Pub. Util. Dist. No. 2 of Pac. Cnty., Corp. v. Comcast of Wash. IV, Inc.

• Decision Date: 13 October 2014
• Docket Number: No. 70625–0–I.,70625–0–I.
• Citation: 184 Wash.App. 24,336 P.3d 65
• Court: Washington Court of Appeals
• Parties: PUBLIC UTILITY DISTRICT NO. 2 OF PACIFIC COUNTY, a Washington Corporation, Respondent, v. COMCAST OF WASHINGTON IV, INC., a Washington corporation; CenturyTel of Washington, Inc., a Washington corporation; and Falcon Community Ventures I, L.P., a California limited partnership, d/b/a Charter Communications, Appellants.

184 Wash.App. 24

336 P.3d 65

PUBLIC UTILITY DISTRICT NO. 2 OF PACIFIC COUNTY, a Washington Corporation, Respondent

v.COMCAST OF WASHINGTON IV, INC., a Washington corporation; CenturyTel of Washington, Inc., a Washington corporation; and Falcon Community Ventures I, L.P., a California limited partnership, d/b/a Charter Communications, Appellants.

No. 70625–0–I.

Court of Appeals of Washington, Division 1.

Oct. 13, 2014.

As Amended on Reconsideration Feb. 10, 2015.

Eric Stahl, Davis Wright Tremaine LLP, Timothy J. O'Connell, Stoel Rives LLP, Seattle, WA, for Appellant.

Donald Stewart Cohen, Gordon Thomas Honeywell et al, Seattle, WA, Stephanie Bloomfield, Gordon Thomas Honeywell, Tacoma, WA, for Respondent.

Opinion

DWYER, J.

¶ 1 Pacific County Public Utility District No. 2 (hereinafter District) permitted Comcast of Washington IV, Inc., CenturyLink of Washington, Inc.,¹ and Falcon Community Ventures I, L.P., d/b/a Charter Communications (collectively Companies) to attach their communications equipment to its utility poles pursuant to agreements with the Companies. However, at the beginning of 2007 the District revised its rates and instituted new nonrate terms and conditions, which resulted in significant cost increases to the Companies. After the Companies refused to pay the District at the new rates, declined to sign the proposed agreement, and refused to remove their equipment from its poles, the District initiated this lawsuit.

¶ 2 In early 2008, the legislature amended the statute governing utility pole attachment rates, RCW 54.04.045, effective June 12, 2008. Prior to the amendment, rates calculated by Washington public utility districts (PUDs) needed only to be “just, reasonable, nondiscriminatory and sufficient.” Former RCW 54.04.045(2) (1996).² The amendment, however, included a specific formula, the result of which would yield a “just and reasonable” rate. RCW 54.04.045(3)(a)-(c). Whether the District's revised rate complied with the amended statute became the central dispute in this case.

¶ 3 In the trial court—and now on appeal—the District and the Companies maintained that each provision of the two-part formula written by the legislature reflected a certain preexisting formula. However, they disputed which were the apposite formulas. On appeal, we are presented with three principal issues: (1) whether the nonrate terms and conditions in the proposed agreement complied with RCW 54.04.045(2) ; (2) whether the trial court erred by concluding that the District's revised rates prior to June 12, 2008 complied with RCW 54.04.045(2) ; and (3) whether the trial court erred by concluding that the 2008 statutory amendment, codified at RCW 54.04.045 (3)(a)-(c), reflects the preexisting formulas as proposed by the District's expert witness. We affirm the trial court with respect to the first two issues, subject only to the severance of a few nonrate terms. However, with respect to the third issue, we reverse and remand to the trial court for further proceedings consistent with this opinion.

I

¶ 4 The District, which is organized as a municipal corporation pursuant to RCW 54.04.020, is a consumer-owned utility providing services in Pacific County, Washington.³ The District owns and maintains poles that allow it to furnish electricity to customers in Pacific County. In all, it serves approximately 17,000 customers in predominantly rural areas.

¶ 5 The Companies provide various communication services to customers in Washington, including in Pacific County. In order to provide these services, the Companies attach communications equipment to the District's utility poles. The Companies were initially licensed to attach their equipment to the District's poles under rental agreements assigned to them by previous communications providers in Pacific County. These assigned agreements dated back to the 1970s and 1980s with respect to Comcast and Charter, and to the 1950s and 1960s with respect to CenturyLink.

