Discussion
of Issues
Issue 1:
Should the Commission approve FTRI’s proposed budget as
presented in Attachment A for Fiscal Year 2018/2019, effective September 1,
2018, and should the Commission maintain the current Telecommunications Relay
Service (TRS) surcharge at $0.10 per month?
Recommendation:
Staff recommends that the Commission reduce FTRI’s proposed
budget expenses for Fiscal Year 2018/2019 by $19,823 for legal expense and by
$39,469 for insurance expense. Staff also recommends that the Commission allow
FTRI to transfer $203,746 from the Reserve Account to offset projected expense
increases resulting from the new relay contract, and $57,723 in additional
expense primarily related to equipment, employee compensation, and auditing.
Staff recommends that the Commission order all local exchange companies to
continue billing the $0.10 surcharge for Fiscal Year 2018/2019. Staff further recommends
that the Commission order FTRI to continue to require detailed, itemized bills
from its legal counsel and to continue in-house analyses for
Insurance-Health/Life/Disability and Retirement expenses. Staff recommends that
FTRI be ordered to provide updated results of its analyses to staff by January
31, 2019. (Williams, Bates, Fogleman, Long)
Staff Analysis:
Traditional
Telecommunications Relay Service
Minutes of use for traditional
TRS have been declining. The traditional TRS cost to FTRI as approved in Sprint
Communications Company, L.P.’s (Sprint) contract is currently $1.35 per session
minute. Sprint’s projections indicate that traditional minutes will continue to
decline during Fiscal Year 2018/2019. Traditional relay users are transitioning
to the following services:
·
Internet Protocol (IP) Relay
·
Video Relay Service (VRS)
·
Captioned Telephone (CapTel) Service
·
Internet Protocol Captioned Telephone Service
·
Internet Protocol Speech-to-Speech (STS) Service
·
Wireless Service
CapTel
Service
CapTel service uses a specialized telephone that provides
captioning of the incoming call for a deaf or hard of hearing person. Sprint’s
projections show that CapTel minutes of use will also decrease during Fiscal
Year 2018/2019. The CapTel cost to FTRI as approved in the Sprint contract is
currently $1.69 per session minute.
Florida
Telecommunications Relay Inc. Budget
Attachment A reflects FTRI’s Fiscal Year 2018/2019 proposed
budget, which was reviewed and adopted by FTRI’s Board of Directors prior to
filing with the Commission. The proposed budget includes an increase in
expenses of $263,106 from the Fiscal Year 2017/2018 Commission approved budget.
The expense increase is primarily attributable to the increase in TRS and
CapTel service cost resulting from the new relay contract with Sprint that went
into effect on March 1, 2018.
The FTRI 2018/2019 proposed budget projects total
operating revenues of $5,793,651 and total expenses of $6,114,412. Based on the
projected revenues and expense increase, FTRI requests that the Commission
grant FTRI authority to transfer $320,761 from the Reserve Account to offset
the shortfall. FTRI also requests that the Telecommunications Relay surcharge
be maintained at $0.10 per access line for Fiscal Year 2018/2019.
The largest increase in expense in FTRI’s budget is
attributable to relay provider services provided by Sprint. On July 26, 2017 the
Commission approved $2,219,366 for relay provider expense for FTRI’s 2017/2018
budget. However, on March 1, 2018, a new relay service contract with Sprint
went into effect with higher service rates, resulting in higher actual and
projected cost. FTRI’s proposed relay provider expense for its 2018/2019 proposed
budget is $2,826,281, resulting in an increased cost of $606,915 when compared
to the Fiscal Year 2017/2018 Commission approved budget. Sprint’s estimated
Fiscal Year 2018/2019 traditional Telecommunications Relay surcharge minutes of
use are 1,129,663, at a rate of $1.35 per minute for a total of $1,525,045.
Sprint’s estimated CapTel minutes of use for Fiscal Year 2018/2019 are 769,962,
at a rate of $1.69 per minute for a total of $1,301,236.
A comparison of FTRI’s Fiscal Year 2017/2018 Commission
approved budget, FTRI’s Fiscal Year 2017/2018 estimated actual revenues and
expenses, and FTRI’s Fiscal Year 2018/2019 proposed budget as filed is shown in
Table 1 below.
