OUSF & E-Rate FUNDING FOR INTERNET AND BROADBAND CONNECTIVITY 9/11/2015 1 KELLOGG & SOVEREIGN CONSULTING

KELLOGG & SOVEREIGN CONSULTING 1

OUSF & E-RateFUNDING FOR INTERNET AND BROADBAND CONNECTIVITY

9/11/2015


Deborah J. Sovereign, CPA

Kellogg & Sovereign Consulting, LLC

Phone: 580.332.1444

Email: [email protected]

www.kelloggllc.com

Presented By:

9/11/2015

mailto:[email protected]

http://www.kelloggllc.com/


OUSF IssuesCHAPTER 59 - OKLAHOMA UNIVERSAL SERVICES FUND

9/11/2015


Internet Access & BandwidthOUSF

Lowest Reasonable Cost – bidding required

1.5 Mb per building credit not to exceed non-discount share (Erate applied first)

Lease Only

SP must be ILEC, OneNet or CCN*

Installation cost up to $1,000

Service Provider Files AFTER services start.

FCC - ERATE Most Cost Effective Solution w/ Price Primary

E-Rate Discount x eligible costs

Can be leased or self provisioned, dark or lit fiber

Any provider

Construction costs must be cost effective (comparisons required)

Applicant files PRIOR to start of service.

*Incumbent Local Exchange Carrier, OneNet, or company that has a Certificate of Convenience and Necessity

9/11/2015


OUSF – Notice of Inquiry CAUSE NO. PUD 201500339

COMMENTS DUE: September 28, 2015 October 30, 2015

TECHNICAL CONFERENCES: October 6, 2015 at 10:00 am November 3, 2015 at 10:00 am

Seeking input regarding changes to:

• Oklahoma Universal Service Fund (“OUSF”) for Special Universal Services as provided in 17 O.S. §139.109

• Oklahoma Telecommunications Act of 1997

• Oklahoma Administrative Code (“OAC”) 165:59 (“Chapter 59”) related to Special Universal Services.

9/11/2015


OUSF- Changes Made 2012-2014

Telemedicine ◦ Recertification beginning in 2013◦ Community mental health centers – eligible◦ Required to file federal first

Schools & Libraries◦ Documentation request April, 2014◦ Review bidding procedures – reasonableness test◦ Pre-K eligible

Data reporting◦ GVNW Consulting new fund manager◦ Internal reports by entity for OCC use only

9/11/2015


State Auditors Report July 1, 2012- June 30, 2013

PUD increased accountability and reduced risk by hiring additional staff and performing eligibility determinations of health care entities authorized by HB 2738. Redetermination process has not been implemented for schools & libraries due to staffing limitations

5% of healthcare entities files reviewed did not contain adequate documentation to determine eligibility

Unorganized documentation hindered review of eligibility redetermination documentation

An official complete listing of schools and libraries receiving OUSF does not exist

Management does not document their review of eligibility determinations

Providing funding to ineligible recipients could lead to increased fees for consumers

9/11/2015


HB 2738 (2012)◦ 17 O.S. § 139.109 E. states, “The Corporation Commission shall have authority

to investigate and modify or reject in whole or part a Special Universal Service

Request under subsection C of this section if the request does not meet the

specified criteria, if the Corporation Commission’s investigation determines

that the entity has not provided sufficient justification for the requested

services, or if the Corporation Commission determines that granting the

request is not in the public interest.”

9/11/2015


Concerns – Public Interest Response: PUD and the OCC deal with these major considerations on a daily basis whether it is in regard to safety, energy costs, or funds requests. The statutory change rightly put the duty of applying a Public Interest standard on the OCC.

It would be a rare occurrence where anyone would choose much higher payments for similar services when the funds are coming from their own pocket. If they are choosing a higher cost service due to additional services offered, that should not be covered by the OUSF.

PUD and the OCC are charged with administering this fund pursuant to statute and rule. It is inappropriate for payments to be made that are not in the public interest or include non-eligible services if the contracts were entered into after the statutory change.

