Decision Memo GNR-T-21-01.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:DANIEL KLEIN
ERIC SHANER
DATE:AUGUST 27,2021
RE:2021 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT ANDRECOMMENDATIONS;CASE NO.GNR-T-21-07
BACKGROUND
The Idaho Universal Service Fund (Idaho USF)rules were adopted under the general
legal authorityof the Telecommunications Act of 1988,Chapter 6,Title 62,Idaho Code,and the
specific authority of §62-610,Idaho Code.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 throughout the state of Idaho.Idaho Code §62-610(1).The Idaho
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 Idaho 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 2018 ANNUAL REPORT
On July 13,2021,the Administrator of the Idaho USF,Alyson Anderson,filed the
Annual Report for the USF fiscal year from July 1,2020 through June 30,2021.Included with
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the report is the Administrator's proposed budget for the next fiscal year-July 1,2021 through
June 30,2022.
The current Idaho USF monthly surcharge rates are $.25 per residential line,$.44 per
business line,and $.007 per intrastate MTS/WTS billed minute.See Order No.34427.
Surcharge revenue for the year totaled $2,000,824.Local exchange services contributed
$1,249,708 (62%),and $751,116 (38%)was contributed by MTS/WATS services.Surcharge
revenue from local exchange services increased by approximately $115,270 and MTS/WATS
surcharge revenue decreased by approximately $32,183.The Administrative expenses for the
year were $19,108.This amount includes the Administrator's salary,expenses,bank charges.
Currently,eight qualifyingincumbent 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 1,2021 through June 30,2022).The end-of-year cash balance for fiscal year 2021,
after applying bank charges and administrative expenses,was $1,254,623.
2020-2021 Administrative Budget
Ms.Anderson proposes an annual administrative budget of $26,750.This amount
includes the Administrator's salary and other expenses along with an audit that is anticipated to
cost $7,500.
Local Residential and Business Service
The Idaho 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 1,2021,companies reported an average monthlyinventoryof
97,154 residential lines and 101,719 business lines,for a total of 198,873 lines.This is an
increase in lines of approximately 16,731 (9%)with residential lines increasing by 3%and
business lines increasing by 16%.
The adjusted statewide weighted average rates for one-party single line residential and
business service and the corresponding threshold average rates are:
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2020 Statewide 2021 Statewide 125%Statewide 125%Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate -2020 Rate -2021
Residential Services $23.56 $24.68 $29.45 $30.85
Business Services $38.21 $39.22 $47.77 $49.02
Switched Access Service
Long distance service providers reported intrastate MTS/WATS billed minutes of
90,893,786 compared to the 2020 reported minutes of 107,374,568,a 15%decrease.The
statewide average switched access rate was $0.036,a change from last year's rate of $0.042.
Funding AdjustmentsReview-Rule 106
The Administrator also reviews the residential,business,and switched access rates of the
recipient ILEC companies to determine eligibilityto receive Idaho 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 $6,000,the
company may need to revise rates to meet or exceed the statewide threshold rates.The
Commission may also calculate the weighted statewide average rates by using the residence and
business basic local exchange rates in effect on July 1,2005 to determine the eligibilityof ETCs
for distributions from the USF.See Rule 106.04,and Idaho Code §62-605(ef
ADMINISTRATOR'S OPTIONS
The Administrator reports that over the last several years,both the number of local access
lines and intrastate MTS/WATs billed minutes have,on the average,steadily declined.This year
does present an anomaly and local exchange lines increased for the first time in recent history.
As a result,it is difficult to accurately calculate the fundingrequirements necessary to maintain
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adequate fund balances throughoutthe fiscal year.With this in mind,the Administrator presents
the followingfundingoptions.
ADMINISTRATOR'S OPTIONS
OPTION 1:STATUS QUO
If current surcharge rates ($.25 per residential line,$.44 per business line,and $.007 per
intrastate MTS/WATS billed minute)are maintained and no additional Idaho USF funding is
authorized,the fund will decrease by approximately $260,565 (page 57).The 2021-2022 Idaho
USF authorized disbursements will be $1,698,610.MTS/WATS services would contribute
approximately 43%of the surcharge revenue and local exchange services would contribute 57%
of the surcharge revenue.The fund would have a balance of approximately $994,058 on
June 30,2022.
