Supplement To NRECA Pole Attachment Toolkit

Transcription

1 Supplement To NRECA Pole Attachment Toolkit Tracey B. Steiner, Vice President of Education and Training Martha A. Duggan, Senior Principal Regulatory Affairs National Rural Electric Cooperative Association 4301 Wilson Blvd., Arlington, VA Jack Richards ( ; Thomas B. Magee ( ; Keller and Heckman LLP 1001 G STREET NW WASHINGTON, DC ITS ATTORNEYS March 22, 2012

2 Table of Contents I. Introduction... 4 II. Frequently Asked Questions... 6 III. Background IV. Overview of FCC Pole Attachment Order A. The New, Expedited Timetable Notes of Interest Bottom Line for Cooperatives B. The New, Lower Telecom Rate Notes of Interest Bottom Line for Cooperatives C. The New Rules Governing Joint Use and ILEC Pole Attachments Notes of Interest Bottom Line for Cooperatives D. The New Enforcement Rules Notes of Interest Bottom Line for Cooperatives E. The New Rules Governing Unauthorized Attachments Notes of Interest Bottom Line for Cooperatives F. Clarification of Previous Rules Bottom Line for Cooperatives G. The Pending Court Appeal and Reconsideration Bottom Line for Cooperatives Schedule A: Excel spreadsheet, New Telecom Rate Calculations 2

3 Limitation The information provided in this Supplement does not constitute legal advice and is not tailored to specific facts and circumstances or state laws. NRECA s members are urged to consult with qualified legal counsel and tax and accounting advisors regarding specific legal, regulatory, tax and accounting issues. Keller and Heckman LLP does not make any warranty or representation, express or implied, with respect to the accuracy, completeness or usefulness of the information contained in this document, nor does it assume any liability with respect to the use of, or damages resulting from the use of, any information, methodology or process provided in this document. Jack Richards ( ; richards@khlaw.com) Thomas B. Magee ( ; magee@khlaw.com) Keller and Heckman LLP 1001 G STREET NW WASHINGTON, DC

4 Supplement To NRECA Pole Attachment Toolkit I. Introduction This Supplement updates the Pole Attachment Toolkit released by the National Rural Electric Cooperative Association ( NRECA or Association ) on April 7, The Toolkit responded to a Resolution adopted by the Association in 2003 to develop a set of practical guidelines, legal and accounting advice, and examples to assist electric cooperatives in addressing a host of issues associated with pole attachments. The Toolkit consisted of six main sections: Political and Member Relations; Engineering and Operations; Rate Methodologies and Tax Implications; Legal and Regulatory Issues; Sample License Agreement; and 2003 Survey Results. 1 The Toolkit was intended to be a helpful resource for electric cooperatives and their attorneys and advisors in managing their relationships with pole attaching entities, drafting new contracts or renegotiating existing ones, ensuring appropriate recovery of costs, avoiding legal and liability risks, dealing with potential member fallout from a difficult relationship with an attaching company, and otherwise handling the day-to-day safety and other concerns of operating a distribution system with attachments. Based on member feedback to date, these primary goals of the Toolkit appear largely to have been satisfied. 1 NRECA Pole Attachment Toolkit (April 7, 2004). Keller and Heckman LLP worked with NRECA to develop the Sample Agreement and Rate Methodologies in the Toolkit. 4

5 Although cooperatives are statutorily exempt from FCC pole attachment regulation, the Toolkit included a discussion of FCC requirements since cooperatives sometimes look to the FCC s rules for information and guidance. Because rural electric cooperatives are member-owned and controlled and their members receive both electric and communications services, Congress determined in The Pole Attachment Act of 1978 that they were in a better position than the Federal Communications Commission ( FCC or Commission ) to establish fair and reasonable pole attachment arrangements governing their distribution systems. 2 As a result, cooperatives were and continue to be statutorily exempt from FCC pole attachment regulation. 3 Nevertheless, since cooperatives sometimes look to the FCC s pole attachment rules for information and guidance, the Toolkit included a discussion of FCC requirements. 4 The information contained in the Toolkit is now somewhat dated, however, and has been superseded to some extent by more recent events at the FCC. On April 7, 2011, following several years of study and comments, the FCC 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. 5 Almost all of the Commission s decisions are pro-attacher. Although the FCC recognized that 2 The Pole Attachment Act of 1978, Pub. L. No , 47 U.S.C. 224 (1978); Senate Report No , p. 18 (1977). 3 Id. 224(a)(1). 4 See NRECA Pole Attachment Toolkit, Rate Methodologies; Legal (April 7, 2004). 5 In the Matter of Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, Report and Order and Order on Reconsideration, 26 FCC Rcd 5240, FCC (April 7, 2011), available at: 5