¶ 6 Prior to 2007, the District's annual pole attachment rates of $8.00 per pole for telephone companies and $5.75 per pole for cable companies had remained fixed for 20 years. In February of 2006, the District provided written notice to the Companies that it intended to terminate the agreements. The District advised the Companies that it would implement new pole attachment rates effective January 1, 2007, and that the District would provide copies of a new pole attachment agreement for the Companies to review.

¶ 7 Several years earlier, the District had retained EES Consulting, Inc. to perform a rate study. After analyzing the District's rates, EES recommended that the District increase its rate to no less than $20.65 but closer to $36.39 per pole. In making this recommendation, EES considered four different methodologies or formulas: the Federal Communications Commission (FCC) Cable formula,⁴ the FCC Telecom formula,⁵ the American Public Power Association (APPA) formula,⁶ and the Washington PUD Association formula.⁷ Gary Saleba, the president and chief executive officer of EES, described the method by which EES arrived at its recommendation.

The study that we performed in 2004/2005 is summarized in Exhibit 6, and what we did in Exhibit—in the study, which was dated April of 2005, was to take a look at what the expenses were for the PUD or the revenue requirement for a test period of 2004, and then went through—after determining what the revenue requirement for the '04 period was, we went through the four different methodologies I talked about earlier and calculated rates, pole attachment rates for the PUD, for the FCC cable, FCC telecom, APPA method, and the PUD Association method.

While the study performed by EES utilized all four methodologies, in proposing the range between $20.65 and $36.39, EES relied on the FCC Telecom formula and the APPA formula, respectively.

¶ 8 Once the District received the results of the study and the recommendation from EES, the District's general manager and finance manager, Douglas Miller and Mark Hatfield—after considering and discussing the results with the District's supervisors—concluded that an annual rate of $19.70 per pole was appropriate. However, in light of the significant rate increase, Miller recommended to the District's board of commissioners a transition rate of $13.25 per pole for 2007, with the $19.70 per pole rate to commence on January 1, 2008. Miller described the deliberative process of the District in his testimony.

Two times a month we have management staff meetings, and we talk about things that are happening, things we're working on. It's the—it's the supervisors at the PUD that work directly for me. And we meet and talk about issues. And we talked about the agreement and the rates and—or the study and the rates that were recommended. And out of that, we kicked around where we thought the numbers should be. And that's where we got the 13.25 and the 19.70.

We—at that time we were first starting to install fiber, our own fiber plant, which would change the number of contacts per pole, average number of contacts per pole, which would adjust the—those formulas. And we made our best guess of where that might go during the five-year period of what we were going to recommend these rates to be to the board.

And based on those assumptions, we came up with the 19.70. And then as we were debating the 19.70, we thought, you know, this is a pretty big jump from 5.75 or $8, you know, to get to the 19.70, so let's do a one-year interim rate that kind of steps to the 19.70. And if you take the 5.75 and you add that to the $8 and divide by two, it's a midpoint between those two rates. And you add that to 19.70 and then divide by two and round it off, it comes to 13.25. So that's how we got the 13.25.

¶ 9 Miller made his rate recommendation to the board of commissioners at hearings held on December 5, 2006 and December 19, 2006, as well as at the commissioners' meeting held on January 2, 2007. Although the Companies were aware that the meetings were open to the public, no representatives of the Companies attended the public hearings or the public meeting. Furthermore, the Companies never requested agendas or minutes, which would have been available upon request.

¶ 10 On January 2, 2007, the board of commissioners adopted Resolution No. 1256, which revised the District's annual pole attachment rate to $13.25 per pole, effective January 1, 2007 and $19.70 per pole, effective January 1, 2008.

¶ 11 In addition to revising its rate, the District developed a new form of agreement for attaching entities, which included nonrate terms and conditions. The District began with a template agreement developed by the APPA and made revisions in an effort to make it more applicable to the District. District management, including operations, engineering, and financial personnel, were consulted in developing the new agreement.

¶ 12 The District also communicated with the Companies regarding the proposed agreement. The District sent a version of the proposed agreement to the Companies for review and comment in early 2006. Over the next six months, the District received feedback from the Companies. It then incorporated some of the Companies' suggestions and rejected others before mailing out for signature the proposed agreement in November 2006. This version of the proposed agreement generated additional feedback, which led the District to further modify the agreement before sending a revised version to the Companies in August 2007. The transmittal letter attached to the revised version requested that the Companies return the signed agreement by October 31, 2007. The letter stated that, in the event that the Companies did not wish to remain on the District's poles under the terms of the new agreement, the Companies were to notify the District of their plans for removing their equipment. In early October, the District contacted the Companies to remind them of the impending October 31, 2007 deadline. However, the Companies...