When the U.S. Congress entrusted the Federal Communications Commission (FCC) with pole attachment regulation 26 years ago, it could not have anticipated that the FCC's pro-attacher, anti-utility rulings would leave the joint-use departments of many electric utilities short of funding and without many of the tools required to control cable and telecommunications attachers. But here we are, more than a quarter-century later, with just that result.

The attacher-friendly regulatory environment has enabled attachers to move quickly into new markets, but at the expense of overworked, outmanned joint-use employees. Taking advantage of the permissive regulatory environment, many attachers fail to comply with utility attachment guidelines and make far too many unauthorized and unsafe attachments. Therefore, it is no wonder so many utilities treat pole attachments as little more than a nuisance.

Despite the pro-attacher nature of most FCC rulings, the commission's regulations contain several provisions that utility pole owners may use to recover their costs and deal appropriately with outlaw attachers. These core regulations are identified in this article, forming the basis for what we consider to be the electric utility industry's pole attachment “Bill of Rights.”

Pole Attachment Regulations

The FCC regulates attachments to investor-owned utility (IOU) poles unless a state certifies that it regulates such attachments. Eighteen states and the District of Columbia have certified that they regulate pole attachments, and most states have adopted regulations similar in type and scope to those of the FCC. Attachments to poles owned by cooperatives and municipally owned utilities are exempt from federal and state pole attachment regulation, except in a handful of states such as Kentucky, Vermont and Oregon.

The rates, terms and conditions of pole attachments imposed by the FCC favor attachers at the expense of utilities for two main reasons. First, both the Pole Attachment Act and the 1996 Telecommunications Act are designed — first and foremost — to promote the spread of cable and telecommunications services, not the preservation and protection of the nation's electric power grid. Second, the FCC is naturally more accountable to cable and telecommunications companies that, unlike electric utilities, are in the business of providing video programming and telecommunications services as their primary lines of business, and that, incidentally, interact with the agency on a daily basis.

As a practical matter, the FCC's pole attachment formulas establish rates at levels far lower than the actual value of utility distribution systems to attachers. As implemented by the agency, FCC pole attachment regulations do not do nearly enough to protect the safety and reliability of electric distribution systems, and in practice make it difficult to recover — at a bare minimum — all legitimate and prudent expenses incurred by utilities in installing and maintaining their poles.

From the utility perspective — in the real world — the results of FCC regulation have not been positive:

• Joint-use departments that are poorly funded

• High levels of unauthorized attachments

• National Electric Safety Code (NESC) and other safety violations

• Less safe and reliable electric distribution systems.

One-Sided FCC Decisions

One-sided decisions by the FCC have rendered many utilities timid and reluctant to assert their rights as pole owners, either for fear of another adverse decision or because they simply are resigned to being shortchanged by pole attachment regulations.

Because of the adverse nature of most FCC decisions in this area, utilities must remain ever more vigilant, not less. The FCC's core regulations, comprising what we characterize as the “Bill of Rights,” will be enforced by the agency only if the utility proves to the FCC that application of the regulations is justified under the circumstances. This means, for instance, that if a utility wishes to assess penalties for unauthorized attachments, to take action to remedy safety violations, or to seek recovery for certain costs, its oversight and accounting of pole attachments must be at a level high enough to enable the utility to prove such measures are “reasonable.” Moreover, it takes money to collect money and to enforce safety and other requirements. As explained by John Sullivan, general manager of the Utility Asset Management Group for Portland General Electric, a utility could spend $1 on joint-use activities to collect 50 cents or it can spend $2 to collect $2.

As with the U.S. Constitution, there are 10 inalienable rights contained in the electric utility pole attachment Bill of Rights.

Rates and Cost Recovery

1. Utilities may negotiate UNREGULATED rates, terms and conditions for access to:

   • Interstate transmission towers by any entity

   • Distribution poles by ILECs, Internet-only providers, and telecom non-common carriers.

