it should not be required to pay a fair share of the various costs of owning and maintaining the poles. Before discussing the merits of the incremental cost approach allocation, I would like to express a preliminary concern over the general intent of the proposed legislation to establish only one method of allocating costs. The District's experience and our research have disclosed that there are numerous alternative formulas and approaches used by various utilities in allocating pole costs among the various pole users. Indeed on November 7, 1975, the Federal Communications Commission released a pole attachment formula used by the National Cable Television Association (MCTA) and the American Telephone & Telegraph Company (A.T. & T.) in their negotiations concerning pole attachment fees. In releasing the formula, the FCC explained: As outlined below, the formula does not constitute a final staff or Commission determination respecting an exclusive method by which pole attachment rates should be determined. In devising the formula, various assumptions were made, the validity of which is always open to question. The approach we shall outline is, however, we believe, a reasonable one, and we are supplying it in the hope that it will be of assistance to parties who are in the process of negotiating pole attachment agreements. It should in no way be construed as a formal Commission rate-making determination. The District does not subscribe to the FCC formula and mentions it only to demonstrate the existence of another formula. The District believes that the publicly owned electric utilities should be free to use those formulas or approaches which their duly elected rate-making officials deem most appropriate and reasonable for establishing the rates for pole attachments. This is just another reason why the District opposes the proposed legislation. I should now like to explain why the District is so adamently opposed to the rate-making approach set forth in the proposed legislation. In the first place, this incremental cost approach is contrary to all sound, utility rate-making practices because it does not provide for a fair and reasonable allocation of the appropriate utility costs among all users of the utility service. It singles out one specific category, cable television, for preferential treatment and, in effect, requires the pole owners and other pole users to subsidize cable television. To illustrate the effect of the incremental approach, allow me to use the example of a municipal bus travelling on its scheduled route. Under the CATV incremental cost approach, a bus passenger should pay only the additional or incremental costs resulting from the bus' stopping to pick up the passenger and stopping again to let the passenger alight, because the bus is already scheduled to travel down the street. Thus, the CATV incremental cost approach would not require a passenger to pay a fare based upon the various costs of purchasing and owning the bus, maintaining the bus, and operating the bus; the passenger should pay only the incremental costs resulting from the passenger's use of the bus. But, common sense tells us that someone must pay for the bus. Unlike the CATV industry, the District as a responsible utility believes that all parties who use a municipal service should pay their fair share of all appropriate costs of providing the service including the construction, ownership, maintenance, and operation of the service. I shall now review carefully the proposed allocation formula set forth in the proposed legislation to demonstrate its inherent unfairness. The last sentence of the proposed legislation specifically provides: ... Such portion shall be the percentage of the total useable space on a pole (i.e., the space above the minimum grade level that can be used for the attachment of wires and cables), or the total capacity of duct or conduit, that is occupied by the pole attachment. This allocation approach provides that the only factors to be considered in allocating the costs of owning and maintaining the poles is the relationship between the space actually occupied by the pole attachment and the total pole. This approach ignores the fact that a substantial portion of each pole is not contacted by any pole user, yet serves all users. Let us pursue this analysis further by using a 40-foot utility pole for illustrative purposes. Perhaps eight feet of the pole will be placed in the ground and no party, obviously, will attach its facilities to that portion of the pole. Clearly, that portion of the pole which is in the ground benefits all pole users because it provides the basic stability for the pole. The next 20 feet of pole space likewise is not contacted by any pole user. Yet, that portion of the pole is clearly necessary in order to provide the minimum ground clearance for the wires, cables, and other facilities attached to the pole. Thus, at least 28 feet of the pole benefit all of the parties. The District believes that a reasonable approach to allocating the costs of a pole must recognize that all users of the pole must share fairly the costs of owning and operating the pole under a theory which recognizes that all pole users benefit from at least the 28 feet of pole space not contacted by any users. Stated conversely, the amount of pole space actually used for the attachments of a particular customer is not the fair measure of the benefits or services received by the pole user. Allow me to illustrate another allocation approach as an alternative to the FCC formula (which is based upon the relative construction costs of CATV, telephone and electric utilities) and the incremental cost approach of the proposed legislation. To illustrate, I shall use the