t-17585 res c california high cost fund-a support for cy...

Resolution T-17585 DRAFT Agenda ID# 16192 (Rev.1)CD/MWC Item #25

200492387204655089

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Communications Division RESOLUTION T- 17585Carrier Oversight & Programs Branch January 11, 2018

R E S O L U T I O N

Resolution T-17585. This Resolution Adopts $40.31340.513 Million in California High Cost Fund-A Support for Ten Small Incumbent Local Exchange Carriers for Calendar Year 2018.__________________________________________________________________

Summary

This Resolution adopts a total of $40.31340.513 million in California High Cost Fund-A(CHCF-A) support for Calendar Year 2018 to be disbursed to ten Small Incumbent Local Exchange Carriers that draw from the fund. CHCF-A support includes payment for previously authorized annual filings, and Commission-authorized adjustments resulting from regulatory changes of industry-wide effect. Such adjustments are limited by the authorized rate of return for each carrier.

This Resolution directs the Communications Division, in concert with theAdministrative Services Division, to issue the authorized CHCF-A support payments to each of the Small Incumbent Local Exchange Carriers (ILECs) on a monthly basis within 30 days after the close of each calendar month. The CHCF-A support payments for Calendar Year 2018 are contingent on the availability of funds and subject to final appropriations in the annual Budget Act.

Background

The California High Cost Fund was implemented by Decision (D.) 88-07-022, as modified by D.91-05-016 and D.91-09-042, to provide a source of supplemental revenues for Small ILECs whose basic exchange access line service rates would otherwise be increased to levels that would threaten universal service. These decisions provide foundational program guidelines, referred to as Implementation Rules, as well as an annual filing process addressed by this resolution to adjust straightforward and non-controversial program adjustments. Such adjustments include additional support payment for non-recurring events, (for instance, LifeLine program cost changes), and

Resolution T-17585 DRAFT January 11, 2018 CD/MWC

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recurring events such as reductions in Federal High Cost Loop Support. Adjustments are limintedlimited by the authorized rate of return for each carrier.Currently there are 13 Small ILECs eligible for CHCF-A funding, 10 of which requestCHCF-A support:

1) Calaveras Telephone Company (Calaveras);2) Cal-Ore Telephone Company (Cal-Ore); 3) Ducor Telephone Company (Ducor);4) Foresthill Telephone Company (Foresthill);5) Kerman Telephone Company (Kerman);6) Pinnacles Telephone Company (Pinnacles);7) The Ponderosa Telephone Company (Ponderosa);8) Sierra Telephone Company (Sierra);9) Siskiyou Telephone Company (Siskiyou);10) Volcano Telephone Company (Volcano).

Three Small ILECs currently do not request CHCF-A support:

1) Happy Valley Telephone Company (Happy Valley);2) Hornitos Telephone Company (Hornitos); and 3) Winterhaven Telephone Company (Winterhaven).

Public Utilities (P.U.) Code § 275.6 requires the Commission to implement the CHCF-A program to reduce any rate disparity in rural areas charged by small telephone corporations that are subject to rate-of-return regulation. Rate-of-return regulation provides the Small ILECs with an opportunity to earn up to a specific rate-of-return. To facilitate that opportunity, the CHCF-A program funding bridges the revenuedifferential between the basic service rate revenue paid by the Small ILECs’ customers and the revenue requirement needed by a Small ILEC to achieve its authorized rate-of-return. The CHCF-A program is scheduled to sunset on January 1, 2019.1

The Commission has issued several decisions on the CHCF-A program over the years:

On February 25, 2010, the Commission adopted D.10-02-016 which established the need for a review of the CHCF-A program, which was later ordered inRulemaking 11-11-007.

On December 18, 2014, the Commission adopted D.14-12-084 and established a new rate floor and rate ceiling for basic residential service. D.14-12-084 also ruled

1 On September 22, 2014, the Governor signed into law Senate Bill 1364, extending the program from January 1, 2015 to January 1, 2019. The bill is codified in P.U. Code § 275.6(g).


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that actual basic service rates would be determined in individual general rate cases.

On June 25, 2015, the Commission adopted D.15-06-048, which established a general rate case (GRC) plan for the Small ILECs. The decision adopted an annual application cycle for the Small ILECs’ GRC submissions and established a timeline for processing the GRCs.2 The decision also held that the Small ILECs’cost of capital would be examined in a consolidated proceeding and the results would be applied in individual GRCs.3

On December 15, 2016, the Commission adopted D.16-12-035, determining the Small ILECs’ cost of capital, which authorized individual rates of return for each of the Small ILECs that draw from the CHCF-A Fund.

Advice Letters

During September 2017, all 13 Small ILECs submitted their respective annual CHCF-A Advice Letters (ALs), in accordance with D.91-09-042. Ten of these 13 Small ILECs requested a total Calendar Year (CY) 2018 CHCF-A support of approximately $38.951million. Table 1 provides a summary of the AL requests:

2 D.15-06-048, Appendix A, Table 2.3 D.15-06-048, OP 2.


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Table 1

By Advice

Letter No. Filed By: Date Filed:

CY 2018 CHCF-A

Support

Requested (in

millions):

357 Calaveras Telephone Company 9/15/2017 $3,128,498.52

375 Cal-Ore Telephone Company 9/15/2017 $1,518,349.02

372 Ducor Telephone Company 9/15/2017 $2,268,930.67

336 Foresthill Telephone Company 9/15/2017 $2,649,336.97

364 Happy Valley Telephone Company 9/14/2017 $0.00

334 Hornitos Telephone Company 9/14/2017 $0.00

417 Kerman Telephone Company 9/18/2017 $3,918,501.77

277 Pinnacles Telephone Company 9/15/2017 $357,276.93

463 The Ponderosa Telephone Company 9/15/2017 $2,598,473.36

447 Sierra Telephone Company 9/15/2017 $12,796,973.62

415 Siskiyou Telephone Company 9/14/2017 $4,860,648.04

399 Volcano Telephone Company 9/15/2017 $4,854,141.18

259 Winterhaven Telephone Company 9/14/2017 $0.00

TOTAL $38,951,130.08

The Small ILECs whose GRC TYs are 2018 have established the CHCF-A support amounts in their respective GRCs; the Small ILECs whose TYs are prior to 2018 have requested continuing funding from the CY 2017 CHCF-A Resolution.

The Small ILECs have also requested additional amounts related to regulatory changes of industry-wide effect: a) LifeLine Reimbursement; b) Pro-Rata Changes and Budget Control Mechanism for High Cost Loop Support, c) Reduction in Intercarrier Compensation, d) Alternative-Connect America Fund model support and e) Net interstate expense adjustment (projected Universal Service Fund per National Exchange Carrier Association (NECA).

The details of these additional amounts can be found in Appendix A for each of the Small ILECs.

The 13 Small ILECs’ CY 2018 CHCF-A AL filings appeared in the Commission’s Daily Calendar during September 2017.


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On October 4, 2017, Office of Ratepayer Advocates (ORA) protested Siskiyou’s AL 415. On October 5, 2017, ORA protested Calaveras’ AL 357, Cal-Ore’s AL 375, Ducor’s AL 372, Foresthill’s AL 336, Kerman’s AL 417, Pinnacles’ AL 277, Ponderosa’s AL 463, Sierra’s AL 447, and Volcano’s AL 399 and raised the following issues:

1. Calaveras, Cal-Ore, Ducor, Foresthill, Kerman, Pinnacles, Ponderosa, Sierra, Siskiyou and Volcano – ORA asserts that these Small ILECs’ adjustments to CHCF-A support need to be itemized and supported by citations. The AL each Small ILEC files includes an Excel spreadsheet titled CHCF-A 004 (form 004) in support of its requested CY 2018 CHCF-A support. The form, as structured, could result in the Small ILEC double counting adjustments requested due to industry-wide regulatory changes. In addition, ORA asserts that form 004 allows the Small ILECs to complete it without explaining in necessary detail the specific regulatory change(s) it is citing in its funding request. ORA is concerned the USF adjustment between NECA’s 2017 forecast support less the forecast 2018 supportis not itemized and supported by citations. Also, ORA is concerned that the USF adjustment already includes the adjustments for Pro-rata and Budget Control Mechanism, thus allowing the Small ILECs to double recover from the CHCF-A.

ORA also asserts that the Commission should clarify if it is appropriate to review carrier compliance with the FCC’s corporate expense cap limitation in the annual AL filings to assure that the Small ILECs are not earning beyond levels authorized by the Commission.