   Many utilities believe they must charge all attachers the same rate, but unregulated attachments may be charged more reasonable rates, terms and conditions than those permitted by the FCC. The situation is even better for cooperatives and municipally owned utilities, because attachments to cooperatives and munis are unregulated in most states. For unregulated attachments, a variety of reasonable, more utility-friendly cost-based rate formulas may be applied. For example, the state of Maine employs an “avoided cost” methodology that allocates far more costs to attachers than does the FCC formula based on what each attacher would pay to build its own independent facilities.

   The primary concern with unregulated rates, terms and conditions is that antitrust laws may apply, especially if the utility or its telecom subsidiary competes with the attacher. That said, a utility's use of a cost-based rate that has been approved by a regulatory entity such as Maine offers a compelling defense for any antitrust claim based on rates.

2. Utilities may recover all direct and indirect costs of providing access, including costs associated with:

   • Permit applications
   • Providing maps, plats and other data
   • Engineering
   • Pre-construction
   • Make-ready
   • Inspections
   • Audits
   • Changeouts and other modifications
   • Relocation or removal of attacher facilities
   • Damage to distribution facilities
   • Correcting safety violations.

   FCC regulations are designed to allow utilities to recover all of their out-of-pocket expenses, but in practice, very few utilities employ the detailed accounting necessary to effect a full recovery. The way the regulations operate, any direct or indirect expenses incurred by utility pole owners that would not be incurred in the absence of the attachments are recoverable from the attacher. Many utilities use their annual rental calculation to recover some of these costs, but the annual rental allocates only a small percentage of costs to attachers and is a poor substitute for requiring attachers to make separate payments for each incurred expense.

   FCC rules require that all charges to attachers be reasonable. The challenge for utility joint use departments is establishing a system that properly substantiates those charges and can verify that none of the separate charges are double-recovered through the annual rental.

   Utilities may undertake reasonable measures to ensure prompt and reliable payment by attachers, including:

   • Deposit requirements
   • Performance bonds or other payment guarantees
   • Up-front payments
   • Unauthorized attachment penalties.

   Using any of these protections must be justified under the circumstances. However, utilities are not required to bear unreasonable credit risks. If an attacher has a history of nonpayment or if a threat of bankruptcy exists, then higher performance bonds and other payment guarantees may be appropriate. Upfront payments also may be appropriate, particularly for annual rentals. A deposit system may facilitate advance payments for items such as make-ready expenses, if such up-front payments are reasonable. If upfront payments are not possible, utilities should consider requiring the attacher to pay for one step in the attachment process before it may proceed to the next.

   Penalties for unauthorized attachments are permissible under FCC regulations, but any significant penalty must be justified under the circumstances. The greater the penalty imposed, the greater the evidence that may be required to prove the attacher needs a penalty incentive to comply with the permitting process.

   Access

3. Utilities may deny access to distribution poles if there is insufficient capacity.

   Two years ago, the U.S. Court of Appeals for the 11th Circuit overturned an FCC ruling that required utilities to expand capacity to meet requests for new attachments. As a result of this ruling, the lack of capacity on a particular facility entitles a utility to deny a request for access. Changeouts to larger poles also are not required (See Southern Co. v. FCC, 293 F.3d 1338, 11th Cir. 2002). If utilities wish to entertain requests for access in circumstances where insufficient capacity exists, they should establish separate contracts governing the rates, terms and conditions of such access.

4. Utilities may reserve space on their poles for future expansion and for emergencies.

   A utility's reservation of space for future expansion must be consistent with a bona fide development plan that reasonably and specifically projects a need for that space in the provision of the utility's core utility service. However, until a utility actually needs the reserved space, it must allow attachments to be made in the space. When needed, the utility may recover the reserved space and require whoever was using it to pay for the cost of any modifications needed to expand capacity in order to maintain their attachments.

