20020730Cable One's Second Response.pdf

Dean J. Miller (ISB No. 1968)
McDevitt & Miller LLP
420 West Bannock Street
P.O. Box 2564-83701
Boise, ID 83702
208-343-7500
208-336-6912 (Fax)

Stuart F. Feldstein
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington D.C. 20036
202-939-7900
202-387-3467 (Fax)

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
________________________________________________________________________
)
IN THE MATTER OF THE INVESTIGATION ) Case No. GNR-E-02-02
BY THE IDAHO PUBLIC UTILITIES )
COMMISSION TO DETERMINE A POLE )
ATTACHMENT RATE FORMULA PURSUANT ) RESPONSE
TO IDAHO CODE § 61-538. )
________________________________________________)________________________

This response is submitted on behalf of Cable One, Inc. (“Cable One”) to the July 15, 2002,
letter to all interested parties in the above-captioned proceeding from Weldon B. Stutzman, Deputy
Attorney General. By Order dated April 29, 2002, the Commission initiated this proceeding to
determine an appropriate formula for the calculation of pole attachment rates in the State of Idaho.
In response to Mr. Stutzman's letter, Cable One herein provides its proposal for such a formula.
Cable One has numbered its presentation in the same order as Mr. Stutzman's letter.
Introduction.
Section 61-538 of the Idaho Code (the "Act") grants the Idaho Public Utilities Commission
("Commission") jurisdiction to regulate the rates, terms and conditions pursuant to which cable
television systems may attach their facilities to the poles of investor-owned utilities. The Act sets
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forth the minimum and maximum limits on the pole attachment rate determination and requires the
Commission to establish a rate within that range. The minimum rate under the Act consists of the
avoidable recurring costs incurred by a utility to accommodate a cable pole attachment. This is, in
fact, a de minimus amount consisting of some administrative costs. The maximum rate consists of
"the associated capital costs and operating expenses of the public utility attributable to that portion
of the pole, duct, or conduit used for the pole attachment including a share of the required support
and clearance space."
1. Proposed Methodology for Calculating Cable Television Pole Attachment
Rates.

Cable One's proposed maximum pole attachment rate formula is as follows:
Maximum Rate per Pole = space occupied net pole investment (less appurtenances) annual carrying charge
usable space x total number of poles x

Calculation of a maximum pole rate under this formula is a relatively simple matter. A utility's
investment in a bare pole is the depreciated historical cost of its pole plant net of investment in pole
appurtenances not useful for cable attachments and net of accumulated deferred taxes, divided by
the number of distribution poles owned by the utility. The carrying charge reflects the costs of
maintenance, administration, depreciation, taxes and cost of capital attributable to the net pole plant.
The resulting percentage figure is applied to the net investment per pole to produce an annual per
pole carrying cost. The attaching cable system is then charged a share of that annual carrying cost
which reflects its relative use of the utility's pole.
This basic formula is the one which the Federal Communications Commission ("FCC")
adopted after the passage of the Pole Attachment Act in 1978.1 With some minor modifications to
the elements, this formula remains in use today.2 In addition, 18 states and the District of Columbia
1 Public Law No. 95-234, § 6, 92 Stat. 33, 35, codified at 47 U.S.C. § 224.
2 See 47 C.F.R. § 1.1409. Pursuant to a 1996 amendment to Section 224, the FCC has adopted a
second rate formula, one which applies to attachers who provide telecommunications services.
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have asserted jurisdiction over the regulation of pole attachments. All but four of these entities have
adopted a specific formula. Almost all of the formulas adopted closely track the formula which
Cable One is proposing.3 Adoption of Cable One’s proposed formula would place Idaho squarely in
the mainstream of the jurisdictions that have considered this issue. In Exhibit 1 we have taken
Idaho Power Company’s ("IPCo") relevant cost figures and “run them through” the formulas in
each state; the resulting rate which would be applicable were IPCo providing service in the
respective state is shown in the last column. As can be seen, those rates are generally consistent
with the rates proposed by Cable One in this case. By contrast, adoption of the formula proposed by
IPCo during its negotiations with Cable One would place Idaho far outside the regulatory
mainstream.
The economic and policy justification for this formula is clear. Utilities have an investment
in pole plant. A utility incurs annual costs to maintain poles in place. An attachment by a third
party cable operator causes the utility to incur a small additional avoidable cost. However, as an
expression of the maximum rate allowed by the Act, Cable One's formula requires the cable
operator to share the utility's annual cost. It does so by apportioning the annual cost in accordance
with the relative use of the pole by each attaching entity.
The annual carrying costs per pole are computed by multiplying the investment per bare
pole by the annual carrying charges. This product reflects the annual capital costs and operating
expenses for owning and maintaining the entire pole, top to bottom. The Act requires that cable
operators be allocated only a portion of that cost, reflecting that "portion . . . used for the pole
attachment including a share of the required support and clearance space." The most appropriate
method for allocating these costs is by the usable space ratio methodology. Because a pole is partly
3 Exhibit 1 contains citations to all of these states' statutory and regulatory pole attachment
provisions.
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buried (for stability), and requires certain minimum grade clearance for the lowest line attachment,
not all portions of a pole are usable. As demonstrated below, usable space is the space above the
minimum grade level that can be used for the attachment of wires, cable and other equipment.
Since the purpose of the pole is to create usable space, the annual carrying costs should be allocated
to cable in proportion to the usable space it uses. By charging total pole costs in proportion to
usable space, the cost of buried and clearance space are equitably shared among all users. This is
analogous to charging common space in a building to tenants in proportion to their occupancy of the
building.
2. The Elements of the Formula.
Net Investment Per Bare Pole
Gross Pole Investment - Accumulated Depreciation - Accumulated Deferred Income Tax Net Pole Investment = (less appurtenances)

