Texas ILEC Asks PUC for More than $500,000 in Support Lost After FCC USF Order

The Texas ILEC lost $551,601 in 2012 revenue, it told the PUC in September, backing up its claim with an affidavit from the National Exchange Carrier Association, which also determined projected impacts to the telco’s 2013 and 2014 revenue. Hill Country has more than 10,000 members across 14 counties. National groups including NARUC, NTCA and USTelecom have questioned the FCC’s order (CD Oct 9 p2). The order imposes “greater fiscal responsibility and accountability” and “reasonable limits on expenditures,” a commission spokesman said. “We do not believe that Congress intended to create a regime in which universal service subsidizes artificially low local rates in rural areas,” the order said.

The FCC order’s $10 residential rate benchmark is why Hill Country is losing the $500,000 in federal support, Wilson said. As of July 1, Hill Country charged customers below the urban floor benchmark rate of $10, according to Universal Service Administrative Co. (http://xrl.us/bn3wwk). The ILEC charged a residential local service rate of $9.40 monthly with a 40-cent state-USF subsidy. Texas law limits the degree to which companies can hike rates, Wilson said. The telco increased its residential rate the maximum allowable, about $2.65, to try to reach the $10 level and still failed, he said. “I'm between a rock and a hard place,” he said. “There was no way under these rules I could ever get to $10 to reach those benchmarks.” The state law, which limits the percentage telcos can hike rates, will create similar challenges in the future as the FCC’s minimum-price benchmarks continue to rise, he said.

Hill Country wants to adjust business rates to recover “a portion of this impact,” it told the PUC this fall. The rate change would recover $34,116 of the lost 2012 revenue, it said, saying it hoped to recover the other $517,485 from the Texas USF. It predicted the need to charge higher residential rates, which would potentially exceed the rates of business customers despite business customers’ higher usage, all “to meet the FCC’s new residential rate floor.” The Texas USF has shrunk in recent years but remains large, the PUC said in a November report (CD Nov 5 p16). The fund disbursed $426 million in 2011, with the lion’s share going to high-cost support.

"This proceeding is the first petition filed under [Texas’s Public Utility Regulatory Act Section] 56.025 seeking the replacement of [federal USF] revenues expected to be reduced as a result of the FCC’s November 18, 2011 USF Order,” an intervening USF Reform Coalition, consisting of Sprint Nextel, tw telecom and the Texas Cable Association, told the PUC Oct. 22. “The Coalition understands that the Commission may soon receive approximately 28 additional requests by ILECs.” That number refers to other small Texas phone companies and co-ops that fit Section 56.025, coalition attorney Susan Gentz of Enoch Kever told us. The code applies to co-ops or companies with fewer than 31,000 access lines and calls for the PUC to replace projected loss in federal subsidy, she said.

PUC staff and the coalition filed proposed lists of issues Tuesday. The coalition included questions that scrutinize the ILEC: “Has any action or failure to act on the part of [Hill Country] caused the reduction in federal USF to be greater than it otherwise would have been?” it asked (http://xrl.us/bn3wpq). The coalition also questioned Hill Country’s “corporate structure” and “its decision to offer certain services through an affiliate rather than directly” and wondered if either element would “deprive the company of revenues that should not be required to be made up by all telephone ratepayers who contribute” to the Texas USF. Hill Country argued in its own Tuesday list that those issues are outside the proceeding’s scope.

The PUC decision “will set a precedent,” the coalition said. Granting Hill Country’s request, and potentially other requests, will increase the Texas USF and consequently may increase the USF assessment on Texas companies, it said. PUC staff and the coalition have repeatedly requested information from Hill Country. A hearing is necessary because Hill Country “objected to most of the Coalition’s Requests for Information, the answers to which the Coalition needs to assess the application’s merits,” the intervening telcos said Nov. 9. The commission will consider a preliminary order at its Dec. 13 meeting and call a prehearing conference Dec. 18, the PUC said in mid-November (http://xrl.us/bn3v95). A procedural schedule will follow.

Due to uncertainty, Hill Country has “cut way back” on investment and faces “hefty loan payments” to CoBank, Wilson said. Politicians are “waking up to the situation,” President Randy Bass said in the company’s winter newsletter (http://xrl.us/bn3wsc). Customers don’t understand the new need for hikes, Wilson said. Hill Country received close to 30 complaints at the PUC due to the latest $2.65 hike. One of Hill Country’s customers protested the possible rate increase in an Oct. 15 letter to the PUC: “[It’s] proposing a 62.5% increase!” said Don Temple, managing partner of the Guadalupe River Resort (http://xrl.us/bn3wqg). “That is outrageous. We have 18 lines and an additional $6.00 per line per month would increase our bill $108 per month plus taxes.” He'll pursue VoIP alternatives if the rate hike happens, he said.