Report of the IUSF for the fiscal year July 1, 2022, through June 30, 2023.1 Included in the report
is the Administrator’s proposed budget for the next fiscal year—July 1, 2023, through June 30,
2024. Surcharge revenues collected for the 2022-2023 fiscal year totaled $1,420,072. Local
exchange services contributed $687,706, or 48%, and $732,366, or 52%, was contributed by
MTS/WATS services. The Administrative expenses for the year were $19,360. This amount
includes the Administrator’s salary, expenses, and bank charges. Total annual disbursements to
the eight qualifying telephone companies remained unchanged at $1,698,610. IUSF’s annual year-
end cash balance, after applying bank charges and administrative expenses, was $1,187,050.
The Administrator proposed an annual administrative budget for fiscal year 2023-2024 of
$29,300. This amount encompasses the Administrator’s salary and all other relevant expenses,
including postage/copies, telephone, bank/investment charges, letterhead, and anticipated costs for
an audit and legal fees.
According to the Administrator, as of May 1, 2023, companies reported an average
monthly inventory of 65,516 residential lines and 68,257 business lines, for a total of 133,773
lines. Long distance service providers reported intrastate MTS/WATS billed minutes of
46,111,289 compared to the 2022 reported minutes of 89,781,375. The statewide average switched
access rate is $0.067 per minute, a change from last year’s rate of $0.056. Based on data from
wire-line telephone companies and long-distance companies, the Administrator calculated the
2023 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:

2022 Statewide
Weighted
Average Rate
2023 Statewide
Weighted
Average Rate
125% Statewide
Weighted Average
Rate – 2022
125% Statewide
Weighted Average
Rate - 2023
Residential Services $25.84 $28.49 $32.30

$35.62

Business Services $42.27 $54.31 $52.84 $67.88

1 On August 21, 2023, August 25, 2023, and September 8, 2023, Ms. Anderson filed revised reports with additional
updates and corrections.
ORDER NO. 35940 3
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.2 Both the Administrator and
Staff asserted that it is difficult to accurately calculate the funding needed to maintain adequate
fund balances throughout the coming fiscal year. The Administrator thus proposed the following
surcharge options for the Commission’s review:
Option 1 – Status Quo: The Administrator calculated that IUSF revenues would decrease
by about $848,186 if current surcharge levels are maintained and no additional IUSF funding is
authorized. Assuming the same disbursement as fiscal year 2022-2023 ($1,698,610), the year-end
fund balance on June 30, 2024, is estimated to be approximately $40,882. MTS/WATS services
would contribute about 37% of the surcharge revenue and local exchange services would
contribute 67% of the surcharge revenue.
Option 2—Adjust Surcharge Rates & Maintain Funding: If IUSF surcharges were
increased to $0.27 per residential line, $0.52 per business line, and $0.014 per intrastate
MTS/WATS billed minute, and if current funding levels were maintained, the IUSF balance would
decrease by about $444,157. MTS/WATS services would contribute about 50% of the surcharge
revenue, and local exchange services would contribute the other 50%. The Administrator projected
that the year-end fund balance on June 30, 2024, would be about $444,911.
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 to continue receiving IUSF funding
after the first year of eligibility. If the company’s rate is 3% or less than the statewide threshold
rate and the annual revenue associated with the company’s current rate is $6,000 or 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 for MTS/WATS access service, and 125% of the
statewide average for local exchange service.
If Rule 106.02 were applied to each of the eight companies that are eligible to receive IUSF
disbursements, each would receive reduced disbursements during the next fiscal year. If surcharge
rates are decreased to $0.02 per residential line, $0.04 per business line, and $0.001 per intrastate