OPTION 2:ADJUST SURCHARGE RATES &MAINTAIN FUDNING
If surcharge rates are reduced to $.15 per residential line,$.23 per business line,and
$.005 per intrastate MTS/WATS billed minute and current funding levels are maintained,the
fund will decrease by approximately $815,270 (page 57).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
$439,354 on June 30,2022.
OPTION 3:ADJUST SURCHARGE RATES &ADJUST FUNDING TO MEET STATEWIDE
AVERAGES
Idaho Universal Service Fund Rule 106.02 indicates that to continue receiving Idaho USF
funding after 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 Idaho USF.
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ATC Communications should increase local residential and business rates.Toll
switched access rates do not need to be adjusted.ATC Communications annual
Idaho USF draw would be reduced by $110,590.
Cambridge Telephone Company should increase toll switched access,local
residential,and business rates.Cambridge Telephone Company annual Idaho
USF draw would be reduced by $158,708.
Columbine Telephone /Silver Star Telecom should decrease toll switched access,
and increase local residential and business rates.Silver Star Telecom annual
Idaho USF draw would be reduced by $128,009.
Direct Communications Rockland should increase local residential and business
rates.Toll switched access rates do not need to be adjusted.Direct
Communications Rockland annual Idaho USF draw would be reduced by
$34,217.
Fremont Telecom should increase toll switched access rates,local residential and
business rates.Fremont Telecom annual Idaho USF draw would be decreased by
$96,741.
Inland Telephone Company should decrease toll switched access,and increase
local residential rates.Inland Telephone Company annual Idaho USF draw would
be reduced by $1,140.
Midvale Telephone Company should increase local residential and business rates.
Midvale Telephone Company annual Idaho USF draw would be reduced by
$53,087.
Rural Telephone Company should increase local residential and business rates.
Rural Telephone Company annual Idaho USF draw would be reduced by $47,106.
The 2021-2022 Idaho USF authorized disbursements,including the adjustments to
company fundingper Rule 106,will be $1,069,012.If surcharge rates are reduced to $.02 per
residential line,$.03 per business line,and $.0006 per intrastate MTS/WATS billed minute,the
fund will decrease by approximately $981,290 (page 58).MTS/WATS services would
contribute 48%of the total surcharge revenue and local exchange services would contribute 52%
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of the total surcharge revenue.The fund would have a balance of approximately $273,333 on
June 30,2022.
OPTION 4:ADJUST INVENTORIES,ADJUST SURCHARGE RATES &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 10%,the business lines reduced 10%and the MTS/WATS billed minutes have been
reduced 13%.If the surcharge rates are reduced to $.16 per residential line,$.26 per business
line,and $.006 per intrastate MTS/WATS billed minute and Idaho USF disbursements are
maintained at current levels,the fund will decrease by approximately $799,169(page 58).
MTS/WATS services would contribute approximately 51%of the surcharge revenue and local
exchange services would contribute 49%of the surcharge revenue.The fund would have a
balance of approximately $455,455 on June 30,2022.
OPTION 5:ADJUST INVENTORIES,ADJUST SURCHARGE RATES &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 10%,the business lines reduced 10%and the MTS/WATS billed minutes have been
reduced 13%.If the local surcharge rates are reduced to $.02 per residential line,$.03 per
business line and $.0007 per intrastate MTS/WATS billed minute,as well as Idaho USF
disbursements adjusted per Rule 106,the fund will decrease by approximately $986,678 (page
59).MTS/WATS services would contribute approximately 51%of the surcharge revenue and
local exchange services would contribute 49%of the surcharge revenue.The fund would have a
balance of approximately $267,946 on June 30,2022.
ADMINISTRATOR'S RECOMMENDATION
The Administrator recommends that the Commission adopt Option 5;adjust surcharge
rates and adjust funding to meet statewide averages.Surcharge rates would adjust to $.02 per
residential line,$.03 per business line,and $.007 per intrastate MTS/WATS billed minute.The
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fund balance on June 30,2022 would be approximately $267,946,an amount that would allow
the fund to meet all obligations as well as provide a reserve balance.