Table 1
FTRI Budget Comparison
|
|
Commission
Approved
2017/2018
|
FTRI
Estimated Actual 2017/2018
|
FTRI
Proposed
2018/2019
|
|
Operating Revenue:
|
|
|
|
|
Surcharges
|
$6,273,379
|
$6,131,016
|
$5,695,749
|
|
Interest Income
|
53,849
|
83,056
|
97,902
|
|
Total Operating Revenue
|
$6,327,228
|
$6,214,072
|
$5,793,651
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
Relay Provider Services
|
$2,219,366
|
$2,622,535
|
$2,826,281
|
|
Equipment & Repairs
|
1,335,920
|
1,295,308
|
1,040,360
|
|
Equipment Distribution & Training
|
773,938
|
700,465
|
705,986
|
|
Outreach
|
558,976
|
558,976
|
546,250
|
|
General & Administrative
|
963,106
|
939,915
|
995,535
|
|
Total Expenses
|
$5,851,306
|
$6,117,199
|
$6,114,412
|
|
|
|
|
|
|
Annual Surplus
|
$475,922
|
$96,873
|
($320,761)
|
|
Reserve Account
|
17,337,883
|
17,301,477
|
17,398,350
|
|
Total Reserve
|
$17,813,805
|
$17,398,350
|
$17,077,589
|
Source: FTRI’s Fiscal Year 2018/2019
proposed budget.
Analysis
In its budget filing, FTRI acknowledges that access lines
have decreased at the rate of 4.8 percent during the past three years (2015-2017)
and believes that trend will continue as more consumers transition from
landline phones to other technologies. As a result, FTRI’s revenues will be
reduced as the number of access lines decline, holding the surcharge constant.
Continued efforts by FTRI to reduce expenses are important.
Staff developed its own estimate of FTRI’s expenses for
Fiscal Year 2017/2018. This data is presented in Attachment B. Staff used
actual data from July 2017 through March 2018 and estimated the fourth quarter
by averaging the first three quarters of the fiscal year. Staff’s estimates
were then used as one element in evaluating FTRI’s proposed budget. Attachment
B includes FTRI’s budgeted information for comparison purposes. Below is
staff’s review of selected items from FTRI’s proposed budget expense by
category.
Category I – Relay Services
The relay service expenses are based on the minutes of use
as projected by Sprint and relay service contract rates. Sprint’s historical
projections have proven to be reasonable and it has multi-state experience with
such projections. As a result of the new relay contract that went into effect
on March 1, 2018, the TRS rate increased from $1.09 to $1.35 per minute, and the
CapTel rate increased from $1.65 to $1.69 per minute. Staff believes that the
estimates for Fiscal Year 2018/2019 are reasonable and should be used for
budgetary purposes.
Category II – Equipment & Repairs
Category II expenses reflect the purchase of equipment to
be distributed to clients and the repairs that FTRI must make to keep the
equipment in working order. FTRI’s equipment budget reflected declines in
equipment distribution, but includes equipment orders to maintain a sufficient
inventory to serve its clients. FTRI used contract pricing for equipment
multiplied by the number of units it plans to order over the course of the
year. FTRI’s proposed budget represents a $295,560 decrease in expense when compared
to the 2017/2018 Commission approved budget. After comparing FTRI’s proposed
budget with its own estimates for Fiscal Year 2017/2018, staff believes that
FTRI’s proposed budget for Category II expense is reasonable.
Category III – Equipment Distribution &
Training
Category III reflects the cost of distribution of
equipment throughout the state and the training of consumers in the use of the
equipment. FTRI contracts with non-profit Regional Distribution Centers (RDCs)
to perform these functions throughout Florida. Currently there are 28 RDCs.
The largest component for Category III relates to FTRI’s
support of the RDCs. Staff notes that FTRI added additional RDCs last year.
FTRI’s proposed budget reflects a $67,952 expense reduction from the 2017/2018 Commission
approved budget. The amount of funds for FTRI’s contracts with RDCs vary based
on the number of clients they assist. More funds are provided for connecting a
new client, while fewer funds are provided to assist existing clients in the
system. Staff believes FTRI’s proposed budget for Category III expenses is
reasonable.