same 40-foot utility pole and assume that 8 feet of pole space is below grade level, and 20 feet of pole space is used to provide minimum ground clearances. Of the remaining 12 feet, perhaps the top two feet would not be contacted by any pole user and, accordingly, 30 feet of pole space is not directly used or contacted by any pole user for its facilities. Assuming there are three pole users, the 30 feet of pole space which benefit all three pole users should be allocated equally among the three pole users who benefit equally by having their facilities attached to a pole which will support their respective facilities above the minimum ground clearance requirements. Of the remaining 10 feet of pole space, let us assume that the electric utility requires 6 feet for its attachment and clearances, cable television is allotted 2 feet for its attachments, and telephone is likewise allocated 2 feet for its attachments. Under this example, the 40-foot pole would be allocated as follows: Under this example, the costs of constructing, owning, and maintaining a 40foot pole would be allocated among the three pole users on the basis of the following percentages: Under this example, the rates for pole attachments would be based upon the relative use and benefit which each utility derives from the pole. Let us use the same assumed fact to illustrate the applicability of the incremental cost approach of the proposed legislation. If cable television facilities are attached in a two-foot space, the legislative proposal would establish a pole attachment rate based upon 2/40 or 5 percent of the actual capital and operating expenses applicable to the particular pole. If the CATV facilities are attached to one foot of pole space, CATV would pay 1/40 or 21⁄2 percent of the pole costs. The proposed legislation, of course, does not say who pays the remaining 95 percent or 972 percent of the pole costs, but it is obvious that the pole owner and the other pole users must pay the remaining costs. This increment cost approach creates two additional problems under separate provisions of the Washington State Constitution. Article VIII, Section 7, of the Washington State Constitution prohibits a municipal corporation from giving or lending its property to or in aid of any individual, association, company or corporation. Many other states have similar constitutional prohibitions. To the extent that the proposed legislation permits a private enterprise-such as cable television-to use public property for a charge which is less than a fair share of the costs associated with the governmental property, a constitutional problem is presented. A second constitutional question affects all electric utilities which are governed by the equal protection clauses of the Federal or State Constitution. As was indicated in the introductory section of this statement, there are many parties which attach their facilities to the District's utility poles. Presently, the District's pole attachment charges are applied fairly and uniformly to all pole users. But, this proposed legislation with its incremental cost formula establishes a different rate for the pole attachments of cable television. Imagine the problems a pole owner will have if it must establish different rates for the pole attachments of the various pole users. And consider the objection likely to follow from the other pole users who are required to pay a higher rate for their attachments than the cable television industry. The next step will be an appeal to Congress from the remaining pole users for equal treatment. One might ask, why not establish rates for all pole users based upon the incremental cost formula of the proposed legislation? Simple arithmetic discloses that if a pole owner is required to charge all pole users a rate computed under the incremental cost approach, the pole owner will be left holding the bag and absorbing 90 to 95 percent of the costs of owning and maintaining the poles. For a number of reasons, the District is adamantly opposed to that portion of the proposed legislation which establishes an incremental cost method for determining pole attachment rates. First, there are a number of alternative methods of allocating costs and determining pole attachment rates. The District believes that the various publicly owned electric utilities, and their respective rate-making officials, should have the discretion to use the allocation formula which they deem most appropriate. Secondly, the incremental cost approach is contrary to all basic concepts of utility rate-making because it does not provide for a fair and reasonable allocation of all utility costs among all users of the utility service. Instead, it singles out one specific class of users, cable television, for preferential treatment. In effect, it requires the pole-owning utility and its customers to subsidize cable television. Third, the incremental cost approach of the proposed legislation is based upon the erroneous assumption that the pole space occupied by the CATV attachments is the only pole space that is used by CATV. In fact, CATV and all other pole users indirectly use that portion of the pole which is below the grade level for support and stability and approximately 20 feet of pole space above grade level which provides the necessary ground clearance. Fourth, there are alternative methods of allocating pole space which result in a more fair and equitable allocation of the costs of owning and maintaining utility poles for purposes of determining pole attachment rates. Fifth, the incremental cost approach of the proposed legislation runs afoul of the lending of credit or property provision of the Washington State Constitution which prohibits municipal corporations