VI. Discussion

This case involves four disputed issues that we will address in turn below. Initially, Daniels requested that the Commission also resolve the amount that SDG&E may charge Daniels for engineering and make-ready work, and examine whether SDG&E violated the Commission's ROW Order by failing to grant timely access to its transmission poles. At the start of hearings, parties informed the ALJ that these issues were no longer in dispute. We shall now address the four remaining disputed issues.

A. SDG&E May Not Charge for Access to its Poles and Right-of-Way Beyond the Terms of the 1986 Agreement

Complainants claim that SDG&E is not entitled to charge for access to its poles and ROW beyond the charges set forth in the 1986 Agreement, which both parties agree remains in effect. Complainants argue that the 1986 Agreement makes no mention of a separate fee for use of ROW. Further, they contend that it defies logic to suggest that the November 1986 Agreement permits Daniels to attach to SDG&E's poles but not use the associated ROW between the poles, as the primary purpose of attaching to SDG&E's poles is to string cable between them. Further, Complainants maintain that the Agreement is not limited to distribution poles because it makes specific reference to poles with electric conductors "above and below 600 volts." (See Exh. 100, p. 2.)

Complainants' witnesses Odums and Williams testified that Daniels had previously attached to SDG&E poles, including transmission poles on private ROW, without signing the additional License to Use ROW Agreement or paying the additional fee that SDG&E now requires. Specifically, Complainants provide evidence of two occasions on which Daniels made such attachments and a third occasion where an application to attach to poles was accepted without mention of the need for a separate ROW payment.⁹

In contrast, SDG&E claims that the 1986 Agreement is specifically limited to distribution poles on public ROW, also known as poles in "franchise position." To support this argument, SDG&E cites a portion of the 1986 Agreement which states:

Whereas, incident to the distribution of electric energy the Licensor has erected poles and other structures within the territory in which said electric energy is distributed and used, the said poles and structures being located on roads, highways, and private and public places;... (Emphasis added.) (Exh. 100, p. 1.)

SDG&E contends that language in the agreement clearly limits cable companies to attachments to distribution poles on public land. SDG&E cites language that refers to poles on "public thoroughfares...in or upon any public streets, ways, alley and places...within the said franchise area or in or near any location upon other public or private property...." (Id., p. 6.) SDG&E alleges that the 1986 Agreement is limited to distribution poles because Attachment B to the 1986 Agreement describes the formula for the pole attachment fee and specifically lists the lengths of the poles as 35, 40, and 45 feet, the lengths typically found with distribution, not transmission poles.

Further, SDG&E claims that the 1986 Agreement does not allow the use of SDG&E's transmission easements but instead requires Daniels to obtain necessary permits and rights of way. To support this claim, SDG&E cites again to portions of the 1986 Agreement that state:

Nothing contained in this License Agreement shall be construed to obligate Licensor to grant Licensee permission to use any particular pole or poles. (Id., p. 2.)

* * *

Licensee shall obtain all necessary permits and rights of way for the erection, operation, and maintenance of Licensee's conductors and equipment over, along, across, on, through and under public streets, roads, highways and private property and this agreement shall not be construed as a grant of right of way or easement by Licensor except as to the use of Licensor's poles to support Licensee's conductors and equipment subject to the terms and conditions hereof, after the necessary permits and rights of way have been obtained by Licensee." (Id., pp. 10-11.)

Moreover, SDG&E claims that it is clearly authorized by Section 767.7 to obtain fair and adequate compensation for use of its rights-of-way beyond the pole attachment fee. SDG&E argues that if the California State Legislature intended for ROW fees to be included in the pole attachment rates, then Section 767.5 would suffice and there would be no need for Section 767.7, which allows fair and adequate compensation for use of ROW and easements. SDG&E claims that nothing in Section 767.5 touches on the costs of ROW because the section addresses only support structures and pole attachments. Rather, SDG&E contends that in D.00-04-061, the Commission clearly states its intent to hold a generic rulemaking on the issue of the cost of transmission ROW and easements.

We find the Complainants have presented uncontroverted evidence that Daniels made prior attachments to SDG&E transmission poles without paying any additional fees beyond those set forth in the 1986 Agreement. Daniels made attachments to transmission poles on private land, or applied to make them, on three occasions and did not have to pay any fees or sign any additional agreements for the use of SDG&E transmission ROW. Although SDG&E may have changed its policy regarding use of transmission ROW based on legislation in 1994, the 1986 Agreement under which Daniels attached to transmission poles and used transmission ROW in 1991-92 remains in effect.