2. Calaveras, Cal-Ore and Ponderosa – ORA asserts that the CHCF-A amount requested is more than the Settlement amount for TY 2018. CD should suspend the ALs until the GRCs have been adopted by the Commission.

3. Ducor, Foresthill, Pinnacles and Volcano – ORA asserts that the CHCF-A amount used in the means test is higher than its authorized CY 2017 support. ORA states that using this higher CHCF-A amount will result in compounding annual increases.

4. Ducor and Sierra - ORA asserts that the LifeLine administrative expense reimbursement requests are higher than CY 2017 even though the total weighted average number of LifeLine subscribers has decreased.

5. Pinnacles - ORA asserts that the Commission should require Alternative Connect America Cost Model (A-CAM) carriers to include projected 2018 A-CAM federal support in the net interstate expense adjustment calculation.


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On October 13, 2017, the Small ILECs filed their response to ORA’s protests. The Small ILECs opposed all of ORA’s protests and provided a response to each ORA issue.CD has reviewed ORA’s protests and the Small ILECs’ response. In addition, CD sent the Small ILECs a data request to further examine the issues also raised by ORA. CD has considered both ORA’s comments and the Small ILECs’ response and incorporated them as appropriate.

Data Request

On September 27, 2017, CD sent a data request to the ten Small ILECs that submitted ALs for CY 2018 funding. On October 12, 2017, the Small ILECs responded to CD’s data request. CD had some of the same issues that ORA filed in their protests.

CD had concerns that Small ILECs seeking adjustments for Appendix A, Line 3 (b) Pro-Rata Changes and (c) Budget Control Mechanism may have double counted in Line 5, Net Interstate Adjustment. However, the Small ILECs explained that the NECA forecast for 2017, used in Line 5 (a) is actually reduced during 2017 by the Line 3 (b) Pro rata and (c) Budget Control Mechanism. To confirm this, CD accessed the Universal Service Administration Company (USAC) website for actual High Cost Loop Support (HCLS) payments (Line 5) for 2017 and forecasted the last few months. CD subtracted the NECA forecast (Line 5 (a) for 2017, from the USAC actual plus forecasted 2017. The difference was more than the amounts requested in Line 3 (b) and (c). Hence, CD confirmed that the Small ILECs did not receive double recovery.

Discussion

2018 CHCF-A Rules and Orders Considered

CD reviewed the AL filings made by the 10 Small ILECs for CY 2018 CHCF-A support and, in many cases, revised their respective requests after reviewing data updates, as discussed in greater detail below. Ten of the 13 Small ILECs requested a total of $38.951million in CHCF-A support for CY 2018. The $1.3621.562 million differential between the 10 Small ILECs’ cumulative request of $38.951 million and CD’s recommended CHCF-A support of $40.31340.513 million is due to several factors including 1) final Net Interstate Expense Adjustment data provided by NECA, 2) adjustments due to Federal Communications Commission (FCC) and Commission decisions and rulings, 3) CD disallowances, and 4) Small ILEC calculation errors.

Table 2 below shows:

1. CY 2018 Small ILECs’ requested CHCF-A support;


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2. CD’s proposed adjustments; and

3. CD’s proposed annual and monthly support amounts for CHCF-A.

CD’s proposed support column includes CHCF-A support authorized by this Resolution for the ten Small ILECs that requested support for CY 2018; however, Calaveras, Cal-Ore, Ponderosa and Sierra’s 2018 CHCF-A support will be authorized in their respective GRC decisions.

Small ILECs

Small ILECs

Requested

Support

CD Proposed

Adjustments

CD Proposed

Support

CD Proposed

Monthly

Support

Calaveras $3,128,498.52 ($195,599.52) $2,932,899.00 $244,408.25

Cal-Ore $1,518,349.02 ($48,638.02) $1,469,711.00 $122,475.92

Ducor $2,268,930.67 $86,112.29 $2,355,042.96 $196,253.58

Foresthill $2,649,336.97 $181,687.58 $2,831,024.55 $235,918.71

Happy Valley $0.00 $0.00 $0.00 $0.00

Hornitos $0.00 $0.00 $0.00 $0.00

Kerman $3,918,501.77 ($4,106.06) $3,914,395.71 $326,199.64

Pinnacles $357,276.93 ($2.99) $357,273.94 $29,772.83

Ponderosa $2,598,473.36 $1,018,495.64 $3,616,969.00 $301,414.08

Sierra $12,796,973.62 $177,124.38 $12,974,098.00 $1,081,174.83

Siskiyou $4,860,648.04 $331,653.05 $5,192,301.09 $432,691.76

Volcano $4,854,141.18 $15,648.02 $4,869,789.20 $405,815.77

Winterhaven $0.00 $0.00 $0.00 $0.00

$38,951,130.08 $1,562,374.37 $40,513,504.45 $3,376,125.37

Table 2

CY 2018

CD’s total recommended amount is also based on the following FCC and Commission rulings and decisions:

Means Test

D.91-09-042042, Appendix, Implementation Rules, requires that, with the exception of those Small ILECs who are having a general except following 12 months after a decision or resolution is rendered by the Commission in a Small ILEC’s rate case determined for the next 12 months, each Small ILEC’s CHCF-A support request shall be subject to a


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means test so that forecasted intrastate results of operations and the total intrastate revenue requirement do not exceed the authorized rate of return.. The Implementation Rules also state, “Utilities shall be eligible for support from the fund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested, whichever amount is lower.” The Commission’s means test calculation results indicate that Ducor, Foresthill, Pinnacles and Kerman exceeded their respectiverates of return in evaluating their respective adjustment requests.

Additionally, the Small ILECs provided an estimate for Line 5b USF-HCLS (High Cost Loop Support, under Line 5 Net Interstate Expense Adjustment in Appendix A) in their respective ALs. CD has used the final NECA USF-HCLS numbers to determine the funding amount, which generally results in the Small ILEC receiving more or less funding than originally requested.

The means test includes state operating fixed charges (interest).4 The forecasted earnings must be based on at least seven months of recorded financial data, annualized for the year that the advice letter is filed. The means test only evaluates recurring funding. D. 91-09-042 also provides that the means test is not required in determining a Small ILEC’s CHCF-A funding for the first 12 months after a decision or resolution is issued by the Commission in a GRC proceeding, stating “Such a forecasted rate of return shall not be applied to determine a company’s HCF funding levels following 12 months after a decision or resolution is rendered by the Commission in a company’s general rate review proceeding.” 5

Net Interstate Expense Adjustment

D.91-09-042 authorizes the Small ILECs to include any changes to their federal Universal Service Fund (USF) funding in the annual CHCF-A filings when not subject to GRC review for the following 12 months. In addition, Resolution T-16117 states that any change in USF funding level must be determined for each carrier by the difference between the forecasted USF support for the current year and the forecasted USF support for the coming year. The current year's forecasted USF support is the amount adopted

4 D.91-09-042 amending D.91-05-016, replacing Conclusion of Law 3, stating: “The CHCF rules should be

modified to limit CHCF support to amounts which would provide no more than the utility’s authorized

intrastate rate of return or to the current funding level for the year for which CHCF is being requested,

whichever is lower, using a “means test” as proposed by DRA. The means test should be based on forecasted intrastate rate of return using at least seven months of recorded data annual for the year in

which the CHCF advice letter is filed and adjusted for known Commission regulatory decisions for determining appropriate funding levels for the utility.”5 D91.09-042, Appendix, Section B, under “Annual Settlement Affects and HCF Adjustments”


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by the Commission for the current year CHCF-A revenue requirement. The coming year's forecasted USF is the amount projected by NECA, the administrator of USF. 6

In response to the NECA funding changes, CD has adjusted each Small ILECs’ CHCF-A CY 2018 support by incorporating the final NECA adjustment data in the means test, as described in Section B, titled “CHCF-A Support Summary by Carrier.” The resulting adjustment, if any, is reflected in Line 5c of each carrier’s Appendix A calculation sheet.

Cal-Ore, Pinnacles and Winterhaven have transitioned to Alternative Connect America Cost Model7 which is voluntary and offers model-based support.

