20230926_GNRT2305_at.pdf

TO:
FROM:
DATE:
DECISION MEMORANDUM
COMMISSIONER ANDERSON
COMMISSIONER HAMMOND
COMMISSIONER LODGE
COMMISSION SECRETARY
LEGAL
JOHAN E. KALALA-KASANDA
ADAM TRIPLETT
SEPTEMBER 26, 2023
RE: 2023 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS; CASE NO. GNR-T-23-05
BACKGROUND
The Idaho Universal Service Fund ("IUSF") 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 Idaho Code § 62-610. The Commission established a universal service fund
to maintain the universal availability oflocal exchange service at reasonable rates and to promote
the availability of Message Telecommunications Service ("MTS") at reasonably comparable
rates throughout the state ofldaho. Idaho Code § 62-610(1). The IUSF is funded through a
statewide end-user surcharge on local exchange services and intrastate MTS and Wide Area
Telephone Service ("WA TS") type services. The IUSF 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 2023 ANNUAL REPORT
On July 14, 2023, the Administrator of the IUSF, Alyson Anderson, filed the Annual
Report of the IUSF for the fiscal year July 1, 2022, through June 30, 2023 . Included in the report
is the Administrator's proposed budget for the next fiscal year-July 1, 2023, through June 30,
DECISION MEMORANDUM -1 -September 26, 2023
2024. On August 21, 2023, August 25, 2023, and September 8, 2023, Ms. Anderson filed
revised reports with additional updates and corrections.
The current IUSF monthly surcharge rates are $.25 per residential line, $.44 per business
line, and $.007 per intrastate MTS/WATS billed minute. See Order No. 34427. Surcharge
revenues collected for the year totaled $1,420,072. Local exchange services contributed
$687,706, or 48%, and $732,366, or 52% was contributed by MTS/WATS services. The
Administrative expenses for the year were $19,360. 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, 2023, through June 30, 2024). The cash balance of the fund, as of June 30, 2023,
after applying bank charges and administrative expenses, was $889,068.
2023-2024 Administrative Budget
Ms. Anderson proposes an annual administrative budget of $29,300. This amount
includes the Administrator's salary and other expenses such as postage/copies, telephone,
bank/investment charges, letterhead, and the estimated costs for an audit and legal fees.
Local Residential and Business Service
The IUSF 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, 2023, companies reported an average monthly inventory of 65,516
residential lines and 68,257 business lines, for a total of 133,773 lines. This represents a
decrease from the prior year in both residential lines (10%) and business lines (13%).
DECISION MEMORANDUM -2 -September 26, 2023
The adjusted statewide weighted average rates for one-party single-line residential and
business service and the corresponding threshold average rates are:
2022 Statewide 2023 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate-2022 Rate -2023
Residential Services $25.84 $28.49 $32.30 $35 .62
Business Services $42.27 $54.31 $52.84 $67.88
Switched Access Service
Long distance service providers reported intrastate MTS/WA TS billed minutes of
46,111 ,289 compared to the 2022 reported minutes of 89,781 ,375, an approximately 49%
decrease. The statewide average switched access rate is $0.067 per minute, a change from last
year's rate of $0.056.
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/WA TS access rate must exceed 100% of the statewide
weighted average access rate. IDAP A 31.46.01 .106 ("Rule 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 $6,000, the
company may need to revise rates to meet or exceed the statewide threshold rates. The
Commission may also calculate the weighted statewide average rates by using the residence and
business basic local exchange rates in effect on July 1, 2005, to determine the eligibility of ETCs
for distributions from the USF. See Rule 106.04, and Idaho Code§ 62-605(e).