9/11/2015


OUSF ResourcesHELPFUL LINKS – see also www.kelloggllc.com

http://www.occeweb.com/pu/OUSF/OUSF.htm

Active causes in PUD

http://www.occeweb.com/pu/PUD%20Reports%20Page/pudreports.html

Proposed Rules (Chapter 59)

http://www.occeweb.com/rules/proprules/proprule.html

Rules (Chapter 59)

http://www.occeweb.com/rules/rulestxt.htm

9/11/2015











OUSF Resources LOCATING SOURCE DOCUMENTS SUBMITTED FOR A CAUSE

You can access from the Commission’s home page. You will click on the tab labeled “conducting business” and in the drop down table select “imaged documents”

Select # 3 on that page to “search documents”

Select “OAP Orders and Case Files” and then type in the cause number and in the third box down, labeled “case type” select “PUD”

That will give you the documents filed in the cause.

9/11/2015


Example

9/11/2015


OUSF funding supportSCHOOLS & LIBRARIES

LIMITED TO BUILDING CREDIT – ◦ T-1 EQUIVALENT (1.54 Mbps)◦ Allows support for WAN connections

Internet Provider receives support first

Remaining building credit to WAN provider

TELEMEDICINE

LIMITED TO “as the entity’s telemedicine equipment and service applications require.”

Only one telemedicine line per site

9/11/2015


OUSF Rules Title 17 O.S. Sec 139.09SCHOOLS & LIBRARIES

Each public school building wherein classrooms are contained and each public library in the state shall, upon written request, receive one access line, free of charge, with the ability to connect to an Internet service provider at 1.5Mbps, in the most economically efficient manner for the carrier, or an equivalent dollar credit to be applied by the public school or public library toward similar services provided by the same carrier, for the purpose of accessing the Internet.

TELEMEDICINE

Each not-for-profit hospital, county health department, city-county health department, and federally qualified health center* in this state shall, upon written request, receive, free of charge, one telecommunications line or wireless connection sufficient for providing such telemedicine, clinical and health consultation services as the entity’s telemedicine equipment and service applications require.

http://www.oklegislature.gov/osStatuesTitle.aspx *mental health added in 2014 legislation

9/11/2015

http://www.oklegislature.gov/osStatuesTitle.aspx

http://www.oklegislature.gov/osStatuesTitle.aspx


OUSF FundingFY FUNDING REQUIREMENT CONTRIBUTION FACTOR

2016 63,733,869 2.16% (4.32% recommended)

2015 49,809,803 2.16%

2014 63,662,904 0.64% *

2013 48,052,057 3.14%

2012 52,646,216 3.14%

2011 25,526,161 1.99%

2010 19,308,742 1.94%

2009 13,676,710 0.006%

2008 11,880,481 0.003 %

*Reduced below prior years since fund was carrying a high cash balance.1999 - 0.456%. Factor stayed relatively stable from then to FY 2009 ranging from a low of 0.400% to a high of 0.600%.

9/11/2015


OUSF Data 2011-2016 Projections

9/11/2015


2015-16 funding loss Revenue Required: $63,733,869

Contribution Base: $1,156,202,137

Carryover Balance: $13,782,727

2.16% x $1,156,202.137 = $24,973,966.16

4.32% x $1,156,202.137 = $49,951,145.00

PROJECTED SHORTFALL FOR 2015-16: $24,977,175,84 – ** ESTIMATE ONLY**

9/11/2015


Factor 0.64 – Loss in OUSF Funds Factor was 3.14 for both 2012 and 2013

Lower rate approved for 2014 since carryover balance was $54,168,32. However, prior year telemedicine causes were $32,545,391 (see testimony in PUD # 2014-0031)

Contribution Base: $1,484,410,006

3.14% x $1,484,410,006 = $46,610,474.19

0.64% x $1,484,410,006 = $9,500,224.04

SHORTFALL FOR 2014-15: $37,110,250.15 – factor was extended for additional 4 months

4 months additional loss: $12,370,083.38

Total loss of funds due to lower factor – 18 months - $49,480,333.53 **ESTIMATE ONLY**

9/11/2015

KELLOGG & SOVEREIGN CONSULTING 199/11/2015



Source:http://www.occeweb.com/pu/OUSF/OUSFFundingReport08-28-15.pdf

Downloaded 9/10/2015

9/11/2015



Review Process SCHOOLS & LIBRARIES

Affidavit process beginning April 2014

New orders – full review of bidding documentation

Reasonableness test applied to competitive bidding documents (E-Rate)