6 under the current statutory scheme it has no authority to regulate utilities that are cooperatively owned, 6 many of the Commission s decisions will be of interest to cooperatives and likely will be raised aggressively by communications attachers seeking new and more advantageous pole attachment arrangements. Congress exempted rural electric cooperatives from the FCC s pole attachment regulations, but attachers are likely to make claims based on the FCC s new rules. With these thoughts in mind, this Supplement explains the new requirements applicable to utilities subject to FCC jurisdiction. As a starting point, listed below are some Frequently Asked Questions that may prove helpful to cooperatives in understanding the FCC s recent decision and responding to attacher demands. As mentioned, this information is not intended as legal advice and is not tailored to specific facts and circumstances or state laws. NRECA s members are urged to consult with qualified legal counsel and tax and accounting advisors regarding specific legal, regulatory, tax and accounting issues discussed below. II. Frequently Asked Questions 1. Are cooperatives required to comply with the FCC s new pole attachment rules? No. Cooperatives are statutorily exempt from FCC pole attachment regulations and are not subject to the FCC s pole attachment jurisdiction. 7 No FCC rule on pole attachments is 6 47 U.S.C. 224(a)(1); FCC Pole Attachment Order, at 9, 46. As cooperatives are member-owned and controlled, and their members receive both electric a communications services, Congress felt that they were in a better position than the FCC to establish fair and reasonable pole attachment arrangements. Senate Report No , p. 18 (1977) U.S.C. 224(a)(1); FCC Pole Attachment Order, at 9, 46. 6

7 binding upon cooperatives. Only Congress has the authority to change the current law and require cooperatives to comply with FCC pole attachment rules. 2. Are attachers expected to claim that these new rules apply to cooperatives? Yes. Cable companies, Competitive Local Exchange Carriers ( CLECs ), Incumbent Local Exchange Carriers ( ILECs ) and others have often cited earlier FCC decisions and are very likely to point to the new FCC rules as evidence that certain terms and conditions in cooperative pole attachment agreements are unreasonable. Rural electric cooperatives, however, are not subject to the FCC s pole attachment rules -- and attachers are not entitled to insist that cooperatives comply with them. 3. May attachers try to influence local and state legislatures, local press and others to take action against cooperatives based on the new FCC rules? Yes. Although the new FCC rules are not binding on cooperatives, attachers already are presenting the new rules to legislators, the local press and others in an effort to coerce cooperatives into compliance. As noted by Congress, however, rural electric cooperatives are member-owned and controlled, and their members often receive both electric and communications services. As a result, cooperatives are better positioned than the FCC to establish fair and reasonable pole attachment arrangements Are the FCC s rules in effect now for Investor-Owned Utilities ( IOUs ) subject to its jurisdiction and for ILECs, even though there is an appeal before the court and reconsideration requests pending at the Commission? Yes. The new telecom rate reduction became effective on May 9, 2011, and the make-ready deadlines and ILEC attachment provisions became effective on July 12, The FCC s rules have not been stayed by the Commission or the court. The new rules currently are in full force and effect and binding on IOU and ILEC pole owners in those states subject to the Commission s jurisdiction. 8 Senate Report No , p. 18 (1977). 7

8 5. What are the chances that the FCC s new rules will be reversed by the court? The likelihood of success in any appeal is a matter of opinion, and opinions vary. In our view, the FCC unjustifiably extended its authority in claiming a statutory basis for some of its decisions, and it unfairly discounted or ignored utility arguments to the contrary in the record. 6. What are the chances that the FCC s new rules will be modified by the FCC on reconsideration? Again, it is impossible to predict with certainty the likelihood of action by the FCC on reconsideration. Asking the FCC to modify a previous decision is always challenging, since the Commission prefers to maintain positions it already has taken. With that in mind, we are hopeful that the make-ready deadlines and attacher rearrangement provisions will be softened to some extent by the Commission in light of the reality of utility operations; that safety violation penalties like those in Oregon will be approved; and that retroactive refunds in pole attachment rate cases will be prohibited. 7. What happens if the FCC s rules are changed in response to the appeal or reconsideration? As mentioned, the FCC s new rules currently are in full force and effect and are binding on IOU and ILEC pole owners subject to the Commission s jurisdiction. To the extent that utilities may enter into new agreements incorporating those rules, they would become binding for the term of the agreement unless provided otherwise in the contract even if the rules were reversed or modified later by the court or the Commission. Otherwise, if reversed or modified, the revisions or modifications would become effective as provided by the court or Commission, as applicable. 8. What do we do with our existing agreements in light of the new FCC requirements? The FCC s new pole attachment rules are in effect for IOU and ILEC pole owners, not electric cooperative pole owners, so cooperatives should not feel compelled to modify their existing agreements to bring them into compliance with the new FCC requirements. To the extent that communications attachers are successful in negotiating new terms and conditions to your cooperative agreements to comport with the FCC s new rules, however, there are certain protections and counterweight 8