Revenue Adjustment Associated with California LifeLine Decision 10-11-033

The Commission by D.10-11-033 modified the California LifeLine program. That decision limited the amount carriers can receive for administration and bad debt losses. The Small ILECs may be reimbursed for their administrative expenses up to $0.50 per weighted average customer count as provided monthly by the California LifeLine Administrator until their next GRC. This provision was reinforced in a subsequent LifeLine decision, D.14-01-036, which states “Therefore, rate-of-return companies, operating under Commission-approved tariffs, may seek lost revenue recovery as limited by D.10-02-016 for monthly recurring residential basic telephone service rates from the CHCF-A through the GRC process (or through an annual advice letter until the GRC filing year) for monthly recurring residential basic telephone service rates that neither the California Lifeline participant nor the California LifeLine Program will reimburse.8 CD staff has reviewed the Small ILEC’s that have LifeLine-related reimbursement requests and made adjustments, where necessary. The resulting adjustment, if any, is reflected in Line 3a of each carrier’s Appendix A calculation sheet.

Revenue Adjustment Associated with Rate of Return Reform (Non-Recurring)

There are two non-recurring revenue effects requested for CY 2018 and are discussed below. The impacts of these effects, if any, are shown on lines 3b and 3c of each carrier’s Appendix A calculation sheet.

1. High Cost Loop Support Reimbursement Rates (Pro Rata) (FCC 14-190, Section VI.A.)

6 NECA provided projected 2018 USF payment data on October 1, 2017. 7 Federal Communications Commission DA 14-1884.8 D.14-01-036 at p. 39.


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In the second part of line 3b of each carrier’s Appendix A calculation sheet, FCC 14-190, Section VI.A., the FCC’s April 2014 Notice of Proposed Rulemaking(NPRM) sought comment on several proposals for near-term reform of high-cost universal service support for rate-of-return carriers. The FCC noted in the April 2014 NPRM that they have significant concerns regarding the structure and incentives created under the existing high-cost mechanisms for rate-of-return carriers, such as the “race to the top” incentives that exist under HCLS. Under the current HCLS rules, rate-of-return carriers receive reimbursement for a fixed percentage of their unseparated loop expenses to the extent that they exceed a benchmark set in relation to the national average cost per loop (NACPL). Carriers with the highest loop costs relative to the national average have minimal incentive to reduce their expenses and eliminate waste. Carriers with costs close to the ever rising NACPL risk losing all HCLS for prior investments, while carriers with higher cost per loop are sheltered from the impact of the HCLS cap.

The FCC adopted a revised methodology for applying the cap on high cost loopsupport so that support is distributed more equitably among all high-cost carriers, and to incentivize carriers with the highest loop costs to curb waste in the operation of their study areas. (FCC 14-190, Section VI. 99)

2. Budget Control Mechanism (FCC 16-33, Section II.B.6)

In line 3c of each carrier’s Appendix A calculation sheet, the FCC previously adopted an overall budget of $4.5 billion for the high-cost program, and a budget within that amount of $2 billion per year for high-cost support for rate-of-return carriers. It did not, however, adopt a method for enforcing the budget for rate of return carriers. The FCC now adopts a self-effectuating mechanism for controlling total support distributed pursuant to HCLS and Connect America Fund Broadband Loop Support to stay within the budget for rate-of-return carriers.

Revenue Adjustment Associated with Connect America Fund – Intercarrier Compensation (Recurring)

The FCC’s Connect America Fund (FCC 11-161) instituted a comprehensive intercarrier compensation reform and established that “For rate-of-return carriers, recovery will be calculated initially based on rate-of-return carriers’ fiscal year 2011 interstate switched access revenue requirement, intrastate access revenues that are being reformed as part of this Order, and net reciprocal compensation revenues. This baseline will decline at five percent annually…” The CHCF-A program allows for annual recovery of the difference


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in the reduction in intercarrier compensation.9 The resulting adjustment, if any, is reflected in Line 4a (National Broadband Plan (5% reduction Intercarrier Compensation) of each carrier’s Appendix A calculation sheet.

Cost of Capital

The Cost of Capital proceeding concluded on December 15, 2016, with the issuance of D.16-12-035. In this decision, the Commission adopted company-specific cost of capital (or rate of return) to be applied in pending and future GRC applications initiated before the year 2021 for all ten of the Small ILECs that draw CHCF-A support.

Waterfall

Pursuant to the Implementation Rules in D.91-09-042 and D.15-06-048, the phase-down of the CHCF-A funding percentage level is reinitiated effective January 1 following the year after the completion of a Small ILEC’s GRC, and follows a six-year course. A Small ILEC’s CHCF-A funding level remains at 100% for the first 3 years after GRC completion; the funding level is then reduced to 80% during the fourth year if no subsequent GRC application is submitted. The funding level then drops to 50% during the fifth year if no GRC application is submitted, and the funding level is further reduced to 0% during the sixth year, if no GRC application is submitted. This 6-year phase down of funding level is known as the Waterfall.

The funding percentage levels for the thirteen Small ILECs for CY 2018 are summarized in Table 3, as well as line 10 of each carrier’s Appendix A calculation sheet:

9 D.91-09-042, Appendix, Part B: “Annual Settlements Effects and HCF Adjustments.”


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Table 3

Small ILEC GRC Test Year CY 2018

Calaveras 2018 100%

Cal-Ore 2018 100%

Ducor 2009 100%

Foresthill 2012 100%

Happy Valley 1997 0%

Hornitos 1997 0%

Kerman 2016 100%

Pinnacles 2009 100%

Ponderosa 2018 100%

Sierra 2018 100%

Siskiyou 2017 100%

Volcano 2017 100%

Winterhaven 1997 0%

Pursuant to the GRC cycle adopted in D.15-06-048, on October 2, 2017, Ducor filed GRC Application (A.) 17-10-003 for test year (TY) 2019. On October 2, 2017, Foresthill filed GRC A.17-10-004 for TY 2019. The Executive Director of the CPUC granted Pinnacles authorization to file its GRC on December 1, 2017.On December 1, 2017, Pinnacles filed GRC A.17-12-004 for TY 2019.

Happy Valley, Hornitos and Winterhaven do not draw support from the CHCF-A fund as their respective funding levels pursuant to the CHCF-A waterfall criteria have reached 0%, and none of these carriers have requested further support from the CHCF-A fund.

Results of GRCs affecting CHCF-A Support

On November 30, 2017, the Commission approved an All-Party Settlement Agreement between Ponderosa, Ponderosa Cablevision and ORA and adopted $3,616,969 in CHCF-A support for TY 2018 (A.16-10-001).

On November 30, 2017, the Commission approved an All-Party Settlement Agreement between Sierra and ORA and adopted $12,974,098 in CHCF-A support amount for TY 2018 (A.16-10-003).

The Proposed Decisions for Calaveras and Cal-Ore have not been issued as of this date.


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CD observes that the All-Party Settlement Agreements 10 for Calaveras, Cal-Ore, Ponderosa and Sierra provided for the Small ILECs to file ALs for revenue effects of “regulatory changes of industry-wide effect”. However, the GRC process is the opportunity to include all costs for the test year, including the final High Cost Loop Support adjustment from NECA on October 1, every year. Seeking additional adjustments outside the GRC process is contrary to D.91-09-042.

Test Year Funding

In D. 91-09-042, Appendix, Implementation Rules, “Utilities shall be eligible for support

from the fund limited to the amount which are forecasted to result in earnings not to

exceed authorized intrastate rates of return or to the current funding level amount for

the year for which HCF (CHCF-A) is being requested, whichever amount is lower.”.

The final decision in a GRC determines the revenue requirement threshold at which a

Small ILEC may earn its authorized rate of return. If the Small ILEC received additional

funding, through the AL adjustment process, this would cause it to exceed its authorized

rate of return. The Implementation Rules from D.91-09-042, Appendix, Page 2, states,

“Utilities shall be eligible for support from the fund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested,

whichever amount is lower.” Additionally, D.17-09-016 states that “Annual support

and/or adjustments cannot be used to boost utility earnings to levels which exceed those

authorized by this Commission”.” 11 Thus, CD does not support any adjustment

requests from Small ILECs in which its test year is 2018.

Calendar Year After Test Year

D.91-09-042 states, “Such a forecasted rate of return shall not be applied to determine a

company’s HCF funding levels following 12 months after a decision or resolution is

rendered by the Commission in a company’s general rate review proceeding.” However,

the Commission issued a recent ruling in D.17-09-016 that granted a limited review to

re-evaluate. In the interim, CD will consider adjustments for CY 2018 for Small ILECs

whose Test Year was 2017, pending further Commission consideration.

