The FCC s Pole Attachment Order is Promoting Broadband at the Expense of Electric Utilities By Thomas B. Magee, Partner, Keller and Heckman LLP

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1 The FCC s Pole Attachment Order is Promoting Broadband at the Expense of Electric Utilities By Thomas B. Magee, Partner, Keller and Heckman LLP 46 electric energy spring 2013

2 Following several years of study and comments, the Federal Communications Commission ( FCC or Commission ) in April 2011 released a Report and Order on Reconsideration ( FCC Pole Attachment Order ) that comprehensively changed the manner in which the FCC regulates pole attachments subject to its jurisdiction. The Commission s objectives were to promote broadband, reduce barriers to broadband deployment and lower the cost of broadband deployment. The rate portions of that decision were recently affirmed on February 26, 2013 by the U.S. Court of Appeals for the D.C. Circuit and reconsideration of the operational rulings are still pending at the Commission. Unfortunately, in reaching its decision, the FCC expressed no serious concern for the impact of its new pole attachment regulations on electric utilities and their ratepayers, and paid little attention to the operational and financial concerns raised by the utilities. As a result, the Order employs questionable reasoning to support its conclusions, reflects an unfortunate misunderstanding of electric utility operations, and is proving very costly to electric utilities. From the electric utility perspective, the FCC s decision is onerous, disruptive and very expensive. It raises significant safety and operating concerns and is beginning to create a radically different pole attachment world going forward. Make-ready deadlines, drastically reduced attachment revenue, the regulation of joint use relationships between electric utilities and Incumbent Local Exchange Carriers (ILECs) like Verizon and AT&T, and the promotion of wireless antenna attachments in the electric space are already causing anxiety among utilities and having a profound effect. These rules, unless reconsidered by the FCC, unfortunately will be with us for a long time. Regulatory Background The FCC has jurisdiction over attachments to investor-owned utility poles, not 47

3 those of rural electric cooperatives and municipally-owned utilities. It also lacks jurisdiction over investor-owned utility poles in 20 states and the District of Columbia, which have opted to regulate pole attachments themselves. Nevertheless, citing the FCC Pole Attachment Order, attachers have (mistakenly) been arguing that cooperatives and munis must follow FCC rules, and many of the 20 state public service commissions that regulate attachments to IOU poles look to FCC pole attachment rulings for guidance. In 1978, Congress added Section 224 to the Communications Act of 1934, as amended, and directed the FCC to ensure that rates, terms and conditions for pole attachments by cable television systems were just and reasonable. A formula for calculating attachment rates for cable systems providing cable service was included in the statute. In 1996, Congress expanded the definition of pole attachments to include not only cable attachments, but also attachments by providers of telecommunications services, and established a formula for calculating attachment rates for telecom providers (known as Competitive Local Exchange Carriers, or CLECs). In 2007, the Commission issued a Notice of Proposed Rulemaking seeking comment on proposals by cable companies, CLECs and for the first time ILECs, for more favorable terms of attachment. The FCC Pole Attachment Order In General Motivated by a desire to promote broadband deployment, the FCC Pole Attachment Order adopted multiple new rules designed to make the attachment process as quick, easy and cheap as possible for attachers. It is fair to say that in large part, many of the serious concerns expressed by utilities during the course of the proceedings were discarded or ignored by the Commission. The FCC s much-touted National Broadband Plan, for example, approves FCC staff s recommendations with citations to 38 filings on behalf of attachers while citing only two (2) filings of electric utilities among the volumes we submitted. Among other things, the Commission established (for the first time) a specific, expedited timetable for utilities to grant access to attachers. The Commission also redefined several statutory terms so that the telecom attachment rate would be drastically reduced to approximate the already low cable rate. Additionally, and perhaps most importantly, the Commission reinterpreted its previous decisions and several statutory provisions to allow ILECs sharing joint use of poles for the first time to request the lower, regulated telecom rate for their attachments. 48 electric energy spring 2013

