Utility lawsuits have traditionally involved injury situations where accidents occurred on utility property, but today most lawsuits involve utilities suing outside parties including manufacturers and other utilities. In a era where grid consolidation is being prompted by mergers, acquisitions and RTO formulation, utility litigation is predominately focused on service rights, boundaries and interface issues. The following examples highlight a couple areas of contention between utilities.

Attachment Issues Continually Contested

One of the biggest battles brewing is the level of compensation telecom and cable companies pay when they connect to utility poles.

Ever since federal law required utilities to allow cable TV companies to place their wires in or on the utilities' poles, ducts, conduits and rights-of-way, complaints have abounded about reasonable rates. Areas of contention include public safety, engineering and lack of capacity. And in 1996, the law expanded to give telecommunications carriers the same pole-attachment rights.

The rates, terms and conditions for the required access are privately negotiated between the parties, but if anyone has a complaint about the rate, term or condition, the Federal Communications Commission (FCC) has jurisdiction to resolve the complaint, according to Keller and Heckman LLP's white paper, “Pole Attachment and the Telecommunications Act of 1996.” However, the state has jurisdiction if the argument arises in a state that regulates pole attachments.

“Utilities have complained about this ‘sign and sue’ tactic, but the FCC has condoned it because the FCC feels that the attaching parties do not have equal bargaining power with utilities,” the paper states.

In the most recent rulings at the end of last year, utilities found out how influential state public service commissions (PSC) could be on pole-attachment practices.

Keller and Heckman sent a letter to its pole-attachment clients in November 2003 regarding Michigan Public Service's investigation into the pole-attachment practices of Detroit Edison Co., Consumers Energy and SBC Michigan. The situation was resolved by a settlement agreement the utilities entered into with Michigan PSC staff, the Michigan Cable Telecommunications Association and EduNets, a consortium of schools and corporations providing broadband networking infrastructure.

According to Keller and Heckman's letter, PSC staff discovered 462 National Electrical Safety Code (NESC) issues on some of Detroit Edison's, Consumers Energy's and SBC's distribution poles. Evidence showed later that the cable TV, CLEC and ILEC attachers were almost always the source of the NESC issues. PSC brought its action against the pole owners, even thought the PSC has jurisdiction over the safety of all attachments in Michigan.

The terms of the settlement, the letter said, required all parties, in good faith, to report NESC ground and neutral zone clearance violations both to the pole owner and the owner of the offending attachment. The pole owner must then notify the party deemed responsible for the violation, and in most cases, the responsible party must remedy the situation in 60 days. The agreement also established a procedure for remediation of NESC issues at the time attachers seek access to an existing pole, Keller and Heckman said.

The PSC is to resolve any disputes as to who caused the violation. “If such a dispute arises, the pole owner must correct the violation regardless of who is at fault, and obtain reimbursement from a Pole Remediation Fund of US$300,000 to be established by the three pole owners. The party ultimately found responsible for the NESC issue must replenish the Pole Remediation Fund with the actual cost of the remediation,” the letter said.

Just a month before the Michigan PSC settlement, the FCC's Enforcement Bureau denied Georgia Power's request for a reconsideration of an Aug. 8, 2003, order, in which the FCC required the utility to bargain with attachers in good faith and rejected several provisions of Georgia Power's pole-attachment contract, according to a separate letter Keller and Heckman sent to its pole-attachment clients.

The provisions in Georgia Power's contract that the FCC rejected included:

• Prior consent for overlashing

• Administrative fees

• Up-front payment of make-ready costs

• Unauthorized attachment fees tied to prior, undated inspections

• Additional payments for private easements

• Unilateral authority for the utility to determine whether an attacher is creditworthy

• Non-reciprocal indemnity and liability provisions

• Non-reciprocal force majeure provisions.

According to Keller and Heckman's white paper, there is a considerable body of case precedent regarding pole-attachment issues. Many of these “policy pronouncements” are not codified in regulations, however, so they are subject to argument.

“In fact, former FCC Commissioner Harold W. Furchtgott-Roth and now-Chairman Michael Powell dissented from the FCC's order on Reconsideration of the Local Competition Order on the ground that many of the agency's rulings exceeded the requirements of the Communications Act,” the paper states.

Lawsuits also erupt when utility merger or acquisition deals fall apart. There is considerable expense in putting these deals together. Most successful deals have not been hostile takeovers. Instead they are deals agreed to by both parties. Still, conditions change, political pressures rise and opportunities shift.

Trans Elect Sues Illinois Power

One deal that has unraveled is the agreement by Trans-Elect (Reston, Virginia, U.S.) to purchase the transmission assets of Illinois Power (Decatur, Illinois, U.S.). Trans-Elect claims that Illinois Power decided not to move forward in the sale of its transmission assets. Instead, parent-company Dynegy Inc. (Houston, Texas, U.S.) is moving forward on Ameren's current bid to purchase Illinois Power in its entirety. Trans-Elect responded with a pending lawsuit is pending against the utility.

The Trans-Elect vs. Illinois Power Co. lawsuit is in excess of US$20 million, and contends that Illinois Power did not move forward in good faith to sell its transmission system comprised of 1700 miles (2736 km) of transmission lines, 20 transmission substations and transmission assets within another 40 substations.

Ameren (St. Louis, Missouri, U.S.) has agreed to purchase Illinois Power and a 20% interest in Electric Energy Inc. (Joppa, Illinois) from Dynegy for $2.3 billion. But Trans-Elect contends that when it tried to buy Illinois Power's transmission system last year, Illinois Power breached the contract after the agreement ran into some roadblocks.

Trans-Elect filed suit in the Federal Court of Northern Illinois in October 2003, requesting that the court order Illinois Power's transmission system to Trans-Elect. The case is scheduled for trial next January before U.S. District Judge Joan Lefkow.

“Our suit states that we are seeking, first and foremost, specific performance. That is, we are asking the court to order IP to negotiate the sale to us,” Bernie Schroeder, Trans-Elect president, said. “If Ameren is the owner, we will simply ask the court to order them to negotiate the sale. Failing that, we have asked for compensation for out-of-pocket expenses in excess of $5 million and lost profits in excess of $15 million.”

In October, 2002, Trans-Elect and Illinois Power had entered into an Asset Purchase Agreement for Trans-Elect to buy the system for $239 million.

When the deal came up before the Federal Energy Regulatory Commission (FERC) for approval in February 2003, FERC accepted the general conditions of the sale but said Trans-Elect's projected rated of return was too high, according to a St. Louis Post-Dispatch report. “Trans-Elect would have received fees from companies that transmit electricity along the system,” the article said.

The companies then agreed to negotiate a new rate of return and submit a revised version to FERC. But according to Trans-Elect's 22-page complaint, Illinois Power and Dynegy were not prompt in providing “what they would consider to be an acceptable purchase price and rate path.”

Trans-Elect further argued that Illinois Power did not cooperate with it to resolve the situation before the July 7, 2003, deadline.

“Our lawsuit alleges that Illinois Power did not negotiate in good faith between February 20 and July 7, and then on July 8, they wrote a letter breaking things off,” Schroeder, Trans-Elect president, told Dow Jones Newswire.

With that, the sale was killed.

“It is unfathomable to me that reasonable business persons would buy into this situation without the court acting first,” Schroeder told Transmission & Distribution World.“It is even more incredulous that any regulator (FERC orthe FCC) would act before the court opines.”