III. Discussion

D. GSF Costs

None of the cases the parties cite is directly useful to resolution of the dispute over inclusion of GSF costs. First, D.98-04-062, which SureWest cites, involved a cable company seeking access to Southern California Edison Company's (Edison) electric poles. The decision turned on the interpretation of Edison's tariff and the appropriate rate of depreciation to apply - issues not raised in this proceeding. Moreover, the case involved interpretation of Cal. Pub. Util. Code § 767.5, which on its face applies only to cable television companies.⁶

Second, SureWest concedes that D.98-10-058, the Commission's decision setting forth the comprehensive framework for regulation of pole attachments and access to conduit, does not precisely identify the investment and expense accounts to be included in the rate analysis, referring only to the utility's "annual cost of ownership" as the basis for setting rates. Thus, D.98-10-058 does not resolve the GSF cost issue either.

Third, D.03-05-055 also involved a dispute between a cable company and an electric utility, and again relied on Pub. Util. Code § 767.5. The key disputes also related to issues not raised here - for example, the calculation of the utility's transmission right of way fee (its fee for securing rights of way on private land), and of the "appurtenance adjustment factor."⁷ The decision does not shed light on what to do in this case.

However, those cases do affirm one of SBC's assertions in this case: that including GSF costs as SureWest proposes could necessitate a full-scale ratemaking exercise, which I am not prepared to undertake here.⁸ In D.03-05-055, for example, the Commission examined in great detail every element of the electric utility's cost structure.

Here, by contrast, SureWest simply proposes that a flat percentage of every account conceivably related to poles and conduits be assumed as part of its cost structure. While SureWest claims this method of allocation is not unduly burdensome - which may be true - it is also woefully imprecise because it includes many types of costs SureWest agrees bear no relationship to poles or conduits. As SBC established at hearing, SureWest included many costs as part of its GSF allocation that its witness admitted are not attributable to poles or conduits.⁹ SureWest did not address how its flat allocation to pole and conduit rates of a portion of all such costs produced a reasonable result.

I agree with SBC that the FCC's methodology, which attributes a set amount of overhead costs to the utility's rates, presents a far easier path. Under that methodology, the utility may only include costs from certain, specifically identified accounts under Part 32¹⁰ in calculating pole and conduit rates.¹¹ The FCC rejected inclusion of many other accounts, reasoning as follows:

We do not believe Congress intended us to discover and aggregate all de minimis expenses which might have some intangible nexus to pole [and conduit] attachments. On the contrary, we believe Congress gave us a clear mandate not to engage in full-scale ratemaking exercises every time we had a pole attachment complaint before us. We have chosen to disaggregate the major accounts selected for inclusion in our calculations in order to eliminate expenses not directly attributable to administrative costs with a nexus to pole [and conduit] attachments.¹²

Were there a clear, contrary mandate by this Commission, I would apply it here. However, SureWest concedes that it can locate none, and relies instead on the cable attachment statute, § 767.5, and decisions interpreting it, as well as general ratemaking doctrines the Commission has used in other, very different contexts. For example, SureWest states that the Commission includes "common costs" in the amount of California High Cost Fund-B (CHCF-B) support provided to telephone companies serving high cost areas, and in rates for SBC's non-recurring costs associated with its unbundled network elements (UNEs). This may be true, but SureWest nowhere explains whether the "common costs" included there are the same as the "GSF costs" it advocates be included here.

Nor does SureWest explain why principles of cost allocation in these other contexts - each of which has it own complex regulatory history and considerable factual disputes - should apply here. Because cost allocation is a process fraught with factual and nomenclature disputes over what costs meet particular criteria (e.g., are direct, incremental, common, fixed, overhead, general support, etc. costs), I am not prepared to import a methodology carefully crafted for another context into this proceeding.

SureWest also claims that it is irrelevant that its witness admitted that some costs in accounts it proposes be allocated have no relationship to poles and conduits. SureWest states this fact "misses the point of an allocation factor methodology, [which] ... is undertaken in lieu of analyzing each individual component of a particular account."¹³ But SureWest also states that its method "averag[es] these mismatches to produce a fair allocation of costs instead of performing a non-economical, labor intensive direct assignment of costs...."¹⁴ Thus, in fact, SureWest is not proposing that I allocate its actual costs, but that I assume that its cost mismatches work themselves out automatically. SureWest's methodology is, therefore, no more precise than the FCC's, and has no support in any cited pole/conduit case. I am not satisfied that including subaccounts related to, for example, coin collection, directory assistance, sales commissions, marketing and product management, as SureWest proposes, produces a fair result.