10 Calaveras, Section III, (3)(d)(vi), page 5; Cal-Ore, Section III. (2)(a)(iv)(6), page 4; Ponderosa Section III.(3)(iv)(6), page 5; Sierra Section III. (B)(1)(h)(vi)(6), page 7.11 D.17-09-016 at p.page 5.


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CHCF-A Support Summary by Carrier

CD reviewed the AL filings made by the ten Small ILECs for CY 2018 CHCF-A funding.

CD’s recommended support amount for each of the Small ILECs is summarized below

and itemized in Appendix A.

Calaveras, Page A-1 of Appendix A

Calaveras’ 2018 CHCF-A support will be resolved in its pending GRC proceeding (A.16-10-002). An All-Party Settlement Agreement between Calaveras and ORA, withthe CHCF-A support of $2,932,899 for Calaveras’ TY 2018 GRC is pending Commission adoption.

In AL 357, Calaveras requested adjustments totaling $195,599.52 (line 3), including a LifeLine Reimbursement adjustment of $21,329.82 (line 3(a)). If this request had been submitted during any other year than for a TY GRC, CD would have disallowed $9,670.069,670.11 of this subtotal (data processing $10.75, and service representative costs $9,659.31, expenses that should have already been included in a Small ILEC’s last GRC), and allowed the remainder ($11,659.76) 11,659.71) of the $21,329.82 adjustment request. The data processing and service representative costs are included in all GRCs and to allow these adjustments would permit Calaveras duplicate recovery.

The remaining requested adjustments for Pro-Rata Changes ($37,792.70) and Budget Control Mechanism ($136,477.00) (lines 3(b) and 3(c) respectively), are also being disallowed since these adjustments should have been submitted in its ongoing GRC (A.16-10-002) .

All of these adjustments should have been requested in Calaveras’ GRC, as it has been

established that a Small ILEC’s GRC determines CHCF-A support for the TY. The

Implementation Rules from D.91-09-042, Appendix, Page 2, states, “Utilities shall be eligible for support from the fund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested, whichever amount is lower.” Additionally, D.17-09-016 states that “Annual support and/or adjustments cannot be used to boost utility earnings to levels which exceed those authorized by this Commission”.” 12

Since Calaveras is undergoing its GRC for TY 2018, no further adjustments may be claimed for TY 2018 through the AL process, as allowing such adjustments would result

12 D.17-09-016 at p.page 5.


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in a revenue requirement exceeding the authorized rate of return. In addition, pursuant to § D of the Implementation Rules, Calaveras’ waterfall is set at 100%.

Thus, Calaveras should receive monthly CHCF-A support in the amount of $244,408.25, i.e. one-twelfth of $2,932,899 for January through December 2018, subject to the Commission’s decision in its GRC (A.16-10-004)

Additionally, CD updated NECA’s October-updated 2018 USF-HCLS forecast from $1,613,488 in line 5(b), column A to $1,789,769.93 in Line 5(b) column B, resulting in a Net Interstate Expense Adjustment of $176,281.93 (line 5(c), which should be reflected and updated in the pending GRC Settlement Agreement between Calaveras and ORA, with a revenue-neutral GRC revenue requirement adjustment offsetting the USF-HCLS and the CHCF-A support totals.

Cal-Ore, Page A-2 of Appendix A

Cal-Ore’s 2018 CHCF-A support will be resolved in its pending GRC proceeding (A.16-10-004). An All-Party Settlement Agreement between Cal-Ore and ORA, which the CHCF-A support of $1,469,711 for Cal-Ore’s TY 2018 GRC is pending Commission adoption.

In AL 375, Cal-Ore requested a Lifeline reimbursement adjustments $48,638.02 line 3(a). If this request had been submitted during any other year than for a TY GRC, CD would have disallowed $17,266.76 of this total ($654 for Customer and Subscriber notificationsand $16,612.76 for service representative costs, expenses that should have been already included in a Small ILEC’s last GRC), and allowed the remainder ($31,371.22) of the $48,683.02 adjustment request. Customer and Subscriber notifications and service representative costs are already included in GRCs and to allow these adjustments would permit Cal-Ore duplicate recovery.

This adjustment should have been requested in Cal-Ore’s GRC since a Small ILEC’s GRC

determines the CHCF-A support for the TY. The Implementation Rules from D.91-09-042, Appendix, Page 2, states, “Utilities shall be eligible for support from the fund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested, whichever amount is lower.” Additionally, D.17-09-016 states that “Annual support and/or adjustments cannot be used to boost utility earnings to levels which exceed those authorized by this Commission”.” 13

13 D.17-09-016 at page 5.


16

Since Cal-Ore is undergoing its GRC TY 2018, no further adjustments may be claimed TY 2018 through the AL process as allowing such adjustments would result in a revenue requirement exceeding the authorized rate of return. In addition, pursuant to § D of the Implementation Rules, Cal-Ore’s waterfall is set at 100%.

Thus, Cal-Ore should receive monthly CHCF-A support in the amount of $122,475.92, i.e. one-twelfth of $1,469,711 for January through December 2018, subject to the Commission’s decision in its GRC (A.16-10-004).

Cal-Ore has chosen to receive Alternative Connect America Cost Model (A-CAM)funding instead of USF-HCLS. Cal-Ore’s Line 5(a) and 5(b) are the same number as stated in Cal-Ore’s pending GRC Settlement Agreement. Line 5(c) the sum of 5(a) and 5(b) is zero, resulting in no further offsets to CHCF-A support.

Ducor, Page A-3 of Appendix A

Ducor’s authorized CY 2018 CHCF-A revenue requirement is $3,200,669.74 (at Line 6, Page A-3 of Appendix A).

In AL 372, Ducor requested adjustments totaling $65,490.65, including a LifeLine Reimbursement adjustment of $19,708.29. CD disallowed $10,187.6710,187.66 of this amount for Service Representative costs, as salaries and other expenses should have already been included in a Small ILEC’s last GRC, and to allow this adjustment would permit Ducor duplicate recovery. After disallowances, (and before applying the means test) the allowed LifeLine adjustment would be $9,520.629,520.63 of the $19,708.29 adjustment request.

However, no adjustments are allowed in this case, because the means test indicated that the resulting revenue requirement would exceed Ducor’s authorized rate of return.After

applying the means test, Ducor’s revenue requirement is therefore reduced to $2,355,042.96 (at Line 9, Page A-3 of Appendix A). With this amount, Ducor’s resulting revenue requirement will not exceed its authorized rate of return. In addition, pursuant to §D of the Implementation Rules, Ducor’s waterfall is set at 100%.

Thus, Ducor should receive monthly CHCF-A support in the amount of $196,253.58, i.e. one-twelfth of $2,355,042.96 for January through December 2018.

Foresthill, Page A-4 of Appendix A

Foresthill’s authorized CY 2018 CHCF-A revenue requirement is $2,921,604.25 (at Line 6, Page A-4 of Appendix A). TheAfter applying the means test indicated that, Foresthill’s revenue requirement should be reduced to $2,831,024.55 (at Line 9, Page A-4 of


17

Appendix A). With this amount, Foresthill’s resulting revenue requirement will not exceed its authorized rate of return. In addition, pursuant to §D of the Implementation Rules, Foresthill’s waterfall is set at 100%.

Thus, Foresthill should receive monthly CHCF-A support in the amount of $235,918.71, i.e. one-twelfth of $2,831,024.55 for January through December 2018.

Happy Valley, Page A-5 of Appendix A

Happy Valley’s authorized CY 2018 CHCF-A revenue requirement is $2,857,056.27 (at Line 6, Page A-5 of Appendix A). In its AL 364, Happy Valley stated that it is not requesting CHCF-A funding. Its waterfall funding level is already at 0%. Thus, Happy Valley will not receive any CHCF-A support for CY 2018.

Hornitos, Page A-6 of Appendix A

Hornitos’ authorized CY 2018 CHCF-A revenue requirement is $589,200.00 (at Line 6, Page A-6 of Appendix A). In its AL 334, Hornitos stated that it is not requesting CHCF-A funding. Its waterfall funding level is already at 0%. Thus, Hornitos will not receive any CHCF-A support for CY 2018.

