BEFORE THE CORPORATION COMMISSION OF OKLAHOMA

Transcription

1 BEFORE THE CORPORATION COMMISSION OF OKLAHOMA APPLICATION OF DAVID B. DYKEMAN, ) DIRECTOR OF THE PUBLIC UTILITY DIVISION, ) CAUSE NO. PUD OKLAHOMA CORPORATION COMMISSION, FOR ) )L F E SEEKING TO ESTABLISH AN ANNUAL OKLAHOMA UNIVERSAL SERVICE FUND ) ASSESSMENT TO THE FISCAL YEAR BEGINNING ) JTJLY1,2011 JUN ) COURT CLERK'S OFFICE OKC HEARING: April 21, 2011, in Courtroom B CORPOPATION COMMISSION 2101 North Lincoln Boulevard, Oklahoma City, Oklahoma 731 (OF OKLAHOMA Before Maribeth D. Snapp, Administrative Law Judge APPEARANCES: Bennett Abbott, Assistant General Counsel representing Public Utility Division, Oklahoma Corporation Commission Kimberly K. Argenbright, Attorney representing FairPoint Communications, Totah Communications, Inc., Pine Telephone Company, Inc., Grand Telephone Company, Inc. and Pine Cellular Phones, Inc. Jack G. Clark, Jr., Attorney representing Verizon regulated companies J. Fred Gist and Jennifer H. Kirkpatrick, Attorneys representing Sauna- Spavinaw Telephone Company, Inc., Pottawatomie Telephone Company and Cimarron Telephone Company Ron Comingdeer, Mary Kathryn Kunc and Kendall W. Parrish, Attorneys representing below-listed telecommunications carriers 2 Cody B. Waddell, Attorney representing certain telephone carriers 3 John W. Gray, Jr., Attorney representing Southwestern Bell Telephone Company, cl/b/a AT&T Oklahoma REPORT OF ADMINISTRATIVE LAW JUDGE 'MCI Transmission Services LLC d/b/a Verizon Access Transmission Services; MCI Communications Services, Inc. d/b/a Verizon Business Services; Verizon Long Distance, LLC: TTI National, Inc.; Teleconnect Long Distance Service & Systems, d/b/a Telecom*USA and Teleconnect; and Verizon Select Services, Inc. 2 Independent Local Exchange Companies: Atlas Telephone Company; Beggs Telephone Company; Bixby Telephone Company, Inc.; Canadian Valley Telephone Company; Carnegie Telephone Company; Central Oklahoma Telephone Company; Cherokee Telephone Company; Chickasaw Telephone Company; Craw Kan Telephone Cooperative, Inc.; Cross Telephone Company; Dobson Telephone Company; Hinton Telephone Company; KanOkla Telephone Association; McLoud Telephone Company; Medicine Park Telephone Company; Oklahoma Telephone and Telegraph, Inc.; Oklahoma Western Telephone Company; Ozark Telephone Company; Panhandle Telephone Cooperative, Inc.; Pioneer Telephone Cooperative, Inc.; Santa Rosa Telephone Cooperative, Inc.; Seneca Telephone Company; Shidler Telephone Company; South Central Telephone Association; Southwest Oklahoma Telephone Company; Terral Telephone Company; and Valliant Telephone Company Long Distance Reseller Carriers: BTC Broadband; Carnegie Long Distance; Central Cellular, Inc. D/B/A COTC Connections; Chickasaw Long Distance; Hinton Long Distance; lntelleq Communications Corporation; KanOkla Long Distance; OpticTel Long Distance; Panhandle Telecommunication Systems, Inc.; Phoenix Long Distance; Pioneer Long Distance; Santa Rosa Communications; South Central Long Distance; Southwest Oklahoma Long Distance; and Valliant Long Distance Competitive Local Exchange Carriers: AKS, L.C.; BTC Broadband; Central Cellular, Inc. DIB/A COTC Connections; CTSI; Intelleq Communications Corporation; S-GO Local; Wichita Online Wireless Providers: Cellular Network Partnership d/b/a Pioneer Cellular; Cross Wireless; Cross/Valliant Cellular; OWTC Cellular; Panhandle Telecommunication Systems, Inc.; and Chickasaw Personal Communications, Inc. Valor Telecommunications of Texas, LP dfb/a Windstream Communications Southwest; Windstream Oklahoma, LLC; Oklahoma Windstream, LLC; Mid-America Telephone Company, Inc. d/b/a TDS Telecom/Mid-America Telephone; Oklahoma Communication Systems, Inc. d/b/a TDS Telecom/Oklahoma Communication Systems, Inc.; Wyandotte Telephone Company d/b/a TDS Telecom and CenturyTel of Northwest Arkansas, LLC d/b/a Century Link

