20040816_912.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:DOUG COOLEY
DATE:AUGUST 11,2004
RE:IDAHO UNIVERSAL SERVICE FUND - 2004 ANNUAL REPORT
On July 30, 2004, Alyson Anderson, the Administrator of the Idaho Universal Service
Fund, filed her Annual Report to the Commission for the period of July 1 , 2003 through
June 30, 2004. Staff has 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 service as Administrator of this fund.
Ms. Anderson reports surcharge revenue for the year in the amount of$I,485 790 of
which $767 621 (52%) was contributed by local exchange services and $718 169 (480/0) was
contributed by MTS/W ATS services. This is a decrease in local surcharge revenue of
approximately $134 000 (from $902,422 in 2003) and a decrease in toll surcharge revenue of
approximately $34 000 (from $752 894 in 2003). These decreases are due largely to a decrease
in inventory.
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
remained at $1 898 303 as of June 30, 2004. For the fiscal year beginning July 1 , 2004, annual
disbursements are currently scheduled to be $1 943 524. The ending fund cash balance at June
, 2004 after applYing bank charges, administrative expenses, and interest received was
$136 311; additionally, investments carry a cash value of $300 000 with staggered maturity dates
through September 30, 2004.
DECISION MEMORANDUM - 1 -AUGUST 11 , 2004
Local Service
As of May 1 , 2004, companies reported 501 853 residential lines and 187 654 business
lines, for a total of 689 507 lines. This represents a net decrease in lines of 40/0 with residential
declining 3% and business decreasing 6% from the prior year.
The newly calculated statewide average rates and threshold rates are:
Residential
2003 Current 2004 Statewide 1250/0 Statewide 1250/0 Statewide
Weigh ted Weigh ted Weighted Average Weighted Average
Average Rate A vera2e Rate Rate - 2003 Rate - 2004
$17.$17.$21.98 $21.
$31.52 $31.67 $39.40 $39.Business Services
Switched Access Service
Toll access minutes reported by the local exchange companies were 277 754 500
representing almost no change from the 278 681,411 minutes reported in 2003. The new
statewide average switched access rate has increased to $0.0526 per minute from last year
average of$0.0525.
Staff also reviewed the residential, business, and access rates of the recipient companies
in accordance with Rule 31.46.01.106. Of the eight companies receiving Universal Service
funds, Staff recommends that no adjustments to residential, business, or access rates be made at
this time.
ADMINISTRATOR'S OPTIONS
The Administrator has presented five 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 decrease to a negative balance of
approximately $51 807 by June 30, 2005.
Option 2: Increase Local Surcharge Rates Only - In this discussion, Ms. Anderson
proposes to increase the local surcharges to $.13 per residential line per month
, $.
24 per business
line, and maintain the MTS/W ATS rate at $.0025 per minute. If these surcharge levels are
DECISION MEMORANDUM - 2 -AUGUST 11 , 2004
implemented and no additional funding is needed, the fund is estimated to increase to an
adequate reserve balance of approximately $497 008 by June 30, 2005.
Option 3: Increase MTS/W A TS Surcharge Rate Only - In this option, Ms. Anderson
proposes to maintain the current surcharge rates of $.08 per residential line and $0.13 per
business line but increase the MTS/W ATS surcharge rate to $0.0045 per toll minute. If this
adjustment is made, Ms. Anderson projects an ending balance of approximately $503 702 by
June 30, 2005.
Option 4: Increase All Surcharge Rates - In this option, Ms. Anderson proposes an
increase in each surcharge rate to $0.10 per residential line, $0.18 per business line and $0.0035
per toll minute. Under this proposal, the fund is estimated to have an adequate reserve balance
of$458 984 by June 30, 2005.
Option 5: Adjust Funding to meet Statewide Averages and Increase All Surcharge
Rates - In this option, Ms. Anderson proposes an increase in each surcharge rate to $0.10 per
residential line, $0.18 per business line and $0.0035 per toll minute. In addition, Ms. Anderson
points out that Cambridge Telephone shows a need to slightly reduce its access rates while
Midvale Telephone shows a need to slightly increase its access rates according to Rule
31.46.01.106. Ms Anderson recommends that only Cambridge adjust is access rates and
estimates that, under this proposal, the fund would attain an adequate reserve balance of
$451,422 by June 30, 2005.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends Option 5, which would increase the surcharge rates to $0.
per residential line, $0.18 per business line per month and $0.0035 per toll minute. Under this
proposal, the fund is estimated to maintain an adequate reserve balance of $451,422 by June 30
2005. Although Staff is concerned about increasing the per-toll-minute rate because of growing
competitive pressure and shrinking toll minute inventories, Staff also understands that local
exchange companies also face increasing competition and shrinking line counts. Therefore, Staff
supports an attempt to spread the needed increase among the local and toll carriers. However
Staff believes that making very slight adjustments to the access rates of Cambridge Telephone or
Midvale Telephone is not necessary at this time. Staff discussed this with Cambridge Telephone
and Midvale Telephone and the companies agree that very slight changes mayor may not have
DECISION MEMORANDUM - 3 -AUGUST 11 , 2004
any distinguishable effect given the components of access revenue and the reporting cycles to the
fund. Therefore, Staff is more inclined to recommend Option 4 which also spreads the needed
increase among the local and toll carriers and produces an adequate fund reserve balance for
2005.