Kerman, Page A-7 of Appendix A

Kerman’s authorized CY 2018 CHCF-A revenue requirement is $3,974,166.04 (at Line 6, Page A-7 of Appendix A). TheAfter applying the means test indicated that, Kerman’s revenue requirement should be reduced tois $3,914,395.71 (at Line 9, Page A-7 of Appendix A). With this amount, Kerman’s resulting revenue requirement will not exceed its authorized rate of return. In addition, pursuant to § D of the Implementation Rules, Kerman’s waterfall is set at 100%.

Thus, Kerman should receive monthly CHCF-A support in the amount of $326,199.64, i.e. one-twelfth of $3,914,395.71 for January through December 2018.

Pinnacles, Page A-8 of Appendix A

Pinnacles’ authorized CY 2018 CHCF-A revenue requirement is $502,504.76 (at Line 6, Page A-8 of Appendix A).

Pinnacles has chosen to receive federal A-CAM funding as opposed to USF-HCLS – see line 5 of Appendix A page A-8. A-CAM replaced Interstate Common Line Support(ICLS), now called Broadband Loop Support and High Cost Loop Support (HCLS). The HCLS component is intrastate, and usually the HCLS forecast for the upcoming year would be included on the document NECA provides annually to CD in October.


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For its 2018 forecast on line 5(b) of Appendix A, Pinnacles calculated as if it was still receiving USF funding to represent its intrastate portion of A-CAM. Pinnacles also included adjustments in their 2018 HCLS forecast for Pro Rata and Budget Control Mechanism (discussed above in Revenue Adjustment Associated with Rate of Return Reform).

TheAfter applying the means test indicated that, Pinnacles’ CHCF-A revenue requirement should beis reduced to $357,273.94 (at Line 9, Page A-8 of Appendix A). With this amount, Pinnacle’s resulting revenue requirement will not exceed its authorized rate of return. In addition, pursuant to §D of the Implementation Rules, Pinnacles’ waterfall is set at 100%.

Thus, Pinnacles should receive monthly CHCF-A support in the amount of $29,772.83, i.e. one-twelfth of $357,273.94, for January through December 2018.

Ponderosa, Page A-9 of Appendix A

In AL 463, Ponderosa requested adjustments totaling $414,521.36, including a LifeLine Reimbursement adjustment of $33,237.43 (line 3(a)). If this request had been submitted during any other year than for a TY GRC, CD would have disallowed $19,059.31 of this subtotal (Customer and Subscriber notifications $223.90; Accounting $4,808.82; and Service Representative costs $14,026.59, expenses that should have already been included in a carrier’s last GRC) and allowed the remainder ($14,178.12) of the $33,237.43 adjustment request. Such expenses are already included in GRCs and to allow theseadjustments would permit Ponderosa duplicate recovery.

All of the adjustments should have been requested in Ponderosa’s GRC because a Small ILEC’s GRC determines CHCF-A support for the TY. The Implementation Rules from D.91-09-042, Appendix, Page 2, states, “Utilities shall be eligible for support from thefund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested, whichever amount is lower.” Additionally, D.17-09-016 states that “Annual support and/or adjustments cannot be used to boost

utility earnings to levels which exceed those authorized by this Commission”.” 14

Since Ponderosa’s GRC proceedings were conducted during 2017 for TY 2018, no further adjustments may be claimed as allowing such adjustments would result in a revenue requirement exceeding the authorized rate of return. In addition, pursuant to § D of the Implementation Rules, Ponderosa’s waterfall is set at 100%. 14 D.17-09-016 at page 5.


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On November 30, 2017, the Commission approved an All-Party Settlement Agreement between Ponderosa and ORA (A.16-10-001) and adopted $3,616,969 CHCF-A support for TY 2018.Thus, Ponderosa should receive monthly CHCF-A support in the amount of $301,414.08, i.e. one-twelfth of $3,616,969 for January through December 2018.

Sierra, Page A-10 of Appendix A

In AL 447, Sierra requested adjustments totaling $317,511.62, including a LifeLine Reimbursement adjustment of $37,417.94. If this request had been submitted during any other year than for a TY GRC, CD would have disallowed $27,700.56 of this subtotal (Data Processing $19,006.38; Accounting $2,905.87; and Service Representative costs $5,788.31, expenses that should have already been included in a carrier’s last GRC) and allowed the remainder ($9,717.38) of this $37,417.94 adjustment request. Such disallowed expenses are already included in GRCs and to allow these adjustments would permit Sierra duplicate recovery.

These adjustments should have been requested in Sierra’s GRC, as it is clear that a Small ILEC’s GRC determines CHCF-A support for the TY. The Implementation Rules from D.91-09-042, Appendix, Page 2, states, “Utilities shall be eligible for support from the fund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested, whichever amount is lower”. Additionally, D.17-09-016 states that “Annual support and/or adjustments cannot be used to boost

utility earnings to levels which exceed those authorized by this Commission”.” 15

Since Sierra’s GRC proceedings were conducted during 2017 for TY 2018, no further adjustments may be claimed, as allowing such adjustments would result in a revenue

requirement exceeding the authorized rate of return. In addition, pursuant to § D of the

Implementation Rules, Sierra’s waterfall is set at 100%.

On November 30, 2017, the Commission approved an All-Party Settlement Agreement between Sierra and ORA (A.16-10-003) and adopted $12,974,098 in CHCF-A support for TY 2018.

Thus, Sierra should receive monthly CHCF-A support in the amount of $1,081,174.83, i.e. one-twelfth of $12,974,098 for January through December 2018.

Siskiyou, Page A-11 of Appendix A

15 D.17-09-016 at page 5.


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Siskiyou’s CY 2018 CHCF-A revenue requirement is $4,992,301.095,192,301.09 (at Line 6, Page A-11 of Appendix A).

In AL 415, Siskiyou requested adjustments totaling $466,526.04, including a LifeLine Reimbursement adjustment of $1,463.25. CD disallows $747.14747.13 of this adjustment(for Data Processing ($653.19) and, Service Representative Costs ($93.95) 93.94)) as such expenses are already included in GRCs and to allow these adjustments would permit Siskiyou duplicate recovery. After this disallowance, the revised LifeLine adjustment is $716.12. The Commission should allow the remainder of Siskiyou’s requestedadjustments.

As discussed previously in this document, Siskiyou’s CY 2018 filing will not be subject to the means test since CY 2018 is the year after its 2017 test year GRC. In addition, pursuant to § D of the Implementation Rules, Siskiyou’s waterfall is set at 100%.

Thus, Siskiyou should receive monthly CHCF-A support in the amount of $416,025.09,432,691.76, i.e. one-twelfth of $4,992,301.095,192,301.09 for January through December 2018.

Volcano, Page A-12 of Appendix A

Volcano’s CY 2018 CHCF-A revenue requirement is $4,869,789.20 (at Line 6, Page A-11 of Appendix A).

In AL 399, Volcano requested adjustments totaling $182,071.18, including a LifeLine Reimbursement adjustment of $12,802.12. CD disallows $7,255.927,255.93 in Service Representative Costs associated with LifeLine, as such expenses are already included in GRCs and to allow such an adjustment would permit Volcano duplicate recovery. After this disallowance, the revised LifeLine adjustment is $5,549.92.5,546.19. The Commission should allow the remainder of Siskiyou’s requested adjustments.

As discussed previously in this document, Volcano’s CY 2018 filing will be not subject to the means test since CY 2018 is the year after its 2017 test year GRC. In addition, pursuant to §D of the Implementation Rules, Volcano’s waterfall is set at 100%.

Thus, Volcano should receive monthly CHCF-A support in the amount of $405,815.77, i.e. one-twelfth of $4,869,789.20 for January through December 2018.

Winterhaven, Page A-13 of Appendix A

Winterhaven’s authorized CY 2018 CHCF-A revenue requirement is $310,789.50 (at Line 6, Page A-13 of Appendix A).


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In response to a CD data request, Winterhaven stated that since it is receiving A-CAM, there will be no forecast for 2018 in Line 5 (b). In order to mitigate the elimination of federal HCLS, Winterhaven included an adjustment of ($81,946) on Line 4 (b), the amount of HCLS received in 2016. This is a one-time adjustment that lowers the cumulative CHCF-A revenue requirement on a going-forward basis.

In its AL 259, Winterhaven stated that it is not requesting CHCF-A funding. Its waterfall funding level is already 0%. Thus, Winterhaven will not receive any CHCF-A support for CY 2018.