2 Cause No PUD ALJReport Page 2 of 8 Procedural History The above styled Cause was filed by David Dykeman, Director of the Public Utility Division on January 7, 2011, and all telecommunications carriers that may be obligated to contribute to the Oklahoma Universal Service Fund ("OUSF") or the Oklahoma Lifeline Fund ("OLF") were named as Respondents in this Cause. On January 7, 2011, a Motion for Protective Order and a Motion for Procedural Schedule were filed. Order No was issued January 20, 2011, granting a protective order and Order No was issued January 28, 2011, establishing a procedural schedule for the consideration of this Cause. On January 11, 2011, an entry of appearance was filed by Salina-Spavinaw Telephone Company, Inc., Pottawatomie Telephone Company and Cimarron Telephone Company.. On January 11, 2011, the Verizon regulated companies filed an entry of appearance (see footnote 1 for a list of companies included with the Verizon regulated companies). On January 11, 2011, an entry of appearance was filed by several identified contributors to the OUSF (see footnote 3for a list of these companies). On January 11, 2011, an entry of appearance was filed by Totah Communications, Inc., Pine Telephone Company, Inc., Grand Telephone Company, Inc., and Pine Cellular Phones, Inc. On January 12, 2011, an entry of appearance was filed by Southwestern Bell Telephone Company, d/b/a AT&T Oklahoma. On January 12, 2011, an entry of appearance was filed by The Telecommunications Carriers (see footnote 2 for the list of companies included within The Telecommunications Carriers). On January 31, 2011, Cox Oklahoma Telecom, LLC filed an entry of appearance. On March 18, 2011, Chris Herbison, Staff Public Utility Regulatory Analyst filed prefiled testimony and on April 15, 2011, Ms. Herbison filed Supplemental Testimony. On March 31, 2011, The Telecommunications Carriers filed a Statement of Position (see footnote 2 for list of companies included within The Telecommunications Carriers). On April 6, 2011, Logix Communications filed an entry of appearance The hearing on the merits was held before the Administrative Law Judge ("AU") on April 21, On May 9, 2011, Chris Herbison filed Hearing Exhibit Nos. 2 and 3. Summary of Evidence Ms. Chris Herbison, Public Utility Regulatory Analyst ("Staff') for the Public Utility Division ("PUD") of the Commission prefiled testimony and testified at the hearing regarding this Cause. She explained that the Commission's rules require that the OUSF contribution factor ("OUSF assessment factor" or "contribution factor") be adjusted annually or as is necessary, to provide for an appropriate amount of funds in the OUSF. This Cause was filed by Staff for the purpose of establishing an appropriate OUSF assessment factor for the fiscal year beginning July 1, 2011, and ending June 30, 2012 ("FY 2012) and to address any related issues. Ms. Herbison explained that the OUSF manager, Solix, Inc. ("Solix"), was requested to send data requests to all telecommunications service providers ("TSPs") receiving OUSF