COMMISSION DECISION
Does the Commission wish to adopt the Administrator s recommended Option No.5 to
increase the surcharge rates to $0.10 for residential lines, $0.18 for business lines and $0.0035
per toll minute? Does the Commission approve an access rate decrease for Cambridge telephone
to the statewide threshold level and the corresponding changes in USF draws?
Does the Commission wish to adopt Staffs recommended Option No.4 which also
increases the surcharge rates to $0.10 for residential lines, $0.18 for business lines and $0.0035
per toll minute but does not adjust the access rates of Cambridge Telephone?
ug Cooley
Attachment
udmemos/usf 2004
DECISION MEMORANDUM - 4-AUGUST 11 , 2004
ADMINI~TRATOR'REPORT
ID AH UNIVERSAL SER VI CE FUND
YEAR ENDED -- JUNE 30 , 2004
SURCHARGE REVENUES
Surcharge revenues collected during the year totaled $1 485 790 of which
$767 621 , or 52% was assessed on local exchange services and $718 169, or
48%, was assessed on MTS/W A TS services. Current monthly surcharge
rates are $.08 per residential line
, $.
13 per business line, and $.0025 per
MTS/W A TS billed minute.
DISBURSEMENTS
COMPANIES RECEIVING DISBURSEMENTS
Authorized disbursements to Local Exchange Companies during the year
ended June 30, 2003 totaled $1 898 303 (page 11). Effective October 1
2003 , Order Number 29324 directed ATC Communications, Fremont
Telecom, and Midvale Telephone Exchange to reduce switched access rates
and increase disbursements from the Idaho Universal Service Fund. The
IUSF did not make changes to the disbursements for these companies until
the 2004-05 fiscal year. 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 , 2004 were
$12 534. Administrative expenses include bank and broker charges of
$345. Administrative expenses payable at June 30, 2004 are $762.
INVESTMENTS AND FUNDS
CASH
At June 30, 2004 , the Idaho Universal Service Fund had a cash balance of
$136 311. The following is a table showing the beginning, ending, and
quarterly fund cash balances for the year ended June 30, 2004.
INTERES T
Interest earned on funds for the year ended June 30 , 2004 totaled $23 523.
Coupon payments from investments in US Treasury Notes totaled $22 330
and interest earned on funds held in a Merrill Lynch CMA-Government
Securities Fund account, with a current yield of .46%, totaled $1 193.
INVES TMENTS
The Idaho Universal Service Fund currently has investments in US Treasury
Notes (Page 10). The T-Notes are valued at $300 592 (face value $300 000)
have staggered maturity dates through September 30, 2004.
INVENTO RIES
Total residential and business lines at May 1 , 2004 were 501 853 and
187 654 respectively (pages 33 and 34). This represents a 3% decrease in
residential lines and a 6% decrease in business lines from the prior year.
Total MTS/W A TS billed minutes of use for the year ended December 31
2003 were 277 754 500 (page 38), a .33% 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 23 and 32. The following table
shows the statewide weighted averages for one-party, single line service.
TOLL SWITCHED ACCESS
The statewide weighted average revenue per MTS/W A TS access minute is
shown on page 14. The statewide weighted average revenue is $ .0526 per
minute.
FUND IN PTI ON S
GENERAL INFORMATION
OPTION 1: STATUS QUO
If current surcharge levels ($.08 per residential line
, $.
13 per business line
and $.0025 per intrastate MTS/W A TS billed minute) are maintained and no
additional IUSF funding is authorized, the fund will decrease by
approximately $188 118 (page 39). MTS/W A TS services would continue to
contribute approximately 47% of the surcharge revenue and local exchange
services would contribute 53% of the surcharge revenue, however the fund
would have a negative balance of approximately ($51 807) at June 30, 2005.
OPTION 2: INCREASE LOCAL SURCHARGE RATES
Due to the significant competition and the continual decline of MTS/W A
intrastate traffic, it could be prudent to increase only the local surcharge
rates. If local surcharge levels are increased to $ .13 per residential line
24 per business line , the MTS/W ATS billed minute remains at $.0025 per
minute, and no additional IUSF funding is authorized, the fund will increase
by approximately $360 697 (page 39). The fund would have a balance of
approximately $497 008 at June 30 , 2005 , thus, providing an adequate
reserve balance. MTS/W A TS services would contribute approximately
34% of the surcharge revenue and local exchange services would contribute
66% of the surcharge revenue.
OPTION 3: INCREASE MTS/W A TS SURCHARGE RATES
This year shows an overall decline in local access lines, it could be argued
that local access is facing as much competion and only the MTS/W A TS
surcharge rate should be increased. If the MTS/W A TS surcharge rate is
increased to $.0045 per minute, and the local surcharge rates remain at $.
per residential line
, $.