DECISION MEMORANDUM -3 -September 26, 2023
ADMINISTRATOR'S FUNDING OPTIONS
As noted, the Administrator reports that during the past year, there was a significant
decrease in local residential lines of 10% and in local business lines by 13%. MTS/WA TS billed
minutes also decreased by 49%. The local access lines and toll minutes will continue to decline
due to the continued migration towards broadband, wireless, cellular, and VOiP services, as well
as the shift from stand-alone residential service to bundled packages. This affects the statewide
average rate calculations, as well as the application of Rule 106 to the companies funded by the
IUSF. In light of FCC orders and continuing industry changes, the administrator recognizes that
it is becoming more difficult to accurately calculate the funding requirements necessary to
maintain adequate fund balances throughout the fiscal year. With this in mind, the Administrator
presented the following funding options:
OPTION 1: STATUS QUO
If current surcharge rates ($.25 per residential line, $.44 per business line, and $.007 per
intrastate MTS/WA TS billed minute) are maintained and no additional IUSF funding is
authorized, the fund will decrease by approximately $848,186. The 2023-2024 IUSF authorized
disbursements will continue at $1,698,610. MTS/WA TS services would contribute
approximately 37% of the surcharge revenue and local exchange services would contribute 63%
of the surcharge revenue. The fund would have a balance of approximately $40,882 on June 30,
2024.
OPTION 2: ADJUST SURCHARGE RATES & MAINTAIN FUNDING
If surcharge rates are increased to $.27 per residential line, $.52 per business line, and
$.014 per intrastate MTS/WATS billed minute and current funding levels are maintained, the
fund will decrease by approximately $444,157. MTS/WA TS 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 $444,911 on June
30, 2024.
DECISION MEMORANDUM -4 -September 26, 2023
OPTION 3: ADJUST SURCHARGE RATES & ADJUST FUNDING TO MEET STATEWIDE
AVERAGES
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 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 to or exceed
100% of the statewide average for MTS/WA 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:
• A TC Communications should increase local residential, business, and toll­
switched access rates. A TC Communications' annual IUSF draw would be
reduced by $279,257.
• Cambridge Telephone Company should increase local residential, business, and
toll-switched access rates. Cambridge Telephone Company's annual IUSF draw
would be reduced by $250,768, eliminating its IUSF annual draw of$138,162.
• Columbine Telephone/Silver Star Telecom should decrease toll-switched access
rates and increase local residential and local business rates. Silver Star Telecom's
annual IUSF draw would be reduced by $207,967, eliminating its annual IUSF
draw of$155,677.
• Direct Communications Rockland should increase local residential and business
rates, reducing its annual IUSF draw by $78,728.
• Fremont Telecom should increase toll local residential, business, and switched
access rates. Fremont Telecom's annual IUSF draw would be decreased by
$150,542, eliminating its annual IUSF draw of $57,258.
• Inland Telephone Company should increase local residential rates, reducing its
annual IUSF draw by $18,523.
• Midvale Telephone Company should increase local residential and business rates,
reducing its annual IUSF draw by $99,955.
• Rural Telephone Company should increase local residential, business rates, and
toll-switched access rates, reducing its USF draw by $99,955.
DECISION MEMORANDUM -5 -September 26, 2023
The 2023-2024 IUSF authorized disbursements, including the adjustments to company funding
per Rule 106, will be $754,267. If surcharge rates are decreased to $.02 per residential line, $.04
per business line, and $.001 per intrastate MTS/WATS billed minute, the fund will decrease by
approximately $688,969. MTS/WA TS 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 $200,099 on June 30, 2024.
OPTION 4: ADJUST INVENTORIES, ADJUST SURCHARGE RATES & MAINTAIN
FUNDING LEVELS
To calculate future fund balances more accurately, the inventories have been adjusted
according to the most recent five-year trend. Thus, the residential lines have been reduced by
11 %, the business lines reduced by 9% and the MTS/WA TS billed minutes have been reduced
by 14%. If the surcharge rates are increased to $.30 per residential line, $.57 per business line,
and $.02 per intrastate MTS/WA TS billed minute and IUSF disbursements are maintained at
current levels, the fund will decrease by approximately $294,754. MTS/WATS services would
contribute approximately 56% of the surcharge revenue and local exchange services would
contribute 44% of the surcharge revenue. The fund would have a balance of approximately
$594,314 on June 30, 2024.