3 Cause No PUD ALI Report Page 3 of 8 funding support. The data requests asked TSPs to identify any planned requests that might increase or decrease OUSF expenditures in FY 2012 from current levels ("FY 2011 levels"). Solix calculated the projected total funding requirement for FY 2012 and prepared schedules of actual contributions and expenditures for FY Ms. Herbison reviewed and verified the schedules provided by Solix for accuracy and made appropriate adjustments with input from Solix. Thereafter, she performed the necessary calculations and analysis using the same methodology as was used in previous years, FY 2010 and FY Ms. Herbison explained that the OUSF was created by the Oklahoma Telecommunications Act of 1997 (17 0. S et seq.) and rules for the administration of the OUSF are set forth in OAC 165:59. As stated in 17 O.S (B), the "fund shall be funded and administered to promote and ensure the availability of primary universal services, at rates that are reasonable and affordable and special universal services, and to provide for reasonably comparable services at affordable rates in rural areas as in urban areas." As set forth in the Oklahoma Statutes and the Commission's rules, the programs currently funded by the OUSF are Primary Universal Service, Special Universal Service, and Lifeline and Link-Up Service. The OUSF is funded in a competitively neutral manner via an assessment charged to all TSPs providing intrastate retail services in Oklahoma. The assessment charged to carriers is typically referred to as a carrier's "OUSF contribution". A carrier's OUSF contribution is calculated by multiplying the OUSF contribution factor by the TSP's intrastate retail-billed telecommunications service revenues for both regulated and unregulated services. TSPs may, at their option, recover OUSF contributions from their customers through a line-item charge on customer bills. It was the testimony of Ms. Herbison that Staff's recommendation regarding the total projected funding requirement for FY 2012 was based on data provided by Solix. Reference: Exhibit 1, Schedule CH-1, Line B. She explained that she added the total funding requirement of $41,706,453 the carryover balance of negative $5,939,763 and the recommended increase of $5,000,000 to the fund balance, to determine the net estimated funding requirement of $52,646,216. Reference: Hearing Exhibit 1, Schedule Revised CH-1, Lines B, C, D and E, respectively. Thereafter, she divided the net estimated funding requirement by the total projected intrastate retail revenues to calculate the OUSF assessment contribution factor of 3.14%. Reference: Hearing Exhibit 1, Revised Schedule CH-1, Lines E, F and G, respectively. Ms. Herbison explained that the total funding requirement is the entire projected budget for a particular fiscal year. The total funding requirement for FY 2012 was calculated by totaling existing and anticipated support requests from TSPs and subtracting one-time expenditures that have already been paid. The total funding requirement for FY 2012 includes approved applications, pending applications, and anticipated requests for OUSF support. In calculating the necessary amount of the OUSF for each year, Staff considers the "carryover balance", which is the sum of the prior year's budget surplus or deficit, including interest earnings. In FY 2011, OUSF expenditures exceeded the amount budgeted for the year. Therefore, the calculation of a carryover balance for FY 2012 includes a budget deficit from FY The budget deficit for FY 2011 is $5,939,763. Reference: Herbison Supplemental Testimony, Revised Schedule CH-2, Line C.

4 Cause No PUD ALlReport Page 4 of 8 It was Staff's recommendation that the Commission adopt an additional contingency amount of $5 million for FY 2012, to provide a financial cushion against any unforeseen funding requests. This, when combined with the budgeted amount and the negative carryover balance, would result in a total net estimated funding requirement for FY 2012 of $52,641,216. Reference: Herbison Supplemental Testimony, Schedule CH-3, Line E. Ms. Herbison explained that the resulting calculated contribution factor is 3.14% if the funding requirement is set at $52,641,216. In explaining how the contribution factor is calculated, Ms. Herbison stated that revenues from carriers in FY 2012 are expected to be $1,676,550,263 which is a 3.5% decrease from FY 2011 revenues. Using current data, the simplified equation for calculating the contribution factor is: f = ( $41,701, ,939, ,000,000)! $1,676,550,263 "f' is the contribution factor for FY 2012, $41,701,453 is the total funding requirement and $5,939,763 is the negative carryover balance from FY 2011, $5,000,000 is the additional increase in the fund balance, and $1,676,550,263 is the estimated revenues from carriers. With regard to the anticipated impact on customers, Ms. Herbison testified that TSPs are required to contribute to the OUSF and may, at their option, assess consumers a pass-through charge equal to their contribution. An increase in the contribution factor may therefore, result in higher pass-through charges to consumers. For example, if the intrastate retail portion of a consumer's bill is $20.00, a contribution based on the current factor of 1.99% is $0.40 and the contribution based on a 3.141% factor is $0.63. So if the contribution factor is increased to 3.14% as recommended by Staff, consumers would experience a $0.23 increase for each $20 of their intrastate monthly bill, excluding taxes and regulatory fees. Ms. Herbison explained that in FY 2011, a $5 million increase to the OUSF fund balance was requested to ensure that the fund would have adequate amounts to pay all claims as requested and approved by the Commission. Two large, unanticipated claims were received in FY 2011 from Pioneer Telephone Cooperative and Panhandle Telecommunications Systems, Inc. ("PTSI"), which, if approved, may impact the funding in the OUSF by more than $5,000,000. In PUD , Pioneer Telephone Cooperative requested $5,025,195 as a one time payment for loss of revenue due to the Federal Communications Commission's Fourth Order on Reconsideration, in CC Docket No , which adopted a formula that limits the amount of corporate operations expense that a carrier can include in its federal USE High Cost Loop support. Pioneer also requested that the lump sum amount be adjusted to reflect amounts that Pioneer should reimburse to the OUSF for funding received in the amount of $1,084,971 for local switching support that was reimbursed from federal funding. Pioneer received approval for a lump sum amount from the OUSF in the amount of $4,257,684 for Primary Universal Services provided from 2001 through December 31, In Cause No , PTSI requested reimbursement for Primary Universal Service in the amount of about $1,035,000 annually. This application is under consideration by the

