20100823_3060.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KEMPTON
CO MMISSI 0 NER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 20, 2010
RE:2010 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS; CASE NO. GNR-I0-04.
BACKGROUND
The Idaho Universal Service Fund (USF) rules were adopted under the general legal
authority of the Telecommunications Act of 1988, Chapter 6, Title 62 Idaho Code and the
specific authority of 9 62-610 Idaho Code. The Commission established a universal service
fund for the purpose of maintaining the universal availability of 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. The USF is funded through a
statewide end-user surcharge on local exchange services and intrastate MTS and Wide Area
Telephone Service (W A TS) type services. The USF Administrator, Ms. Anderson, submits an
Annual Report to the Commission that details the program activities of the previous year and
provides recommended surcharge rates to meet the next year s funding requirements. On or
before September 1 of each year the Commission issues an Order in response to the
Administrator s report, which will establish statewide end-user surcharges to be in effect for
the twelve months beginning October 1 following issuance of the Order.
THE 2010 ANNUAL REPORT
On July 15 2010, Alyson Anderson, the Administrator of the Idaho USF, filed her
Annual Report to the Commission for the period of July 1 , 2009 through
DECISION MEMORANDUM AUGUST 20 2010
June 30, 2010. The proposed USF 2010-2011 Administrative Budget is also included in the
report. Staff has reviewed the calculations, supporting documentation, and recommendations
contained in the Administrator s Annual Report.
The current USF monthly surcharge rates are $.10 per residential line
, $.
17 per business
line, and $.003 per intrastate MTS/WTS billed minute, established in Order No. 30894.
Ms. Anderson reports surcharge revenue for the year in the amount of $1 734 098. Local
exchange services contributed $932 556 (54%), and $801 542 (46%) was contributed by
MTS/W A TS services. This is a decrease in local exchange surcharge revenue of approximately
$36 000 (from $968 594 in 2009), and a decrease in MTS/WATS surcharge revenue of
approximately $111 000 (from $690 061 in 2009).
Pursuant to Commission Order No. 30894, the annual disbursements to the eight
qualifying incumbent local exchange carriers (ILECs) decreased by approximately $122,456
from $1 943 523 in 2009 to $1 821 067 for the year ending on June 30, 2010. The ending cash
balance, after applying bank charges, administrative expenses and interest received was
$104 258. For the next year, beginning July 1 2010, the revised annual disbursements are
expected to be $1 698 610, unless the Commission approves changes to the USF funding:.
2010-2011 Administrative Budget
Ms. Anderson proposes an annual administrative budget of $24 100. This amount
includes the Administrator s salary and other expenses such as office supplies and bank and
brokerage fees as well as an audit. This year s budget increase of $6 745 anticipates that the
triennial audit will be completed and payment will be made by the end of the next fiscal year.
Local Residential and Business Service
As of May 1 , 2010, companies reported an inventory of 328 592 residential lines and
219 752 business lines, for a total of 548 344 lines. This is a net decrease in lines of
approximately 47 931 (8%) with residential lines decreasing by nearly 11 % and business lines
decreasing by almost 2%.
DECISION MEMORANDUM AUGUST 20, 2010
The newly calculated statewide weighted average rates for one-party single line
residential and business service and the corresponding threshold average rates are:
Business Services
2009 Statewide 2010 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate - 2009 Rate - 2010
$20.$20.$25.$26.
$32.43 $33.$40.$41.34
Residential Services
Switched Access Service
Long distance service providers reported intrastate MTS/W A TS total billed minutes of
284 863 207 compared to the 2009 reported minutes of304 154 937, a 6% decrease. The
statewide average switched access rate remained the same as last year at $0.05.
Funding Adjustments Review
Ms. Anderson is required to review the residential , business, and access rates of the
recipient ILEC companies in accordance with Rule 106. To be eligible to receive USF funding
pursuant to Rule 106, IDAPA 31.46.01.106, a telephone 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/W A TS access rate must exceed 100% of the statewide weighted average
access rate. 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. Or, the Commission on its own motion may by Order change a
telephone company s USF funding in connection with the recalculation of the statewide average
rates. See Rule 106.04.
In response to the Administrator s 2009 USF Annual Report, the Commission issued
Order No. 30894 on September 2 2009. In this Order, the eight ILEC companies receiving USF
disbursements were given notice that the companies ' residential rates did not meet the USF
eligibility requirements. By September 1 , 2010, all eight companies will have complied with this
Order, thus maintaining USF funding eligibility.
DECISION MEMORANDUM AUGUST 20, 2010
In this year s analysis, of the eight companies receiving USF funding, the Administrator
recommends, and Staff agrees, that no adjustments to residential or business rates are necessary
at this time. Ms. Anderson does, however, recommend an access rate adjustment for three
companies and discusses her findings in Option 2.
ADMINISTRATOR'S OPTIONS
The Administrator presented four funding options to meet the projected annual
disbursements and expenses for the coming year. These options are as follows:
Option 1: Status Quo - Ms. Anderson reports that if current surcharge levels are
maintained and no additional USF funding is authorized, the fund will decrease by
approximately $25 516. The 2010-2011 USF authorized disbursements will be $1 698 610 and
the fund balance will be an estimated $78 742 on June 30, 2011. Surcharge revenue contribution
would be approximately 50% from MTS/W A TS services and 50% from local exchange services.