Public Interest clause - can deny / reduce funding support when review orders or upon routine review of bidding documentation

TELEMEDICINE

Recertification in February

Approval letters for allowed bandwidth and site eligibility issued in May

Effective July 1

Telemedicine providers are notified in advance of their fiscal year

New orders reviewed after services start, but have approval for bandwidth and site eligibility

9/11/2015


OUSF CHANGES

CHANGES MADE IN REVIEW PROCESS

18 MONTHS - Service Provider must file request within 18 months from start of service

DUPLICATE PROVIDERS – will only provide support to new provider after date of disconnect notice

PRE-APPROVAL – service providers may submit order for pre-approval. Process takes approximately 90 days.

FEES – will not be paid by OUSF

COMPETITIVE BIDDING – required of all applicants

Affecting all applicants

9/11/2015


OUSF Changes - Schools

Will fund the lowest reasonable cost for internet access to schools and libraries for the balance not paid by E-rate up to the eligible 1.5Mbps building credit equivalent

Will require the production of all bids for services.

PUD must determine reasonableness for all services and charges.

OUSF will not fund redundant service(s)

Funding shall be limited to 18 months prior to the date of application

Will fund the incumbent provider until the earlier of actual disconnection or 30 days after the disconnect notice

PUD may provide support for installation and build out

Sales taxes, FUSF, and OUSF will not be reimbursed on or after 7/11/2013.

Memorandum OUSF Operational Procedures (MOOP) 9/5/2014

9/11/2015


OUSF Changes - SchoolsMemorandum OUSF Operational Procedures (MOOP) 9/5/2014

PUD will not reimburse quality of service charges

Monthly equipment fees (managed routers) will not be reimbursed on or after 1/28/2014

Qualified School Building - each building which contains classrooms wherein students in pre-kindergarten thorugh twelfth grades receive internet based coursework. Buildings with a physical firewall would qualify for a building credit for each section of the building that is separated by a physcial functional firewall. Being the point of service does not automatically qualify a building for credit.

Pre-K is only funded beginning 5/9/2014 when HB 2977 was signed by the governor.

OUSF will not fund internet access to a building during construction phase or any remodeling/out of service timeframes which occur over an extended period of time.

http://www.occeweb.com/pu/OUSF/OUSF%20Request%20Forms/OUSF%20Procedures%209-5-14.doc

9/11/2015


Schools & Libraries

Schools & Libraries

Statement: Schools should be allowed access to full building credits and should be able to select a more expensive carrier.

Response: Schools are allowed full access to their credits when the requested funding is found to be in the public interest. However, it is not appropriate for the fund to pay additional amounts for services that are ineligible for OUSF funding or for services that are priced unreasonably

Increased building credit

Pre-K added

9/11/2015


FCC Fiber Opportunities

9/11/2015


FCC Resources:

FCC – Erate Fiber Build Workshop (May 20, 2015):◦ https://www.fcc.gov/events/e-rate-fiber-build-workshop◦ Jon Wilkins, Managing Director, FCC◦ Joe Freddoso, Co-Founder and Chief Operating Officer, Mighty River, LLC and former President and Chief Executive

Officer of MCNC

FCC 2nd E-rate Modernization Order (December 19, 2014)◦ http://www.usac.org/sl/tools/modernization-order/order.aspx

FCC Fiber Presentation (USAC Phoenix Training June 2, 2015):◦ http://www.usac.org/about/tools/TrainingArchive/trainingDetails.aspx?eid=244

9/11/2015

https://www.fcc.gov/events/e-rate-fiber-build-workshop



http://www.usac.org/sl/tools/modernization-order/order.aspx

http://www.usac.org/sl/tools/modernization-order/order.aspx

http://www.usac.org/about/tools/TrainingArchive/trainingDetails.aspx?eid=244

http://www.usac.org/about/tools/TrainingArchive/trainingDetails.aspx?eid=244

30Provided by USAC (with permission)

FCC FIBER Second E-rate Modernization Order

OPPORTUNITIES FOR OKLAHOMA SCHOOLS

9/11/2015


FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS

9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015


Example School A –

$120,000 fiber build to nearest POP (Internet Point of Presence)

80% Erate discount

$24,000 – Non Discount Share

$12,000 – paid with State funds

$12,000 – USAC will match up to 10%

-------------

$0 – School out of pocket costs

9/11/2015


Example School A –

$120,000 fiber build to nearest POP (Internet Point of Presence)

80% Erate discount

$24,000 – Non Discount Share

$ 0 State Funds

-------------

$24,000 – School out of pocket costs can be paid out over 4 years with installment plan with their service provider: $6,000 per year. Can be paid monthly or annually.