D. Evaluation of CHCF-A Support Level to CHCF-A Budget

The Commission adopted $49.190 million for FY 2017-18 (Resolution T-17572) andestimates $47.511 million for FY 2018-19 (Resolution to be issued in 2018) for the CHCF-A program budget. Of the budgeted amounts, $47.939 million and $46.260million are allocated for Local Assistance to the Small ILECs for FY 2017-18 and FY 2018-19, respectively. There are sufficient funds in both the FY 2017-18 and FY 2018-19budgets to cover CY 2018 CHCF-A support payments to the Small ILECs. The adopted and proposed budgets and the associated program support payments are contingent on the availability of funds, and the State’s adoption of the CHCF-A budgets.


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E. Summary

As shown in Table 4 and Appendix A, the total approved CY 2018 CHCF-A draw for Calaveras, Cal-Ore, Ducor, Foresthill, Happy Valley, Hornitos, Kerman, Pinnacles, Ponderosa, Sierra, Siskiyou and Winterhaven is $40,313,504.45.40,513,504.45. Table 4 also shows Small ILECs customer counts as of December 31, 2016, and subsidy per customer for CY 2018. The Commission finds CD’s recommended CHCF-A support amounts for the ten Small ILECs for CY 2018 to be reasonable.

Small Incumbent Local

Exchange Carrier

Yearly Support

2018

Number of

Customers *

Subsidy per

Customer

Calaveras $2,932,899.00 3,513 834.87$

Cal-Ore $1,469,711.00 1,812 811.10$

Ducor $2,355,042.96 989 2,381.24$

Foresthill $2,831,024.55 2,514 1,126.10$

Kerman $3,914,395.71 4,591 852.62$

Pinnacles $357,273.94 242 1,476.34$

Ponderosa $3,616,969.00 7,545 479.39$

Sierra $12,974,098.00 17,982 721.50$

Siskiyou $5,192,301.09 3,656 1,420.21$

Volcano $4,869,789.20 9,384 518.95$

$40,513,504.45 52,228

*Number of customers as of 12/31/2016

Table 4

CD, in concert with Administrative Services Division, shall make the monthly support payments within 30 days after the close of each calendar month subject to the availability of CHCF-A funds and final appropriations adopted in the annual Budget Act.16 In the event that the monthly support payments due to the Small ILECs are not paid within 30 days after the close of each calendar month, CD shall include in those payments interest equal to the three-month commercial paper rate.

Safety Considerations

The Small ILECs are required to adhere to all Commission rules, decisions, General Orders and statutes including P.U. Code § 451 by undertaking all actions “…necessary

16 The January 2018 CHCF-A monthly support will be paid in February 2018 and the December 2018

CHCF-A monthly support will be paid in January 2019.


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to promote the safety, health, comfort, and convenience of its patrons, employees, and the public.” The CHCF-A subsidy provides the Small ILECs with financial resources to provide safe, reliable and affordable telephone service to their customers in rural, high cost areas.

Reliable telephone service is essential in rural, remote and isolated areas that the Small ILECs serve. The CHCF-A fund provides rural customers with access to 211 for essential community services, 311 for non-emergency municipal services, 511 for traffic and transportation information, 811 for public infrastructure underground location information, and 911 to reach police, fire and emergency medical responders when fire, natural disasters, medical emergencies, or other crises occur.

The CHCF-A fund also promotes customer access to advanced services and deployment of broadband-capable facilities. It has allowed the Small ILECs to locate their facilities underground and use fiber optic cable which protects equipment in case of fire andallows for the quicker deployment of broadband-capable facilities. In some Small ILEC territories, emergency responders set up emergency command centers and the Small ILECs must quickly provide responders with access to high quality voice communications and broadband. This Resolution ensures that the CHCF-A program continues to promote the goals of universal service by subsidizing essential communications links in high cost, rural communities.

Comments

In compliance with P.U. Code § 311(g), the Commission emailed a notice letter on December 8, 2017, and provided notice to the 13 Small ILECs, the CHCF-A Administrative Committee, parties of record in Application 99-09-044 and Rulemaking 01-08-002 and 11-11-007, informing them that this proposed Resolution is available at the Commission’s website http://www.cpuc.ca.gov and is available for public comment. Additionally, CD informed these parties of the availability of the conformed resolution at the same website.

On January 2, 2018, the Small ILECs filed comments on the Draft Resolution. CD has reviewed the comments and addresses them as follows:

A. The Small ILECs asserted five different arguments addressing why the companies with TY 2018 GRC’s, (Calaveras, Cal-Ore, Ponderosa and Sierra), should be allowed various adjustments in the annual CHCF-A advice letter, relative to 1) “regulatory changes of industry-wide effect” and/or 2) the timing of a company’s GRC.

http://www.cpuc.ca.gov/


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CD staff has evaluated these arguments and finds that each is contrary to Commission CHCF-A support rules established in D.91-09-042, andindividually lack merit.

B. The Small ILECs assert the Draft Resolution must be modified to acknowledge the entirety of incremental LifeLine costs not recovered through the LifeLine program. Notwithstanding the companies’ entitlement to these adjustments under D.10-11-033, the Draft Resolution disallowed adjustments for service representatives, data processing, customer and subscriber notifications and some accounting charges.

CD disagrees with the Small ILECs’ characterization that they are entitled to these adjustments. The Small ILECs are allowed to request these adjustments, but it is the Commission’s responsibility to determine reasonableness and whether the adjustments have already been recovered in a GRC. CD has disallowed some of the expenses because these were included in a GRC and would therefore allow duplicate recovery.

C. The Small ILECs state that because of the delay in issuing the final Calaveras and Cal-Ore GRC decisions, they should receive increased CHCF-A draw to account for Local Revenue shortfalls. The draft resolution should recognize that Calaveras’ and Cal-Ore’s draw will be increased for revenue shortfalls.

CD disagrees. The GRC Decision for Cal-Ore includes a mechanism to provide for the revenue shortfall. In short, we anticipate that the Calaveras’ Decision will have a similar provision. The proper venue to address similar revenue shortfalls is in the GRC Decisions.

D. The Draft Resolution includes a calculation error for Siskiyou in Appendix A, page A-11, Line 5(a). Rather than incorporating the NECA figure of $5,886,870 set forth in NECA’s letter dated September 30, 2016, the Draft Resolution erroneously states $5,686,870.32.

CD agrees there is an error with Siskiyou’s Line 5(a) amount and has corrected the amount, as reflected within this document, and in Appendix A, page A-11.

E. The Small ILECs have recommended several text changes within the resolutiondiscussion, Findings and Conclusions, and in an Ordering Paragraph.

CD has considered these comments and has incorporated changes as appropriate.


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Findings and Conclusions

1. The California High Cost Fund (HCF) was implemented by Decision (D.) 88-07-022, as modified by D.91-05-016 and D.91-09-042, to provide a source of supplemental revenues for Small Incumbent Local Exchange Carriers (ILECs) whose basic exchange access line service rates would otherwise be increased to levels that would threaten universal service.

2. D.91-05-016 and D.91-09-042 provide foundational program guidelines, referred to as Implementation Rules, as well as an annual filing process addressed by this resolution to adjust straightforward and non-controversial program adjustments.

3. Currently there are 13 Small ILECs eligible for CHCF-A funding.

4. Ten Small ILECs have applied for CHCF-A support for Calendar Year (CY) 2018.

5. D.10-02-016 established the CHCF-A as a funding mechanism to close the gap between the costs of serving customers residing in high-cost rural exchanges and the revenue collected from those customers under Commission-approved rates, resulting in the CHCF-A Rulemaking 11-11-007.

6. In D.15-06-048, the Commission adopted a general rate case (GRC) plan, establishedan annual application cycle for the Small ILECs’ GRC submissions, and also established a timeline for processing the GRCs.

7. The cost of capital proceeding concluded on December 15, 2016, with the adoption of D.16-12-035, and issued revised rates of return for the ten Small ILECs.

8. The $1.3621.562 million differential between the 10 Small ILECs’ cumulative request of CY 2018 support of $38.951 million and Communications Division’s (CD) recommended CHCF-A support of $40.31340.513 million is due to several factors including 1) final Net Interstate Expense Adjustment data provided by the National Exchange Carrier Association, 2) adjustments due to Federal Communications Commission, and Commission decisions and rulings, 3) CD disallowances, and 4) Small ILEC calculation errors.

9. The Implementation Rules from D.91-09-042, Appendix, Page 2, states, “Utilities shall be eligible for support from the fund limited to the amount which are forecasted to result in earnings not to exceed authorized intrastate rates of return or to the current funding level amount for the year for which HCF is being requested, whichever amount is lower.”