OPTION 5: ADJUST INVENTORIES, ADJUST SURCHARGE RATES & ADJUST
FUNDING TO MEET STATEWIDE AVERAGES
To calculate future fund balances more accurately, the inventories have been adjusted
according to the most recent five-year trend. If the surcharge rates are increased to $.27 per
residential line, $.52 per business line, and $.02 per intrastate MTS/WATS billed minute and
IUSF disbursements are adjusted to meet statewide averages per Rule 106, the fund will increase
by approximately $352,040. MTS/WA TS 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 $1,241,108 on June 30, 2024.
OPTION 6: ADJUST INVENTORIES, ADJUST SURCHARGE RA TES & ADJUST
FUNDING TO MEET STATEWIDE AVERAGES
DECISION MEMORANDUM -6 -September 26, 2023
To calculate future fund balances more accurately, the inventories have been adjusted
according to the most recent five-year trend. If the surcharge rates are increased to $.27 per
residential line, $.52 per business line, and $.02 per intrastate MTS/WATS billed minute and
disbursements are maintained at current levels, the fund will decrease by approximately
$592,303. MTS/WA TS 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 $296,765 on June 30, 2024.
ADMINISTRATOR'S RECOMMENDATION
The Administrator recommends that the Commission adopt Option 5, increasing the
surcharge rates and applying Rule 106.02 to adjust funding to the companies. Option 5 also
adjusts the inventories for the five-year average decline. Under Option 5, the fund balance
would be adequate to meet the funding obligations with a reserve balance going forward as the
telecom industry continues to evolve. The fund balance on June 30, 2024, would approximate
$1,241,108.
If the Commission is inclined to maintain company funding levels until changes are made
to the underlying rules and statutes, the Administrator recommends the adoption of Option 4.
This option increases the surcharge rates to $.30 per residential line, $.57 per business line, and
$.02 per intrastate MTS/WA TS billed minute. Under Option 4, the fund balance would be
adequate to meet the fund obligations with less of a reserve for industry changes going forward.
The fund balance will approximate $594,314 on June 30, 2024.
STAFF ANALYSIS AND RECOMMENDATION
Staff conducted a thorough examination of Administrator's findings, supporting
documentation, and recommendations contained in the Administrator's Annual Report. Staff,
instead, recommends adopting Option 1: Status Quo and maintaining the current surcharge rates
of $.25 per residential line, $.44 per business line, and $.007 per intrastate MTS/WATS billed
minute. Staff also recommends maintaining the company's draws the same at $1 ,698,610. The
basis for this recommendation is provided, herein, below:
DECISION MEMORANDUM -7 -September 26, 2023
Cash And Fund Balance Analysis
As of June 30, 2023, the IUSF fund's annual year-end cash balance, after applying
bank/brokerage charges, company disbursements and administrative expenses was $889,068. If
current surcharge levels are maintained, and no additional ISUF funding is authorized, the fund
will be able to meet its obligations for the 2023-2024 fiscal year and will have a positive
projected cash balance of approximately $40,000. At this level, at least for the fiscal year 2023-
2024, Staff does not believe that the fund is in jeopardy.