4 In reaching these decisions, the Commission s announced goal was to provide a single, unified rate for all attachers (cable, CLEC, ILEC), approximating the existing low cable rate, while requiring utilities to act within a relatively short deadline on all applications for attachment. In the Commission s view, quicker, easier and cheaper access to utility poles will promote broadband deployment, especially in rural areas. For electric utility pole owners, the Order creates significantly more work providing notices and otherwise administering communications attachments. Utility operations can be significantly disrupted in order to accommodate attachers and a number of disputes with attaching entities already have surfaced. Attachment agreements with cable operators and CLECs are being renegotiated, and many attachers have been busy recalculating the rates you can charge for attachments. Some ILECs have started demanding more favorable rates and terms, threatening FCC complaints against utilities to improve their existing joint use relationships with utilities. make-ready deadlines The Commission created a new, four-stage makeready timetable in the FCC Pole Attachment Order, which requires IOU and ILEC pole owners to process most pole attachment requests (wireline and wireless) in the communications space within a total of 148 days: Stage 1/Survey (45 days): The pole owner conducts an engineering survey to determine whether and where attachment is feasible and what make-ready is required; Stage 2/Estimate (14 days): The pole owner provides an estimate of the make-ready charges to the attacher; Stage 3/Acceptance (14 days): The attacher accepts the estimate and provides payment; and Stage 4/Make-Ready (60 days): The pole owner notifies in writing all known attachers already on the pole, specifying where and what make-ready will be performed, setting a date for completion, allowing modifications of existing attachments within that period, and completing all necessary make-ready. During the make-ready period, a pole owner may notify the attacher that it will perform the make-ready work itself and take an additional 15 days (148 days total). Wireless: Finding that a wireless carrier s right to attach to pole tops is the same as it is to attach to any other part of a pole, the Commission determined to allow an extra 30 days for make-ready regarding wireless attachments above the communications space (i.e., a total of 178 days). On the Grow That s why this past year we have expanded our facilities by adding two new plants. More than doubling our capacity, we now have three facilities spread out across the U.S. Sabre offers everything from in-house engineering, to manufacturing and testing, to the latest in hot-dip galvanizing. Contact Sabre today, and let us take your project from proposal preparation to final delivery. T: F: E: 2013 Sabre Industries, Inc. - STS 03_

5 larger requests: For requests to attach to more than 300 poles or 0.5% of a utility s total poles within a state (whichever is less), an additional 15 days is allowed for the survey and 45 days for make-ready. For requests to attach to more than 3000 poles (or 5% of a utility s poles state-wide), the timeline is negotiated. failure to comply: If a utility does not comply with the survey or make-ready deadlines, attachers are free to engage a utility-approved contractor to perform necessary work in the communications space. If the make-ready deadline is missed for wireless attachments above the communications space, the sole remedy is for the attacher to file a complaint at the FCC. The make-ready deadlines are but one example of where the FCC ignored electric utility concerns. The electric utility industry gathered en masse at the FCC on two occasions to explain to Commission staff and legal advisors why the FCC s proposal to establish make-ready deadlines will not work in the real world of electric utilities. The first meeting included 49 people from the electric utility industry. The second included about 35 utility representatives. I moderated lengthy panel discussions at both meetings, explaining our concerns. Most of these concerns were ignored in the Commission s Order. Reduction in the Telecom Attachment Rate With respect to rates, the Commission s goal was to reduce them to a level as low and as close to uniform as possible. What that means to the FCC is a level sufficient so that no one can complain that it s an unconstitutional taking of electric utility property without just compensation. To do that, the FCC came up with a scheme to reinterpret the Pole Attachment Act so that the existing telecom rate can be reduced to a level that will approximate the existing cable rate. This statutory interpretation and new rate calculations that ensued are about as logical as something you would hear in Alice in Wonderland. New Regulation of ILEC Joint Use Attachments For more than 100 years, the relationship between pole owners (electric utilities and telephone companies) was governed by mutually agreeable, private contracts (joint use agreements) and not by the rules and regulations of the FCC or any other federal government agency. It was widely recognized that ILECs had no statutory right of access to utility poles, and that they were not entitled to regulated rates, terms or conditions for their attachments. Instead, the joint use arrangement was mutually negotiated by the parties at arms length, since each needed access to the other s poles. That longstanding arrangement, at least for ILEC attachments on regulated IOU poles, has now been upended by the Pole Attachment Order. While recognizing that ILECs have no statutory right to demand access to utility poles, the FCC has now ruled for the first time that ILECs are nonetheless entitled to file pole attachment complaints at the Commission seeking to receive regulated rates, terms and conditions for their attachments similar to those currently granted to CLEC and cable operators. In response, some IOUs may be forced to reduce the ILEC attachment rates specified in their joint use contracts (and the resulting revenues) by more than 80 percent (e.g., from 45 percent of annual costs to as low as 7.4 percent). The impact on electric utility access to ILEC poles was almost completely ignored by the Commission. This FCC ruling on ILEC jurisdiction alone, which has now been upheld by the courts, is designed to require electric utility ratepayers to subsidize ILECs with hundreds of millions of dollars of additional revenues each year. Utility ratepayers, however, were forgotten completely in the FCC s Pole Attachment Order. Instead, the Order acted as if this additional ILEC revenue was simply lying on the street waiting for the FCC to pick it up. Amazingly, the FCC bought into the ILEC arguments that 50 electric energy spring 2013