Cable operators attach their facilities to distribution poles. Thus, the relevant investment is
the embedded cost in distribution poles. For electric utilities this can be found in FERC Form 1
account 364; for telephone companies this can be found in FCC ARMIS account 2411. The net cost
of a pole can be calculated by first subtracting depreciation. For electric utilities this amount is
found in FERC account 108 and for telephone companies it can be found in FCC account 3100.
Second, Idaho, like most state commissions, recognizes that accumulated deferred income
tax is cost-free capital. The Commission adjusts for this by deducting this depreciation-related tax
reserve from the utility's rate base. Obviously then, the portion of this reserve attributable to poles
must be netted for purposes of the rate formula. For electric utilities this is found in FERC accounts
190 and 281-283; for telephone companies, in FCC accounts 4100 and 4340.
Finally, under uniform system of account procedures, pole plant accounts include
investment not only in the poles themselves but also in such appurtenances as cross-arms, pole pins
and guys and anchors, all of which are used exclusively for utility purposes. Some utilities maintain
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subaccounts for investment in bare poles and, if so, they may be used in this computation. Many
utilities, however, do not maintain such subaccounts and it is therefore necessary to compute an
appurtenance factor to net out these unrelated investments from account 364 or account 2411. In
cases where a utility does not have a subaccount and if no data can be produced by a utility to
quantify appurtenances, it will be necessary for the Commission to apply a standard percentage
appurtenance exclusion. Based on a substantial record before it, the FCC adopted a rebuttable
exclusion factor of 15% for electric utilities and 5% for telephone companies.4 Cable One suggests
the adoption of those presumptions. It should also be noted that some states have utilized a uniform
exclusion factor and, indeed, one state uses an exclusion factor which exceeds 15%.5
As for the determination of the number of distribution poles in the utility's inventory, in the
absence of a rebuttal by a cable system, the Commission should rely on the pole count supplied by
the utility as derived from its internal property records. The figure should be as of the year-end date
of the FERC or FCC form used as the source of other data used in the formula.
Administrative Charge
Total General and Administrative Administrative Element = Gross Plant Investment - Accumulated Depreciation - Accumulated Deferred Taxes