We are not persuaded by SDG&E's argument that it may charge additional fees because language in the 1986 Agreement limits attachments to distribution poles on public land. First, the term "distribution" in the agreement is not used in conjunction with the word "pole"; the term merely describes SDG&E's services provided. Hence, it is not clear that the 1986 Agreement is limited to distribution poles.¹⁰

Second, SDG&E appears to rely on the use of the term "franchise" in the 1986 Agreement to refer to poles in "franchise position," or on public land, as it now defines that term. Yet, SDG&E's witness Marsman admits that the 1986 Agreement does not define the term "franchise position." (Tr. at 471.) The language in the 1986 Agreement could be interpreted to refer to SDG&E's "franchise area," or service territory. Further, SDG&E's view that attachments are limited to poles on public land cannot be squared with the allusion in paragraph 10 of the 1986 Agreement to "public and private property."

Both parties agree that the 1986 Agreement, as modified in 1996, is still in effect. Further, the ROW Rules adopted by the ROW Order contain a provision stating that parties remain bound by existing agreements. Thus, the $16 pole attachment fee for transmission poles governs attachments that Daniels now wants to make to SDG&E transmission poles and ROW, and we conclude that SDG&E may not condition attachment to transmission poles on the payment of additional fees for use of easements or ROW while the 1986 Agreement remains in effect.

Despite our conclusion that SDG&E cannot charge for use of its ROW under the terms of the 1986 Agreement, the parties agree that SDG&E can terminate the current agreement based on its cancellation provisions.¹¹ We conclude that if the agreement were terminated, SDG&E may charge for use of its ROW under the provisions of Section 767.7. We do not agree with Complainants that fees for ROW are not allowed because the Commission's ROW rules only specify a formula for a pole attachment fee. The rules are "guidelines" and discuss the ability of carriers to negotiate variations. Further, in D.00-04-061, the Commission noted that it had not addressed the costs of transmission easements in the proceeding that developed the ROW rules. Given the language of Section 767.7 that discusses fair and adequate compensation for ROW and easements, it is reasonable for SDG&E to attempt to negotiate payment for use of its ROW. Indeed, Complainants do not dispute that ROW costs are not included in the current pole attachment fee and that SDG&E should be entitled to recover them. Complainants even present a methodology for including easements in the pole attachment formula.

Therefore, we find that if SDG&E terminates the 1986 Agreement, as allowed by its provisions, SDG&E may charge a fee for use of its transmission ROW. We now turn to the issue of how much SDG&E may charge for such use and whether SDG&E needs prior Commission approval for any charge.

B. SDG&E Must Justify Any ROW Fees Under the ROW Rules

Before we turn to the question of how much SDG&E can charge for use of its ROW, we shall address Complainants' claim that SDG&E must obtain prior approval for a ROW charge.

Complainants contend that according to the ROW Order, utilities must provide access to their bottleneck facilities such as poles and ROW on just and reasonable terms. (ROW Order, pp. 50-51.) Complainants point out that the ROW order explicitly states the Commission has jurisdiction over use of utility ROWs.¹² They argue that given this authority, SDG&E must justify its proposed charges when asked. Complainants cite Section 454 as placing the burden on SDG&E of justifying its proposed ROW fee because state law requires the utility to justify the rate it seeks to charge for access to bottleneck services, and any doubts as to the reasonableness of a rate must be resolved against the utility.¹³ Complainants charge that SDG&E has not met this requirement.

SDG&E counters that prior Commission approval of any ROW charge is not required because General Order 69-C allows SDG&E to grant conditional easements to third parties without Commission authorization. Further, SDG&E argues that Section 454 applies to electric rates and not to terms and conditions for pole attachments and use of ROW since these are negotiated between parties. SDG&E states that in managing its ROW assets, it negotiates with potential third party users, and primarily determines a fee based on market rates. Further, SDG&E contends that electric customers benefit from the miscellaneous revenues received from ROW leases because any revenues offset the regulated revenue requirement and could lower electric rates.

