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Home My WebLink About20020815_242.pdfDECISION MEMORANDUM TO:COMMISSIONER KJELLANDER CO MMISSI 0 NER SMITH COMMISSIONER HANSEN JEAN JEWELL RANDY LOBB DON HOWELL LYNN ANDERSON JOE CUSICK DOUG COOLEY CAROLEE HALL WAYNE HART BEVERLY BARKER RON LAW GENE FADNESS TONY A CLARK WORKING FILE FROM:BIRDELLE BROWN DATE:AUGUST 13, 2002 RE:IDAHO UNIVERSAL SERVICE FUND - 2002 ANNUAL REPORT On July 15, 2002, Alyson Anderson, the Administrator of the Idaho Universal Service Fund, filed her Annual Report to the Commission for the period of July 1 , 2001 through June 30, 2002. Staffhas reviewed the calculations and recommendations in this report and finds them to be accurate and comprehensive. Once again, Staff commends Ms. Anderson for her continued outstanding performance as Administrator of this fund. Ms. Anderson reports surcharge revenue for the year in the amount of $2 498 097 of which $1 231 353 (49%) was contributed by local exchange services and $1 266 744 (51 %) was contributed by MTS/W ATS services. (This is a decrease in local revenue of nearly $170 000 and an increase in toll revenue of about $90 000.) Disbursements to the eight qualifying independent local exchange carriers (ILECs) totaled $1 898.303, which is a decrease of nearly $300 000 resulting from the completion of a short-term payment to Fremont Telcom. The ending fund cash balance at June 30, 2002 after applying bank charges, administrative expenses and interest received was $646 286. DECISION MEMORANDUM AUGUST 13 , 2002 Local Service As of May 1 , 2001 companies reported 532 279 residential lines and 190,428 business lines, for a total of 722 707 lines. This represents an approximate 2.7% decrease in total lines from the prior year. The newly calculated statewide average rates and threshold rates are: Residential 2001 Current 2002 Statewide 125% Statewide 125% Statewide Weighted Weighted Weighted Average Weighted Average A vera2e Rate A vera2e Rate Rate - 2001 Rate - 2002 17.46 $17.21.83 $22. 32.$32.42 41.03 $40.Business Services Switched Access Service Toll access minutes reported by the local exchange companies were 609 012 001 , which represents a small increase from 574 million minutes in 2001. The new Statewide Average rate has decreased to $0.051828 per minute. Toll Minutes The number of toll minutes reported to the USF decreased by 2.34% from 304 million minutes in the 2001 report to about 297 million minutes in the 2002 report. Toll revenue reported showed a decline of about 60% due to report anomalies. Disbursements Total disbursements for the year were $1 898 303 , and are not expected to change for the coming year unless modifications to access rates are required of some companies. Funding The Universal Service Fund is currently funded through assessments of$0.10 per residential line per month, $0.15 per business line per month, and $0.0035 per toll minute. DECISION MEMORANDUM AUGUST 13, 2002 ADMINISTRATOR'S OPTIONS The Administrator has presented three funding options for the coming year. These options are as follows: Option 1: Status Quo - Ms. Anderson stated that if current surcharge levels are maintained and no additional funding is needed, the fund will increase to a balance of 220 634, a greater reserve balance than she recommends. Option 2: Adjust Funding to meet Statewide Averages and Maintain Surcharge Rates - In this discussion, Ms. Anderson compares the companies' current local and switched access rates to the statewide threshold rates and applies the eligibility rule (Idaho Universal Service Fund Rule 106.02) to determine what revisions are required by current participants to the fund to continue to qualify. She notes that ATC', Fremont's , and Inland's switched access rates are above the threshold rate and they should reduce their rates (thus increasing their draw from the Universal Service Fund). If these adjustments are made and the current assessment is maintained, Ms. Anderson projects an ending balance of$I 182 174, which is still a greater reserve balance than she recommends. Option 3: Adjust Funding to meet Statewide Averages and Maintain Surcharge Rates - In this option, Ms. Anderson proposes a decrease