9 provisions that cooperatives should consider adding as well (for instance, unauthorized attachment penalties). The Commission made clear its preference for negotiated resolution of disputes between the parties subject to its jurisdiction and will review the totality of attacher/utility relationships without necessarily looking at a single contract provision in a vacuum. 9. What if a cable company, ILEC or CLEC insists on immediately receiving the new FCC rate? IOU pole owners subject to the FCC s new rules (and electric cooperatives voluntarily choosing to follow the rules) are advised to consider in a timely fashion and to document in writing responses to requests by cable companies, ILECs or CLECs for revisions to current rates contained in existing agreements. At the same time, they should keep in mind the potential for rate refunds dating back to the applicable statute of limitations in the event rates are determined to exceed FCC guidelines. The rate element, however, should not be viewed in a vacuum but in the context of the entire agreement. Co-ops voluntarily following the FCC rules may wish to require that any new rates granted in response to the FCC Pole Attachment Order be subject to the outcome of the pending court appeal and FCC reconsideration. 10. Do utilities, including cooperatives, have to terminate all of their existing Joint Use Agreements in response to the FCC s new rules? No. Even if the FCC s new rules applied to cooperatives, the Commission favors negotiated arrangements between the parties. Absent objection by one party there appears to be no requirement that regulated utilities existing Joint Use Agreements (i.e., agreements between pole owners) automatically be terminated and replaced with new agreements. Upon request by an ILEC for renegotiation, IOUs should be mindful of the FCC s new requirements as well as the potential for future changes by the Commission or the court. 11. Can an ILEC insist on receiving the new telecom rate? Not necessarily. The FCC rejected arguments that rates for pole attachments by ILECs on IOU poles always should be identical to those of telecom carriers or cable operators. Although ILEC attachment rates are not bound by a formula, the Commission believes that competitive neutrality considerations generally suggest that ILECs pay the same rate as comparable providers. To the extent that ILECs have a material advantage in their pole 9

10 attachment arrangements relative to cable or telecom carriers, a different rate should apply (in that case, the FCC stated that the previous telecom rate should be used as a benchmark). Rather than routinely applying any particular rate, the Commission indicated it will look at the totality of the IOU/ILEC joint use agreements to determine the appropriate rate, terms and conditions. Finally, ILECs are not entitled simply to opt in to one of the pole attachment agreements that an IOU may have with a CLEC or cable operator. 12. If a regulated IOU gives an ILEC a new attachment rate on its poles, is the IOU entitled to receive a similar rate when it attaches to the ILEC s poles? Yes. The FCC expects ILECs to charge an IOU rates that are proportionate to what the IOU charges the ILEC on the basis of per foot of occupied space. Cooperatives voluntarily choosing to follow as guidelines the FCC s rules governing ILEC rates may wish to consider a similar approach when attaching to the ILEC s poles. 13. Must regulated IOUs and ILECs comply with the FCC s new timeline for handling pole attachment requests now? Yes. The timeline is in effect for IOU and ILEC pole owners and will remain in effect until such time as it may be modified or reversed by the court or the FCC. 14. When does the make-ready clock start running on pole attachment requests? The clock starts to run upon receipt of a complete application. The survey period begins regardless of whether the parties have entered into a Master Attachment Agreement (i.e., an initial pole attachment agreement addressing among other things, insurance, indemnification safety and other issues). Further work on the request can await execution of the agreement. If a cooperative voluntarily agrees to a similar shot clock approach, it, too, could expect the clock to begin running on submission of a complete application for attachment regardless of whether a Master Attachment Agreement has been finalized. 10

11 15. When may a regulated IOU or ILEC pole owner stop the clock? Under the new rules, an IOU or ILEC pole owner may stop the clock only for good cause under very limited circumstances. The sole example cited by the Commission as sufficient justification to stop the clock is an emergency that requires federal disaster relief. The clock may not be stopped for routine or foreseeable events, including repairing damage caused by routine seasonal storms; repositioning existing attachments; bringing poles up to code; alleged lack of resources; or awaiting resolution of regulatory proceedings. Also, the clock does not stop for good cause until the pole owner so notifies the requesting entity and all other affected attachers and provides details regarding the reason for and date of the stoppage. The stoppage may be no longer than necessary. The clock also may be stopped if the parties have not entered into a Master Attachment Agreement by the time of the make-ready estimate. 16. What if a regulated IOU or ILEC pole owner fails to meet the timeline? If an IOU or ILEC utility fails to meet the timeline, an attacher is entitled to hire a contractor approved by the utility for 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. 17. May a regulated IOU or ILEC pole owner insist on being paid in advance of performing make-ready work? Yes. The IOU or ILEC is entitled to be paid as part of the attacher s acceptance of the make-ready estimate, prior to performing the make-ready work. 18. Must regulated IOUs and ILECs allow wireless attachments? Generally, yes. Wireless attachments to IOU and ILEC poles are afforded the same rights as wireline attachments and are entitled to receive the new telecom rate. For cooperatives, this means that an outright denial of wireless attachments is more likely to be viewed as unreasonable and subject to challenge. 11