We find that because the ROW rules are "guidelines" for negotiation of agreements between utilities, telecommunications carriers, and cable companies, SDG&E does not need to obtain advance approval to demand fees for use of its ROW. On the other hand, the fees must be reasonable and are subject to negotiation. The rules clearly set forth what action parties should take if they cannot come to a mutual satisfactory agreement. According to the rules, parties are to use an informal process and file a complaint if needed. In Part II.L, the rules clearly articulate that ROW is defined as the right to obtain access to poles and other structures "necessary to reach customers." Complainants clearly dispute the terms of access to ROW as defined in our rules, and the dispute between Daniels and SDG&E has now appropriately risen to the level of a formal complaint in keeping with the process set forth in the ROW rules and in Section 767.5(c).

According to Rule 1.A of the ROW rules, SDG&E has the burden of proving a deviation from the guidelines set forth in the rules. While it is true that under GO 69-C, SDG&E may, in certain circumstances, license its property without prior Commission authorization, SDG&E must also comply with the ROW order and provide access to its ROW. SDG&E cannot charge whatever fee it wants under GO 69-C without Commission approval because it must justify its fees under the ROW rules. Rule IX specifically provides for the Commission to resolve disputes over access to ROW such as this one. We shall now turn to the question of a reasonable rate for use of SDG&E transmission easements and ROW.

C. SDG&E May Not Base a ROW Charge on Market Rates

Complainants and SDG&E agree that SDG&E is entitled to "just compensation" for the use of its ROW, pursuant to Section 767.7. Nevertheless, Complainants claim that SDG&E's proposed Transmission ROW fee of $6,080 per mile is unreasonable for two basic reasons. First, Complainants argue that several aspects of SDG&E's methodology to derive the fee are flawed. SDG&E arrived at its $6,080 transmission ROW License fee, wherein Daniels would pay what SDG&E believes is essentially one-half of today's value of the easement, as follows:

· SDG&E computed an average dollar value of $3 per square foot for land similar to the land at issue.

· SDG&E multiplied its $3 figure by a theoretical ROW width (12 feet) and the number of feet in a mile (5280) to derive a per mile value for transmission ROWs it owns in fee simple ($190,080).

· SDG&E reduced this amount by 20% to reflect the fact that actual ROW held in an easement is appraised at 80-90% of fee value.

· SDG&E then further reduced the amount by a percentage (50%) to account for its own use of the land.

· Finally, SDG&E added a rate of return (8%) for fiber optic leases.

In complainants' view, SDG&E fails to adequately support its $3 per square foot figure and its assumption regarding 12 foot ROW widths. In addition, Complainants criticize the 50% factor because it assumes that every transmission ROW user should pay for half the company's estimated costs of acquiring and maintaining the ROW even though use by one party of a transmission ROW does not prevent its simultaneous use for the same purpose by others. According to Complainants, it is improper to charge Daniels a fee based on 50% of easement value when the ROW at issue in this proceeding is currently being used by three entities in addition to SDG&E.

Second, Complainants criticize the fee because it is based on market rates rather than the actual acquisition cost of the land. Complainants claim that SDG&E seeks to recover far more than what it paid for these ROW.¹⁴ Complainants note that both the Commission and the FCC use historic costs as the proper measure for pole attachment fees. ¹⁵ Complainants note that the FCC recently reiterated the use of historic cost when it struck down an Alabama utility's proposed pole attachment rate stating that:

"The rates, terms and conditions of pole attachments are regulated because of the bottleneck monopoly status of the utilities poles. Although utilities continue to argue that poles are no longer bottleneck facilities, no credible evidence of this has ever been presented to the Commission..." (In re Alabama Cable Telecommunications Assoc. v. Alabama Power Co., File No. PA 00-003, FCC 01-181 (rel. May 25, 2001), para. 54.)

Based on this, Complainants maintain that SDG&E should calculate its transmission ROW fee using historic investment rather than market rates.

Third, Complainants claim that Section 767.7, which allows fair and adequate compensation for the use of rights of ways and easements, was intended to build on, rather than replace, Section 767.5. In Complainants' view, SDG&E's inflated ROW charge would thwart the Legislature's and this Commission's policy objectives to maintain access to utility bottleneck facilities as a public utility service at a reasonable cost.