Need to specify installment plan request on E-rate Form 470 and RFP

9/11/2015


New Concept – Construction Costs year one; own not rent

CONSTRUCTION COSTS – YEAR 1 $120,000 one time; $500/month (5 year) Erate discount 80% Erate payment year 1:

◦ $120,000 x 80% = $96,000 ◦ $6,000 x 80% = $4,800

Erate Years 2-5: $6,000 x 80% = $4,800

Totals: $150,000 ($120,000 Erate)

Problem: Current OUSF rules do not provide support for construction costs – no incentive

CONSTRUCTION COSTS AMORTIZED

$2500/month – 5 year contractErate discount 80%$30,000/year x 80% = $24,000

Total over 5 years: $150,000 ($120,000 Erate)

Problems: Multi-year contract w/ Termination Fees; Service Provider might not lower rate after 5 years.

9/11/2015



9/11/2015



9/11/2015



9/11/2015



9/11/2015 KELLOGG & SOVEREIGN CONSULTING



9/11/2015



9/11/2015



9/11/2015


TELEMEDICINE ISSUES

9/11/2015


Telemedicine

Cause No. PUD 20140001 – Final Order

Pre-filed Testimony of Chris Herbison 3/28/2014

Telemedicine Recertification – Begin Feb 2013 and repeated in Feb 2014

◦ 83 telemedicine lines were identified as no longer eligible◦ 135 recipients of telemedicine notified that amount of

bandwidth would be decreased effective Dec 31, 2013◦ Savings of $4.5 million effective July 1, 2014◦ New requests for funding expected to offset the $4.5

million

Per audit report, 407 health care entities receiving telemedicine services.

Recertification

9/11/2015


Telemedicine

Cause No. PUD 20140001 – Final Order

Pre-filed Testimony of Chris Herbison 3/28/2014

Telemedicine Recertification – Begin Feb 2013 and repeated in Feb 2014

◦ 83 telemedicine lines were identified as no longer eligible◦ 135 recipients of telemedicine notified that amount of

bandwidth would be decreased effective Dec 31, 2013◦ Savings of $4.5 million effective July 1, 2014◦ New requests for funding expected to offset the $4.5

million

Per audit report, 407 health care entities receiving telemedicine services.

Recertification

9/11/2015


Telemedicine

Telemedicine requests were expected to be approximately $26 million for 2012◦ New requirement to seek alternate funding first◦ Health Care Connect Fund – 65% discount for rural health

care providers◦ Telecommunications Program – difference between urban

and rural rate – up to 98%

◦ Estimated savings on fund- minimum 25% of telemedicine $

◦ No data available at this time regarding impact on this change

◦ Funding data is not available from either the federal or state funds

Required to file federal first effective January 1, 2014

9/11/2015


Telemedicine

Primary Program –◦ Telecommunications Only◦ Must be rural◦ Pays difference between Urban & Rural rate

Health Care Connect Fund◦ Broadband Services◦ Network equipment (consortiums)◦ 65% discount◦ Rural◦ Urban can participate if member of a consortium >50% rural

◦ Consortium is 2 or more sites (can be same organization)

FCC Programs Available

9/11/2015


Telemedicine

New eligibility requirements

Definition of a hospital◦ Limit OUSF funding support only to sites with a hospital license

Statute change◦ Added eligibility of community mental health centers

Effect of changes◦ Reduced # of applicants eligible for funding◦ Mental health sites were already receiving support

Added community mental health centers as eligible

Rules changed to only allow health care clinics with hospital license to qualify

9/11/2015

Documents

OUSF & E-Rate FUNDING FOR INTERNET AND BROADBAND CONNECTIVITY 9/11/2015 1 KELLOGG & SOVEREIGN CONSULTING