20160822_5047.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 19,2016
RE:2016 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT
AND RECOMMENDATIONS;CASE NO.GNR-T-16-12.
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 3 62-6 10,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 stale of Idaho.Idaho Code §62-6100).The USF is
funded through a statewide end-user surcharge on local exchange services and intrastate MTS
and Wide Area Telephone Service (WATS)type services.The USF Administrator submits an
Annual Report to the Commission detailing the program activities of the previous year and
recommending surcharge rates to meet the next year’s funding requirements.The Commission
issues an Order in response to the Administrator’s report,establishing statewide end-user
surcharges to be in effect for the next twelve months beginning October 1.
THE 2016 ANNUAL REPORT
On July 15,2016,the Administralor of Ihe Idaho USF.Alyson Anderson,filed the
Annual Report for the USF fiscal year from July 1,2015 lhrough June 30,2016.Included with
the report is the Administrator’s proposed budget for the next fiscal year—July 1,2016 through
June 30,2017.
DECISION MEMORANDUM 1 AUGUST 19,2016
The current USF monthly surcharge rates are 5.12 per residential line,5.20 per business
line,and $.005 per intrastate MTS/WTS billed minute.See Order No.33378.Surcharge
revenue for the year totaled $1,644,938.Local exchange services contributed $843,838 (51%),
and $801,100 (49%)was contributed by MTS/WATS services.Surcharge revenue from local
exchange services decreased by approximately $237,853 and MTS/WATS surcharge revenue
increased by approximately $163,276.The Administrative expenses for the year were $12,841.
This amount includes the Administrator’s salary,expenses,and bank charges.
Currently,eight qualifying incumbent local exchange carriers (ILECs)receive annual
payments from the fund,and those payments remain unchanged at S1.698,610.If no changes
occur,the annual disbursements to the ILECs are expected to remain the same for the next fiscal
year (July 1,2016 through June 30,2017).The end-of-year cash balance for fiscal year 2016,
after applying bank charges and administrative expenses,was $500,768.
2016-2017 Administrative Budget
Ms.Anderson proposes an annual administrative budget of $16,050.This amount
includes the Administrator’s salary and other expenses.
Local Residential and Business Service
The USF surcharge is attached to residential and business lines,and long-distance billed
minutes,of wireline companies.Thus,the Administrator annually obtains reports from these
companies.As of May 1,2016,companies reported an average monthly inventory of 169,987
residential lines and 193,095 business lines,for a total of 363,082 lines.This is a decrease in
lines of approximately 31,338(11%)with residential lines decreasing by 7%and business lines
decreasing by 14%.
The adjusted statewide weighted average rates for one-party single line residential and
business service and the corresponding threshold average rates are:
Residential Services
Business Services
2015 Statewide 2016 Statewide 125%Stalewide 125%Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate -2015 Rate -2016
$21.79 $21.77 $27.24 $27.21
$36.93 $36.94 $46.16 $47.42
DECISION MEMORANDUM 2 AUGUST 19,2016
Switched Access Service
Long distance service providers reported intrastate MTS/WATS billed minutes of
197,135,147 compared to the 2015 reported minutes of 167,029,919,an 18%increase.The
statewide average switched access rate was 50.035,a slight change from last year’s rate of
50.036.
Funding Adjustments Review—Rule 106
The Administrator also reviews the residential,business,and switched access rates of the
recipient ILEC companies to determine eligibility to receive USF funding.A 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/WATS access rate must exceed 100%of the statewide
weighted average access rate.IDAPA 3 1.46.01.106.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 56,000,the company may need to
revise rates to meet or exceed the statewide threshold rates.The Commission may also calculate
the weighted statewide average rates by using the residence and business basic local exchange
rates in effect on July 1,2005 to determine the eligibility of ETCs for distributions from the
13SF.Sec Rule 106.04,and Idaho Code §62-605(e).
ADMINISTRATOR’S OPTIONS
The Administrator reports that over the last several year,both the number of local access
lines and intrastate MTS/WATs billed minutes have,on the average,steadily declined.
However,there have been some unexpected increases in the number of business access lines and
this year,the number of MTS/WATs billed minutes.As a result,it is difficult to accurately
calculate the funding requirements necessary to maintain adequate fund balances throughout the
fiscal year.With this in mind,the Administrator presents the following funding options.
Option I:Status Quo —Ms.Anderson reports that if current surcharge levels are
maintained and no additional USF funding is authorized,the funding will decrease by
approximately $20,775.The 2016-2017 authorized disbursements will remain the same at
$1,698,610,and the fund balance is estimated to be $479,993 on June 30,2017.Surcharge
DECISION MEMORANDUM 3 AUGUST 19,2016
revenue contribution would be approximately 42%from MIS!WATS services and 58%from
local exchange services.
Option 2:Adjust Funding per Rule 106 and Maintain Surcharge Rates —Idaho USF Rule
106.02 outlines the requirement to continue receiving USF funding after the first year of
eligibility.The following applies Rule 106 to each company currently receiving USF funding:
•ATC Communications (ATC)—decrease toll switched access rates;increase local
residential and business rates.ATC’s annual USF funding would be reduced by $71,408.
•Cambridge Telephone Company (Cambridge)—increase toll switched access;increase
local residential and business rates.Cambridge’s annual USF funding would be reduced
by $41,580.
•Columbine Telephone,fica Silver Star Telecom (Columbine)—increase residential and
business rates.Columbine’s annual USF funding would be reduced to $123,968.