Fourth, Complainants find a market-based price for use of transmission ROWs inappropriate since it assumes that those who pay the fee receive a value commensurate with the market price of land. Complainants explain that Daniels only receives a bare license to use the poles and related ROW. SDG&E retains all rights in its poles and ROW. The extremely limited rights acquired by Daniels through a license to use transmission ROW in no way correlates to the rights associated with ownership of the land or an easement purchased at market prices.

Finally, Complainants argue that established law supports the principle that in Daniels' situation, where an existing ROW, which is devoted to public use, is apportioned for a second, consistent public use, compensation for that second use should be "nominal." Complainants cite several eminent domain cases involving what they contend are analogous situations, where a utility was granted only nominal compensation for use of its ROW.¹⁶

In opposition, SDG&E contends that in a perfect world, a ROW fee would be based on the market value of the real estate adjacent to the ROW used by Daniels. However, because of the high volume of requests in the mid-1990's to attach fiber optic cable to transmission poles, SDG&E developed a rate of $6,080 per mile per year as a negotiating starting point representing an estimate of the fair market value of easements of this type. SDG&E explains that if a company believed that this rate was not fair, it could obtain an appraisal of its individual project at its own expense. SDG&E explains that no company chose this option and all of the companies, other than Daniels, agreed to the $6,080 per mile fee to string fiber to transmission poles. SDG&E argues that its transmission ROW fee is supported by real estate data at the time of calculation and is consistent with the principles of market appraisal. SDG&E Witness Little explained that the $3 figure was derived from appraisal reports he examined at the time concerning comparable land. He admitted that he did not determine the actual acquisition cost of any of the ROW in question. (Tr. at 217.)

SDG&E presents legal support for its arguments on market-based compensation. First, SDG&E states that allowing cable companies such as Daniels to use SDG&E's transmission ROW without just compensation is an unconstitutional taking.¹⁷ SDG&E also claims that a property owner has a fundamental property right to exclude others.¹⁸ In a related argument, SDG&E insists that its ROW space is not dedicated for public use and that cable companies do not have the right to access such wholly private easements.¹⁹

Second, SDG&E cites several legal precedents and Commission decisions which it claims support the use of market value to determine compensation.²⁰ For example, SDG&E cites D.89-06-056, wherein the City of Vallejo sought an exclusive easement from Southern Pacific Transportation Company and just compensation was based on market value for the easement. SDG&E also cites a number of Commission decisions regarding the leasing of fiber optic cable, and contends that these decisions provide proof that the Commission favors a market-based approach to pricing for utility-owned ROW space because revenues from the leases benefit ratepayers.²¹

Third, SDG&E refutes Daniels' claims that "nominal" compensation is appropriate by noting that in City of Oakland, cited by Complainants, the court concluded that a longitudinal taking was distinguishable from the mere right to cross utility property.

Finally, SDG&E claims that any rate other than market-based would force SDG&E's electric ratepayers to subsidize Daniels. SDG&E points to other recent examples of ROW leases, such as leases of public land by the Bureau of Land Management, where rates were based on market value.

We have already addressed the issue of market versus cost-based pricing of bottleneck facilities. In the ROW Order, which adopted rules for access to public utility rights-of-way, the Commission explicitly rejected arguments by electric utilities for market-based pricing of pole attachments. The order concluded that local exchange carriers and electric utilities have "a significant bargaining advantage in comparison to the CLC with respect to ROW access" (ROW Order, pp. 50-51, emphasis added) and that "a truly competitive market for providing alternative means of access to support structures for CLCs does not yet exist." (Id., p. 51.) The order concluded that pricing pole and support structure attachments based on a utility's historic or embedded costs should guard against this unbalanced bargaining position between incumbent utilities and other telecommunications providers. (Conclusions of Law 29, 31, pp. 123-124.) The ROW rules allow parties to negotiate pole attachment rates, but state that the Commission will apply a default rate based upon historical embedded costs if parties are unable to reach agreement.