Category IV – Outreach
FTRI’s proposed Fiscal Year 2018/2019 outreach expense
represents a decline from the Commission’s approved outreach expense budget for
Fiscal Year 2017/2018. FTRI has requested $546,250 for outreach, a decrease of
$12,726 from last year’s budget. FTRI believes that newspaper advertisements,
specifically insert ads, are the most effective means of reaching eligible
consumers and plans to continue this outreach strategy. In addition to
newspaper insert ads, FTRI also plans to add a comprehensive digital marketing
campaign to include: banner ads on websites, targeted email campaigns, and
social media campaigns.
As reflected in Attachment B, staff’s estimate of actual outreach
expense for Fiscal Year 2017/2018 is $529,593. Staff’s methodology utilized an
average of the first three quarters to establish a fourth quarter estimate. However,
FTRI clarified that the fourth quarter is its peak advertising quarter for
outreach. As such, staff’s methodology did not take into account FTRI’s end of
year peak outreach activities, which accounts for the difference between the
staff estimate and FTRI’s. Staff believes FTRI’s proposed budget for Category
IV expenses is reasonable.
Category V – General & Administrative
Category V reflects the expenses associated with FTRI’s
operations, such as office and furnishings, employee compensation, contracted
services (auditors, attorney, and computer consultants), computers and other operating
expenses (such as insurance and retirement). FTRI has proposed a budget for
nine employees for the Fiscal Year 2018/2019, one less than was approved in
last year’s budget.
There is a direct correlation between the minutes of use and
related service delivery and equipment distribution expense. As minutes of use
decline and consumers substitute older equipment such as TTYs with newer
technologies such as mobile devices with texting capabilities, associated
expense should decrease. Although reduced minutes of use and technology
substitution does not impact General and Administrative expense to the same
degree, staff believes efforts to control General and Administrative expenses
are of equal importance.
Staff Adjustments to FTRI’s Proposed Budget
FTRI’s
proposed 2018/2019 budget presents reduced expenses in Categories II-IV. However,
staff believes additional reductions can be made in Category V - General &
Administrative expenses. In staff’s analysis, staff compared actual expenses
for the first three quarters and estimated the fourth quarter (using an average
of the first three quarters) for Fiscal Year 2017/2018 to compare with FTRI’s
proposed budget. Based on this review, staff recommends the adjustment and/or
continued monitoring of the following expenses:
·
Legal
·
Insurance-Health/Life/Disability
·
Retirement
Legal Fees
Prior to the 2017/2018 budget, FTRI had a long-standing
agreement for legal representation at a flat fee minimum of $72,000 per year.
FTRI has retained the same law firm for many years.
FTRI’s attorney attends the board meetings and writes the minutes, reviews
Requests for Proposals, reviews contracts, and advises on legal issues as they
arise. In last year’s budget order, the Commission stated that paying the
attorney an hourly rate may be more cost effective than paying a flat fee
minimum for these services. The Commission ordered:
We are not convinced that the contract amount is
required to perform the regular annual non-litigation services for FTRI. Based
on our review of the information provided, we find that the billable minutes
associated with the services contracted may be more in line with an expense of
$36,000. We find that more detailed billing information is necessary to allow
for further analysis in next year’s budget. FTRI shall collect such billing
information to include itemized invoices to FTRI with date of services, charges
for the services, hours of service, price per hour, and a detailed description
of the services provided by legal counsel.
Subsequent to the Commission’s
order limiting legal expenses to $36,000, FTRI signed a legal services
agreement with the attorney guaranteeing a monthly flat fee of $3,000 per month
(12 hours at $250 per hour), with additional hours billed for specified
services as needed at $225 per hour. The current negotiated agreement was for a
minimum of $36,000, which was the upper limit of the 2017/1028
Commission-approved budget for legal expenses. Even if FTRI’s counsel performed
no work, FTRI would be billed the maximum amount allowed in the approved
budget. As written, the contract will result in legal expenses projected by
FTRI that will be $19,823 over the 2017/2018 Commission-approved budget of
$36,000.