12 19. What if a regulated IOU believes that an attachment creates a safety, reliability or engineering problem? IOUs remains free to reach their own decisions regarding safety, reliability and engineering issues and to deny with specificity any attachment application for those reasons. 20. Are wireless attachers entitled to attach to pole tops? Not necessarily. Although the FCC will not allow a regulated IOU or ILEC to categorically deny access to pole tops, access can still be denied for lack of capacity or for reasons of safety, reliability or generally applicable engineering reasons, as explained below. The FCC will permit IOUs and ILECs to develop engineering protocols for unfamiliar attachment facilities, including wireless attachments, prior to submission of the application. 21. May a regulated IOU deny an attachment request for insufficient capacity on the pole? Applications may be denied for reasons of insufficient capacity. However, the rearrangement of existing attachments, including electric facilities, to accommodate a new attachment is not deemed grounds for denial based on insufficient capacity. The relevant issue is whether an IOU could accommodate a new attachment by using techniques that the utility employs in its own operations. If so, the attachment may not be denied for lack of capacity. 22. Must a regulated IOU set a new pole to accommodate an attacher? No. An IOU cannot be required to set a new pole to accommodate an attacher but may do so (at the attachers expense) if it wishes. Cooperatives following the FCC s rules are entitled to the same discretion. 23. May a regulated IOU collect unauthorized attachment penalties? Maybe. Penalties for past violations are not recoverable, but the FCC determined that going forward, penalties for unauthorized attachments like those implemented by the Oregon PUC will be presumptively reasonable if included in a pole attachment agreement (e.g., five times the annual rental plus $100 if not selfreported or identified in a joint audit). Cooperatives can take greater comfort that similar provisions in their own agreements would be deemed reasonable. 12

13 24. May a regulated pole owner collect safety violation penalties? Uncertain. The FCC has not yet approved the inclusion of safety violation penalties in IOU or ILEC pole attachment agreements, although the issue is before the Commission on reconsideration. The FCC, however, did not prohibit safety violation provisions in pole attachment agreements negotiated between the parties. III. Background 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. 9 The Commission was forbidden to regulate pole attachments where such matters are regulated by a state. 10 The Commission also was prohibited from regulating attachments to facilities of railroads, government entities and, as mentioned, cooperatives. 11 This left to FCC jurisdiction attachments only to poles owned by investor-owned utilities ( IOUs ) and incumbent local exchange carriers ( ILECs ) like Verizon and AT&T. A formula for calculating attachment rates for cable systems providing cable service was included in the statute. 12 In 1996, Congress expanded the definition of pole attachments to include attachments by providers of telecommunications services, as well as cable systems, and set forth a formula for calculating attachment rates for telecom providers (known as Competitive Local Exchange Carriers or CLECs ). CLECs were thereby granted a statutory right of nondiscriminatory access at regulated rates to poles belonging to covered utilities (IOUs and ILECs, still excluding 9 The Pole Attachment Act of 1978, Pub. L. No , 47 U.S.C. 224 (1978) U.S.C. 224(c). Twenty states and the District of Columbia have certified that they directly regulate utilityowned infrastructure in their regions. See, States That Have Certified That They Regulate Pole Attachments, Public Notice, 25 FCC Rcd 5541, at (2010). 11 Id. 224(a)(1). 12 Id. 224(d). 13

14 electric cooperatives). IOUs (but not ILECs) were permitted by the terms of the statute to deny access for insufficient capacity or for reasons of safety, reliability or generally applicable engineering purposes. 13 In later decisions, the FCC implemented these statutory provisions and concluded that the reasonableness of a particular condition of access would be determined on a case-by-case basis without a single set of hard-and-fast rules. 14 In lieu of specific, detailed rules, the Commission established several broad policy guidelines. 15 The Commission also adopted rules phasing-in the new telecom rate formula for CLECs, which in nearly all cases was higher than the cable rate. 16 Additionally, the Commission concluded that wireless carriers likewise were entitled to a statutory right of nondiscriminatory access, 17 and that cable systems offering both cable and Internet access should pay only the cable rate. 18 In a series of later decisions, the Commission recognized that the statute did not grant ILECs any attachment rights on electric utility poles nor any right to regulated attachment rates, terms and conditions. This made sense because ILECs 13 Id. 224(f)(2). 14 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Order, 11 FCC Rcd (1996). 15 The specific rules were (1) a utility may rely on industry codes, such as the NESC, to prescribe standards with respect to capacity, safety reliability and general engineering principles; (2) a utility will still be subject to any applicable federal requirements, such as those imposed by FERC or OSHA, (3) state and local requirements will be given deference if not in direct conflict with FCC rules; (4) rates, terms and conditions of access must be uniformly applied on a nondiscriminatory basis, and (5) a utility may not favor itself. Id. at In the Matter of Implementation of Section 703(e) of the Telecommunications Act, Amendment of the Commission s Rules and Policies Governing Pole Attachments, Report and Order, 13 FCC Rcd 6777 (1998) ( 1998 Implementation Order ), aff d in part, rev d in part, Gulf Power v. FCC, 208 F.3d 1263 (11th Cir. 2000), rev d Nat l Cable & Telecommunications Ass n v. Gulf Power, 534 U.S. 327 (2002). 17 Id. at Implementation Order, at