We agree with Complainants that a market-based fee for use of SDG&E's easements and ROW eviscerates the careful formula for pole attachments set forth in the statute and our rules because a pole attachment is meaningless without the accompanying ability to string wire between the poles. We also agree with Complainants that in the absence of a negotiated rate between the parties, SDG&E should charge a cost-based rate for access to its transmission rights of way. We conclude that all of the statements in the ROW Order regarding access to rights-of-way and support structures apply equally to transmission rights of way. Specifically, the utility has significant bargaining advantage in comparison with the cable company for the easements at issue. Similar to the reasoning in the ROW Order, a truly competitive market for providing alternative means of access to rights-of-way and easements does not yet exist. There is no reason to deviate from the policy set forth in the ROW Order to apply historical embedded costs to pricing of access to rights of way, whether the rights of way are a support structure or an easement.

The licensing of utility poles and rights-of-way to telecommunications carriers and cable companies can be differentiated from the licensing or leasing of rights-of-way for parking lots, storage, or plant nurseries, all of which have siting alternatives to utility ROW. The Commission set forth detailed rules governing access to rights-of-way and support structures when it adopted the ROW Order, and the current dispute over pricing of access to utility easements should be considered in light of the policies from that order. The ROW rules "govern access to public utility rights-of-way and support structures by telecommunications carriers and cable TV companies" and implement Sections 767.5 and 767.7. Since the current case involves access to rights-of-way by a cable TV company, we should apply the policies set forth in the ROW Rules.

Parties on both sides of this case have presented voluminous legal argument and citations regarding the appropriate means of calculating "just compensation." First, it is not clear that any of these legal precedents bind the Commission because the Commission's own ROW rules as set forth in the ROW Order set policy and govern access to utility poles and ROW by telecommunications and cable companies. The level of compensation when utility property is taken in other eminent domain actions has little bearing given the policies set forth in the Commission's current rules. Most of the parties' citations involve uses of railroad ROW, predate the Commission's ROW rules, or involve compensation for property that can be distinguished from Daniels' request to use SDG&E transmission ROW. Daniels' revocable license to use SDG&E's transmission ROW is distinguishable from most, if not all, of the compensation cases cited. In addition, Complainants' citations to FCC pole attachment cases further support the view that utility ROWs are bottleneck facilities.

We disagree with SDG&E that any compensation less than market value is a taking. Utility rates are regulated in large part because utilities traditionally faced little or no competition. Section 767.5 has conferred upon the Commission the ability to set compensation for utility pole attachments, and Section 767.7 states that public utilities shall be "fairly and adequately compensated" for the use of their ROW and easements for the installation of fiber optic cable. In our ROW rules, we stated that our rules implemented both of these code sections, and in our ROW Order, we stated that our rules preempted FCC rules. (ROW Order, p. 9.) Thus, this Commission has jurisdiction to set compensation for use of utility ROW and consistent with the cited statutes, our ROW Order envisions compensation for the utility's cost, not extraction of monopoly rents.

We also disagree with SDG&E's argument that it can prevent Daniels' use of the property in question because it is private property that has not been dedicated to the public use. SDG&E's own testimony explains that the cost of easements and ROW that Daniels wishes to use are included in SDG&E's regulated revenue requirement and recovered in electric rates. (Exh. B, Testimony of Keehn, p. 2.) The easements and ROW are utility assets and are clearly "dedicated" to SDG&E's regulated electric service. In addition, nothing in our ROW Rules allows a utility to exclude cable corporations' use of privately owned utility ROW.

Daniels is not seeking ownership of SDG&E's ROW, or any of the rights that traditionally accompany ownership. SDG&E will remain in possession of its property and empowered to remove Daniels should Daniels' presence interfere with SDG&E's responsibilities as a public utility. In contrast, the cases and Commission decisions cited by SDG&E in support of a market value approach can all be distinguished from the present case due to the critical factor that Daniels seeks only a license rather than full ownership or any of the rights traditionally associated with it. We also distinguish Commission orders involving leases of dark fiber because these leases were negotiated in a competitive market for dark fiber. We do not find that the market for access to utility transmission ROW is competitive.

As we have stated above, SDG&E is the only seller of the ROW space at issue and has significant bargaining advantage as the monopoly provider. Therefore, we find that forcing cable companies to pay SDG&E's proposed market prices runs counter to Section 767.5(b), which states that it is in the interests of the people of California for public utilities to make available surplus space and excess capacity for use by cable television corporations.

In summary, we reject SDG&E's proposal to charge a ROW fee based on market rates. Thus, we will not address the individual criticisms of SDG&E's formula because the entire formula is based on market value. Instead, we find that SDG&E should charge a fee based on the actual cost of its transmission easements and ROW.