in current surcharge rates to $0.08 per residential line, $0.13 per business line and $0.0025 per toll minute and increasing disbursements resulting from adjusted access rates as discussed in Option 2. This plan would produce a projected balance of$711 652. ADMINISTRATOR'S RECOMMENDATION Ms. Anderson recommends Option 3 , which would reduce the surcharge rates to $0025 per MTS/W ATS billed minute and to $.08 per residential and $.13 per business line. She recommends adjustments to Fremont, ATC and Inland, which will increase disbursements by $38,460 to offset decreases in access rates and keeping surcharges at their current levels. The fund would increase to approximately $711 652. DECISION MEMORANDUM AUGUST 13 , 2002 STAFF COMMENTS AND RECOMMENDATION Staff finds Ms. Anderson s report to be complete and comprehensive. Staff would add that it has requested explanations from four companies regarding reported access rates that increase even though there was no authorized rate increase. Two companies have revised their reports and no longer show excess rates from access. ATC and Inland have promised to send the information as soon as they can compile it. Staff did not contact Fremont. Staff also notes that Rural's access rate declined by an amount greater than the allowed 3% to $.048781 as a result of lost billing and collection revenues from its recent EAS implementation. Rural received Universal Service Funds to compensate for this lost revenue. Staff recommends that the Commission adopt the Administrator s Option No.3 to reduce access rates, but to defer any adjustments to access rates for any company. Over time, these rates seem to be stabilizing and most significant variations seem to be a result of reporting anomalies. COMMISSION DECISION Does the Commission approve the Administrator s recommended Option No.3 to reduce surcharge rates to $0.08 for residential lines, $0.13 for business lines and $0.0025 per toll minute? Does the Commission wish to defer revisions of Access Rates? Attachment Iusf/yearly/200 1-2002/reports/annrept dmm DECISION MEMORANDUM AUGUST 13 , 2002 IDAHO UNIVERSAL SERVICE FUND OPTIONS OPTION 1 - STATUS QUO BANK BALANCE 7/1/02 ANNUAL INVENTORY RESIDENTIAL LINES BUSINESS LINES TOLL MINUTES 532 279 190 428 297 072 069 TOTAL IUSF FUNDING FOR YEAR US TREASURIES REDEEMED ESTIMATED INTEREST INCOME ESTIMATED IUSF DISBURSEMENTS ESTIMATED ADMINISTRATIVE EXPENSES TOTAL ESTIMATED EXPENSES PROJECTED I NCOME/(DRA WDOWN) PROJECTED BALANCE 6/30/03 OPTION 2 - ADJUST FUNDING FOR ACCESS CHARGES & MAINTAIN SURCHARGE RATES BANK BALANCE 7/1/02 ANNUAL INVENTORY RESIDENTIAL LINES BUSINESS LINES TOLL MINUTES 532 279 190,428 297 072 069 TOTAL IUSF FUNDING FOR YEAR US TREASURIES REDEEMED ESTIMATED INTEREST INCOME ESTIMATED IUSF DISBURSEMENTS ESTIMATED ADMINISTRATIVE EXPENSES TOTAL ESTIMATED EXPENSES PROJECTED INCOME/(DRAWDOWN) PROJECTED BALANCE 6/30/02 Page 42 7/15/2002 32% OF TOTAL SURCHARGE REVENUE 17% OF TOTAL SURCHARGE REVENUE 51 % OF TOTAL SURCHARGE REVENUE REFLECTS ANNUALIZED INCREASE IN FUNDING FOR RURAL TELEPHONE MORE THAN ADEQUATE RESERVE 32% OF TOTAL SURCHARGE REVENUE 17% OF TOTAL SURCHARGE REVENUE 51 % OF TOTAL SURCHARGE REVENUE INCLUDES ADJUSTMENTS TO FUNDING FOR ATC, FREMONT, INLAND, & ROCKLAND MORE THAN ADEQUATE RESERVE BALANCE IDAHO UNIVERSAL SERVICE FUND OPTIONS 7/15/2002 OPTION 3 - ADJUST FUNDING LEVELS & REDUCE SURCHARGE RATES BANK BALANCE 7/1/01 ANNUAL INVENTORY RESIDENTIAL LINES BUSINESS LINES TOLL MINUTES 532 279 190,428 297 072 069 TOTAL IUSF FUNDING FOR YEAR US TREASURIES REDEEMED ESTIMATED INTEREST INCOME ESTIMATED IUSF DISBURSEMENTS ESTIMATED ADMINISTRATIVE EXPENSES TOTAL ESTIMATED EXPENSES PROJECTED INCOME/(DRAWDOWN) BALANCE 6/30/02 Page 43 33% OF TOTAL SURCHARGE REVENUE 19% OF TOTAL SURCHARGE REVENUE 48% OF TOTAL SURCHARGE REVENUE INCLUDES ADJUSTMENTS TO FUNDING FOR ATC, FREMONT, INLAND, & ROCKLAND ADEQUATE RESERVE BALANCE ADMINISTRATOR'S REPORT IDAHO UNIVERSAL SERVICE FUND YEAR ENDED -- JUNE 30, 2002 SURCHARGE REVENUES Surcharge revenues collected during the year totaled $2 498 097 of which 231 353, or 49%, was assessed on local exchange services and 266 744 , or 51 %, was assessed on MTS/W A TS services. DISBURSEMENTS