State Court Affirms Pa. PUC in Pole Attachment Dispute

The Pennsylvania Public Utility Commission properly decided that FirstEnergy charged unlawfully high pole-attachment rates to Verizon, a Pennsylvania Commonwealth Court majority decided Thursday. The PUC also appropriately determined the length of retroactive relief, despite Verizon’s arguments that refunds should go further back.

The state court voted 5-2 to affirm the PUC in two consolidated challenges brought by each company in the dispute. In a dissent attached to the majority opinion, Judge Renee Cohn Jubelirer, the court's president, said the decision "creates troubling precedent that will likely result in a windfall for Verizon shareholders that will be paid for by FirstEnergy’s ratepayers.”

Verizon filed a complaint against FirstEnergy in November 2019, claiming the negotiated pole-attachment rates FirstEnergy charged under the companies' joint user agreement (JUA) were unjust and unreasonable under 2011 and 2018 FCC orders. Verizon said it should have been charged using the new telecom rate formula the FCC set in 2011. Verizon originally complained at the FCC, but the matter was transferred to the PUC in 2020 after Pennsylvania reverse-preempted the FCC's pole-attachment jurisdiction.

The PUC decided in 2020 that FirstEnergy charged Verizon unlawfully high rates dating back to July 2011. It required FirstEnergy to reduce future rates and give refunds to Verizon going back to Nov. 20, 2019, the date Verizon filed its complaint. FirstEnergy asked the court to reverse the entire 2020 order, saying it violated state and federal law and the Constitution. Verizon challenged the PUC's April 2021 order denying the carrier's petition for partial reconsideration of the 2020 order. The carrier argued the retroactive relief should have gone back to July 2011 or, with Pennsylvania’s statute of limitations, to November 2015.

The Pennsylvania court affirmed the PUC decisions, with Judge Michael Wojcik writing for the majority that included Judges Anne Covey, Ellen Ceisler, Lori Dumas and Stacy Wallace. Judge Patricia McCullough joined Jubelirer’s dissent. Judge Christine Fizzano Cannon didn't participate.

Policy 'Misplaced'

“While the policy of expanding broadband in Pennsylvania is laudable, the Commission’s reliance on that policy, and the hope that Verizon will act in furtherance of that policy, is misplaced,” wrote Jubelirer. The court’s top judge would reverse the PUC's order because it violates the state's public utility code and "settled principles of public utility law,” she said. The PUC reversal preempted FCC pole-attachments jurisdiction and fully adopted the federal agency’s rules “without regard to whether those regulations are consistent with the Code and Pennsylvania law on ratemaking,” she said.

Those laws are contradictory, said the judge's dissent: State law requires complainants to prove existing rates are unjust and unreasonable, but the pole attachment rules require the utility to show rates are just and reasonable. Also, Jubelirer questioned whether the PUC's order and pole attachment regulations "abandon the 'polestar' of utility ratemaking in Pennsylvania -- cost of service.”

The court needn’t worry about any impact to electricity rates, said Wallace in a concurring opinion that noted she agrees fully with the majority. “Because the law directs that Verizon receive relief, we cannot reach a contrary determination out of concern for FirstEnergy’s customers or suspicion that Verizon will simply pocket the additional funds rather than expanding broadband access.” The court said Verizon should get a refund for "money FirstEnergy was never entitled to receive in the first place," said Wallace. "It would be a greater wrong, under the circumstances, to condition Verizon’s refund on using the money in a manner we direct."

The PUC appreciates “the court’s thorough review and support of the Commission’s analysis for this important utility issue,” an agency spokesperson said. FirstEnergy is reviewing the court’s decision and won’t comment further because the litigation is ongoing, its spokesperson said. Verizon didn’t comment by our deadline.

FirstEnergy claimed the decision will mean a "secret rate increase" for electric customers to subsidize Verizon's refunds and reduced rates. "We decline to speculate" if electric rates will increase,” wrote Wojcik for the majority. "As the PUC properly determined, the proper proceeding to review a general rate increase is a base rate proceeding ... not a pole attachment complaint case between utilities." Also, FirstEnergy's argument that the PUC decision was based on its "hope" that Verizon will expand broadband thanks to the rate savings is without merit, the judge said: “Although the PUC noted its policy goal in its decision, that goal did not serve as the basis for its decision.”

"FirstEnergy’s argument that the PUC was required to consider fully allocated costs in the New Telecom Rate ignores the regulatory language,” wrote Wojcik. “The PUC did not ignore precedent or arguments about cost of service and fully allocated costs. Rather, the PUC applied the incremental cost formula for pole attachment rates as set forth in the regulations and properly distinguished the precedent relied upon by FirstEnergy.”

FCC Precedent 'Not Considered Binding'

The Pennsylvania PUC allowed itself to deviate from FCC orders when it took over pole attachment regulation, the judge said. “Because FCC precedent is not considered binding or controlling on the PUC’s adjudicatory process to address and resolve pole attachment matters, we conclude that the PUC did not, and could not, violate the law by choosing to deviate from FCC precedent.”

"The PUC did not err or abuse its discretion in finding that FirstEnergy did not meet its burden of rebutting the regulatory presumption” in Verizon’s favor, said Wojcik. “FirstEnergy did not show that the purported benefits Verizon receives under the JUAs materially advantaged it over other attachers." The Pennsylvania PUC fully considered "purported advantages" of the companies' agreement and decided they were outweighed by the disadvantages, said the judge: The commission’s findings are supported by Verizon’s “substantial evidence” and FirstEnergy’s “relative lack of evidence.” The PUC didn’t disregard FirstEnergy's evidence but instead "relied upon Verizon's conflicting evidence,” he said.

"The PUC properly determined that the New Telecom Rate must be calculated using the regulatory presumptions, not the inputs offered by FirstEnergy,” said the majority. It disagreed that the PUC erred by requiring changes to the rate in the companies' existing JUAs while not directing them to remove advantageous terms. "The PUC has the statutory authority to modify the terms, including the rates, of the JUAs between FirstEnergy and Verizon upon determining that they are unjust or unreasonable,” wrote Wojcik: It may also leave other contractual terms intact.

The law allows the PUC to award refunds when it finds a utility charges unreasonable and unjust rates, said the court. On FirstEnergy's constitutional objections, the court said modifying the JUAs and awarding retroactive relief doesn't "violate the Contracts Clauses or deprive FirstEnergy of property without just compensation." FirstEnergy claimed the PUC unlawfully delegated its authority by requiring parties to determine the refund amounts, rather than stating the exact amount to be paid. But the court said it was OK to state the refund amount as a formula. Also, the court disagreed with the utility that the PUC erred or abused its discretion by denying FirstEnergy’s request to create a regulatory asset for the pole rate attachment proceeding.

State law allows the PUC to require refunds up to four years before a complaint's filing, said the majority on rejecting Verizon’s complaint. The state agency, which doesn’t have to give refunds, “has discretion to establish a refund period that is less than the full length applied by the applicable statute of limitations,” said Wojcik.