D. SDG&E Should Charge Any ROW Fee Through the Overhead Component of the Pole Attachment Fee.

Having found that SDG&E may charge a ROW fee based on actual cost, we turn to the issue of how to calculate the fee.

Complainants argue that the appropriate mechanism for recovering any cost of land is through the overhead component of the pole attachment fee. Complainants' witness Kahn alleges that a direct, per mile fee such as the one SDG&E proposes is inappropriate because easements and ROW do not directly vary with the amount of electricity provided. (Exh. 25, pp. 10-13.) To provide more electricity, SDG&E does not have to purchase more easements because it can simply string more wires on the easements it already owns, or string higher voltage wires. Instead, Kahn suggests that easements and ROW are more appropriately treated as "shared and common costs," which are considered overheads.

Kahn proposes a formula for calculating a ROW overhead charge that he suggests could be added to the current pole attachment fee. As shown in Attachment A, Kahn's formula identifies SDG&E's investment in transmission ROW for poles and divides that number by SDG&E's net electric plant, excluding land and buildings, to calculate SDG&E's ROW overhead. This overhead figure is then used to determine pole investment loaded with overhead. Ultimately, Kahn's proposed formula calculates an annual cost of ownership for an entire transmission pole, including ROW costs.

SDG&E counters that discussion of recovering ROW costs through an overhead charge is improper because the costs of transmission rights of way and easements are direct costs of the transmission system and vary with the level of transmission service required. Therefore, SDG&E maintains that any ROW charges should be treated as directly assigned charges.

SDG&E also contends that treating ROW costs as an overhead cost is improper because ROW charges are closer to "shared costs" than "common costs."²² In essence, SDG&E maintains that ROW costs should be directly assigned to the elements that use transmission ROW, namely electric transmission service and other rights of way uses. SDG&E rebuts Kahn's proposal to treat rights of way as an overhead or common cost, arguing that transmission ROWs are not related to the entire operations of the company. Kahn replies that even a shared cost should be treated as an overhead charge rather than a direct charge. Finally, SDG&E contends that if the Commission wants to regulate the fees charged for transmission rights-of-way, the proper vehicle is through a generic rulemaking.

We agree with Complainants that it is reasonable to treat transmission rights of way charges as an overhead component of the pole attachment fee rather than a direct charge. For each additional kilowatt served, SDG&E does not necessarily have to purchase additional transmission rights of way. SDG&E has the ability to string more lines on the current right of way, or upgrade the lines on existing rights of way to transmit higher capacity. Certainly, there are times when growth in service volumes requires purchase of additional rights of way, but this is not directly proportional to growth.

We agree with witness Kahn and SDG&E that transmission rights of way costs are closer to shared costs than common costs. A shared cost is still treated as an overhead charge similar to a common cost. A shared cost should not translate into a direct charge. As a shared overhead cost, it is reasonable to allocate transmission rights of way costs to all aspects of electric service that share the costs. Therefore, we agree with Complainants that it is more appropriate to include transmission ROW costs as an overhead component when calculating the annual cost of ownership of transmission poles.

We disagree that the Commission must open a generic rulemaking to consider transmission ROW fees charged by electric utilities. Complainants already raised this dispute in the rulemaking and we directed them to bring their specific factual dispute to us in a complaint. Our resolution of this dispute is not intended to apply beyond the facts of this case and we reserve the option of opening a generic rulemaking to consider transmission ROW fees if we later deem it necessary.

Since we do not agree with SDG&E that a ROW charge should be collected as a direct charge, and since SDG&E has not proposed any modifications to Complainants' formula, we will direct the parties to calculate a transmission pole ROW overhead component using Complainants' formula (see Attachment A). If parties mutually agree on a ROW overhead component and a resulting annual transmission pole attachment fee, SDG&E must so notify the Commission through a letter to ALJ Duda filed and served in this proceeding within 45 days of the effective date of this order. If the parties are unable to reach agreement, SDG&E must instead file and serve its proposed ROW overhead component and annual transmission pole attachment fee using the formula in Attachment A within 45 days of the effective date of this order. Complainants may file and serve comments on SDG&E's proposal 30 days after SDG&E's filing. The Commission will then consider SDG&E's proposed annual transmission ROW charge in Phase II of this proceeding.