caMP ANIES RECEIVING DISBURSEMENTS Authorized disbursements to Local Exchange Companies during the year ended June 30 , 2002 totaled $1 915 371 (page 10). The following table shows the Local Exchange companies authorized by the Idaho Public Utilities Commission to receive disbursements from the Idaho Universal Service Fund. ADMINISTRATIVE FEES AND EXPENSES Administrative fees and expenses for the year ended June 30, 2002 were $12 997. Administrative expenses include bank charges of$461. Administrative expenses payable at June 30, 2002 is $903. INVESTMENTS AND FUNDS CASH At June 30, 2002, the Idaho Universal Service Fund had a cash balance of $646 286. The following is a table showing the beginning, ending, and quarterly fund cash balances for the year ended June 30, 2002. INTEREST Interest earned on funds for the year ended June 30 , 2002 was $15 802. All surcharge revenue is held in a Merrill Lynch CMA-Government Securities Fund account, with a current yield of 1.48%. INVESTMENTS The Idaho Universal Service Fund currently has investments in US Treasury Bills. The T -Bill was purchased March 1 , 2002 and is valued at $451 831 (face value $453 000) with a 1.61 % yield. The T-Bill will mature August , 2002. INVENTO RIES Total residential and business lines at May 1 2002 were 532 279and 190 428 respectively (pages 36 and 37). This represents a 3% decrease in residential lines and a 2% decrease in business lines from the prior year. Total MTS/W A TS billed minutes of use for the year ended December 31 2001 were 297 072 069 (page 41), a 2.36% decrease from the prior year. STATEWIDE WEIGHTED AVERAGE RATES A schedule summarizing the total funding eligibility for the local exchange companies is shown on page 11. ONE-PARTY, SINGLE LINE SERVICE The statewide weighted average rates for one-party single-line residential and business services are shown on pages 24 and 35. The following table shows the statewide weighted averages for one-party, single line service. RESIDENTIAL SERV1I(!)ES.. . . BUSINESS..SER.'V1OCCES . TOLL SWITCHED ACCESS The statewide weighted average revenue per MTS/W A TS access minute is shown on page 13. The statewide weighted average revenue is $ .052 per minute. FUNDING OPTIONS GENERAL INFORMATION OPTION 1: STATUS QUO During the past year, the Commission ordered a $4 833 per month increase in the IUSF draw by Rural Telephone Company. If current surcharge levels are maintained and no additional IUSF funding is authorized, the fund will increase by approximately $574 348 (page 42). The fund would have a balance of approximately $1 220 634 at June 30, 2003. Additionally, with current surcharge rates, MTS/W A TS services would contribute approximately 49% of the surcharge revenue and local exchange services would contribute 51 % of the surcharge revenue. OPTION 2: ADJUST FUNDING TO MEET STATEWIDE AVERAGES & MAINTAIN SURCHARGE RATES 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 the statewide threshold rates. If the rate is below the statewide threshold rate, and difference between the rates are greater than 3% and $6 000, the company must revise it's rates to equal or exceed 100% of the statewide average for MTS/W A TS access service and 125% of the statewide average for local exchange service. The following applies rule 106 to each company currently drawing from the IUSF. All of the companies drawing IUSF funds have had rate proceedings during the past few years, and the Commission has reviewed and approved the rates for local access service. Therefore, at this time it is unnecessary to adjust the local rates to meet the statewide averages. . A TC Communications shows a need to reduce access rates, thereby increasing the draw from the IUSF by $17 753. . Cambridge Telephone Company does not need to adjust access rates or the IUSF draw at this time. . Fremont Telecom shows a need to reduce access rates, thereby increasing the draw from the IUSF by $14 221. Inland Telephone Company shows a need to reduce access rates, thereby increasing the draw from the IUSF by $6 488. . Midvale Telephone Company does not need to adjust access rates or the IUSF draw at this time. Direct Communications Rockland does not need to adjust access