13 per business line, and no additional IUSF funding
is authorized, the fund will increase by approximately $367 391 (page 40).
The fund would have a balance of approximately $503 702 at June 30
2005 , thus, providing an adequate reserve balance. MTS/W A TS services
would contribute approximately 62% of the surcharge revenue and local
exchange services would contribute 38% of the surcharge revenue.
OPTION 4: INCREASE ALL SURCHARGE RATES
If current surcharge rates are increased to $.10 per residential line
, $ .
18 per
business line, and $.0035 per intrastate MTS/W A TS billed minute, and no
additional IUSF funding is authorized, the fund will increase by
approximately $322 673 (page 40). The fund would have a balance of
approximately $458 984 at June 30, 2005 , thus, providing an adequate
reserve balance. 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 5: ADJUST FUNDING TO MEET STATEWIDE AVERAGES &
INCREASE ALL 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 several years , and the Commission has already reviewed and approved
the rates for local access service. Therefore , I think it is unnecessary to
adjust the local rates to meet the statewide average.
. A TC Communications does not need to adjust access rates, or the IUSF
draw at this time.
Cambridge Telephone Company shows a need to reduce access rates
thereby increasing the draw from the IUSF by $7 562.
Direct Communications Rockland does not need to adjust access rates , or
the IUSF draw at this time.
Fremont Telecom does not need to adjust access rates, or the IUSF draw
at this time.
Inland Telephone Company does not need to adjust access rates, or the
IUSF draw at this time.
Midvale Telephone Company shows a need to increase access rates , and
decrease the IUSF draw by $6 672. In 2003, Midvale was ordered to
reduce access rates and thereby increase the IUSF draw. It does not
seem prudent to reverse that action at this time, thus causing Midvale' s
access rates to fluctuate back and forth.
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 2004-2005 IUSF disbursements , including the adjustments to funding
for Cambridge Telephone Company, per rule 106, will be $1 951 086.
If current surcharge levels are increased to $.10 per residential line
, $ .
18 per
business line, and $.0035 per intrastate MTS/W A TS billed minute , the fund
will maintain an adequate reserve balance of approximately $451 422 (page
41). At these rates, MTS/W A TS services would contribute 49% of the total
surcharge revenue and local exchange services would contribute 51 % of the
total surcharge revenue, with a projected income of $315 111.
ADMINISTRATOR'S RECOMMENDATION
I recommend that the Commission adopt Option 5 , increasing the current
surcharge rates to $.0035 per MTS/W ATS billed minute
, $.
10 per
residential line, and $.18 per business line. Additionally, the access rates
and funding for Cambridge Telephone Company should be adjusted. This
option should allow the fund to meet its obligations, as well as provide an
adequate reserve balance. The fund will continue investing unused balances
in US Treasuries. This option approximates a 50-50 contribution of
surcharge revenues from local exchange services and MTS/W A TS services.
The fund balance at June 30, 2005 should be approximately $451 422.
IDAHO UNIVERSAL SERVICE FUND OPTIONS
OPTION 1 - STATUS QUO
BANK BALANCE 7/1/04
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
501 853
187 654
277 754 500
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 6/30/05
OPTION 2 - INCREASE LOCAL SURCHARGE RATES
BANK BALANCE 7/1/04
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
501 853
187 654
277 754 500
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 6/30/05
Page 39
8/11/2004
33% OF TOTAL SURCHARGE REVENUE
20% OF TOTAL SURCHARGE REVENUE
47% OF TOTAL SURCHARGE REVENUE
39% OF TOTAL SURCHARGE REVENUE
27% OF TOTAL SURCHARGE REVENUE
34% OF TOTAL SURCHARGE REVENUE
IDAHO UNIVERSAL SERVICE FUND OPTIONS
OPTION 3 -INCREASE MTSIWATS SURCHARGE RATES
8/11/2004
BANK BALANCE 7/1/04
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
501 853
187 654
277 754 500
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 6/30/05
OPTION 4 - INCREASE ALL SURCHARGE RATES
BANK BALANCE 7/1/04
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
501 853
187 654
277 754 500
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 6/30/05
Page 40
23% OF TOTAL SURCHARGE REVENUE
15% OF TOTAL SURCHARGE REVENUE
62% OF TOTAL SURCHARGE REVENUE
30% OF TOTAL SURCHARGE REVENUE
21 % OF TOTAL SURCHARGE REVENUE
49% OF TOTAL SURCHARGE REVENUE
IDAHO UNIVERSAL SERVICE FUND OPTIONS
OPTION 5 - ADJUST FUNDING LEVELS PER RULE 106 &
INCREASE ALL SURCHARGE RATES
BANK BALANCE 7/1/04
ANNUAL INVENTORY
RESIDENTIAL LINES
BUSINESS LINES
TOLL MINUTES
501 ,853
187 654
277 754 500
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 6/30/05
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Page 41
8/11/2004
30% OF TOTAL SURCHARGE REVENUE
21 % OF TOTAL SURCHARGE REVENUE
49% OF TOTAL SURCHARGE REVENUE
REFELCTS INCREASED FUNDING TO CAMBRIDGE