   Furthermore, utilities are entitled to reserve capacity for the provision of emergency service, and space reserved for emergencies is not subject to interim use.

5. Utilities may require advance notice of overlashing.

   Attachers sometimes claim that FCC rules do not permit a utility to require advance notice of overlashing. In fact, commission rules only prohibit a utility from requiring advance permitting of overlashing. Utilities may require advance notice of over-lashing, but that requirement must be specified in the pole attachment agreement.

   Safety and Reliability Provisions

6. Utilities may protect the safety and reliability of their distribution systems by requiring:

   • Adequate training of attachers and contractors

   • Reasonable pole loading studies

   • Post-attachment and periodic inspections

   • Correction of safety violations

   • Identification tags on all attachments.

   Under FCC rules, utilities may require the contractors used by attachers to be at least as well trained as the utility's own employees. Pole loading studies may be conducted, but they should be conducted on representative poles, not every pole. Inspections may be conducted frequently, starting with the initial attachments and continuing up to once per year thereafter. The attacher must pay for the inspection to the extent that the inspection was conducted to review attachments made by the attacher. Utilities also may require attachers to affix identification tags to their lines in order to enable the utility easily to identify the owner of the attachments from ground level.

   It is still unclear whether the FCC would allow utilities to impose penalties in an effort to discourage safety violations. Oregon allows utilities to impose safety violation penalties of $200 per pole, which increases if the violation is not fixed in a timely manner. As expected, Oregon's penalty provision has greatly reduced the number of unsafe attachments in that state.

   As with the other “utility-friendly” provisions, more stringent safety requirements require utilities to produce adequate documentation that such requirements are justified under the circumstances.

7. Utilities may be reimbursed for any damage caused by attachers.

   Even the FCC recognizes that full reimbursement for damages caused by attachers is appropriate. Sufficient proof is required that the attacher caused the damage, and compensation for consequential damages (for lost profits, for example) may not be recoverable.

   Risk Prevention

8. Utilities may minimize risks by requiring attachers to:

   • Obtain adequate insurance and warrant their contractors have obtained insurance

   • Properly indemnify the utility for damage and injury caused by their attachments

   • Warrant that they have obtained all required easements, rights-of-way and other authorizations

   • Assume the risk of injuries associated with working on or near electric distribution poles.

   The insurance that attachers and their contractors should be required to carry includes commercial general liability, worker's compensation, employer's liability, automobile and umbrella (excess liability) coverage. Broad indemnity provisions should be drafted to protect utilities from damage or injury resulting in any way from attachments. It is reasonable for utilities to require attachers to warrant that they have obtained all necessary easements and rights-of-way, which has become a particularly important issue. Landowners are increasingly suing pole owners themselves for violations of easement provisions, on the grounds that the landowner's easement does not permit access to their property by telecom and cable companies attaching to the utilities' poles.

   Remedies for Breach

9. Utilities may employ a variety of measures to remedy an attacher's material noncompliance with contract provisions, including:

• Refusing to issue new permits

• Removing the offending attachments

• Denying access

• Requiring reimbursement of any corrections made by the utility

• Requiring specific performance.

One difficulty with many, if not most, pole attachment agreements is that termination of the agreement is listed as the only remedy available to the utility in the event the agreement is breached by the attacher. Termination of the agreement, however, is a drastic remedy that is almost always impractical to impose. For this reason, pole attachment agreements should provide utilities with a variety of remedies to provide meaningful incentives for attachers to bring themselves back into compliance.

Conclusion

The pole attachment Bill of Rights identifies the regulatory tools available to enable utilities to recover pole attachment costs, improve attacher relations, and protect the safety and integrity of electric distribution systems. Utilities interested in making the pole attachment process safer, easier and less costly will be well served by these regulatory tools, if they devote additional resources to the oversight and management of pole attachments.

Tom Magee is an attorney with Keller and Heckman LLP, specializing in utility telecommunications and pole attachments.
magee@khlaw.com