IUSF Fund Trend Analysis
Projected Year
Surcharge Fiscal Year End End Cash
Year Revenue Disbursement Cash Balance Balance
(a) (b) (c) (d) (e)
2016 $ 1,644,938 $ 1,698,610 $ 500,768 $ 479,993
2017 $ 1,291,532 $ 1,698,610 $ 80,784 $ (504,036)
2018 $ 1,889,493 $ 1,698,610 $ 249,758 $ 502,320
2019 $ 2,227,054 $ 1,698,610 $ 767,449 $ 1,038,211
2020 $ 1,917,737 $ 1,698,610 $ 972,125 $ 744,509
2021 $ 2,000,824 $ 1,698,610 $ 1,254,623 $ 994,058
2022 $ 1,650,870 $ 1,698,610 $ 1,187,050 $ 719,490
2023 $ 1,420,072 $ 1,698,610 $ 889,068 $ 40,000
As shown in the IUSF fund trend analysis table above, this is a different situation than
2017 when the actual cash balance of the fund was $80,784 and the projected cash balance was a
negative balance of $504,036 on June 2018. At the time, to mitigate the situation, the
Commission issued Order No. 33851 adjusting the surcharge rates. As a result, since 2018 the
fund's annual year-end cash balance has been maintained at a healthy level. This kind of similar
review might be warranted next fiscal year if the projected cash balance of $40,000 does indeed
tum out to be an actual cash balance for the fund on June 30,2024. As can be seen in the table of
IUSF Fund Trend Analysis above, since 2017, there has not been a single projected year end
DECISION MEMORANDUM -8 -September 26, 2023
cash balance ( column e) that resulted in the actual fiscal year end cash balance ( column d). In
the meantime, Staff will continue with the quarterly cash flow examination that will allow Staff
to closely monitor any anomalies in the fund level that may arise and to proactively respond to
any unforeseen cash flow impacts due to declines in line counts or minutes.
Staff acknowledges that the funding elements are impermanent and difficult to predict.
Staff, however, at least for this year, does not agree with Ms. Anderson's recommendation to the
Commission to adopt Option 5 to increase the surcharge rates and apply Rule 106.02 to adjust
funding to the companies. Option 5 also adjusts the inventories for the five-year average decline.
Staff believes this option has the potential to lower the USF balance too greatly for the 2023-
2024 IUSF fiscal year and may require the surcharge rates to be raised again within a year or two
as line counts continue to decline. Additionally, the Staff does not agree with Ms. Anderson's
recommendation of Option 4 to increase the surcharge rates and maintain funding. This is
because this option will also result in a significant decrease in the USF balance within a year or
two due to a decline in line counts.
A very important and continued concern of Staff is that the Administrator has been trying
to fund the Idaho USF in a declining industry where landlines are increasingly being replaced
with new technologies such as broadband, wireless, VoIP, and cell phones. During the past year,
the Administrator noted that there was a continued decrease in both local residential lines by
10% and local business lines by 13%. MTS/WA TS billed minutes decreased significantly to
49%. Per Commission Order No. 33 851 the Staff and the Administrator initiated a generic
docket before the Commission 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 evolving telecommunications 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, 2018. Staff filed a second summary and report on September 7,
2018, as well as a 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 worked out as a group. Thus far, the parties have failed to agree and are still working
towards that end. Staff is still waiting for the parties to come together on legislative changes.
DECISION MEMORANDUM -9 -September 26, 2023
Federal Communication Commission's (FCC) and Rule 106
In expressing this opinion, Staff also notes how Rule 106 was impacted 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 is 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$25.76.1 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 $30.85 and the business local exchange rate to $49.02.
Staff is very concerned about 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.
1 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. 7 6 to continue to receive funding. All nine
companies complied by increasing the residential rates.
DECISION MEMORANDUM -10 -September 26, 2023
STAFF RECOMMENDATION:
Staff recommends the following:
I. The Commission approve the Administrator's budget.
2. The Commission adopt Option 1: Status Quo.
3. The Administrator continues providing quarterly cash flow analysis to the Staff.
COMMISSION DECISION
1. Does the Commission wish to approve the Administrator's IUSF 2023-2024 budget?
2. Does the Commission wish to adopt Staffs recommended funding Option 1, one of the
Administrator's recommended funding Options, or a different one?
3. Does the Commission wish to accept the Staffs final recommendation for quarterly cash
flow reports to monitor revenue impacts from unforeseen changes in line counts or access
minutes?
4. Anything else?
Johan E. Kalala-Kasanda
Udmemos/GNR-T-23-05 lUSF Annual Report Decision Memo
DECISION MEMORANDUM -11 -September 26, 2023