20190820_dk1jo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:DANIEL KLEIN
DATE:AUGUST 16,2019
RE:2019 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS;CASE NO.GNR-T-19-06
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 authorityof Idaho Code §62-610.The Commission established a universal service fund
for the purpose of maintaining the universal availabilityof local exchange service at reasonable
rates and to promote the availability of message telecommunications service (MTS)at
reasonably comparable rates throughoutthe state of Idaho.Idaho Code §62-610(1).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 fundingrequirements.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 2018 ANNUAL REPORT
On July 17,2019,the Administrator of the Idaho USF,Alyson Anderson,filed the
Annual Report for the USF fiscal year from July 1,2018 through June 30,2019.Included with
the report is the Administrator's proposed budget for the next fiscal year-July 1,2019 through
June 30,2020.
DECISION MEMORANDUM -1 -AUGUST 16,2019
The current USF monthlysurcharge rates are $.25 per residential line,$.44 per business
line,and $.009 per intrastate MTS/WTS billed minute.See Order No.34131.Surcharge
revenue for the year totaled $2,227,054.Local exchange services contributed $1,197,390 (54%),
and $1,029,664 (46%)was contributed by MTS/WATS services.Surcharge revenue from local
exchange services increased by approximately $142,326 and MTS/WATS surcharge revenue
increased by approximately $195,235.The Administrative expenses for the year were $10,752.
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 $1,698,610.If no changes
occur,the annual disbursements to the ILECs are expected to remain the same for the next fiscal
year (July 1,2019 through June 30,2020).The end-of-year cash balance for fiscal year 2019,
after applying bank charges and administrative expenses,was $767,449.
2019-2020 Administrative Budget
Ms.Anderson proposes an annual administrative budget of $11,445.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 annuallyobtains reports from these
companies.As of May 1,2019,companies reported an average monthlyinventoryof 106,787
residential lines and 114,073 business lines,for a total of 220,860 lines.This is a decrease in
lines of approximately 15,846 (7%)with residential lines decreasing by 13%and business lines
decreasing by .25%.
The adjusted statewide weighted average rates for one-party single line residential and
business service and the corresponding threshold average rates are:
DECISION MEMORANDUM -2 -AUGUST 16,2019
2018 Statewide 2019 Statewide 125%Statewide 125%Statewide
Weighted Weighted Weighted Average Weighted AverageAverageRateAverageRateRate-2018 Rate -2019
Residential Services $22.09 $22.65 $27.62 $28.31
Business Services $36.94 $37.03 $46.17 $46.28
Switched Access Service
Long distance service providers reported intrastate MTS/WATS billed minutes of
117,572,337compared to the 2018 reported minutes of 110,719,570,a 6%increase.The
statewide average switched access rate was $0.032,a change from last year's rate of $0.043.
FundingAdjustmentsReview-Rule 106
The Administrator also reviews the residential,business,and switched access rates of the
recipient ILEC companies to determine eligibilityto 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 31.46.01.106.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 $6,000,the company may need to
revise rates to meet or exceed the statewide threshold rates.The Commission may also calculate
the weighted statewide average rates by using the residence and business basic local exchange
rates in effect on July 1,2005 to determine the eligibilityof ETCs for distributions from the
USF.See Rule 106.04,and Idaho Code §62-605(e).
ADMINISTRATOR'S OPTIONS
The Administrator reports that over the last several years,both the number of local access
lines and intrastate MTS/WATs billed minutes have,on the average,steadily declined.As a
result,it is difficult to accurately calculate the fundingrequirements necessary to maintain
DECISION MEMORANDUM -3 -AUGUST 16,2019
adequate fund balances throughout the fiscal year.With this in mind,the Administrator presents
the followingfunding options.
Option1:Status Quo
If current surcharge levels ($.25 per residential line,$.44 per business line,and $.009 per
intrastate MTS/WATS billed minute)are maintained and no additional IUSF funding is
authorized,the fund will increase by approximately $270,762 (page 64).The 2019-2020 IUSF
authorized disbursements will be $1,698,610.MTS/WATS services would contribute
approximately 53%of the surcharge revenue and local exchange services would contribute 47%
of the surcharge revenue.The fund would have a balance of approximately $1,038,211 at
June 30,2020.
Option2:Adjust SurchargeRates &Maintain Funding
If surcharge rates are reduced to $.19 per residential line,$.32 per business line,and
$.006 per intrastate MTS/WATS billed minute and current funding levels are maintained,the
fund will decrease by approximately $323,107 (page 64).MTS/WATS services would
contribute approximately 50%of the surcharge revenue and local exchange services would
contribute 50%of the surcharge revenue.The fund would have a balance of approximately
$444,342 at June 30,2020.
Option3:Adjust Surcharge Rates &Adjust Funding To Meet Statewide Averages
Idaho Universal Service Fund rule 106.02 indicates that to continue receiving IUSF
fundingafter the first year of eligibility,the company may need to revise rates to meet or exceed
the statewide threshold rates.If the rate is below the statewide threshold rate,and the difference
between the rate is greater than 3%and $6,000,the company must revise rates equal or exceed
100%of the statewide average for MTS/WATS access service,and 125%of the statewide
average for local exchange service.The followingapplies rule 106 to each company currently
drawing from the IUSF.
ATC Communications should increase local residential and business rates,and reduce
toll switched access rates.ATC Communications annual IUSF draw would be
reduced by $64,745.
DECISION MEMORANDUM -4 -AUGUST 16,2019
Cambridge Telephone Company should increase toll switched access,local
residential,and business rates.Cambridge Telephone Company annual IUSF draw
would be reduced by $47,858.
Columbine Telephone/Silver Star Telecom should increase toll switched access,local
residential,and business rates.Silver Star Telecom annual IUSF draw would be
reduced by $106,496.