15 owned their own poles and traditionally were subject to joint use arrangements with their electric utility pole owner partners. 19 In this Order, we comprehensively review our pole attachment rules to improve the efficiency and reduce the potentially excessive costs of deploying telecommunications, cable, and broadband networks, in order to accelerate broadband buildout. 20 FCC In 2007, the Commission issued a Notice of Proposed Rulemaking seeking comment on proposals by cable companies, CLECs and other attacher groups for more favorable terms of attachment. 21 Several years later, on March 16, 2010, the Commission released its National Broadband Plan, which devoted an entire chapter to pole attachments and contained a number of recommendations designed to reduce attacher costs, expedite the application process and otherwise facilitate broadband access to utility poles. 22 On May 20, 2010, the Commission issued an order requiring that access to poles be timely and clarifying that pole owners subject to its jurisdiction were not deemed to discriminate unlawfully when employing certain attachment techniques like boxing and extension arms. 23 The Commission s decision also included a Further Notice of Proposed Rulemaking, however, which proposed to adopt many of the pro-attacher rule changes 19 FCC Pole Attachment Order, at FCC Pole Attachment Order, at In the Matter of Section 224 of the Act, Amendment of the Commission s Rules and Policies Governing Pole Attachments, Notice of Proposed Rulemaking, 22 FCC Rcd 20195, , 9 (2007). 22 Connecting America: The National Broadband Plan (Mar ), available at ( National Broadband Plan ). 23 In the Matter of Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, Order and Further Notice of Proposed Rulemaking, 25 FCC Rcd 11864, FCC 10-84, 1 (May 20, 2010) ( 2010 Order and Further Notice ). 15

16 recommended in the National Broadband Plan, including lower pole attachment rates, lower costs of make-ready and a comprehensive timeline for each step of the attachment process. 24 On April 7, 2011, as discussed below, the Commission adopted many of these proposals in the FCC Pole Attachment Order. IV. Overview of FCC Pole Attachment Order 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. 25 Among other things, the Commission: established (for the first time) a specific, expedited timetable for utilities to grant access to attachers; redefined several statutory terms so that the telecom attachment rate would be drastically reduced to approximate the already low cable rate; and reinterpreted its previous decisions and several statutory provisions to allow ILECs sharing joint use of poles to receive the lower, regulated telecom rate for their attachments. According to the Commission, quicker, easier and cheaper access to utility poles will promote broadband deployment, especially in rural areas. 24 Id. 25 It is fair to say that in large part, many of the serious concerns expressed by utilities during the course of the National Broadband Plan and associated rulemaking proceedings were disregarded or ignored by the Commission. See, e.g., 2010 Order and Further Notice, at 1 ( In this Order and Further Notice of Proposed Rulemaking, we begin the process of revising the Commission s pole attachment rules to lower the costs of telecommunications, cable, and broadband deployment and to promote competition, as recommended in the National Broadband Plan. ); FCC Pole Attachment Order, Statement of Chairman Julius Genachowski ( Today s actions implement key recommendations of the National Broadband Plan. ). Chapter 6 of the National Broadband Plan ( Infrastructure ) addressed pole attachment issues, yet in the footnotes supporting the staff s pro-attacher recommendations there are thirty-eight (38) citations to filings on behalf of attachers and only two (2) to the voluminous filings on behalf of the entire electric utility industry. National Broadband Plan, at pp and

17 In reaching these decisions, the Commission s announced goal was to provide a single, unified rate for all attachers (cable, telecom, 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. 26 A. The New, Expedited Timetable The Commission created a new, four-stage timetable in the FCC Pole Attachment Order, which requires regulated IOUs 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 makeready 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). 26 NRECA contested the Commission s claim that lower attachment rates will drive rural broadband deployment. See, Comments of the National Rural Electric Cooperative Association, August 16, 2010, Dockets WC Docket No and GN Docket No , pp , and Reply Comments of the National Rural Electric Cooperative Association, October 4, 2010, pp A more recent Report to the House Commerce and Labor Committee of the Virginia General Assembly concluded that No persuasive evidence was submitted in this proceeding that proved lower pole attachment rates would directly result in additional broadband deployment. Report on Electric Cooperative Pole Attachment Issues, State Corporation Commission, Commonwealth of Virginia, November 1,

