FCC Chief ALJ Issues Decision in Favor of Cable Industry in Pole Attachment “Just Compensation” Case
On January 31, 2007, Federal Communications Commission Chief Administrative Law Judge Richard Sippel issued an Initial Decision in Florida Cable Telecommunications Association, et al. v. Gulf Power Company (FCC 07D-01; E.B. Docket No. 04-381) upholding after an April 2006 hearing the FCC’s cost-based pole attachment regulations and denying all claims by an electric utility for drastic increases in pole rental from cable operator attachers. This hearing was the latest in a series of concerted efforts over the last two decades by The Southern Company, its affiliates, and other electric utilities to dismantle FCC regulation of pole attachments. Its outcome was of crucial importance to Florida’s cable operators, as well as the cable industry nationally, as Gulf Power sought to circumvent the FCC’s pole attachment rental formulas and charge cable operator attachers monopoly rents.
This case started as a pole attachment complaint proceeding brought by the Florida Cable Telecommunications Association, and four of its members, Comcast, Cox, Mediacom and Brighthouse (successor to Time Warner) against Gulf Power in 2000. Gulf Power (a Southern Company subsidiary) terminated the operators’ pole attachment agreements and demanded new agreements and 600% rate increases. The prior rates had been set under the FCC’s pole attachment formula and 47 U.S.C § 224, which provides that just and reasonable pole rents must be no less than the marginal costs of attachment and no more than a maximum pole attachment rates based on the utility’s costs, recurring expenses and return on investment. Gulf Power’s theory was that the mandatory pole access provisions that were added to Section 224 by the 1996 Telecommunications Act constituted a “taking” and further that the FCC’s maximum rate under Section 224 did not (and could not) provide “just compensation."1
While the Gulf Power complaint proceeding was pending at the Bureau, Gulf Power’s sister company, Alabama Power tried the same tactic. The Bureau ruled against Alabama Power and was affirmed by the full Commission and the Eleventh Circuit.2 All found that cable operators’ payment of the FCC’s formula pole rental plus reimbursement of the “make-ready” costs for rearranging lines or replacing poles provided just compensation. But the Eleventh Circuit carved out one limited circumstance where a pole owner might be entitled to recover more than the marginal costs of hosting Complainants’ attachments, which is the minimum rate under FCC regulations: If a pole owner could show that an individual pole was “full” and that as a result of hosting a cable operator’s attachment it was prevented from collecting any more than what Complainants had been paying, a pole owner could have a claim to more than reimbursement of marginal costs.3 Critical to the Eleventh Circuit’s prior holding was that constitutional “just compensation” is measured by “loss to the owner” not “gain to the taker” so the fact that attachers are spared the cost of building parallel pole networks was entirely irrelevant.4 The Eleventh Circuit further observed that “marginal cost provides just compensation” and that the FCC’s formula for pole rental attachment, “which provides for much more than marginal cost, necessarily provides just compensation."5
After the Eleventh Circuit’s Alabama Power decision, the Bureau resolved the pending complaint by FCTA against Gulf Power.6 Gulf Power then sought to leverage the Alabama Power exception for poles that were “full” into a wholesale dismantling of pole attachment regulation. Gulf Power sought reconsideration, arguing that it should be afforded the opportunity to present evidence meeting the exception identified in the Alabama Power decision: to prove that its poles were full and that it lost quantifiable opportunities to rent the space occupied by the cable operators at rates higher than the formula. Based on Gulf’s plea, the Bureau designated the matter for hearing before the Chief ALJ.7 After discovery and pre-trial proceedings, fact and expert witnesses testified at the week-long hearing in April 2006.
In the decision rendered yesterday, the FCC’s Chief ALJ rejected every critical aspect of Gulf Power’s claims. In particular, the Chief ALJ held:
- The availability and regular use of make-ready for rearranging facilities on poles and substituting taller poles precludes any claim that Gulf Power’s poles were “full;”
- Gulf Power—like all pole owning utilities—do not suffer out-of-pocket losses or unreimbursed costs in hosting attachments as make-ready costs are paid by new attachers;
- The payment to pole owners of the FCC formula pole attachment rental, along with make-ready costs, are at least, if not more than, marginal costs and thus sufficient to satisfy “just compensation” requirements; and
- Even if it were necessary to assess damages, the FCC would not use replacement cost methodology for setting pole attachment rental rates.
Gulf Power may seek review by the full Commission within 30 days. Any final Commission decision may be appealed to the D.C. Circuit or Gulf Power’s home circuit, the Eleventh.
Davis Wright Tremaine represented FCTA and the cable operators (through Cole, Raywid & Braverman LLP prior to the merger in January 2007) throughout the Bureau and Commission proceedings, and also represented The Alabama and National associations throughout the related district court, D.C. and 11th Circuit, Bureau and Commission proceedings.
The text of the decision is available here.
1 The Eleventh Circuit had previously found Section 224’s mandatory access provisions to constitute a taking, but rejected the utility’s facial challenge to Section 224 rates by finding that the FCC’s formula provided “just compensation.” Gulf Power Co. v. United States, 187 F.3d 1324, 1338 (11 th Cir. 1999); Gulf Power Co v. FCC, 208 F.3d 1263 (11 th Cir. 2000). The second Gulf Power decision 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 In the Matter of Alabama Cable Telecommunications Assoc. et al. v. Alabama Power Co., 15 F.C.C.R. 17346 (Enf. Bur. Sept. 8, 2000), aff’d, Alabama Cable Telecomm. Ass’n v. Alabama Power Co., 16 F.C.C.R. 12209 (2001), aff’d, Alabama Power Co. v. F.C.C., 311 F.3d 1357 (11 th Cir. 2002), cert. denied, 124 S. Ct. 50 (2003).
3 To recover more than marginal costs a utility would have to 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.” 311 F.3d at 1370.
4 The legal principle is that in takings law, just compensation is determined by the loss to the person whose property is taken. Put differently, ‘the question is, What has the owner lost? not, What has the taker gained?’ This takings principle is a specific application of the general principle of the law of remedies: an aggrieved party should be put in as good a position as he was in before the wrong, but not better. 311 F.3d at 1369.
5 Id. at 1370-71.
6 In the Matter of Florida Cable Telecommunications Assoc. et al. v. Gulf Power Co., 18 F.C.C.R. 9599 (2003).
7 19 F.C.C.R. 18718 (2004).