Power Companies Lose Court Bid on Telecom Pole-Wiring Fee

American Electric Power Co. (AEP), Southern Co. (NSC) and seven other power companies lost a court challenge to U.S. rules setting rates telephone and cable providers must pay to attach lines to electric utility poles.

A three-judge panel of the U.S. Court of Appeals in Washington today upheld Federal Communications Commission regulations aimed at simplifying and reducing rates to spur deployment of high-speed Internet service, or broadband, finding the agency’s justifications to be reasonable.

The power companies “offer neither theory nor fact to contradict the commission’s fundamental proposition that artificial, non-cost-based differences in the prices of inputs among competitors are bound to distort competition, handicapping the disfavored competitors and at the margin causing market share and capital to flow to less efficient firms,” U.S. Circuit Judge Stephen Williams wrote in the opinion.

Lowering rates could cost electric utilities $1.2 billion in foregone fees annually, according to a 2011 estimate by Thomas Magee, an attorney for a coalition of utilities that includes FirstEnergy Corp. (FE), National Grid Plc (NG/), Allegheny Energy Inc., PPL Corp. (PPL), and Dayton Power & Light Co. The utilities already bear $600 million annually in unreimbursed costs for pole attachments by cable companies, which should pay higher rates, Magee said when the rules were proposed two years ago.

‘Unfortunate Decision’

“The FCC’s decision is not consistent with congressional intent but the court let them get away with it,” Magee said in an e-mailed statement. “This is an unfortunate decision for electric utility ratepayers.”

Neil Grace, an FCC spokesman, said in an e-mail that the commission’s order is among several key actions the agency has taken to reduce barriers to broadband deployment and “accelerate billions of dollars of investment in 21st century infrastructure.”

There are about 134 million utility poles in the U.S., according to a 2009 study by Washington-based economist Michael Pelcovits submitted to the FCC on behalf of cable companies. About 49 million poles are subject to FCC-regulated rates, with the remainder regulated by states or exempt from federal rules, Pelcovits estimated.

Utility Poles

From 65 to 70 percent of poles are owned by utilities, according to the FCC. Telecommunications companies pay a range of prices to attach to utility poles, depending on their regulatory classification. Prior to the rule, cable companies paid an average of $7 per foot a year to attach to a utility pole, while some telecom operators paid about about $20 a foot each year, the agency said.

The court’s decision means “our recovery of pole costs will decline, placing an inequitable portion of the cost of maintaining utility poles on electric utilities and our customers when other utilities benefit,” said Melissa McHenry, a spokeswoman for American Electric Power.

Applying different rates distorts business decisions, and could deter some providers from extending their networks, the FCC said in its National Broadband Plan published in 2010. The FCC left the rate paid by cable companies unchanged while reducing rates paid by mid-sized and smaller telephone companies.

AT&T Inc. (T) and Verizon Communications Inc. (VZ), the largest telephone companies, intervened in the case in support of the FCC rules. AT&T and Verizon sought to pay the same rate as their smaller peers, according to US Telecom, a Washington-based trade group that represents the companies.

Unchanged Rates

Today’s ruling also upheld regulations allowing a class of telecom companies, whose rates weren’t changed by the regulation, to challenge rates that they believe to be unreasonable.

Michael Powell, president and chief executive officer of the National Cable & Telecommunications Association, whose members include Comcast Corp., the largest U.S. cable company, and No. 2 Time Warner Cable Inc., called the decision a win for American consumers.

“By reducing the cost of attaching equipment and wires to utility poles, the changes adopted by the commission in 2011 will help promote the deployment of broadband and telecommunications networks by cable operators and other providers,” he said in an e-mailed statement.

The case is American Electric Power Service Corp. v. Federal Communications Commission, 11-1146, U.S. Court of Appeals for the District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net

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