Option 2: Adjust Funding to Meet Statewide Averages per Rule 106 and Maintain
Surcharge Rates - With this option, the current surcharge rates are maintained and Rule 106
adjustments are applied to companies that receive USF funds:
A TC Communications' (A TC) local residential and business rates do not need to be
adjusted, but should increase switched access rates. The company s annual USF funding
would be reduced by $11 309.
Cambridge Telephone Company s rates do not need to be adjusted.
Direct Communications Rockland's rates do not need to be adjusted.
Fremont Telecom s rates do not need to be adjusted.
Inland Telephone Company s (Inland) local residential and business rates do not need to
be adjusted, but should increase switched access rates. The company s annual USF
funding would be reduced by $10 164.
Midvale Telephone Company s (Midvale) local residential and business rates do not need
to be adjusted, but should increase switched access rates. The company s USF funding
would be reduced by $10 068.
Rural Telephone Company s rates do not need to be adjusted.
Silver Star Telecom s rates do not need to be adjusted.
DECISION MEMORANDUM AUGUST 20 2010
Under this proposal, Ms. Anderson projects the annual USF disbursements would decrease by
$31 541 from $1 698 610 to $1 667 069 and the fund balance on June 30, 2011 would be
approximately $110 283. With this option MTS/W A TS services would contribute 50% ofthe
total surcharge revenue and local exchange services contribution would be 50%.
Option 3: Adjust Funding to Meet Statewide Averages per Rule 106 and Increase
Surcharge Rates - In this scenario, Ms. Anderson considers adjusting the USF disbursements per
Rule 106 as outlined in Option 2, and increasing the surcharge rates to $.12 per residential line
19 per business line, and $.0035 per intrastate MTS/W A TS billed minute. The fund balance
would be approximately $384 318 on June 30, 2011. MTS/W A TS service would contribute 49%
of the surcharge revenue and local exchange services would contribute 51
Option 4: Maintain Funding Levels and Increase Surcharge Rates - In this discussion
Ms. Anderson looks at increasing the surcharge rates to $.12 per residential line, $.20 per
business line, and $.004 per intrastate MTS/W A TS billed minute. MTS/W A TS service would
contribute 53% and local exchange services would contribute 47%. The fund would have a
balance of approximately $521 578 on June 30, 2011.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends that the Commission adopt Option 3; increasing the
surcharge rates to $.12 per residential line
, $.
19 per business line and $.0035 per intrastate
MTS/W A TS billed minutes. She states that surcharge rates need to be increased for the fund to
meet current obligations. Further, barring significant changes to the USF disbursements, Option
3 should allow for consistency in the surcharge rates over the next few years. Option 3 is also
compliant with the continuation of eligibility Rule 106. Ms. Anderson feels it is necessary to
have a fund balance that is adequate to cover approximately three months of disbursements.
With this option, the fund balance on June 30, 2011 would be approximately $384 318 and will
allow the fund to meet all obligations as well as provide a reserve balance.
ST AFF ANALYSIS AND RECOMMENDATION
Ms Anderson assumes disbursements and the surcharge revenue sources (line count and
billed minutes) will be relatively stable during the next year. If the surcharge rates remain
unchanged, the fund balance will decrease to $78 742, a figure that is approximately half the
amount needed for a one-month disbursement to the eight USF recipients. Ms. Anderson
DECISION MEMORANDUM AUGUST 20, 2010
therefore, recommends that the surcharge rates should increase and switched access rates should
be adjusted to comply with Rule 106 as outlined in Option 3.
Staff supports the Administrator s recommendation to increase surcharge rates as
recommended in Option 3. Staff, however, does not agree that the slight adjustment to the
switched access rates for A TC , Inland, and Midvale are warranted at this time. Staff believes the
impact of an increase or decrease in access rates is uncertain over a 12-month period. The
fluctuation in the number of lines and intrastate MTS/W A TS minutes are unpredictable and it is
difficult to discern whether these fluctuations are a result of changes in consumer calling patterns
or anomalies in company reporting. Likewise, it is difficult to determine the amount of
adjustment a company must make to the access rate for that company to stay at or below the
threshold of 100% statewide weighted average rate.
No other significant changes are anticipated in the coming year that may substantially
impact the USF fund. Staff, therefore, recommends adopting the surcharge rate increases
outlined in Option 3, but does not recommend adjusting the access rates. This option would
result in a reasonable reserve balance of approximately $352 777 1 on June 30, 2010.
COMMISSION DECISION
Does the Commission wish to approve the USF 2010-2011 budget?
Does the Commission wish to adopt the Administrator s recommended Option 3?
Does the Commission wish to approve a switched access rate increase for A
Communications, Inland Telephone Company and Midvale Telephone Company to the statewide
threshold level?
Does the Commission wish to approve Staff s recommendation to increase the surcharge
rates as outlined in Option 3 , but maintain the current switched access rates?
Does the Commission wish to adopt a different funding option?
Ii CL (~ CLdv-UA
Grace Seaman
i:udmemos!2010 usf annual report
I $384 318 - $31 541 (A TC, Inland and Midvale adjustments)
DECISION MEMORANDUM AUGUST 20 2010