rates or the IUSF draw at this time. Rural Telephone Company does not need to adjust access rates or the IUSF draw at this time. Silver Star Telecom does not need to adjust access rates or the IUSF draw at this time. The 2001-2002 IUSF disbursements, including the adjustments to funding for ATC Communications, Fremont Telecom, Inland Telephone Company, and Direct Communications Rockland, will be $1 936 763. The current surcharge rates were maintained, and therefore the contribution from local exchange services andMTS/W A TS services would continue at 49% and 51 % respectively. The fund will increase by approximately $535 888, and have a balance of approximately $1 182 174 at June 30, 2003 (page 42). OPTION 3: ADJUST FUNDING TO MEET STATEWIDE AVERAGES & REDUCE SURCHARGE RATES Reducing the MTS/W A TS surcharge rate to $.0025 per minute, the local exchange residential surcharge rate to $.08 per line and per the local exchange business surcharge rate to $., will maintain approximately $646 286. At these rates, MTS/W A TS services would contribute 48% of the total surcharge revenue and local exchange services would contribute 52% of the total surcharge revenue. Additionally, disbursements are increased by $68,460 to reflect the reduction in access rates by companies currently drawing from the Idaho Universal Service Fund. The fund balance at June 30 2003 would be approximately $711 652. Thus maintaining an adequate reserve balance (page 43). ADMINISTRATOR'S RECOMMENDATION I recommend that the Commission adopt Option 3 , reducing the surcharge rates to $.0025 per MTS/W A TS billed minute, to $.08 per residential line and $.13 per business line. Additionally, the access rates and funding for A TC Communications, Fremont Telecom, and Inland Telephone Company should be adjusted. This option will continue to provide a reasonable reserve, as well as mitigate the need to increase surcharge rates if additional funding is authorized during the year. The fund will continue investing unused balances in US Treasuries. This option approximates a 50- contribution of surcharge revenues from local exchange services and MTS/W A TS services. The fund balance at June 30, 2002 would be approximately $711 652. ID A H O U N I V E R S A L S E R V I C E F U N D BA L A N C E S H E E T JU N E 3 0 , 2 0 0 1 AS S E T S LI A B I L I T I E S & E Q U I T Y CA S H I N B A N K $6 4 6 28 6 AC C O U N T S P A Y A B L E JU N E A D M I N I S T R A T I V E E X P E N S E $9 0 3 IN V E S T M E N T I N U S T R E A S U R I E S 45 3 00 0 UN A M O R T I Z E D D I S C O U N T 16 9 ) IN T E R E S T R E C E I V A B L E 33 8 FU N D B A L A N C E A T Y E A R E N D 09 9 55 1 TO T A L A S S E T S 10 0 , 4 5 5 TO T A L L I A B I L I T I E S & E Q U I T Y 10 0 , 4 5 5 Pa g e 7 IDAHO UNIVERSAL SERVICE FUND STATEMENT OF FUND BALANCE JUNE 30, 2002 REVENUES SURCHARGE REVENUE INTEREST REVENUE $2,498 097 140 TOTAL REVENUE 516 237 EXPENSES DISBURSEMENTS TO COMPANIES DISBURSEMENTS TO others AMORTIZATION EXPENSE BANK/BROKERAGE CHARGES ADMINISTRATIVE EXPENSE 915 371 057 338) 461 12,434 TOTAL EXPENSES 926 986 CHANGE IN FUND BALANCE $589 251 FUND BALANCE JULY 1 , 2001 $510 300 FUND BALANCE JUNE 30, 2002 099 550 Page 8 IDAHO UNIVERSAL SERVICE FUND BANK ACCOUNT ACTIVITY FOR YEAR ENDED JUNE 30 , 2002 BEGINNING BALANCE JULY 1 , 2001 RECEIPTS LOCAL SURCHARGE TOLL SURCHARGE TOTAL SURCHARGE COLLECTED INTEREST 231 353 266 744 498 097 802 TOTAL RECEIPTS DISBURSEMENTS BAN~BROKERAGE CHARGES PURCHASE US TREASURY BILL COMPANY DISBURSEMENTS REIMBURSEMENT FOR ITSAP PAYMENTS ADMINISTRATIVE EXPENSES 461 449,493 915 371 057 536 TOTAL DISBURSEMENTS ENDING BALANCE JUNE 30, 2002 Page 9 $511 305 513 899 378 918 $646 286 (ii' Cri (/)(')(') ::T (') (ii' (/)..,(/) ::E::T c.: ...... 0'1 ...... t.J ~~~~~~~~~~~~ I\) I\) I\) I\) I\) I\) I\) I\) I\) I\) I\) I\) "00 "00 "00 "00 "00 "00 "00 "00 "00 "00 -00 "00 0'1 0'1 0'1 0'1 0'1 0'1 0'1 0'1 0'1 0'1 0'1 0'1U) U) U) U) U) U) U) U) U) U) U) U) ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ............ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ........................ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 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