•Direct Communications Rockland (Direct)—decrease toll switched rates;increase local
residential and business rates.Direct’s annual USF funding would be reduced by
$20,129.
•Fremont Telecom (Fremont)—decrease toll switched access rates;increase local
residential and business rates.Fremont’s annual USF funding would be reduced by
$54,896.
•Inland Telephone Company (Inland)—decrease toll switched access rates;increase local
residential and business rates.Inland’s annual USF funding would be reduced by $8,083.
•Midvale Telephone Company (Midvale)—decrease toll switched access rates;increase
local residential and business rates.Midvale’s annual USF funding would be reduced by
$17,768.
•Rural Telephone Company (Rural)—increase local residential and business rates.
Rural’s annual USF funding would be reduced by $16,529.
Under this proposal,Ms.Anderson projects the annual USF disbursements would be
$1,344,249.If current surcharge levels are maintained,the fund will increase by approximately
$333,586.MTS!WATS services would contribute 58%of the total surcharge revenue and the
local exchange services contribution would be 42%.The fund would have an end-of-year
balance of approximately $834,354 on June 30,2017.
DECISION MEMORANDUM 4 AUGUST 19,2016
Option 3:Adjust Inventories,Maintain Funding.and Adjust Surcharge Rates —In this
scenario,Ms.Anderson adjusts the inventory levels by averaging the last five-years.Thus,the
residential lines are reduced by 10%,the business lines are reduced by 2.5%,and the
MTS/WATS billed minutes are reduced by 4%.The projected fund balance indicates the USF
surcharge rates should be adjusted to create a more equitable contribution between MTS/WATS
and local exchange services.If the surcharge rates are increased to $.14 per residential line,$.25
per business line,and decreased to $004 per intrastate MTS/WATS billed minute and the USF
disbursements are maintained at the current levels,the fund will decrease by approximately
$135,838.The end-of-year balance as of June 30,2017 would be approximately $364,930.
MTS/WATS service would contribute 48%of the surcharge revenue and local exchange services
would contribute 52%.
Option 4:Adjust Inventories,Adjust Funding per Rule 106,and Decrease Surcharge
Rates —As with Option 3,Ms.Anderson adjusts the inventories based on the previous five-year
averages.Thus,the residential lines are adjusted downward by 10%,the business lines reduced
2.5%,and the MTS/WATS billed minutes have been reduced 4%.The projected fund balance
indicates that the USF surcharge rates could be decreased.If the local surcharge rates are
decreased to $.10 per residential line,$.17 per business line,and $.003 per intrastate
MTS/WATS billed minutes and the USF disbursements are adjusted per Rule 106,the fund will
decrease by approximately $443,607.The MTS/WATS service would contribute 50%and local
exchange services would contribute 50%.The funding would decrease by approximately
$443,607 and the end-of-year balance would be approximately $57,161 as of June 30,2017.
ADMINISTRATOR’S RECOMMENDATION
The Administrator recommends that the Commission adopt Option 1;maintain the
company disbursements at the current level,and maintain the surcharge rates at $.12 per
residential line,5.20 per business line,and 5.005 per intrastate MTS/WATS billed minute.The
fund balance on June 30,2017 would be approximately $479,993,an amount that would allow
the fund to meet all obligations as well as provide a reserve balance.
STAFF ANALYSIS AND RECOMMENDATION
Staff has reviewed the calculations,supporting documentation,and recommendations
contained in the Administrator’s Annual Report.Staff also notes the impact to Rule 106 by the
DECISION MEMORANDUM 5 AUGUST 19,2016
Federal Communication Commission’s (FCC)USF/ICC Transformation Order,FCC 11-161,
released on November 18,2011,and the subsequent FCC 14-54,Seventh Order on
Reconsideration,released on June 10,2014.The first FCC Order established a schedule to
reduce intrastate terminating access rates,including transport and reciprocal compensation,to
bill-and-keep by July 1,2019.The second FCC Order established a four-year transition of voice
services to a rate floor of $20.46 for carriers that receive federal high cost support.These Orders
make it impractical for the Commission to apply Rule 106 to determine eligibility for the eight
companies that receive state USF disbursements.All eight USF-funded companies have
residential rates of $25.76.’If Rule 106 is strictly applied,all eight companies would be required
to increase the residential local exchange rate from the current S25.76 to $27.21 and the business
local exchange rate to 547.42.Finally,Staff acknowledges that the funding elements are
impermanent and difficult to predict.Staff;therefore,agrees with Ms.Anderson’s
recommendation to the Commission to adopt Option I to maintain the current surcharge rates of
S.12 per residential line.$20 per business line,and 5.005 per intrastate MTS/WATS billed
minute.This option will provide an adequate funding level for the 2016-20 17 USE’fiscal year.
COMMISSION DECISION
Does the Commission wish to approve the Administrator’s USF 2016-2017 budget?
Does the Commission wish to adopt the Administrator and Stalls recommended funding
Option 1?
Does the Commission wish to adopt a different funding option?
A
Giace Seaman
Udmemos/2016 annual report
On September 2,2009,Commission Order No.30894 was issued notiing the USE’recipient companies that
residential rates must be increased to the statewide threshold rate of $25.76 to continue to receive funding.All eight
companies complied by increasing the residential rates.
DECISION MEMORANDUM 6 AUGUST 19,2016