This is a straight-forward calculation. A utility's total general and administrative cost is
easily derived from both the FERC Form 1 and FCC ARMIS reports. It is then divided by a
denominator which consists of the gross plant investment minus accumulated depreciation of that
plant and the accumulated deferred taxes attributable thereto. The taxes figures can be found in
FERC accounts 190 and 281 through 283; in the case of telephone companies those amounts can be
found in FCC accounts 4100 and 4340. Although it may be possible to parse out those subaccounts
4 Report and Order in CC Docket No. 86-212, 2 FCC Rcd 4387 (1987), at ¶ 19.
5 Illinois uses a standard 30% exclusion factor for all utilities.
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in the general and administrative category which arguably do not benefit cable operators in any
way, for the sake of simplicity and ease of calculation Cable One would accede to the inclusion of
the entire general and administrative amount. This is the approach taken by the FCC and all of the
states which have pole attachment rate formulas.
Maintenance Expense

Maintenance Expense Maintenance Element = Pole Investment - Depreciation - Accumulated Deferred Income Taxes

Maintenance expense associated with distribution poles is recorded by electric utilities in
FERC account 593 and by telephone companies in FCC account 6411. In the case of electric
utilities, account 593 also includes maintenance of conductors (account 365) and customer drops
(account 369); therefore, calculation of the maintenance amount entails dividing account 593 by the
total of accounts 364, 365 and 369 as netted by total depreciation in those accounts and accumulated
deferred income taxes related to those accounts. In the case of telephone companies, once rental
expense from poles is subtracted from account 6411, the denominator would be the net pole
investment amount as determined above.
Depreciation Charge
Gross Pole Investment Depreciation Element = Net Pole Investment x Depreciation Rate for Gross Pole Investment

This is determined by dividing the gross pole investment by the net pole investment and
multiplying the result by the Commission's approved depreciation rate for gross pole investment.
Tax Charge
Taxes other than Income Taxes Taxes Element = Gross Plant Investment - Accumulated Depreciation - Accumulated Deferred Taxes (Plant)

This element involves totaling all taxes other than income taxes and dividing by net plant
investment. For electric utilities such taxes can be found in FERC accounts 408.1, 409.1, 410.1 and
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411.4 minus any amounts found in account 411.1; for telephone companies these taxes can be found
in FCC account 7200. The plant investment figure is calculated as in the general administrative
element, i.e., gross plant investment minus accumulated depreciation and accumulated deferred
taxes.
Return on Investment
This is simply the applicable cost of capital as determined by the Commission. This figure
involves a mixture of the cost of debt, return on equity and income taxes. It is usually determined
for a particular utility in its most recent rate case before the Commission.
Total Annual Cost Per Distribution Pole
Carrying Charge Rate = Administration + Maintenance + Depreciation + Taxes + Return
The percentages derived from the five cost elements described above are then totaled and
the result multiplied times the net investment per bare pole. This calculation produces the total
annual cost to the utility per each distribution pole.
3. Space Assigned to Cable Television Attachments.
A cable attachment occupies approximately one inch of vertical space on a pole. However,
it is a virtually universal practice in the industry to allocate one foot of space on a pole to cable for
the attachment of its facilities.6 This generally reflects the fact that if a telephone cable is attached
to a pole it is attached in the first space above minimum grade level that can be used for an
attachment. The cable attachment is then located 12 inches above the telephone attachment.
4. Usable Space.
The space on a pole can be conceptually divided into three parts. First is the part which is
buried underground in order to set the pole. Second is the minimum height above grade level for