2 In 2021, local exchange lines increased for the first time in recent history. However, the downward trend has since
resumed.
ORDER NO. 35940 4
MTS/WATS billed minute, the IUSF will decrease by approximately $688,969 and the balance
would be about $200,099 on June 30, 2024.
Option 4—Adjust Inventories, Adjust Surcharge Rates & Maintain Funding Levels: To
calculate future fund balances more accurately, the line inventories are adjusted to reflect the most
recent five-year trend, resulting in residential lines being reduced by 11%, business lines being
reduced 9%, and the MTS/WATS billed minutes reduced 14%. If the surcharge rates were
increased to $0.30 per residential line, $0.57 per business line, and $0.02 per intrastate
MTS/WATS billed minute—and if IUSF disbursements were maintained at current levels—IUSF
disbursements would decrease by about $294,754. MTS/WATS services would contribute about
56% of the surcharge revenue, and local exchange services would contribute the other 44%. The
IUSF would have a balance of about $594,314 on June 30, 2024.
Option 5—Adjust Inventories, Adjust Surcharge Rates & Adjust Funding to Meet Statewide
Averages: After adjusting the inventories as in Option 4, if the surcharge rates are increased to
$0.27 per residential line, $0.52 per business line, and $0.02 per intrastate MTS/WATS billed
minute and IUSF disbursements are adjusted to meet statewide averages per rule 106, the IUSF
will increase by approximately $352,040. MTS/WATS services would contribute approximately
49% of the surcharge revenue and local exchange services would contribute 51% of the surcharge
revenue. The IUSF would have a balance of approximately $1,241,108 on June 30, 2024.
Option 6—Adjust Inventories, Adjust Surcharge Rates & Without Funding Adjustment:
After adjusting the inventories as in Option 4, if the surcharge rates are increased to $0.27 per
residential line, $0.52 per business line, and $0.02 per intrastate MTS/WATS billed minute and
disbursements are maintained at current levels, the IUSF will decrease by approximately $592,303.
MTS/WATS services would contribute approximately 49% of the surcharge revenue and local
exchange services would contribute 51% of the surcharge revenue. The IUSF would have a balance
of approximately $296,765 on June 30, 2024.
In the report, the Administrator recommended the Commission adopt Option 5, increasing
surcharge rates and applying Rule 106.02 to adjust funding to the eligible companies. If the
Commission wishes to keep current funding levels, then the Administrator recommends that the
Commission adopt Option 4, which increases the surcharge rates and would be adequate to meet
the IUSF’s obligations but leaves less of a reserve fund that Option 5 to address future industry
changes.
ORDER NO. 35940 5
STAFF RECOMMENDATIONS
Staff analyzed the Administrator’s report and supporting documentation. 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 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
noted that if Rule 106.02 is strictly applied all eight 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 expressed concern over increasing rates this amount. Additionally, Staff was
also concerned that adopting either Option 4 or Option 5 might result in diminished funding levels
for companies participating in the IUSF, necessitating increased surcharges rates in response to
declining line counts.
Staff recommended adopting Option 1 to maintain the current surcharge rates of $0.25 per
residential line, $0.44 per business line, $0.007 per intrastate MTS/WATS billed minute, and
keeping the companies draws the same. This will result in a fund decrease of approximately
$848,186. Staff calculated that the 2023-2024 IUSF authorized disbursements will be $1,698,610.
Accordingly, under this Option 1, the IUSF will meet its obligations for 2023-2024, ending with a
positive projected balance of about $40,000. Staff does not believe this projected cash balance
jeopardizes the IUSF. In support of this position, Staff noted that, since 2017, the projected year-
end cash balance for the IUSF has not accurately predicted the actual year-end balance for the
IUSF.3
Staff and the Administrator were mainly concerned about 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 noted that even though the stakeholders agree that a legislative solution is
necessary to mitigate funding issues related to IUSF, Order No. 34524, the stakeholders have not
come together on a legislative change.

3 Staff’s decision memorandum filed in this case contains a table titled “IUSF Fund Trend Analysis” detailing the
projected and actual year-end cash balances of the IUSF since 2016. See Dec. Memo. at 8. According to the trend
analysis described in the table, the projected year-end case balance for the IUSF overestimated the actual year-end
balance for some years and underestimated it for others.
ORDER NO. 35940 6
Finally, Staff recommended that the Administrator continue to provide quarterly cash flow
analysis of the IUSF to Staff, as detailed in Order No. 33851. 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.
FINDINGS AND DISCUSSION
As we have noted before, local access lines and intrastate long-distance billed minutes
continue to decline. This complicates the task of predicting the necessary IUSF fund balance for
the next fiscal year and determining 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 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 rates’ associated annual revenue. See IDAPA 31.46.01.106.02.
The actual statewide average rate is obscured by the large, deregulated companies – those
with the greatest market share and greatest impact on the threshold rate – that have increased their
stand-alone residential rates to encourage purchases 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.
Considering the Administrator’s 2023 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. The
ORDER NO. 35940 7
Commission appreciates the Administrator’s advocacy of Option 5, but it risks being too
aggressive by reducing both the funding to eligible telecommunications carriers and the IUSF fund
balance. Considering this and other 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.
Finally, the Commission accepts the Administrator’s proposed budget for fiscal year 2023-
2024. 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.
O R D E R
IT IS HEREBY ORDERED that the monthly IUSF surcharge rates shall remain $0.25 per
residential line, $0.44 per business line, and $0.007 per MTS/WATS minute, effective for 12
months beginning October 1, 2023. The Administrator’s proposed fiscal year 2023-2024 budget
is accepted.
IT IS FURTHER ORDERED that the Administrator shall provide 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 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.
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ORDER NO. 35940 8

DONE by order of the Idaho Public Utilities Commission at Boise, Idaho this 29th day of
September 2023.

__________________________________________
ERIC ANDERSON, PRESIDENT

__________________________________________
JOHN R. HAMMOND JR., COMMISSIONER

__________________________________________
EDWARD LODGE, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary

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