6 companies and their trade associations intervened in support of the FCC s new rules. A different group of IOUs (the Coalition of Concerned Utilities) filed as interveners in support of the other utilities appeal of the rules, and the Edison Electric Institute (EEI) filed as an amicus curiae ( friend of the court ). The D.C. Circuit heard oral argument on January 23, 2013 and ruled February 26, 2013 to affirm the FCC s rules. reconsideration at fcc: On June 8, 2011, the Coalition of Concerned Utilities that filed as Intervenors in support of the appeal also requested reconsideration by the FCC of certain aspects of the decision. The utilities asked the FCC, among other things: (1) to reconsider the makeready deadlines and address certain attacher rearrangement issues; (2) to allow pole owners to impose penalties for safety violations; (3) to disallow pole top antenna attachments in certain circumstances; and (4) to prohibit retroactive refunds earlier than the effective date of the FCC Pole Attachment Order. Certain cable and telephone interests, on the other hand, asked the FCC to lower the telecom rate even further on reconsideration. The FCC has waited for the D.C. Circuit to rule on appeal before addressing these reconsideration issues, and the Commission s decision could be released any day now. ILECs have lost their bargaining power in joint-use relationships because they now own fewer poles than the electric utilities and as a result electric utilities are taking advantage of them. This fabricated claim does not reflect the experience of any electric utility I know. The nationwide experience instead is that ILECs have been shirking their joint-use responsibilities for years and not installing the number of poles they should be installing to keep up pole ownership parity levels. Their claim of being taken advantage of thus reminds me of the criminal defendant who murdered his parents yet then asks the court for mercy because he s an orphan. Appeal Proceedings court appeal. On May 18, 2011, a group of investorowned electric utilities filed an appeal of the FCC Pole Attachment Order in the U.S. Court of Appeals for the District of Columbia Circuit. The utilities challenged three of the FCC s new rules: (1) the rule allowing ILECs to file pole attachment complaints; (2) the lower telecom rate formula; and (3) the rule establishing a refund period dating back to the applicable statute of limitations. A host of cable companies, telephone Conclusion This is a very complex and far-reaching decision. It includes a lot of ambiguities and misunderstandings, and begs for further explanation from the FCC. Many issues need to be clarified which the FCC at this point does not seem to understand. For the time being, however, the FCC Pole Attachment Order stands as a ruling by a broadband-obsessed Commission that shows a stunning disregard for electric utility concerns. And now that the D.C. Circuit has affirmed the Commission s rate rulings, we can all expect ILECs and other entities to seek lower attachment rates. Tom Magee advises electric utility and other infrastructure clients on a variety of telecommunications matters before the Federal Communications Commission, federal and state courts, and state and local regulatory authorities. His primary focus is on pole attachment and joint use regulation, and the FCC s licensing of private wireless telecommunications services. Mr. Magee has been privileged in this proceeding to represent, along with his partner Jack Richards of Keller and Heckman, LLP, the Coalition of Concerned Utilities, composed at various times from a group of more than a dozen investor-owned utilities (Allegheny Power, Baltimore Gas and Electric, Consumers Energy, Dayton Power and Light, Detroit Edison, FirstEnergy Corp., Hawaiian Electric Co., National Grid, NSTAR, Pepco Holdings, PPL Electric Utilities, South Dakota Electric Utilities, Wisconsin Public Service Company, and Xcel Energy). He can be reached at (202) ; 51

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