18 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). IOU and ILEC pole owners cannot enforce a blanket prohibition against wireless attachments on pole tops. 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. We agree that the statutory obligation to provide access to poles places some burden on pole owners FCC Notes of Interest: 1. The clock associated with these timelines does not start running until submission of a complete application that provides the 27 FCC Pole Attachment Order, at

19 utility with the information necessary to begin surveying the poles. IOUs and ILECs must timely notify attachers of errors (and presumably omissions) in an application. Notifications of deficiencies must be reasonable. 2. Once the application has been accepted as complete, pole owners may not stop the clock to correct errors in the application. 3. A Master Attachment Agreement (i.e., an initial, comprehensive pole attachment agreement) is not necessary to start the clock on the survey phase, although the attacher may be required to make payment in advance for the survey. Only at the estimate stage may utilities stop the clock for lack of a Master Attachment Agreement. 4. A utility that denies access must do so in writing within 45 days of submission of a complete application, regardless of the number of poles included in the request, with specific reasons relating to a lack of capacity, safety, reliability or engineering concerns. Applications falling outside the scope of the timeline also are subject to the general requirement that the pole owner provide a specific written response (grant or denial) within 45 days It is not sufficient for a utility to dismiss a request with blanket concerns about a type of attachment or technology. For example, wireless attachments may not be categorically excluded by the utility even on pole tops If a request involves the attachment of facilities that are unfamiliar to the utility (for instance, new wireless attachments), engineering specifications must be established prior to submission of the application. The utility must evaluate the facilities on commercially reasonable terms and within a reasonable time Regulated IOUs may stop the clock only for good and sufficient cause. The only very limited example cited by the Commission as sufficient justification to stop the clock is an emergency that requires federal disaster relief Id. at 40, Id. at Id. at 25, Id. at

20 8. A regulated IOU may not stop the clock for routine or foreseeable events such as repairing damage caused by routine seasonal storms; repositioning existing attachments; bringing poles up to code; alleged lack of resources; or awaiting resolution of regulatory proceedings (such as a state public utilities commission rulemakings) that affect pole attachments. 32 New York allows its timeline to be interrupted for events beyond the utility s control [but] we find this standard unsuitably broad for our purposes FCC 9. The clock does not stop for good cause until the utility so notifies the requesting entity and all other affected attachers. The notification must include the reason for and the date of the stoppage. The stoppage may be no longer than necessary. As soon as the reason for the stoppage no longer exists and the utility resumes normal operations, the utility must notify affected entities of the new deadline and the date that the clock will restart. 10. The timelines are not a safe harbor. They are maximums. Utilities should undertake to perform smaller orders in a shorter amount of time. Pole owners should perform the work more rapidly than the timelines, if reasonable under the circumstances. 11. For purposes of calculating the total number of poles included in an attacher s request, all in-state requests from a single attacher within a 30-day interval may be included. 12. The timelines do not apply to requests to install facilities in ducts, conduits and rights-of-way. 13. There is a rebuttable presumption in any FCC complaint proceeding that a utility s failure to provide access to wireless attachers above the communications space within the deadline is unjust and unreasonable. 14. Pole owners must notify in writing all existing attachers of any new application to attach, which the FCC considers a relatively small burden Id. at Id. at

21 15. Each utility must make available a reasonably sufficient list of contractors that can perform survey and make-ready work in the communications space if the utility fails to perform this work on time. For non-wireless attachments, if a utility fails to list approved contractors, attachers may use contractors with the same qualifications. The utility may accompany and consult with the attacher and its contractor prior to any make-ready work by the contractor and is entitled to make final decisions regarding capacity, safety, reliability and sound engineering, including requirements that may exceed National Electrical Safety Code ( NESC ) standards, subject to Commission review through the complaint process After make-ready has been completed and permits issued, contractors may be used to attach facilities in the communications space and associated safety space, but not to work among the power lines in the electric space. Only contractors approved by the utility for such work may attach wireless antenna above the communications space and associated safety space. 36 Bottom Line for Cooperatives. Cooperatives should expect that some attachers may seek to negotiate in their attachment agreements specific timelines for processing attachment requests and performing make-ready work. NRECA s pole attachment survey conducted in 2010 found that cooperatives typically responded promptly to attachment requests. B. The New, Lower Telecom Rate As described in detail in the Toolkit, prior to the April 7, 2011 FCC Pole Attachment Order, the FCC recognized two separate methodologies for calculating the maximum rates for pole attachments: one applicable to cable companies (the cable rate) and the other to telecommunications carriers (the telecom rate), which specifically excluded ILECs. 37 The cable 34 Id. at Id. at Id. at See NRECA Pole Attachment Toolkit, Rate Methodologies (April 7, 2004). 21