5 Cause No PUD ALI Report Page 5 of 8 Commission. Additionally, reimbursements of telemedicine continue to increase, thereby increasing the demands for funding from the OUSF. In addition to requests for disbursement from TSPs, Ms. Herbison explained that the OUSF is required to disburse $250,000 to the Oklahoma Attorney General pursuant to 17 O.S and has budgeted $240,000 to pay Solix for management of the OUSF. Solix provides monthly billing, collection, investment, disbursement, account reconciliation, support true-up, and financial reporting service for the OUSF. In addition to the management fee, Solix will bill the OUSF for variable expenses incurred for mailing certified letters associated with its OUSF delinquency procedures, assisting in OUSF audits, and/or for mid-year recalculation of the OUSF contribution factor, if necessary. Additionally, $25,000 is budgeted for an annual external audit of Solix performed by an independent accounting firm and $100,000 is budgeted for use by Solix in performing Carrier audits. The $100,000 for an outside vendor to conduct audits of OUSF recipients is to insure that OUSF funds are used for the purposes intended. Concerning disbursements to TSPs, Ms. Herbison testified that with regard to the OUSF Lifeline program, Eligible Lifeline customers receive a credit of $1.17 per month from the OUSF. The budget for FY 2012 allocates $2,553,852 for Lifeline expenditures. The budget for FY 2012 also allocates $4,267,837for Primary OUSF and $30,044,558 for Special Universal Services. $50,000 is allocated for PUD Administrative Costs, which is the same amount that has been allocated since FY Ms. Herbison explained that since FY 2011 does not end until June 30, 2011, actual/projected expenditures for FY 2011 were calculated by annualizing the most recent report of OUSF expenditures. The difference between the FY 2011 budget and actual/projected expenditures for FY 2011 provides the budget surplus or deficit data that can be used to calculate the carryover balance, which was calculated as a deficit of $5,939,763 for FY In her supplemental testimony, Ms. Herbison responded to the Statements of Position filed by The Telecommunication Carriers. She stated that it is the intent of the PUD Director and the Fund Administrator to move forward to address the concerns raised and to that end, Technical Advisory Group meetings will be held, with the first meeting scheduled for May 24, Late filed Hearing Exhibit No. 2 showed that the cash balance of the OUSF at July 1, 2010, was $9,950,959 and after income of $35,056,336 and disbursements of $27,313,148, the projected cash balance of the OUSF at June 30, 2011 is $15,694,148. There are pending applications requesting $2,309,078 for one-time lump sum disbursements and $4,133,879 for monthly recurring charges through June 30, 2011, which is a total of $6,442,957. Additionally, there are pending true-ups in the amount of $13,435,571 for previously approved applications, through June 30, When all the pending application amounts and amounts for true-ups associated with approved applications are deducted from the $15,694,148 projected cash balance, there is a projected cash shortfall as of June 30, 2011 in the amount of $4,184,380. Late filed Hearing Exhibit No. 3 was a breakdown of projected funding for FY 2012, based upon the specific kind of supported service. This exhibit showed that with regard to Special Universal Service funding requests, $20,169,991 is expected for telemedicine requests;

6 Cause No PUD ALl Report Page 6 of 8 $82,630 is anticipated for toll-free calling to schools, libraries, hospitals, and county seats; and $12,727,668 is anticipated for Internet access to schools and libraries. Statements of Position The Telecommunication Carriers filed a Statement of Position and urged the Commission to take such action as may be necessary to insure that all carriers are properly reporting all of their intrastate telecommunications revenues, from both regulated and unregulated services, for assessment for contribution to the OUSE. They stated that this would include all revenues received for the provisioning of Special Universal Services that are intrastate and other telecommunications revenues, whether the Commission regulates the rates or the provisioning of the telecommunications service. The Telecommunications Carriers additionally suggested that the Commission examine whether it currently has the authority to require VoIP providers to contribute to the OUSF. The Telecommunications Carriers expressed concern that not all carriers are reporting their intrastate retail revenues uniformly and urged the Commission to clarify for all contributors to the OUSF, the reportable revenues for OUSF contribution assessment purposes. FINDINGS OF FACT AND CONCLUSIONS OF LAW The Commission has jurisdiction in this Cause pursuant to Article IX, Section 18 of the Oklahoma Constitution and 17 O.S et seq. The ALJ further finds that the information relied upon by Staff in recommending the contribution factor is the best information available for making that evaluation. It is a challenge however to make a determination of the amount of actual claims which may come in for funding, because historically the estimates provided to Solix have not been representative of the amounts actually requested during any fiscal funding year. For instance, the budgeted amount for FY 2011 was about $30.3 million, but the amount of cash actually paid out for FY 2011 is anticipated to be about $27.3 million. (See CH-1 for FYE 2011 budgeted amount and Hearing Exhibit 2 for cash balance and projected actual disbursements at June 30, 2011) Ultimately, the level of funding for the OUSF comes down to a policy decision by the Commission. The Commission must decide the level of cash balance that should be maintained in the OUSF for the purpose of paying anticipated, pending, and previously approved claims against the OUSF. With the change to 17 O.S (C), which increases the speed of internet access lines for which reimbursement may be sought from 56kbps to 1.5Mbps, it is reasonable to believe that the value of claims against the OUSF will increase in FY 2012 for this faster internet access. It is also reasonable to believe that funding requests for telemedicine will continue to increase as technology increases, thereby creating a demand for faster and larger quantities of internet access lines for use by telemedicine subscribers.