6 Of the states which regulate pole attachments, to the best of our knowledge only Louisiana assigns
more than one foot to a cable attacher (Vermont assigns two feet to anyone offering telephone
service).
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the first attachment; this is set by requirements in the National Electrical Safety Code ("NESC").
The third portion of the pole is the portion above the first permitted attachment. Usable space is the
space above the minimum grade level that can be used for the attachment of facilities and
equipment. Thus, if, as Cable One suggests below, the presumed average pole height is 37.5 feet,
usable space would be calculated as follows. A pole of that height would be set six feet
underground. The minimum height above grade for the first attachment is 18 feet.7 The remaining
13.5 feet would be the presumed usable space.
Although all space above minimum grade is usable, some utilities have contended that, since
the NESC requires that an electric line must be separated by 40 inches from a communications line,8
this space should not be deemed usable. However, the FCC and almost all states which have
considered the matter have concluded that this space is usable.9 Most importantly, this space is in
fact used. Electric equipment, such as drip loops and electric transformers, can be, and often is,
placed in that space. In addition, street lights and street light brackets can be placed in that space.
Thus, although no cable equipment can be attached in this separation space, utilities utilize the
space for revenue-producing activities. Moreover, the purpose of this separation space is to protect
electric company personnel and the public from the potential hazards of electric facilities. Finally,
and of great significance, if there is insufficient room on a pole to attach cable and preserve the
separation space, the cable operator is required to pay all of the costs associated with replacing the
existing pole with a new and taller pole. This industry practice is applied in Idaho as well. In other
words, since the separation space is used by utilities, and is maintained at cable operator expense,
7 NESC, Table 232-2 (1997).
8 NESC, Table 235-5 (1997). This distance may be reduced to 30 inches in certain circumstances.
9 See, Second Report and Order in FCC Docket No. 78-144, 72 FCC 2d 59 (1979), at ¶ 24;
Memorandum Opinion and Order in FCC Docket No. 78-144, 77 FCC 2d 187 (1980), at ¶¶ 8-11.
To the best of our knowledge only Kentucky and Oregon have reached a different result.
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this space is clearly usable space. This is not to say, of course, that a cable operator should not pay
for its share of this separation space. Cable One's formula recognizes that fact and provides
payment for all usable space, including the separation space, directly proportional to cable's use of
the pole as required by the Act.
5. The Total Number of Cable Television Attachments.
Both the cable television operator and the utility keep a record of the number of cable
television attachments. The utility must know this number in order to render a bill for the annual
attachment fee. The cable operator, if it disputes this number, needs to demonstrate that the number
is incorrect. If there is a dispute over the correct number of attachments, the matter can only be
settled by an actual count of the poles to which cable is attached.
6. Average Pole Height.
The average pole height of a utility's distribution poles can usually be determined from the
utility's property records. In the absence of such records, the FCC and most states use a rebuttable
presumption that the average pole height is 37.5 feet. If either the utility or the cable operator
wishes to rebut this presumption, such rebuttal should take the form of an actual survey of the poles
to which the cable operator is attached or, at a minimum, a statistically valid sampling of such
poles.
7. Additional Rate Elements.
As the Commission makes decisions on the variables which go into fleshing out this
formula, Cable One asks that the status of cable operators as attaching parties be taken into
consideration. Cable operators are mere licensees under the standard pole attachment agreement.
Two examples of their lesser status illustrate the point. One, cable attachments impose no capital
costs on a utility. When a cable operator makes an attachment to a pole, if any existing facilities
need to be moved the cable operator pays for the rearrangement. If the pole is inadequate to
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accommodate the cable attachment, the cable operator pays for a new pole. If an anchor is needed,
the cable operator pays for it. Two, cable operators are subordinate users of surplus space.
Examination of a standard attachment agreement demonstrates this fact. Provisions regarding
permit applications, inspections, liability and indemnification are, to one degree or another, one-
sided and onerous.10 Thus, even if a maximum rate formula is adopted, cable's status as an attacher
should be kept in mind as the formula's particulars are decided.
Quantifying the rate impact of this inferior status is a judgmental decision, not unlike the
judgmental decision made by the Commission in determining the value of interruptability when
setting rates for electric companies. Interruptible service is inferior to firm service and a judgmental
deduction is often made to reflect that inferiority. Similarly, Cable One suggests that the pole
attachment rate produced by strict application of the above formula be reduced by a judgmental
factor of twenty-five percent (25%) to take into account cable’s inferior status as an attacher.
Dated this ___th day of July, 2002.
MCDEVITT & MILLER LLP

_____________________________
Dean J. Miller

FLEISCHMAN AND WALSH, L.L.P.

_______________________________
Stuart F. Feldstein

10 See the sample agreements attached as Exhibit 2.
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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on the ___th day of July, 2002, true and correct copies of the foregoing
RESPONSE were forwarded with all required charges prepaid, by the method(s) indicated below to the
following:

Morgan W. Richards, Jr.
Moffatt Thomas
P.O. Box 829
Boise, Idaho 83701-0829

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Weldon Stutzman
Idaho Public Utilities Commission
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DATED this ____th day of July, 2002.

_________________________________________