22 rate reflected an allocation of annual operating expenses and capital costs that a utility incurs in owning and maintaining poles based on the portion of usable space occupied by the cable attachment. The telecom rate, on the other hand, allocated more costs to the telecom carrier by using a different allocation based on both the usable and unusable space on the pole as well as the number of attachers. 38 As a result, the telecom rate (presumptively allocating approximately 11.2% of annual pole costs to attachers in urbanized areas and 16.9% in nonurbanized areas) generally was higher than the cable rate (presumptively allocating approximately 7.4%). New Telecom Rate. In the FCC Pole Attachment Order, the Commission decided to redefine what it now considers ambiguous statutory terms to reduce the pre-existing telecom rate and bring it into line with the cable rate. 39 The Commission indicated a lower telecom rate would better serve the public interest by making broadband and other advanced services more widely available. 40 The Commission also reaffirmed that wireless carriers are entitled to the new telecom rate, and that the rate for other co-mingled services, such as voice over Internet protocol ( VoIP ), may not exceed the new telecom rate. 38 Under the cable rate formula, the costs of unusable space are allocated based on the fraction of the usable space that an attachment occupies. Under the telecom rate formula, costs of usable space were allocated the same way but two-thirds of the costs of the unusable space also is allocated equally among the number of attachers, including the owner, and the remaining one-third of these costs is allocated solely to the pole owner. 39 FCC Pole Attachment Order, at 137, n. 419; 47 U.S.C. 224(d)(3); 47 U.S.C. 224(e). The previous telecom rate, as well as the current cable rate, included a component for the net cost of a bare pole and a carrying charge rate. 47 C.F.R (e)(1), (2). The net cost of a bare pole includes the initial capital outlay, i.e., the investment, for a pole, minus accumulated depreciation. The carrying charge reflects costs of owning and maintaining poles and includes a pole owner s administrative, maintenance, and depreciation expenses, a return on investment, and taxes. See, e.g., Amendment of Rules and Policies Governing the Attachment of Cable Television Hardware to Utility Poles, Report and Order, 2 FCC Rcd 4387, 25 (1987); Amendment of Commission s Rules and Policies Governing Pole Attachments; Implementation of Section 703(e) of the Communications Act, Amendment of the Commission s Rules and Policies Governing Pole Attachments, Consolidated Partial Order on Reconsideration, 16 FCC Rcd 10103, 28 (2001). The net cost of a bare pole is multiplied by the carrying charge rate to determine the annual cost of a pole. For the new telecom rate, the costs have been re-defined by the FCC, resulting in a lower rate. 40 FCC Pole Attachment Order, at

23 To arrive at what it characterized as a new, competitively neutral telecom rate approximating the cable rate, the Commission redefined the costs of providing space used in calculating the pre-existing telecom rate and reduced them to 66% of the pre-existing rate in urbanized areas and 44% of the pre-existing rate in non-urbanized areas. Alternatively, pole owners may recalculate the pre-existing telecom rate to recover only administrative and maintenance operating costs but not capital costs (i.e., depreciation, taxes and rate of return) if that recalculation results in a higher rate. FCC Telecom Rate Rules and Spreadsheet. The Commission s rules reflecting calculation of the new telecom rate methodologies follow. The underlying formulas and defined terms are described in further detail in the Rate Methodologies section of the Toolkit. 41 An Excel spreadsheet containing the revised telecom rate calculations is attached to this Supplement as Schedule A. The spreadsheet calculates both of the new telecom rates, which are called the (e)(2)(i) rate (using the 66% and 44% multipliers) and (e)(2)(ii) rate (using only administrative and maintenance costs, not depreciation, taxes or return), respectively, which corresponds to the numbering in the FCC s regulations. 42 * * * * Commission consideration of the complaint. (e) * * * (2) With respect to attachments to poles by any telecommunications carrier or cable operator providing telecommunications services, the maximum just and reasonable rate shall be the higher of the rate yielded by section (e)(2)(i) or (e)(2)(ii) of this Part. (i) The following formula applies to the extent that it yields a rate higher than that yielded by the applicable formula in section (e)(2)(ii): 41 NRECA Pole Attachment Toolkit, Rate Methodologies (April 7, 2004) C.F.R. pt. 1, Subpart J, available at 23

24 Rate = Space Factor x Cost Where Cost in Urbanized Service Areas = 0.66 x (Net Cost of a Bare Pole x Carrying Charge Rate) in Non-Urbanized Service Areas = 0.44 x (Net Cost of a Bare Pole x Carrying Charge Rate) Space 2 UnusableSpace Occupied 3 No.of AttachingEntities WhereSpaceFactor PoleHeight (ii) The following formula applies to the extent that it yields a rate higher than that yielded by the applicable formula in section (e)(2)(i): Rate Space Factor Net Cost of Maintenance and Administrative a Bare Pole Carrying Charge Rate Space 2 Unusable Space Occupied 3 No.of Attaching Entities Where Space Factor Pole Height Notes of Interest: 1. Under the first of these formulas (the (e)(2)(i) rate using the 66% and 44% multipliers), the new telecom rate generally will approximate the lower cable rate (7.4%). 2. According to the Commission, Congress expected the pole attachment rate to be minimal since most costs are fully recovered in the separate make-ready charges paid by the attacher. 3. The Commission believes it has the discretion to establish any regulatory scheme that produces rates within a broad zone of reasonableness. 4. Under a cost causation theory, the Commission found that where space already is available on a pole, an attacher should not be 24

