11th Circuit Issues Decision in Alabama Power Company v. FCC Rejecting APCO’s Fifth Amendment Challenge to FCC Pole Attachment Regulations and Pole Rental Rate of $38.81

On Nov. 14, 2002, the United States Court of Appeals for the 11th Circuit issued its decision in Alabama Power Co. v. FCC, an important pole attachment case that involved a claim by electric utilities that the FCC’s pole attachment formula for cable system attachments does not provide “just compensation” to pole owners under the Fifth Amendment. This decision is a seminal case establishing that the FCC’s approach to setting pole attachment rents for mandatory access is constitutional. It goes further, suggesting that the FCC could have set lower pole rents. The case represents a repudiation of a massive effort by the utility industry to invalidate the FCC’s pole rent rules, and a significant victory for cable operators in a forum which has historically been hostile to FCC regulation of pole rents. Most immediately, it rejects utility attempts to raise pole rents five to ten fold, which could have resulted in billions of dollars in annual pole rate increases nationally.

Background

In June of 2000, APCO and Gulf Power Company, another subsidiary of the Southern Company, notified cable operators in Alabama and Florida that electric pole owners were terminating existing pole attachment agreements. The utilities informed cable operators that if they wished to remain on the poles they would have to agree to substantially higher rates. In particular, APCO demanded an annual rate of $38.81 per pole, rather than the existing rate of $7.47. The pole owners contended that the Telecommunications Act of 1996 (47 U.S.C. § 224(f)) had required them to make pole attachments available to cable and telecommunications providers (previously such access was not required by law), that this requirement constituted a “taking” under the Fifth Amendment, and that the rates established by the FCC for cable services pole attachments did not provide “just compensation” for a taking.

The Alabama Cable Telecommunications Association (“ACTA”) and Comcast immediately filed a complaint with the FCC’s Cable Services Bureau (“Bureau”) challenging as unlawful both APCO’s sudden and unilateral termination of pole contracts and its increase of more than 500 percent in pole attachment rates. On Sept. 8, 2000, the Bureau ruled in favor of the cable operators. It rejected APCO’s argument that the Commission’s regulations do not provide just compensation for attachments by cable operators, declared void APCO’s pole attachment rate of $38.81, and reinstated the existing $7.47 rate while directing the parties to negotiate a new rate consistent with the Commission’s pole formula.

APCO appealed to the full Commission and, instead of awaiting the FCC’s decision, simultaneously filed a petition for review with the 11th Circuit. In a May 25, 2001 Order, the FCC affirmed the Bureau’s ruling and its determination that the FCC cable rate formula provides just compensation to pole owners. After receiving supplemental briefs following the full Commission’s ruling, the 11th Circuit held oral argument on Oct. 31, 2001.

The 11th Circuit’s Decision

The court dismissed APCO’s petition for review, thereby upholding the FCC’s May 25, 2001, Order.

The Court began its opinion by explaining that APCO’s legal challenge was part of a history of utility challenges to pole legislation and regulation. Fifteen years ago, the Supreme Court rejected a challenge by pole owners to the constitutionality of the FCC’s rates under the Pole Attachment Act of 1978. See FCC v. Florida Power Corp., 480 U.S. 245 (1987). More recently, in 1999, the 11th Circuit rejected the utilities’ claim that Section 224 (as amended by the 1996 Act to include mandatory access) was facially unconstitutional, holding that, while Section 224(f) does constitute a “per se taking,” the statute provides a sufficient mechanism for payment of just compensation, with a determination by the FCC subject to judicial review. See Gulf Power Co v. United States, 187 F.3d 1324 (11th Cir. 1999)(“Gulf Power I”). The following year, the 11th Circuit rejected a facial challenge to the FCC’s regulations for computing pole rents, ruling that pole owners had failed to demonstrate that the FCC’s regulations would not provide constitutionally sufficient compensation. See Gulf Power Co v. FCC, 208 F.3d 1263 (11th Cir. 2000)(“Gulf Power II”).¹ Finally, the Court noted that APCO’s initial legal challenge in this appeal to the Bureau’s ruling was also defective,² but, because the full Commission subsequently issued its Order, the Court proceeded to address the merits.

The Court rejected the utilities’ argument that Section 224 fails to provide just compensation. Initially, it did not accept the FCC’s reliance upon traditional ratemaking cases such as Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989), saying that a different analytical method must be used for evaluating just compensation when a physical taking is involved. However, the Court went on to affirm the overarching legal principle (as argued by ACTA/Comcast and adopted by the Commission in its May 25, 2001 Order) that just compensation is measured by the loss to the owner of the property taken, not the gain to the taker. The Court held that, in the context of pole attachments, where FCC regulations provide for pole owners to be paid at least their marginal costs through makeready payments and an annual pole rent, the requirement of just compensation is satisfied. The Court further stated:

[B]efore a power company can seek compensation above marginal cost, it must show with regard to each pole that (1) the pole is at full capacity and (2) either (a) another buyer of the space is waiting in the wings or (b) the power company is able to put the space to a higher-valued use with its own operations. Without such proof, any implementation of the Cable Rate (which provides for much more than marginal cost) necessarily provides just compensation.

(emphasis added). Because APCO never alleged either of these facts, its Fifth Amendment challenge was denied. The Court also noted that, in the absence of such an evidentiary showing (which we believe would have been difficult, if not impossible, to establish), it is also irrelevant that the Telecom Rate provided under 47 U.S.C. § 224(e) yields a higher rate for telecommunications attachments than the Cable Rate provides for cable attachments.

The Alabama Power decision should aid in the resolution of nearly identical claims by Gulf Power that are currently pending before the FCC and a related appeal by Georgia Power involving the Telecom Rate that is currently pending before the 11th Circuit.

Please let us know if you have any questions concerning this or any related matter or would like a copy of the 11th Circuit’s decision.

Footnotes:

1 Gulf Power II also held that the FCC lacked jurisdiction to regulate pole attachments where the cable operators also offered Internet service. That holding was reversed by the Supreme Court in Nat’l Cable & Telecomm. Ass’n v. Gulf Power Co.¸534 U.S. 327 (2002).
2 The 11th Circuit ruled that both APCO and Gulf Power had acted prematurely by filing their first petitions for review from the Bureau ruling before the full Commission issued its Order. It also noted that Gulf Power’s petitions from both the Bureau’s ruling and the Commission’s Order were defective because Gulf Power was never a party to the APCO proceeding before the FCC.