7 Cause No PUD ALlReport Page 7 of 8 In Cause No. PUD , the cause that established an OUSF factor for FY 2011, the ALJ erroneously concluded it was unlikely that there would be an unanticipated $4 million claim by two carriers against the OUSF during FY 2011, as occurred in FY The reality was that Pioneer Telephone Cooperative requested and was granted a lump sum amount of $4.26 million for amounts that relate to 2001 through December 31, PTSI has requested funding in an amount that is about $1 million annually. Neither the Pioneer Telephone Cooperative request nor the PTSI request were anticipated when the FY 2011 budget was developed. Although carriers have been strongly encouraged to timely file requests for reimbursement from the OUSF, the calculations of the Administrator reflect that as of June 30, 2011, it is expected that there will be $13.4 million in pending requests for true-up of previously approved applications. This $13.4 million is an obligation that the OUSF expects to pay sometime in FY 2012 and if all true-up requests were made at the same time, would mostly eliminate any cash balance being maintained currently in the OUSF. Based upon the data provided to Solix, the historical growth in telemedicine, and the legislative change to 17 O.S (C) regarding the speed of internet access permitted for reimbursement, the ALJ finds that it is reasonable to increase the amount of the OUSF by $5 million above the projected funding requirement, to accommodate anticipated growth in the level of fund requests during FY With regard to the "deficit" in the amount of $5,939,763 from FY 2011, the ALJ finds that the "deficit" is to the budgeted amount for FY 2011 and is likely included in the amount that is pending true-up requests from the OUSF. Since it appears that the projected cash balance of the OUSF at June 30, 2011, is anticipated to be $15,694,148 and the beginning cash balance at July 1, 2010, was $9,950,959, the ALJ does not agree that the deficit amount from the FY 2011 budget year should be included in the calculation of the FY 2012 OUSF factor. The ALJ further finds that with the adoption of the change to OAC 165: (m), which extends the time for filing any request for OUSF funding, from twelve to eighteen months from the date of the requesting telecommunications carrier determining the impact of occurrence of the circumstance giving rise to the request, the Commission may be more reluctant to find that "good cause is shown" for considering a request that is older than the eighteen months. To the extent the Commission decides that the request is untimely or that funding should wait until the following fiscal year if this guideline is not met, the inherent uncertainty in projecting the level of the OUSF each fiscal year will be alleviated in future years. The ALJ finds that the OUSF for FY 2012 should be set at $46,706,453, which is the amount of the projected funding requests plus $5 million to cover the anticipated increase in funding needed for higher speed internet access lines to schools and libraries. Using this level for the OUSF and dividing it by the anticipated total projected intrastate retail revenues of $1,676, , the ALJ finds that the OUSF factor for FY 2012 should be 2.61%. When compared to the OUSF factor of 1.99% that was established for FY 2011, this will result in an increase to a customer with a $20 monthly bill for intrastate services, from 40 cents per month to about 53 cents per month for FY 2012.

8 Cause No PUD ALI Report Page 8 of 8 Because of the lag in collecting any revenues resulting from an increase in the contribution factor, the ALJ finds that granting Staff the ability to increase the contribution factor without further order of the Commission, in the event a large amount of unanticipated claims are filed or the anticipated revenues are not realized, is of limited value in managing the OUSF funding level. Accordingly, the ALJ finds that Staff should file a new application, which can be expeditiously addressed by the Commission, if it appears that the funding in the OUSF will be insufficient to pay the claims against the fund during FY Recommendation The ALJ recommends that the Commission establish the OUSF contribution factor at 2.61% for FY 2012., The ALJ further recommends the Commission direct Staff to file a new application during FY 2012 to increase the funding level of the OIJSF, in the event that the OUSF needs to be increased in order to pay claims in excess of $46,706,453 during FY Respectfully submitted this I day of June, Administrative Law Judge