20020213_ws.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
RANDY LOBB
JOE CUSICK
TERRI CARLOCK
JOE LECKIE
WAYNE HART
LYNN ANDERSON
GENE FADNESS
WORKING FILE
FROM:
DATE:
FEBRUARY 13, 2002 RE: CASE NO. RUR-T-01-01; APPLICATION OF RURAL TELEPHONE COMPANY FOR AN INCREASE IN ITS USF FUNDING

On May 30, 2001, Rural Telephone Company (Rural) filed a Motion for an Order to increase the amount it receives each year from the Idaho Universal Service Fund (USF). Rural’s request for increased USF support followed implementation of extended area service (EAS) local calling area approved by the Commission between Rural’s exchanges and Qwest’s Boise calling area. When it approved EAS, the Commission stated Rural would recover some of the implementation costs through higher rates, but recognized that some EAS costs might be recovered through increased USF support. Rural increased local rates as directed by the Commission, and asserts in its Application that the resulting increase in revenue is not sufficient to cover the costs of implementing the EAS. Rural initially requested an increase in annual USF funding in the amount of $125,562. Rural subsequently revised its request after reviewing and discussing with Staff the effect of an FCC order issued in May 2001. In late August, 2001, Rural revised its request to be an additional $81,043 per year.
On January 15, 2002, the Commission issued a Notice of Application and Notice of Modified Procedure. Written comments were filed by the Commission Staff; Rural filed Reply Comments on February 7, 2002. Staff’s comments state that, after completing an audit, Staff concluded Rural was entitled to an increase of $57,535.69 per year from the USF. After reviewing the result of the audit, the Company and Staff reached an agreement that Rural’s USF funding should be increased by the amount of $68,274 per year. Thus there is no dispute between Staff and the Company regarding the amount that Rural is entitled to receive from the USF. The parties do disagree, however, on the effective date that the increase should accrue to Rural.
Staff identified four options for the beginning date of increased payments to Rural, including the date the Commission issues an order approving increased USF funding. In fact, Staff noted the relevant statute requires that “distributions from the [USF] shall be made monthly,” Idaho Code § 2-610(4), arguably precluding distribution of a lump sum to a retroactive effective date. Staff contended that deviation from the statutory mandate should occur only under compelling circumstances.
Nonetheless, considering Rural’s expectation in recovery of EAS costs, Staff recommended the effective date of increased USF funding for Rural should be no earlier than July 30, 2001, the earliest date the Commission could have acted on Rural’s application. Staff argued that the Company bears at least some responsibility for timely prosecution of its claim, noting that the EAS construction “was essentially completed in October of 2000,” but that the Company’s Application was not filed until May 30, 2001. In its Reply Comments, Rural took exception to Staff’s characterization of the Company’s diligence in presenting its Application and relevant information. Rural contends Staff misstated key facts by noting that construction was “essentially completed in October of 2000.” The Company stated that the final costs charged to the EAS project were not booked until mid December 2000. Rural asserts that “there is simply no excuse for a one year delay between an EAS cutover and recovery of the resultant revenue deficiency,” and blames “Staff’s plotting conduct of its audit” for the delay rather than its own conduct.
If July 1, 2001 is the beginning date for increased USF draws, Rural would be entitled to a one-time payment of $45,546.08, representing eight monthly payment amounts (July 2001 through February 2002). Beginning March 2002, the monthly increase would be $5,693.26 for 28 months, for a total of 36 months at that amount. Thereafter the amount would decrease by $855.67, removing the component for recovery of case costs.
Commission Decision
Should the request by Rural for an increase of $68,274 in its annual USF funding be approved? Should the Commission approve a retroactive disbursement of USF funds to Rural? If so, to what date?

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DECISION MEMORANDUM 1