10. 9. D.17-09-016 states that “Annual support and/or adjustments cannot be used to

boost utility earnings to levels which exceed those authorized by this Commission”.”


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11. 10. There are sufficient funds from the Fiscal Year (FY) 2017-18 and proposed FY 2018-19 budgets to cover CY 2018 CHCF-A support payments to the Small ILECs.

12. 11. CD’s recommended CHCF-A support for CY 2018 of $40,313,504.4540,513,504.45for the ten Small ILECs as summarized in Appendix A of this Resolution is reasonable and should be adopted.

13. 12. The monthly support payments from January 2018 through December 2018 shall be paid by CD in concert with the Administrative Services Division within 30 days after the close of each calendar month.

14. 13. The CHCF-A support payments are subject to the availability of CHCF-A funds and final appropriations in the annual Budget Act.

15. 14. If monthly support payments due to the Small ILECs are not paid within 30 days after the close of each calendar month, CD should include in those payments interest equal to the three-month commercial paper rate.

16. 15. P.U. Code § 275.6 and the CHCF-A program promote universal service by subsidizing essential communications services and customer access to advanced services and deployment of broadband-capable facilities in high cost, rural areas.

17. On January 2, 2018, the Small ILECs filed commented on the Draft Resolution.

THEREFORE, IT IS ORDERED that:

1. The California High Cost Fund-A support for the Small Incumbent Local Exchange Carriers, as described in this Resolution and summarized in Appendix A of this Resolution, is adopted.

2. The total approved California High Cost Fund-A support of $40,313,504.4540,513,504.45 for ten Small Incumbent Local Exchange Carriers for Calendar Year 2018 as itemized in Table 5:


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Table 5

Small Incumbent Local Exchange Carrier

Monthly

Support 2018

Yearly

Support 2018

Calaveras Telephone Company $244,408.25 $2,932,899.00

Cal-Ore Telephone Company $122,475.92 $1,469,711.00

Ducor Telephone Company $196,253.58 $2,355,042.96

Foresthill Telephone Company $235,918.71 $2,831,024.55

Kerman Telephone Company $326,199.64 $3,914,395.71

Pinnacles Telephone Company $29,772.83 $357,273.94

The Ponderosa Telephone Company $301,414.08 $3,616,969.00

Sierra Telephone Company $1,081,174.83 $12,974,098.00

Siskiyou Telephone Company $432,691.76 $5,192,301.09

Volcano Telephone Company $405,815.77 $4,869,789.20

$3,376,125.37 $40,513,504.45

3. Communications Division, in concert with the Administrative Services Division,shall pay monthly support payments to the seven Small Incumbent Local Exchange Carriers as shown in Table 5 for January 2018 through December 2018 within 30 days after the close of each calendar month. Late payments shall accrue interest at the three-month commercial paper rate.

4. The California High Cost Fund -A support payments totaling $40,313,504.4540,513,504.45 for the ten Small Incumbent Local Exchange Carriers arecontingent on the availability of funds and subject to final appropriation in the annual Budget Act.


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This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on January 11, 2018. The following Commissioners approved it:

TIMOTHY J. SULLIVANExecutive Director

Resolution T-17585CD/MWC

Appendix A

Resolution T- 17585 CD/MWC

APPENDIX AResolution T- 17585

A-1

Year 2018 CHCF-A Requirement(On Annual Basis)

(Col A) (Col B) (Col C)

Commission

Calaveras

AL 357

Staff

Reviewed

Adopted By

GRC Decision

1 2018 CHCF-A Requirement $2,932,899.00 $2,932,899.00

(Joint Motion for Adoption of All-Party Settlement Agreement in A.16-10-

002, filed April 18, 2017, Section 1.c.iv.5.)

2 Reverse Prior Year Non-Recurring Adjustments $0.00 $0.00

3 Year 2017 Impacts (Non-Recurring) $195,599.52 $185,929.41

a LifeLine Reimbursement (D.10-11-033, Section 5.5.3) $21,329.82 $11,659.71

b Pro-Rata Changes (FCC 14-190, VI.A) $37,792.70 $37,792.70

c Budget Control Mechanism (FCC 16-33, Section II.B.6) $136,477.00 $136,477.00

4 Year 2018 Impacts (Recurring) $0.00 $0.00

a FCC National Broadband Plan(5% reduction Intercarrier Compensation

(FCC11-161, Paragraph 851) $0.00 $0.00

b FCC A-CAM Revenue Replacement of USF-HCLS on Lines 5(a)-2016

USF-HCLS Amount $0.00 $0.00

5 Net Interstate Expense Adjustment

a

Projected 2018 USF-HCLS (Joint Motion for Adoption of All-Party

Settlement Agreement in A.16-10-002, filed 4/19/2017,Section 1.c.iv.2.) $1,613,488.00 $1,613,488.00

b Projected 2018 USF-HCLS (Per NECA) ($1,613,488.00) ($1,789,769.93)

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 ($176,281.93)

6 2018 CHCF-A Revenue Requirement $3,128,498.52 $2,942,546.48

(sum of lines 1, 2, 3 and 4 and 5c)

7 Total 2018 Revenue Requirement $3,128,498.52 $2,942,546.48

(Beginning CHCF-A Revenue Requirement for 2019)

8 2018 Revenue Requirement eligible for CHCF-A Support $3,128,498.52 $2,942,546.48

9 2018 Revenue Requirement after Means Test $3,128,498.52 $2,942,546.48

10 Waterfall effect 100.00% 100.00%

11 2018 Revenue Requirement after Waterfall $3,128,498.52 $2,942,546.48

12 2018 CHCF-A Support $3,128,498.52 $2,942,546.48 $2,932,899.00

13 Monthly Payment for Periods Jan - Dec 2018 $260,708.21 $245,212.21 $244,408.25

(Line 12/12)



A-2



Commission

Cal-Ore

AL 375

Staff

Reviewed

Adopted By

GRC Decision



004, filed May 10, 2017, Section III.2.a.iv.5)




b Pro-Rata Changes (FCC 14-190, VI.A) $0.00 $0.00

c Budget Control Mechanism (FCC 16-33, Section II.B.6) $0.00 $0.00



(FCC11-161, Paragraph 851) $0.00 $0.00




a

Projected 2018 A-CAM (Allocation, Joint Motion for Adoption of All-

Party Settlement Agreement in A.16-10-004, filed May 10, 2017,

Section III.2.a.iv.2) $767,362.04 $767,362.00

b

Projected 2018 A-CAM (Allocation, Joint Motion for Adoption of All-

Party Settlement Agreement in A.16-10-004, filed May 10, 2017,

Section III.2.a.iv.2) ($767,362.04) ($767,362.00)

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 $0.00









12 2018 CHCF-A Support $1,518,349.02 $1,501,082.22 $1,469,711.00


(Line 12/12)



A-3



Ducor

AL 372

Staff

Proposed

Commission

Adopted

1 2017 CHCF-A Requirement $3,075,672.38 $3,075,672.38 $3,075,672.38

(Resolution T-17549, Ordering Paragraph 1)

2 Reverse Prior Year Non-Recurring Adjustments ($26,621.86) ($26,621.76) ($26,621.76)

3 Year 2017 Impacts (Non-Recurring) $60,374.67 $50,187.01 $50,187.01

a LifeLine Reimbursement (D.10-11-033, Section 5.5.3) $19,708.29 $9,520.63 $9,520.63

b Pro-Rata Changes (FCC 14-190, VI.A) $8,466.38 $8,466.38 $8,466.38

c Budget Control Mechanism (FCC 16-33, Section II.B.6) $32,200.00 $32,200.00 $32,200.00

4 Year 2018 Impacts (Recurring) $5,115.98 $5,115.98 $5,115.98


(FCC11-161, Paragraph 851) $5,115.98 $5,115.98 $5,115.98


USF-HCLS Amount $0.00 $0.00 $0.00


a Projected 2017 USF-HCLS (Per NECA) $460,340.50 $460,340.50 $460,340.50

b Projected 2018 USF-HCLS (Per NECA) ($460,340.50) ($364,024.37) ($364,024.37)

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 $96,316.13 $96,316.13

6 2018 CHCF-A Revenue Requirement $3,114,541.17 $3,200,669.74 $3,200,669.74

(sum of lines 1, 2, 3 and 4 and 5c) .

