In re Verizon Md.

• Decision Date: 23 November 2020
• Docket Number: Proceeding 19-355,FCC 20-167
• Court: Federal Communications Commission Decisions
• Parties: In the Matter of Verizon Maryland LLC, Complainant, v. The Potomac Edison Company, Defendant. Bureau ID No. EB-19-MD-009

In the Matter of Verizon Maryland LLC, Complainant,
v.
The Potomac Edison Company, Defendant.

Bureau ID No. EB-19-MD-009

No. FCC 20-167

Proceeding No. 19-355

Federal Communications Commission

November 23, 2020

Adopted: November 23, 2020

MEMORANDUM OPINION AND ORDER

By the Commission

TABLE OF CONTENTS

Heading Paragraph #

I. INTRODUCTION .................................................................................................................................. 2

II. BACKGROUND .................................................................................................................................... 2

A. Legal Framework 2

B. The Parties' Joint Use Agreement 9

C. The Complaint 13

III. DISCUSSION ...................................................................................................................................... 14

A. The JUA Was "Newly-Renewed" and Is Thus Subject to Review Under the Framework of the 2018 Order for the Period Beginning January 1, 2020 ......15

B. Verizon is Entitled to Relief Under the 2018 Order 19

C. The JUA is Subject to Review Under the 2011 Order for the Period Prior to 2020 ...................... 22

D. Verizon is Entitled to Relief under the 2011 Order.. ..................................................................... 29

E. Calculating the Old Telecom Rate ................................................................................................. 33

F. Verizon is Entitled to a Refund Consistent with the Statute of Limitations. . ................................ 39

1. The Applicable Statute of Limitations is Three Years. . .......................................................... 40

2. Potomac Edison's Argument That Relief Should Be Prospective Only Lacks Merit ............. 47

IV. ORDERING CLAUSES ....................................................................................................................... 52

APPENDIX A - Confidential License Agreement Designations

APPENDIX B - Old Telecom Rate Calculation

I. INTRODUCTION

1. In the Commission's recent pole attachment orders, ^[1] we affirmed our commitment to reviewing the agreements under which incumbent local exchange carriers (LECs) attach their facilities to electric utility poles to ensure that their rates, terms, and conditions are "just and reasonable" under section 224 of the Communications Act of 1934, as amended (Act).^[2] In this case, we grant in part a complaint filed by Verizon Maryland LLC (Verizon), an incumbent LEC, against The Potomac Edison Company (Potomac Edison), an electric utility, alleging that the rates Verizon pays Potomac Edison to attach facilities to Potomac Edison's poles are unjust and unreasonable under section 224 and the Commission's rules and orders.^[3] Based on our review of the record, we conclude that the rates Potomac Edison charges Verizon for attachments to Potomac Edison's utility poles are unjust and unreasonable. In taking this action, we prescribe herein the maximum pole attachment rate Potomac Edison may charge Verizon based on the relevant pole attachment rate formula.

II. BACKGROUND

A. Legal Framework

2. Section 224(b)(1) of the Act requires the Commission to "regulate the rates, terms, and conditions for pole attachments to provide that such rates, terms, and conditions are just and reasonable."^[4]Prior to 2011, the Commission construed the "just and reasonable" requirement of section 224(b)(1) to apply to attachments by cable companies and competitive LECs, but not to attachments by incumbent LECs, like Verizon.^[5] Sections 224(d) and (e), respectively, establish separate formulas for calculating the maximum attachment rate that may be paid by cable systems and by competitive LECs.^[6]

3. In the 2011 Pole Attachment Order, the Commission reexamined the formula for calculating the section 224(e) attachment rate applicable to competitive LECs. That reexamination resulted in a revised pole attachment rate (the New Telecom Rate) that is lower than the pre-existing competitive LEC rate (the Old Telecom Rate) and more closely approximates the rate that cable operators pay (the Cable Rate).^[7] The Commission also concluded for the first time that section 224 authorized it to regulate the rates, terms, and conditions of incumbent LEC pole attachments.^[8] The Commission explained that, while in the past, incumbent LECs were positioned to negotiate just and reasonable attachment agreements because they owned roughly as many poles as the electric utilities, incumbent LEC pole ownership had declined over time and "may have left incumbent LECs in an inferior bargaining position."^[9] The Commission noted that incumbent LEC attachment rates were, in aggregate, significantly higher than cable and competitive LEC rates, so that incumbent LECs were at a competitive disadvantage, particularly with respect to broadband and other advanced service offerings.^[10] Therefore, the Commission determined that oversight of incumbent LEC attachment rates would promote broadband deployment, given that "the rates charged for pole access are likely to affect deployment decisions for all telecommunications carriers, including incumbent LECs."^[11]

