In late February, the Texas Court of Appeals issued an opinion resolving an eight-year dispute concerning municipal pole attachment fees charged to AT&T and Time Warner Cable (TWC) by CPS Energy (CPS), an electric utility owned by the City of San Antonio. In addition to upholding the jurisdiction of the Public Utility Commission of Texas (“Texas PUC”) to review and modify municipal pole rents using the state-adopted Federal Communications Commission (FCC) pole rent formula, the Court of Appeals decision interprets certain elements of the FCC formula in ways that may have ramifications beyond the realm of Texas municipal pole owners.

In particular, the Court addressed arguments raised by TWC about (1) discriminatory pole attachment rates, terms and conditions offered by CPS to AT&T, (2) the use of the FCC default rate of return, and (3) the requirements governing attachers in rebutting utility findings concerning the number of attaching entities necessary for calculating the FCC’s old telecom formula (and current lower bound formula). In addition, the Court ruled that it, and the District Court, lacked jurisdiction to rule on the Texas PUC’s advisory determination that the FCC’s 2011 amendments to its pole attachment rules automatically applied to adjust the rate formula used to calculate Texas municipal pole rents to the FCC’s revised telecom formula.

The case began in 2009 when CPS Energy filed an enforcement complaint against AT&T and TWC, seeking an order (i) requiring AT&T and TWC to pay outstanding pole attachment fees and (ii) determining that CPS Energy’s method for calculating pole-attachment fees was reasonable and consistent with the State’s municipal pole attachment statute, Texas Utilities Code § 54.204. Four years later, the Commission issued a Final Order, most notably holding, among other things, that:

  1. The Texas PUC has jurisdiction to review and modify the inputs used to calculate the maximum allowable pole attachment rate;
  2. CPS violated the Texas Utilities Code § 54.204(b)’s non-discrimination provision, during a specified period of time, by offering different terms and pole attachment rates to AT&T and TWC;
  3. The FCC’s default rate of return (11.25%), during a certain period of time, was reasonable and appropriate for calculating CPS’ maximum allowable pole attachment rate; and
  4. The pole attachers had not met their burden of rebutting CPS’ average number of attaching entities.

The parties appealed the Commission’s Final Order to the District Court of Travis County, which affirmed three of the four aforementioned holdings. The District Court reversed the Commission’s decision to uphold CPS’ average number of attaching entities, ruling instead that the presumptive number of attaching entities was five.

On appeal, the Texas Court of Appeals (TCOA) upheld three of the District Court’s determinations in its opinion released on February 24, 2017. The TCOA reversed the District Court’s judgment regarding CPS’ average number of attaching entities,  agreeing with the Texas PUC in concluding that the pole attachers had not meet their burden for rebutting CPS’s proposed average because the attachers “neither performed a complete inspection of CPS Energy’s poles nor submitted their own statistically sound survey.” The TCOA noted, however, that it did not need to decide “whether a survey or inspection are the only ways to rebut a utility’s established presumptive average,” since the attachers had not done either.

The TCOA’s opinion is not a clear win for either pole owners or attachers. On the one hand, it can be viewed as a win for communications providers because it assures providers that the Texas PUC has the ability to keep municipally-owned utilities (MOUs) in check by modifying maximum rate inputs and it reinforces non-discriminatory treatment amongst attachers.  However, the decision indicates the FCC’s default rate of return is permissible for municipal rate calculations -- generally, the appropriate rate of return for MOUs is the cost of debt (usually, a much lower rate). In addition, the validation of CPS’ average number of attaching entities implies that either statistically valid surveys or inspections are likely required to rebut a pole owner’s presumptive average, unless another sufficient methodology is utilized.  It is probable that at least one of the parties will file a petition for review with the Supreme Court of Texas, which, according to the Texas Rules of Appellate Procedure, must be done within 45 days of the TCOA’s final judgment, or by April 10, 2017.