25 required to pay for any of the capital costs of that pole. 43 Applying this theory, the Commission felt it appropriate to exclude capital costs from the new telecom rate (even though capital costs are included in the cable rate calculation). 5. The Commission considered increasing the cable rate rather than decreasing the telecom rate to achieve competitive neutrality, but ruled it out because it would come at the cost of increased broadband prices and reduced incentives for deployment. 44 We thus conclude that lowering the telecom rates will better enable providers to compete on a level playing field, will eliminate distortions in end-user choices between technologies, and lead to provider behavior being driven more by underlying economic costs than arbitrary price differentials. 45 FCC 6. As described below, ILEC pole owners for the first time are entitled to seek a regulated attachment rate (e.g., the new telecom rate) for their attachments on IOU poles. Bottom Line for Cooperatives. Cooperatives can expect that attachers, particularly telephone company attachers, will attempt to negotiate lower attachment rates and may urge cooperatives to adopt the FCC s new telecom rate methodology. C. The New Rules Governing Joint Use and ILEC Pole 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. ILECs had no statutory right to access utility poles, and they were not entitled to regulated rates, terms or conditions for their attachments. Instead, this joint use arrangement was mutually negotiated by the parties at arms length, since each needed access to the other s poles. 43 FCC Pole Attachment Order, at Id. at Id. at

26 That longstanding arrangement, at least for ILEC attachments on regulated IOU poles, has now changed as a result of the FCC Pole Attachment Order. New Jurisdiction Over ILEC Attachments. While recognizing that ILECs have no statutory right to demand access to utility poles, the FCC ruled for the first time in the FCC Pole Attachment Order that ILECs are entitled to file pole attachment complaints at the Commission seeking to receive regulated rates, terms and conditions for their attachments to IOU poles similar to those currently granted to CLEC and cable operator attachments. As a result, some IOUs may be forced to reduce the attachment rates specified in their joint use contracts (and the resulting revenues) by up to 80% (e.g., from 45% of annual costs to as low as 7.4%). 46 ILECs estimate that, in aggregate, they annually pay pole attachment rates that are $320 to $350 million greater than they would pay at the cable rate. 47 FCC The Commission s recent conclusion that it actually does have statutory authority to regulate ILEC attachment rates was reached after more than 10 years of decisions emphasizing just the opposite (i.e., that it lacked statutory authority over ILEC attachments). 48 Nevertheless, the Commission decided in the FCC Pole Attachment Order to revisit its previous conclusion and to adopt a new interpretation of the statute. Even though ILECs have no statutory right of attachment as telecommunications carriers, the Commission found they are entitled to receive 46 The Commission also clarified that joint owners are expected to coordinate and cooperate with each other consistent with their duty to provide just and reasonable access to attachers. Id. at Id. at Implementation Order, at 5. 26

27 regulated rates, terms and conditions as providers of telecommunications services once they have attached. 49 Although ILECs have no right of access to utilities poles..., we now conclude that where ILECs have such access, they are entitled to rates, terms and conditions that are just and reasonable FCC Notes of Interest: 1. The Commission rationalized its reinterpretation of its regulatory authority over joint use arrangements in part on the fact that ILECs own fewer poles now than in the past. This relative change in pole ownership, according to the Commission, has put ILECs in an inferior bargaining position relative to electric utilities in negotiating terms and conditions of pole attachment. Left unaddressed by the Commission was the claim by electric utilities that ILEC pole ownership has decreased because many ILECs have disassociated themselves from their joint use responsibilities, including the installation of new poles and replacement of existing ones. 2. The Commission declined to adopt comprehensive rules governing ILEC pole attachments, finding it more appropriate to proceed on a case-by-case basis, allowing ILECs to file complaints at the FCC challenging the rates, terms and conditions of pole attachment agreements with other utilities The FCC will consider ILEC complaints seeking the new telecom rate. However, if an agreement between an ILEC and an electric utility materially advantages the ILEC vis-a-vis a telecom carrier or cable operator (through, for instance, more favorable pole position, easier permitting, quicker access), the FCC has indicated that a rate other than the new telecom rate should apply to the ILEC. 52 In that case, the pre-existing telecom rate (which is higher than the new telecom/cable rate) generally will be used as a reference point in a complaint proceeding. 49 FCC Pole Attachment Order, at Id. at Id. at Id. at