4. Having determined that section 224(b) authorized it to regulate incumbent LEC pole attachment rates, terms, and conditions, the Commission sought to do so "in a manner that accounts for the potential differences between incumbent LECs and [competitive LEC] or cable operator attachers."^[12]The Commission noted that incumbent LECs frequently obtain access to electric utility poles through joint use agreements, which differ from cable and competitive LEC attachment agreements in that they are typically "structured as cost-sharing arrangements" and provide incumbent LECs advantages not found in competitive LEC and cable company agreements.^[13] Thus, the Commission stated that it "question[ed] the need to second guess" such arrangements and opined that it would be "unlikely to find the rates, terms and conditions in existing joint use agreements unjust or unreasonable."^[14] Nonetheless, if an incumbent LEC demonstrated that it "genuinely lacks the ability to terminate an existing agreement [i.e., one entered into before the 2011 Order] and obtain a new arrangement[, ]" the Commission concluded that it could take such evidence into consideration in a complaint proceeding examining the rates, terms, and conditions in that agreement.^[15]

5. Regarding new agreements, the Commission concluded that if an incumbent LEC could show that such a "new" agreement is "comparable to" or does not "provide a material advantage [over]" competitive LEC or cable company agreements with the same electric utility, "competitive neutrality counsels in favor of affording the incumbent LEC the same rate as the comparable attacher."^[16]Conversely, if a new agreement "materially advantage[s]" the incumbent LEC in relation to competitive LEC or cable company attachers, the Commission found it "reasonable to look to the [Old Telecom Rate] as a reference point" in resolving such complaint proceedings.^[17]

6. In the 2018 Pole Attachment Order, the Commission observed that incumbent LECs' "bargaining power vis-à-vis utilities has eroded since 2011."^[18] Citing evidence that "incumbent LEC pole ownership has declined and incumbent LEC pole attachment rates have increased (while pole attachment rates for cable and telecommunications attachers have decreased)[, ]" the Commission reconsidered the basis for its original presumption-that incumbent LECs differ from and have superior bargaining power vis-a-vis other attachers.^[19]

7. In view of declining levels of incumbent LEC pole ownership and a widening disparity in pole attachment rates, the Commission adopted a new rebuttable presumption that, "for new and newly-renewed pole attachment agreements"^[20] between incumbent LECs and electric utilities, incumbent LECs "are similarly situated" to "telecommunications attachers" and thus are entitled to "comparable" rates that are no higher than the New Telecom Rate.^[21] The Commission held that a utility can rebut this presumption "with clear and convincing evidence that [an] incumbent LEC receives net benefits under its pole attachment agreement with the utility that materially advantage the incumbent LEC over other telecommunications attachers."^[22]

8. In cases where a utility rebuts this presumption, the Commission designated the Old Telecom Rate as "the maximum rate that the utility and incumbent LEC may negotiate."^[23] Thus, whereas the 2011 Order had instructed that the Old Telecom Rate be used as a "reference point" in complaint proceedings involving an incumbent LEC attacher that is not similarly situated to other attachers on a utility's poles, ^[24] the 2018 Order made this rate a "hard cap" in order to "provide further certainty within the pole attachment marketplace," and "limit pole attachment litigation."^[25] In complaint proceedings regarding agreements that materially advantage an incumbent LEC and that were entered into after the 2011 Order but before the effective date of the 2018 Order (March 11, 2019), the Commission determined that the Old Telecom Rate will continue to serve as a reference point.^[26]

B. The Parties' Joint Use Agreement

9. Verizon and Potomac Edison are parties to a Joint Use Agreement (JUA) that contains the rates, terms, and conditions for each party's use of the other party's...