In its Fiscal Year 2018/2019 budget proposal, FTRI
summarizes its legal expenses to date under the newly executed contract
stating:
Last year the FPSC reduced this line item to $36,000
per year. July – Dec 2017 FTRI has paid out $27,911.30 in legal expense. FTRI
conservatively expects January – June 2018 to be similar in expense and is
reflected in the Year End estimate of $55,823 basically doubling the expense
from the first half of the year. FTRI has used the FYE estimate as its budget
for 2018/2019.
FTRI estimated its annual legal expenses by doubling its
payments for the first six months of the Fiscal Year. However, FTRI’s
calculation included legal invoice payments for July 2017 through January 2018,
or seven months of payments. The first six months of charges (July through
December 2017) equal $24,911.30, not $27,911.30. Doubling the correct amount,
utilizing FTRI’s current approved budget, yields an annual projection for
FTRI’s legal expenses of $49,823.
Similar to the previous fiscal year, and after review of
supporting documents relating to legal expenses, staff continues to have
concerns regarding the itemized legal expenses. To date, FTRI has provided
staff with legal invoices for July 2017 through May 2018, or 11 of the possible
12 months. Based on staff’s review of these legal invoices, staff believes that
there are several steps FTRI can take to reduce its legal expenses.
As previously stated, FTRI’s current agreement for legal
services includes a monthly flat-fee minimum of $3,000 for 12 hours of services
at $250 per hour, whether or not services are actually performed (i.e., if
FTRI’s counsel provides fewer than 12 hours of services, it still bills FTRI
$3,000 for that month). Any hours over 12 performed in a calendar month are
billed at $225 per hour. Utilizing this agreement has resulted in a projected
amount for 2017/2018 of $3,630 in legal fees billed by FTRI’s counsel that were
not attributable to work performed. Staff believes it would be in FTRI’s
interest to negotiate a more traditional capped “retainer” agreement in which hours
are charged against the retainer as work is performed.
Invoices show that FTRI paid approximately $900 in legal
fees for its counsel to draft a new contract, more lucrative than last year’s
Commission order on legal expenses. Staff does not believe legal fees
attributable to the drafting of a fee agreement for an amount that exceeds
Commission approved expenses are reasonable.
In addition, some activities billed this Fiscal Year may
not be most reasonably performed by an attorney. For example, FTRI’s counsel serves
on the FTRI Board as its secretary, performing duties such as preparing the
agenda for board meetings and transcribing minutes following the meeting. Staff’s
view is that since the members of the FTRI board perform their duties without
compensation, the duties of the board secretary should not be compensable as a
legal expense. Regardless, staff does not believe that these functions require
an attorney, at the attorney’s full hourly rate, to perform. FTRI staff members
should be able to perform many activities such as preparing materials. If no
one on the board wishes to act as secretary and take minutes, staff believes
FTRI should explore less expensive ways to perform functions that do not
require an attorney.
Staff recommends that FTRI’s
proposed Fiscal Year 2018/2019 budget line item for legal expenses be
established at $36,000, the same as last year, but with the following
additional reasonable restrictions:
1.
The $36,000 budget item shall not be administered as a
flat fee guaranteed retainer but instead shall be administered as a capped
$36,000 retainer to be billed against on an hourly basis only as legal services
are required.
2.
The hourly rate for legal services should be capped at
the rate of $250 per hour broken into increments, which are rounded to no
greater than 6 minutes. Bills or invoices shall be prepared and submitted to
FTRI on a monthly basis.
3.
FTRI should continue to collect billing information to
be used by staff and FTRI for analysis of next Fiscal Year’s budget. Detailed
information on the nature of each charge or a detailed description of each
service provided by legal counsel should be included in all invoices. The
information contained, per increment(s) of time billed, should be reasonably
sufficient to identify the specific activity performed. For example, review “x”
contract, review of “x” issue or “x” matter is sufficient; on the other hand,
“review of pending issues/matters” is insufficient to reasonably identify the
activity performed. Further, information
should include itemized invoices to FTRI with date of services, charges for the
services, hours of service, price per hour.
Should the attorney have knowledge or anticipate that the
$36,000 capped retainer may be exceeded due to unforeseen situations such as an
emergency, FTRI shall give 90 days’ notice to the Commission of this upcoming
event. Staff recommends that no exceedance of the amount of the $36,000
retainer shall occur without prior Commission approval, and FTRI is not
authorized to transfer funds from other areas in Category V to subsidize
overages of attorney related contracted services.