Direct Communications Rockland should increase local residential and business rates.
Direct Communications Rockland annual IUSF draw would be reduced by $33,116.
Fremont Telecom should increase toll switched access rates,local residential and
business rates.Fremont Telecom annual IUSF draw would be decreased by $73,276.
Inland Telephone Company should decrease toll switched access,and increase local
residential rates.Inland Telephone Company annual IUSF draw would be increased
by $9,197.
Midvale Telephone Company should increase local residential and business rates.
Midvale TelephoneCompany annual IUSF draw would be reduced by $33,796.
Rural Telephone Company should increase local residential rates.Rural Telephone
Company annual IUSF draw would be reduced by $17,979.
The 2019-2020 IUSF authorized disbursements,includingthe adjustments to company
fundingper rule 106,will be $1,330,541.If surcharge levels are reduced to $.13 per residential
line,$.21 per business line,and $.004 per intrastate MTS/WATS billed minute,the fund will
decrease by approximately $417,645 (page 65).MTS/WATS services would contribute 51%of
the total surcharge revenue and local exchange services would contribute 49%of the total
surcharge revenue.The fund would have a balance of approximately $349,804 at June 30,2020.
Option4:Adjust Inventories,AdjustSurchargeRates &Maintain Funding Levels
In order to more accurately calculate future fund balances,the inventories have been
adjusted according to the most recent five-year trend.Thus,the residential lines have been
reduced 12%,the business lines reduced 12%and the MTS/WATS billed minutes have been
reduced 5%.If the surcharge rates are reduced to $.22 per residential line,$.36 per business line,
and $.006 per intrastate MTS/WATS billed minute and IUSF disbursements are maintained at
current levels,the fund will decrease by approximately $363,044 (page 65).MTS/WATS
DECISION MEMORANDUM -5 -AUGUST 16,2019
services would contribute approximately 50%of the surcharge revenue and local exchange
services would contribute 50%of the surcharge revenue.The fund would have a balance of
approximately $404,405 at June 30,2020.
Option5:Adjust Inventories,Adjust SurchargeRates &Adjust Funding To Meet
Statewide Averages
In order to more accurately calculate future fund balances,the inventories have been
adjusted according to the most recent five-year trend.Thus,the residential lines have been
reduced 12%,the business lines reduced 12%and the MTS/WATS billed minutes have been
reduced 5%.If the local surcharge rates are reduced to $.15 per residential line,$.24 per
business line and $.004 per intrastate MTS/WATS billed minute,as well as IUSF disbursements
adjusted per rule 106,the fund will decrease by approximately $440,215 (page 66).MTS/WATS
services would contribute approximately 49%of the surcharge revenue and local exchange
services would contribute 51%of the surcharge revenue.The fund would have a balance of
approximately $327,234 at June 30,2020
ADMINISTRATOR'S RECOMMENDATION
The Administrator recommends that the Commission adopt Option 3;adjust surcharge
rates and adjust funding to meet statewide averages.Surcharge rates would adjust to $.13 per
residential line,$.21 per business line,and $.004 per intrastate MTS/WATS billed minute.The
fund balance on June 30,2020 would be approximately $349,804,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
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,includingtransport 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.In April,
DECISION MEMORANDUM -6 -AUGUST 16,2019
2017,the FCC froze the rates at $18.00 and issued a Notice of Proposed Rulemaking and Order
seeking comments on the rate for basic voice services.Stakeholder's argued that higher prices
for basic voice service in rural high cost areas created a significant and legitimate rate shock for
rural customers.Therefore,the FCC has provided a freeze on the rate floor at $18 pending
further review and comments.
Given these Orders and uncertainty at the FCC,Staff believes it makes it impractical for
the Commission to apply Rule 106 to determine eligibilityfor the eight companies that receive
state USF disbursements.All eight USF-funded companies have residential rates of $25.76.1 If
Rule 106 is strictly applied,all eight companies would be required to increase the residential
local exchange rate from the current $25.76 to $28.31 and the business local exchange rate to
$46.28.Staff acknowledgesthat the fundingelements are impermanent and difficult to predict.
Staff,however,does not agree with Ms.Anderson's recommendation to the Commission to
adopt Option 3 to adjust surcharge rates and adjust funding to meet statewide averages.Staff
feels this option will lower the funding level too greatly for the 2019-2020 USF fiscal year,and
require the surcharges to be raised again within a year or two as line counts continue to decline.
Staff recommends keeping the local exchange surcharge at current levels ($.25 per
residential line,$.44 per business line),lowering the intrastate MTS/WATS billed minutes to
$.007,and keeping the companies draws the same.The fund will decrease by approximately
$122,107.The 2019-2020 IUSF authorized disbursements will be $1,698,610.MTS/WATS
services would contribute approximately 49%of the surcharge revenue and local exchange
services would contribute 51%of the surcharge revenue.The fund would have a balance of
approximately $645,342 at June 30,2020.
Finally,Staff recommends that the Administrator continue to provide quarterly cash flow
analysis to Staff.The quarterly cash flow review will allow Staff to monitor any anomalies that
may arise and to proactivelyrespond to any unforeseen cash flow impacts due to further declines
in line counts or minutes.
'On September 2,2009,Commission Order No.30894 was issued notifyingthe USF 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 -7 -AUGUST 16,2019
COMMISSION DECISION
Does the Commission wish to approve the Administrator's USF 2019-2020 budget?
Does the Commission wish to adopt Staff s recommended funding Option?
Does the Commission wish to accept Staff's fmal recommendation for quarterly cash
flow reports to monitor revenue impacts from unforeseen changes in line counts or access
minutes?
Daniel Klein
Udmemos/2019 IUSF Report DM
DECISION MEMORANDUM -8 -AUGUST 16,2019