11th Circuit Hears Alabama Power's Fifth Amendment Challenges to FCC's Formula for Cable Television Pole Attachment Rates
On Oct. 31, 2001, the United States Court of Appeals for the 11th Circuit heard oral argument in Alabama Power v. FCC, a pole attachment case that is likely to figure prominently in the future of pole attachment regulation.
Although much attention has been focused recently on the U.S. Supreme Court’s consideration of whether cable systems lose all FCC pole attachment protection if they deliver Internet service along with video programming, the electric utility industry has been prosecuting a parallel attack on the FCC’s pole attachment jurisdiction and rate formula under a different theory. The second prong of the utilities’ attack on pole regulation arises from their theory that if a cable operator or CLEC has a mandatory right of access to a pole (as provided for in the 1996 amendments to the Communications Act that created Section 224(f)), then the compensation awarded under the FCC’s pole rate formula is not “just compensation” for a “taking” in violation of the Fifth Amendment to the U.S. Constitution. The flagship case for that theory is Alabama Power v. FCC.
Alabama Power complaint proceeding at the FCC
The history and background of the complaint proceeding and the FCC’s rulings are set forth in our advisory dated May 29, 2001. The complaint proceeding was commenced by Alabama and Florida cable operators after the Alabama Power (and Gulf Power) terminated cable operators’ attachments and demanded that if the operators wanted to remain on the poles, they would have to pay a “just compensation” rate some 500 percent above the rate determined under the FCC formula.
The utilities’ demand was purportedly based upon two decisions from the U.S. Court of Appeals for the 11th Circuit, Gulf Power Co. v. United States, 187 F.3d 1324 (11th Cir. 1999)(“Gulf Power I”), and Gulf Power Co. v. FCC, 208 F.3d 1263 (11th Cir. 2000)(“Gulf Power II”), that Section 224(f) effects a “per se” taking of property. In Gulf Power II the Court found that although 224(f) constituted a taking, the utilities had not established either that Section 224(f) itself or the FCC’s implementing regulations failed to provide just compensation on their face. APCO and Gulf Power thereupon created a test case by “terminating” Alabama and Florida cable operators’ pole attachment agreements and offering that if the operators wanted to stay on the poles, the new rate was increasing from the then current $7.47 per pole to $38.81. Complaints were brought by the Alabama Cable Telecommunications Association (ACTA) and Alabama operators and also by the Florida Cable Telecommunications Association (FCTA) and Florida cable operators challenging the purported terminations and rate increases. APCO and Gulf Power answered, advancing a variety of justifications for the new rates, largely grounded in the theory that they may not be awarded anything less than what they deem to be a “fair market” rate calculated outside of the FCC’s current statutory rate formula and based mostly on the monopoly value of a pole corridor.
In its May 25 Order, the FCC rejected APCO’s and Gulf Power’s claims for several reasons. For “just compensation” purposes, the Commission first held that its regulations enable a utility to recover all costs attributable to pole attachments, through makeready and through rents, including the cost of capital (profit), and that the cable rate therefore was not so low as to be “confiscatory” under the standard described by the Supreme Court in FCC v. Florida Power, 480 U.S. 245 (1987), the last time a Pole Attachment Act case went to the Supreme Court. Second, the FCC ruled that, even apart from constitutional standards on rate regulation, just compensation is determined by the loss to the owner and that the FCC’s cable rate formula, by providing for reimbursement of costs and a return on capital allows the utilities to recoup all “losses” that might be attributable to cable operators’ attachments. Finally, the Commission concluded that the utilities’ had not presented sufficient evidence to support their challenges to specific aspects of the cable rate formula involving pole height, usable space, and cost accounts.
The argument in the 11th Circuit
The argument on APCO’s and Gulf Power’s challenge to the FCC’s May 25 Order in the 11th Circuit was heard by a panel of three judges including Chief Judge Tjoflat (author of the Internet theory in Gulf Power II, now before the Supreme Court) and Judges Barkett and Wilson.
APCO’s counsel spoke first, arguing that the FCC’s formula was constitutionally inadequate because it used original costs, not replacement costs; because it purportedly failed to include the value of “unusable space” on poles; and because, at a minimum, it provided less compensation than the FCC’s formula under Section 224(e) for telecommunications attachments.
APCO’s counsel also argued that pole make-ready should not be considered in evaluating whether the FCC’s pole attachment formula provided just compensation. Judge Tjoflat remained silent during APCO’s counsel’s argument, which is unusual given his usual active questioning in prior pole cases as well as in other cases that morning. In response to a question by Judge Wilson, APCO’s counsel argued that this appeal should proceed even if the Supreme Court were to affirm the 11th Circuit’s ruling in Gulf Power II that attachments carrying both video programming and Internet services are not subject to an FCC-regulated rate. Judge Barkett asked counsel to address the constitutional standard of “loss to the owner.” APCO’s counsel largely reiterated his initial arguments, but emphasized his theory that, by being forced to allow cable attachments, utilities were at least missing the opportunity to license pole space at the higher “telecommunications” rate. When asked to characterize the precedent closest to the claims he was advancing, APCO’s counsel cited a case where an entire utility business was acquired, quite a different case from the revocable license for one foot of pole space the utilities grant cable operators.
Counsel for the FCC argued that the cable rate formula is constitutional because the Supreme Court’s Florida Power ruling that rates that are “not confiscatory” are constitutional remains applicable even when access is mandatory, and that the cable formula also meets the “just compensation” standard of reimbursing the property owner’s “loss.” FCC counsel explained that there is no precedent that supports utility contentions that the amount of compensation a utility is entitled to under the Constitution changes when access shifts from voluntary to mandatory; the character of the property “occupied” or “taken” is the same under either regime. He also observed that the FCC-regulated pole rates allow a utility to recover its costs, operate successfully, maintain its financial integrity, attract capital, and compensate its investors. FCC counsel then argued that the FCC’s regulations clearly meet the “loss to the owner” standard of just compensation because the utilities receive both their avoidable costs through make-ready payments as well as the fully allocated costs attributable to the portion of the pole used by a cable attachment. Government counsel also explained that APCO and Gulf Power’s claim that they lose the opportunity to lease pole space to telecommunications carriers when they provide space to cable is inaccurate because space is usually available for both types of attachments, and where it is not, the new attacher pays the costs of creating more space through additional make-ready or a pole change-out. Judge Wilson seemed to agree. Also, when asked to identify the precedent closest to the arguments advanced by the FCC, counsel cited a 2nd Circuit case that provided for nothing more than cost reimbursement when the government orders one carrier to share its facilities with another. Overall, the Court had few questions for FCC counsel.
On rebuttal, APCO’s counsel argued that “just compensation” required “full and perfect” compensation at whatever the “market” would bear. He also argued that if the Court disagreed with the FCC’s methodology, it should simply declare Section 224(f) to be unconstitutional as applied and require Congress to make any necessary changes in the law. APCO’s counsel also continued with a position that is being examined in Gulf Power II in the Supreme Court as to the FCC’s jurisdiction to set pole rents under its general authority in § 224(b) as opposed to using only the specific rate formulas in §§ 224(d) and (e). APCO counsel’s point was that if the 224(d) and (e) rates were not at the constitutional minimum, the Court should not remand to the FCC but send it to a U.S. District Judge for a condemnation proceeding.
In ordinary course the Court would take several months to decide the appeal. In any event, the 11th Circuit may wait to issue its ruling until after the Supreme Court decision in Gulf Power II. In the interim, cable operators may continue to follow the FCC’s cable rate formula.
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