7 Total 2018 Revenue Requirement $3,114,541.17 $3,200,669.74 $3,200,669.74


8 2018 Revenue Requirement eligible for CHCF-A Support $3,114,541.17 $3,200,669.74 $3,200,669.74

9 2018 Revenue Requirement after Means Test $2,268,930.67 $2,355,042.96 $2,355,042.96

10 Waterfall effect 100.00% 100.00% 100.00%

11 2018 Revenue Requirement after Waterfall $2,268,930.67 $2,355,042.96 $2,355,042.96

12 2018 CHCF-A Support $2,268,930.67 $2,355,042.96 $2,355,042.96


(Line 12/12)



A-4



Foresthill

AL 336

Staff

Proposed

Commission

Adopted





a LifeLine Reimbursement (D.10-11-033, Section 5.5.3) $0.00 $0.00 $0.00





(FCC11-161, Paragraph 851) $5,322.89 $5,322.89 $5,322.89


USF-HCLS Amount $0.00 $0.00 $0.00


a Projected 2017 USF-HCLS (Per NECA) $1,836,719.66 $1,836,719.66 $1,836,719.66

b Projected 2018 USF-HCLS (Per NECA) ($1,836,719.66) ($1,673,632.09) ($1,673,632.09)










12 2018 CHCF-A Support $2,649,336.97 $2,831,024.55 $2,831,024.55


(Line 12/12)



A-5



Happy Valley

AL 364

Staff

Proposed

Commission

Adopted



2 Reverse Prior Year Non-Recurring Adjustments $0.00 $0.00 $0.00

3 Year 2017 Impacts (Non-Recurring) $0.00 $0.00 $0.00


b Pro-Rata Changes (FCC 14-190, VI.A) $0.00 $0.00 $0.00

c Budget Control Mechanism (FCC 16-33, Section II.B.6) $0.00 $0.00 $0.00



(FCC11-161, Paragraph 851) $12,983.00 $12,983.00 $12,983.00


USF-HCLS Amount $0.00 $0.00 $0.00


a Projected 2017 USF-HCLS (Per NECA) $0.00 $0.00 $0.00

b Projected 2018 USF-HCLS (Per NECA) $0.00 $0.00 $0.00

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 $0.00 $0.00






9 2018 Revenue Requirement after Means Test $0.00 $0.00 $0.00


11 2018 Revenue Requirement after Waterfall $0.00 $0.00 $0.00

12 2018 CHCF-A Support $0.00 $0.00 $0.00

13 Monthly Payment for Periods Jan - Dec 2018 $0.00 $0.00 $0.00

(Line 12/12)



A-6



Hornitos

AL 334

Staff

Proposed

Commission

Adopted

1 2017 CHCF-A Requirement $584,870.00 $584,870.00 $584,870.00









(FCC11-161, Paragraph 851) $4,330.00 $4,330.00 $4,330.00


USF-HCLS Amount $0.00 $0.00 $0.00


a Projected 2017 USF-HCLS (Per NECA) $0.00 $0.00 $0.00

b Projected 2018 USF-HCLS (Per NECA) $0.00 $0.00 $0.00

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 $0.00 $0.00

6 2018 CHCF-A Revenue Requirement $589,200.00 $589,200.00 $589,200.00


7 Total 2018 Revenue Requirement $589,200.00 $589,200.00 $589,200.00


8 2018 Revenue Requirement eligible for CHCF-A Support $589,200.00 $589,200.00 $589,200.00




12 2018 CHCF-A Support $0.00 $0.00 $0.00


(Line 12/12)



A-7



Kerman

AL 417

Staff

Proposed

Commission

Adopted










(FCC11-161, Paragraph 851) $8,532.71 $8,532.71 $8,532.71


USF-HCLS Amount $0.00 $0.00 $0.00




c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 ($4,077.09) ($4,077.09)






9 2018 Revenue Requirement after Means Test $3,918,501.77 3,914,395.71$ $3,914,395.71



12 2018 CHCF-A Support $3,918,501.77 $3,914,395.71 $3,914,395.71


(Line 12/12)



A-8



Pinnacles

AL 277

Staff

Proposed

Commission

Adopted








4 Year 2018 Impacts (Recurring) $288.80 $288.80 $288.80


(FCC11-161, Paragraph 851) $288.80 $288.80 $288.80


USF-HCLS Amount $0.00 $0.00 $0.00



b Projected 2018 USF-HCLS (Pinnacles Calculation) ($175,124.00) ($175,124.00) ($175,124.00)

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $60,342.61 $60,342.61 $60,342.61






9 2018 Revenue Requirement after Means Test $357,276.93 357,273.94$ $357,273.94


11 2018 Revenue Requirement after Waterfall $357,276.93 $357,273.94 $357,273.94

12 2018 CHCF-A Support $357,276.93 $357,273.94 $357,273.94


(Line 12/12)



A-9



Commission

Ponderosa

AL 463

Staff

Reviewed

Adopted By

GRC Decision



001, filed May 10, 2017, Section III.3.iv.5)








(FCC11-161, Paragraph 851) $0.00 $0.00




a

Projected 2018 USF-HCLS (Joint Motion for Adoption of All-Party

Settlement Agreement in A.16-10-001, filed May 10, 2017, Section

III.3.iv.2) $4,934,099.00 $4,934,099.00


c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 $1,433,017.29









12 2018 CHCF-A Support $2,598,473.36 $4,012,431.34 $3,616,969.00


(Line 12/12)



A-10



Commission

Sierra

AL 447

Staff

Reviewed

Adopted By

GRC Decision



003, filed June 16, 2017, III.B.1.h.vi.5.)








(FCC11-161, Paragraph 851) $0.00 $0.00




a


003, filed June 16, 2017, III.B.1.h.vi.2.) $1,877,545.00 $1,877,545.00


c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $0.00 $494,636.49









12 2018 CHCF-A Support $12,796,973.62 $13,263,909.55 $12,974,098.00

13 Monthly Payment for Periods Jan - Dec 2018 $1,066,414.47 $1,105,325.80 $1,081,174.83

(Line 12/12)



A-11



Siskiyou

AL 415

Staff

Reviewed

Commission

Adopted





a LifeLine Reimbursement (D.10-11-033, Section 5.5.3) $1,463.25 $716.12 $716.12





(FCC11-161, Paragraph 851) $12,194.03 $12,194.03 $12,194.03


USF-HCLS Amount $0.00 $0.00 $0.00













12 2018 CHCF-A Support $4,860,648.04 $5,192,301.09 $5,192,301.09


(Line 12/12)



A-12



Volcano

AL 399

Staff

Reviewed

Commission

Adopted










(FCC11-161, Paragraph 851) $13,816.52 $13,816.52 $13,816.52


USF-HCLS Amount $0.00 $0.00 $0.00













12 2018 CHCF-A Support $4,854,141.18 $4,869,789.20 $4,869,789.20


(Line 12/12)



A-13



A-13End of Appendix A



Winterhaven

AL 259

Staff

Proposed

Commission

Adopted








4 Year 2018 Impacts (Recurring) ($73,448.00) ($73,448.00) ($73,448.00)


(FCC11-161, Paragraph 851) $8,498.00 $8,498.00 $8,498.00


USF-HCLS Amount ($81,946.00) ($81,946.00) ($81,946.00)



b

FCC A-CAM Revenue Replacement of USF-HCLS on Lines 5(a)-2016

USF HCLS amount $0.00 $0.00 $0.00

c Net Interstate Expense Adjustment (sum of lines 5a and 5b) $54,799.90 $54,799.90 $54,799.90









12 2018 CHCF-A Support $0.00 $0.00 $0.00


(Line 12/12)

Document comparison by Workshare Compare on Tuesday, January 09, 2018 7:29:37 AM

Input:

Document 1 ID

file://D:\MC7\My Documents\Resolutions\T-17585 CHCF -A Calendar Year 2018 Support for Small ILECs\T-17585_Res C_California High Cost Fund-A Support for CY 2018 WS.docx

DescriptionT-17585_Res C_California High Cost Fund-A Support for CY 2018 WS

Document 2 ID

file://D:\MC7\My Documents\Resolutions\T-17585 CHCF -A Calendar Year 2018 Support for Small ILECs\T-17585_Res A (Rev 1) California High Cost Fund-A Support for CY 2018 WS.docx

DescriptionT-17585_Res A (Rev 1) California High Cost Fund-A Support for CY 2018 WS

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