North Carolina Court Issues First Decision Controlling Coop Pole Attachment Rates
This is a story of persistence and perseverance, if not patience.
The cable industry finally obtained some control over skyrocketing pole attachment rates charged by cooperative utilities in North Carolina when the State’s Business Court ruled in favor of Time Warner Cable in Rutherford EMC v. Time Warner Entertainment/Advance-Newhouse Partnership on May 22, 2014. This was the first decision on the merits of a rate dispute under a 2009 North Carolina statute that gave the Business Court the responsibility to act on disputes related to cooperative and municipal utility pole rates. In deciding squarely for the cable operator, the Business Court ruled that the rate formula used by the FCC to determine reasonable pole rates “offered the most credible basis for measuring the reasonableness of [Rutherford’s] pole rates.” The FCC rates were determined to be in the range of $2.54 to $3.63 per pole annually during 2010-2013, in contrast to Rutherford’s rates in the range of $15.50 to $19.65. The court also found that the average rate in North Carolina charged by regulated investor owned utilities ranged from $5.91 to $6.06 in that same period. The court ordered that within 90 days the parties “negotiate and adopt new rates for the years 2010 through 2013 that are consistent with the reasoning of this Order.”
The control exercised by the Business Court over cooperative pole rates in the Rutherford case has been a long time coming. When Congress passed the Pole Attachment Act in 1978, it exempted cooperative and municipal utilities from FCC regulation in the belief that these utilities, which were generally charging low rates at the time, would continue to do so. But by 2005 a number of cooperative and municipal utilities in North Carolina, without any sound economic justification, had increased their pole rates well above the rates charged by regulated utilities. With no statutory right to reasonable rates, Time Warner Cable brought suit against Carteret-Craven EMC in federal court arguing that the courts have common law jurisdiction to strike down unreasonable utility rates where the common law has not been supplanted by a statute vesting a utility commission with regulatory oversight. But in its 2007 decision in Time Warner Entertainment/Advance-Newhouse Partnership v. Carteret-Craven Electric. Membership Corp.,the United States Court of Appeals for the Fourth Circuit declined to enter the fray. The court held that “if any regulation or compulsion is to be applied to pole-attachment agreements, it should be done by the North Carolina legislature, the North Carolina Utilities Commission or the North Carolina state courts.”
Time Warner Cable and other North Carolina cable operators then went to the legislature. In 2009 the North Carolina General Assembly passed legislation vesting communications providers with a right to access cooperative and municipal poles on just and reasonable rates, terms, and conditions. And to enforce that right, the General Assembly gave the Business Court jurisdiction to resolve pole attachment disputes involving cooperative and municipal utilities. If the parties are unable to reach an agreement on pole rates, terms and conditions within 90 days, the Business Court has exclusive jurisdiction to resolve the parties’ disputed issues.
But Time Warner Cable’s efforts to obtain relief from excessive rates subject to the Business Court’s new jurisdiction were far from over. First, the cable operator brought suit against the Town of Landis, NC. Although the case was tried before the Business Court in the summer of 2010, the court reached no decision on the merits and in the summer of 2011 held that it lacked jurisdiction to resolve the parties’ disputed issues. The Court of Appeals reversed that decision in 2012, and the parties again briefed the merits in 2013. A decision in the Landis case – along with additional guidance on treatment of municipal pole rates in North Carolina – is now expected shortly.
Meanwhile, Rutherford EMC brought its suit in the Business Court against Time Warner Cable in 2013, seeking a ruling from the court that its rates were ipso facto just and reasonable so long as it charged all attachers the same rates and at least one attacher had acceded to those terms. After a bench trial in 2013, the court’s ruling last week accepted Time Warner Cable’s arguments that, as virtually all authorities to consider the issue have determined, the appropriate starting point in its reasonableness analysis was the FCC’s long-established Cable Rate formula. “[F]ar from providing any subsidy to communications providers,” said the court, “the FCC Cable Rate formula actually leaves the utility and its customers better off than they would be if no attachments were made to their poles.” And since the FCC formula already applies to the investor-owned utilities in the state, the court held that use of the FCC methodology also “promotes uniformity.” Finally, the court noted that “by applying the facts presented in this case to an analytical structure that is well-understood, widely used, and judicially sanctioned, the Court is assured that it is not exceeding its judicial function.” In reaching its decision, the court not only rejected Rutherford’s varying and inconsistent justifications for its rates, but it also recognized that the payment of Rutherford’s rates by others was not a barometer of their reasonableness.
The Business Court’s decision goes a long way toward settling the long-running dispute among cooperative utilities and cable operators in North Carolina, and it also should serve as helpful precedent in other states that have yet to rationalize escalating cooperative and municipal pole rates. If the court follows the same analysis in resolving the still-pending Landis case, peace among pole users may finally come to the tar heel state.