from giving or lending their property for the benefit of private enterprise. Sixth, all publicly owned electric utilities which are governmental subdivisions are bound by State and Federal constitutional provisions assuring equal protection. The proposed legislation establishes special treatment for one group of pole users, cable television, and results in preferred pole attachment rates for cable television as compared to the pole attachments of other pole users. Accordingly, even if legislation is enacted establishing Federal jurisdiction over the pole attachments of publicly owned electric utilities, such legislation cannot mandate the incremental cost approach or any other specific formula for determining pole attachment rates. SUMMARY AND CONCLUSIONS For the foregoing reasons, the District believes that the proposed legislation, or any similar legislation establishing Federal jurisdiction over pole attachments should not be enacted. First, we believe there is no need for the proposed legislation. Secondly, if any legislation establishing Federal jurisdiction over pole attachments is enacted, such legislation should specifically exclude the poles and facilities of the publicly owned electric utilities: Third, if any legislation establishing Federal jurisdiction over pole attachments is enacted, such legislation should grant jurisdiction to an appropriate Federal agency having expertise concerning the distribution of electric energy, not the Federal Communications Commission. Finally, if such legislation is to pass, the District strongly submits that such legislation should not mandate the determination of pole attachment rates pursuant to the incremental cost approach, or any other single method of determining rates. (The following information was subsequently received for the record :) WILLIAMS, NOVACK & HANSEN, PS., Hon. ERNEST F. HOLLINGS, DEAR SENATOR HOLLINGS: Thank you for your letter of July 8 enclosing several questions pertaining to my testimony on behalf of the Snohomish County PUD in opposition to S. 1547. I should first like to apologize for the delay in responding to your letter of July 8 as it was not received in our office until July 14. Several days of delay resulted from reviewing the questions with the appropriate staff personnel of the Public Utility District No. 1 of Snohomish County. In any event, here are our responses to your questions: Question 1. What form of technical expertise would the Federal Power Commission have to regulate pole attachments which the FCC does not have or could not acquire? Answer. We attempted to explain the technical expertise in our testimony. The primary purpose of the poles is the distribution of electric energy. There are various facets of the distribution of electric energy which should be of paramount concern including safety, economics, engineering, and other technical requirements. Given the secondary nature of the CATV use of the power poles, and the importance of the engineering and safety requirements associated with electric energy, the District submits that it is abundantly clear that the Federal regulatory agent with primary expertise over electric energy and its distribution should be the Federal agency, if any, with regulatory jurisdiction over pole attachments. The primary purpose of the Federal Communications Commission historically has been "communications" and it does not appear realistic to expect this agency to become oriented with the needs and requirements of the electric energy distribution. Moreover, we have been led to believe that the Federal Communications Commission is not particularly desirous of regulating pole attachments on the poles of the electric utility industry. In that regard, I note the testimony of Richard E. Wiley, FCC Chairman, before this Committee in which he expresses the concern of the Commission over "the manpower and workload implications of such a program upon an already understaffed Federal agency." Statement of Richard E. Wiley at page 9. At page 12 of his testimony Chairman Wiley also commented, From its earliest involvement, the Commission has recognized the importance of the issues arising from pole attachment disputes. As indicated it has consistently expressed the belief that these matters appear to be best resolved by state authorities. Local governments are inescapably involved in all the aspects of their utility pole and conduit systems, and their special expertise and proximity to the problem is indispensable to effective regulation of pole attachment arrangements. At pages 17-19 of his testimony, Chairman Wiley further elaborated upon the potential administrative burden and costs of the proposed legislation. Chairman Wiley's understandable concern about the impact upon "the Commission's already overburdened staff." Chairman Wiley's testimony at page 19, further confirms our concern that the FCC would have a difficult time in developing the technical expertise necessary to properly and effectively regulate attachments upon the poles of electric utilities. Question 2. In your statement, you indicate that Public Utility District's (PUD) are subject to "Democracy's strongest check and balance the electorate". Typically, are the decisions of local PUD's subject to review by statewide public utility commissions? Do affected parties have higher forums to which they may appeal decisions of the PUD? Answer. In answer to the first question, the decisions of local public utility districts and other municipally owned public utilities are not subject to review by the state utility commission. However, and to answer the second question, affected parties have the right of appealing the decisions of municipal utilities to the State court system. In