In-House Analyses
Insurance
FTRI
provides health, dental, vision, basic life, short-term disability, and long-term
disability insurance to its employees. Employees contribute 5 percent of the
premium for single coverage and 25 percent of the difference between single and
dependent coverage. Last year the Commission ordered FTRI to compare the
benefits it offered with those of similarly situated organizations.
In
response to the Order, on April 2, 2018, FTRI filed plans for health insurance from
two responding companies. FTRI stated to the Commission that it requested
information from various providers, however, the companies stated that they were
unable to provide like-for-like comparisons to FTRI’s existing plan. FTRI stated
that the plans it filed with the Commission represent what it considered to be
the most comparable plans. Based on the plans filed, FTRI switched from its
existing provider at the time, UHC NCTA, to the plan offered by SBG-UHC Choice
Plus Platinum AUXC.
In its proposed
2018/2019 budget, filed on April 16, 2018, FTRI included a budget for insurance
of $192,496, which is an increase of 5.12 percent from Fiscal Year 2017/2018
estimated expenditures. However, FTRI’s insurance budget was based on an
estimate from its previous insurance provider. Since changing insurance
providers, FTRI has provided a revised insurance estimate of $153,027, a
decrease of 16.4 percent from its Fiscal Year 2017/2018 estimated expenditures.
Staff recommends that FTRI’s proposed Fiscal Year 2018/2019 budget line item
for insurance be reduced by $39,469, to the proposed amount of $153,027 to
reflect the updated estimate provided by FTRI. Staff recommends that FTRI
continue to conduct in-house analyses for Insurance expense and submit its
findings to the Commission. Staff recommends that FTRI submit the results of
the analyses to staff by January 31, 2019.
Retirement
Retirement
expense is based on salary and related pension costs for administration of the
program through FTRI’s plan administrator NTCA. FTRI proposes a $7,993 increase
in retirement expense from Fiscal Year 2017/2018 estimated expenditures. The Commission
authorized 10 positions for FTRI’s Fiscal Year 2017/2018 budget. However,
during most of Fiscal Year 2017/2018 FTRI operated with eight employees. FTRI
has communicated that funding nine positions for Fiscal Year 2018/2019 is needed
to perform its functions. The increase is primarily based on the number of
employees increasing from eight to nine.
Currently,
11.1 percent of salaries are contributed to a retirement account for the
employees. Employees are not required to pay for any of their retirement. The
retirement budget is based on estimated compensation for nine employees and a
three percent salary increase.
Last year the
Commission ordered FTRI to conduct in-house analyses for retirement and to
include quotes from other retirement plans offered by comparably-sized
nonprofit and for profit entities. On April 4, 2018, in response to the Order, FTRI
filed its report with the Commission. FTRI stated that it requested information
from several providers. FTRI also communicated that the majority of providers
stated they were unable to provide a comparable defined benefit plan.
FTRI did submit
an analysis from Regions Institutional Services (Regions) on the plan design,
investment returns, and administrative structure of FTRI’s current Pension
Plan. The analysis pointed out that the current plan boasts roughly $2 billion
in assets with over 17,000 participants. It further stated that the cooperative
nature of the plan allows the assets to be pooled for investment purposes and
the large asset base attracts outside managers not generally available to
smaller defined benefit plans. Regions also stated that the fees charged for
actuarial services would be lower than stand-alone plans, but acknowledged that
it did not have data to compare this theory. Regions concluded that there are
no glaring issues with FTRI’s current plan design or operation.
Lastly,
Regions stated that FTRI would benefit from delaying any decision until the
2017 actuarial valuation has been completed. Regions explained that it
contacted several actuarial firms to design a plan review if FTRI should decide
to move to a stand-alone retirement plan. As stated earlier, Regions recommends
a more thorough review by an actuarial firm prior to moving from the current
plan.
Staff recommends that FTRI continue to conduct in-house
analyses for Retirement expenses and submit its findings to the Commission.
These analyses should include price quotes from other providers for insurance
and retirement plans offered by comparably-sized nonprofit and for profit
entities. Staff recommends that FTRI submit the results of the analyses to
staff by January 31, 2019.