If the Commission wishes to keep current funding levels,then the Administrator
recommends that the Commission adopt Option 4,which justadjust surcharge rates.Surcharge
rates would adjust to $.16 per residential line,$.26 per business line,and $.006 per intrastate
MTS/WATS billed minute.The fund balance on June 30,2022 would be approximately
$455,455,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,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.In April,
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.Stakeholders 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,it makes it impractical for the
Commission to apply Rule 106 to determine eligibilityfor the eight companies that receive state
USF disbursements.All eight Idaho USF-funded companies have residential rates of $25.761.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 $30.85 and the business local exchange rate to
'On September 2,2009,Commission Order No.30894 was issued notifying the 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 27,2021
$49.02.Staff is very concerned with increasing local residential exchange service rates by 20%.
Staff believes it is important to complete a more in-depth analysis of potential changes in the
federal high-cost support in relationship to the Idaho USF before increasing local rates by this
magnitude.
Staff acknowledges that the funding elements are impermanent and difficult to predict.
Staff,however,does not agree with Ms.Anderson's recommendation to the Commission to
adopt Option 5 to adjust surcharge rates and adjust funding to meet statewide averages.Staff
believes this option has the potential to lower the fundinglevel too greatly for the 2021-2022
Idaho USF fiscal year and require the surcharges to be raised again within a year or two as line
counts continue to decline.
Staff recommends adopting Option 1 to maintain the current surcharge rates of $.25 per
residential line,$.44 per business line,$.007 per intrastate MTS/WATS billed minute,and
keeping the companies draws the same.The fund will decrease by approximately $260,565.
The 2021-2022 Idaho USF authorized disbursements will be $1,698,610.MTS/WATS services
would contribute approximately 43%of the surcharge revenue and local exchange services
would contribute 57%of the surcharge revenue.The fund would have a balance of
approximately $994,058 on June 30,2022.
A very important concern of Staff and the Administrator has been trying to fund the
Idaho USF in a declining industry where land lines are being replaced with new technologies
such as VoIP and cell phones.Per Commission Order No.33851 the Staff and the Administrator
initiated a generic docket before the Commission in order to allow a public forum for
stakeholders to participate in a discussion of the Idaho USF as it relates to the current legal and
regulatory framework,its place in the evolvingtelecommunications landscape,and universal
telecommunications services in Idaho generally.Staff convened a workshop on January 17,
2018,Stakeholders filed position papers by January 31,2018,Staff filed a summary report on
April 4,2018,Stakeholders filed reply comments on April 25.Staff filing a second summary
and report on September 7,2018 as well as Stakeholders Memorandum inviting parties to bring
proposed legislative language to a workshop in October.Three parties responded on October 4,
2018,and the parties agreed to work on legislative language separately from Commission Staff
and then bring back what they work out as a group.Thus far,the parties have failed to come to
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agreement and are still working towards that end.Staff is still waiting on the parties to come
together on legislative changes.
Staff does not want to see the fund return to the dire funding levels it was facing in 2017
and 2018.Staff believes the increase in local exchange lines was an anomaly,possibly driven by
people working from home due to Covid and needing to add lines that normallywould not have
been added.Statewide inventories could reverse themselves very quickly as workers move back
to office locations.
Finally,Staff recommends that the Administrator continues to provide quarterly cash
flow analysis to the Staff.The quarterly cash flow review will allow Staff to monitor any
anomalies that may arise and to proactively respond to any unforeseen cash flow impacts due to
further declines in line counts or minutes.
COMMISSION DECISION
Does the Commission wish to approve the Administrator's Idaho USF 2021-2022
budget?
Does the Commission wish to adopt Staff's recommended funding Option?
Does the Commission wish to accept Staff's final recommendationfor quarterly cash
flow reports to monitor revenue impacts from unforeseen changes in line counts or access
minutes?
Daniel Klein
Udmemos/GNR-T-21-07 2021 IUSF Report Decision Memo
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