fact, the same system of review applies to the decisions of local public utility districts and also the decisions of the State Public Utility Commission. My response is limited to the State of Washington. It is my understanding that the situation may vary from state to state. Accordingly, we would respectfully suggest that the American Public Power Association (APPA) be contacted with regard to the situation in other states. Question 3. Would you favor adoption of a case-by-case complaint-procedure approach which would give the FCC authority to regulate pole attachment disputes, upon request, between a cable operator and a PUD where the ratemaking decisions of the PUD are not subject to review by a statewide PUC? Answer. The District would not favor review by the FCC or any other Federal agency in those states where the pole attachment decisions of the electric utility are not subject to review by a statewide public utility commission. As indicated in response to the previous question, the decisions of public utility districts in the State of Washington may be appealed to the State court system. Specifically, the aggrieved party may appeal directly to the local superior court. As a practical matter, the District would be very much opposed to the cost and expense of participating in an FCC proceeding, whether in Washington, D.C., or elsewhere. We suspect that the costs of such a proceeding would exceed the costs of judicial appeal. We are also concerned that the FCC or other Federal agency would lack the knowledge and familiarity with the various local factors; again, consider the following excerpt from page 12 of Chairman Wiley's testimony: As indicated it (the Commission) has consistently expressed the belief that these matters appear to be best resolved by state authorities. Local governments are inescapably involved in all aspects of their utility pole and conduit systems, and their special expertise and proximity to the problem is indispensible to effective regulation of pole attachment arrangements. This rationale applies, whether the local review authority is a state public utility commission or superior court. Obviously, however, the special expertise of a judge might well differ from the special expertise of a state regulatory commissioner. But both state authorities would have the familiarity with the local aspects of the problem as well as the proximity suggested by Chairman Wiley. Question. 4. Should the ratemaking standards of this bill be made merely advisory and not mandatory? Answer. Before we can answer this question, we suggest that further clarification of the rate-making standards are necessary. As the bill is presently drafted, we are strongly opposed to the proposed ratemaking standards of S. 1547. We also noted with interest the substantial concern of FCC Chairman, Richard E. Wiley, over the ratemaking standards expressed at pages 14 and 15 of his testimony. We submit that the matter of a legislative ratemaking standard requires substantially further review and consideration. At such time as the ratemaking standards are determined and defined, we could express our opinion as to whether they should be advisory, mandatory, or opposed. At the present time, as previously stated, we are strongly opposed to the proposed ratemaking standards. Accordingly, if these standards or any other standards are to have any effect, we would prefer that they be deemed "advisory" and not "mandatory." Question. 5. If your prepared testimony you refer to certain constitutional problems, state and federal, which this bill's cost allocation approach would raise. Would you please elaborate upon these potential problems? Answer. In Washington State, there are at least two Constitutional provisions which we believe must be considered. The first Constitutional provision presumably affects all publicly owned electric utilities who are governed by the equal protection clauses of their respective state constitutions or the United States Constitution. The second Constitutional provision is commonly known as the "landing of credit prohibition" and appears in Article VIII, Section 7, of the Washington State Constitution and, we understand, many states have similar constitutional prohibitions. We shall discuss each Constitutional provision separately. The 14th Amendment to the United States Constitution in part provides, "No state shall make or enforce any law which shall . . . deny to any person within its jurisdiction the equal protection of the laws." Article I, Section 12, of the Washington State Constitution provides, No law shall be passed grantiing to any citizen, class of citizens, or corporation other than municipal, privileges or immunities which upon the same terms shall not equally belong to all citizens, or corporations. The Washington State Supreme Court has held that these Constitutional provisions are applicable to public utility districts. The Washington State Supreme Court, in a municipal ratemaking case, explained the applicability of the equal protection clause of the State Constitution as follows: The aim and purpose of this constitutional provision is to secure equality of treatment to all persons without undue favor on the one hand or a hostile discrimination on the other. Compliance with this aim and purpose requires that the legislation under examination apply alike to all persons within a class, and reasonable ground must exist for making a distinction between those within and those without a designated class. Faxe v. Grandview, 48 Wn. 2d 342, 294 P.2d 402 (1956). It is the District's understanding of the equal protection clause that the District must impose the same pole attachment charges to all pole users. To do otherwise would be to dis |