Surcharge
Staff recommends that the Commission order all local
exchange companies to continue billing the $0.10 monthly surcharge for Fiscal
Year 2018/2019. Staff’s recommended total budget includes a shortfall of $261,469.
FTRI proposed drawing from the Reserve Account to cover the shortfall in their
proposed budget. Staff notes that the recommended shortfall of $261,469 represents
approximately half the projected revenue that would be generated from a $0.01
increase in the surcharge. Therefore,
staff believes that rather than increasing the surcharge, it is appropriate to
transfer the funds from the Reserve Account to cover the budgeted shortfall for
Fiscal Year 2018/2019.
Conclusion
Staff
believes FTRI’s expense reductions in Categories II-IV continue to be steps in
the right direction to better position FTRI in a changing industry. However, a
sustained effort is necessary for FTRI to strategically position itself in a
rapidly changing environment. Staff has identified three expense line
items in FTRI’s proposed 2018/2019 budget that should be reduced and/or warrant
further analysis. These include Legal, Insurance-Health/Life/Disability, and
Retirement expenses.
Staff recommends that the
Commission reduce FTRI’s proposed budget expenses for Fiscal Year 2018/2019 by
$19,823 for legal expense and by $39,469 for insurance expense. Staff also
recommends that the Commission allow FTRI to transfer $203,746 from the Reserve
Account to offset projected expense increases resulting from the new relay
contract, and $57,723 in additional expense primarily related to equipment,
employee compensation, and auditing. Staff recommends that the Commission order
all local exchange companies to continue billing the $0.10 surcharge for Fiscal
Year 2018/2019. Staff further recommends that the Commission order FTRI to
continue to require detailed, itemized bills from its legal counsel and to
continue in-house analyses for Insurance-Health/Life/Disability and Retirement
expenses. Staff recommends that FTRI be ordered to provide updated results of
its analyses to staff by January 31, 2019. (Williams, Bates, Fogleman, Long)
Issue 2:
Should the Commission approve the appointment of
Commissioner Margaret Brown to the TASA Advisory Committee effective
immediately?
Recommendation:
Yes. Staff recommends that the Commission approve
the appointment of Commissioner Margaret Brown to the TASA Advisory Committee
effective immediately. (Williams, Page)
Staff Analysis:
Pursuant to Section 427.706, F.S., the Commission
shall appoint an advisory committee of up
to 10 members to assist the Commission
with Florida’s relay system.
By statute, the
advisory committee provides the expertise, experience, and perspective of
persons who are deaf, hard of hearing, or speech impaired to the Commission and the administrator during all
phases of the development and operation of the telecommunications access
system. The advisory committee advises the Commission and the administrator on
the quality and cost-effectiveness of the telecommunications relay service and
the specialized telecommunications devices distribution system. Members of the
committee are not compensated for their services but are entitled to per diem
and travel expenses provided through the Florida Public Service Commission’s
Regulatory Trust Fund.
Commissioner
Margret Brown was elected City Commissioner of Weston, Florida, in November of
2016. She is the Regional Executive Director of the Center for Hearing and
Communications in Florida, a not-for-profit agency in Broward County, which
provides hearing health care, audiological services and advocacy for the hard-of-hearing,
deaf, and deaf/blind in South Florida. The Center for Hearing and
Communications in Florida is the largest distributor for FTRI, providing
specialized telephones for Florida residents with hearing loss. In addition,
Commissioner Brown is the current president of the Deaf Service Center
Association of Florida and has been serving the association since 2014.
Staff recommends that the Commission approve the
appointment of Commissioner Margaret Brown to the TASA Advisory Committee
effective immediately.
Issue 3:
Should this docket be closed?
Recommendation: Yes. A Consummating Order should be issued for Issue 1, unless a person
whose substantial interests are affected by the Commission’s decision files a
protest within 21 days of the issuance of the proposed agency action. The
docket should be closed upon issuance of the Consummating Order. (Page)
Staff Analysis:
A Consummating Order should be issued for Issue 1,
unless a person whose substantial interests are affected by the Commission’s
decision files a protest within 21 days of the issuance of the proposed agency
action. The docket should be closed upon issuance of the Consummating Order.