In the absence of a record that reveals all pole/conduit costs, including overheads, and assigns these costs transparently, I opt for the FCC's already approved allocation methodology.

Both parties prepared charts (Exhibits 200-C and 201-C) revealing that if I adopted the FCC methodology, the conduit rate would be $0.95 per inner duct foot per year. I adopt that rate here. The pole rate under the FCC method is not as clear, given that SBC and SureWest disagree over how the number of pole attachers should be calculated. Since I resolve that issue in SBC's favor below, the pole rate under the FCC methodology, assuming 3.7 attachers as does SBC, is $6.79 per pole per year.

E. Pole Allocation/Attachers

1. Portion of Allocated Pole

Case law is also not particularly helpful on how to allocate a proportion of the pole to the attacher (SBC). The California statute applicable to cable companies (§ 767.5) would require that an attacher pay "two dollars and fifty cents ($2.50) or 7.4 percent of the public utility's annual cost of ownership for the pole and supporting anchor, whichever is greater." However, SureWest is not a cable company. Instead, SureWest proposes that each user bear its "pro rata share" of pole costs, while SBC contends that it should bear 14.2% of the costs (as SBC defines them) based on the FCC's methodology.

In the case of two attachers per pole, SureWest's allocation would allocate costs 50-50 between attacher and owner: "the proper approach is that parties should share equally in the cost of the pole to which both parties have access for providing service to the exact same customers."¹⁵ SureWest rejects the FCC methodology - which has the attacher pay the net yearly cost of one foot of the usable pole space, plus a proportionate share of two-thirds of the unusable space¹⁶ - as requiring SureWest's ratepayers to bear an unfair and disproportionate share of pole costs.

I find no support in any CPUC or FCC decision for SureWest's approach. Both jurisdictions assume that the pole owner has rights that are more valuable than a pole lessee's, and attribute less than half of pole costs to that attacher. As SBC notes, if it is required to pay 50% of the annual cost of a SureWest pole, then it should be a joint owner of the pole with equal rights to the entire pole that the original owner possesses. This is not the case.

Moreover, even if Pub. Util. Code § 767.5 applies only to cable companies, the principle it follows - that the pole attacher/lessee should only bear a 7.4 percent share of pole costs¹⁷ - acknowledges that an attachment only renders unusable a small percentage of the pole, and that the attacher is not sharing in the full rights of ownership of the entire pole.

Thus, I find that SBC's proposed percentage allocation - which tracks the FCC methodology - should be adopted here. This allocation results in SBC bearing approximately 14.2% of the pole costs.

2. Number of Attachers

SureWest assumes that one should not count SBC in calculating the number of attachers over which to spread costs, while SBC proposes including itself. I opt for SBC's method. If SBC is bearing a portion of the costs, it should be included as an attacher in calculating those costs.

Interestingly enough, both sides contend the FCC methodology supports them. Each cites the FCC's statement that,

The term "attaching entities" includes, without limitation, and consistent with the [federal] Pole Attachment Act, any telecommunications carrier, incumbent or other local exchange carrier, cable operator, government agency, any electric or other utility, whether or not the utility provides a telecommunications service to the public, as well as any other entity with a physical attachment to the pole.¹⁸

According to SureWest, the language "entity with a physical attachment to the pole" means that one only counts as an attacher a party that already has facilities on the pole. Thus, under this interpretation, SBC should not be counted: "SBC CLEC's speculative future attachments should not be included in the rate development."¹⁹

Using the same quotation, SBC claims that, "if SBC California is not counted as an attacher, then it gains no benefit at all from the FCC's stated goal of requiring two-thirds of the cost of the unusable space of a pole to be apportioned among all attachers."²⁰

I do not find that either interpretation is of much help. Indeed, I find most helpful SBC's statement that "The pole rate that SBC California seeks to establish in this arbitration will be used only for those SureWest poles to which SBC California attaches."²¹ If this is the case, then it makes the most sense that SBC be counted as an attacher, since it will have a physical attachment to the pole that it is paying for. This approach is consistent with California and FCC precedent that requires allocation of cost among all attachers. If SBC is paying for a pole, it is by definition attached to that pole, and should be counted as one of the parties sharing the cost of that pole. Thus, I find that SBC is correct that it should be counted as an attacher in calculating pole rates.

In Joint Exhibit 201-C, SureWest and SBC agree that at least 2.7 attachers are on the SureWest's poles (not including SBC). First, SureWest's data shows an average of 1.8 attachers per pole counting SureWest. SBC agrees to this figure. SureWest also agrees that the joint pole owner (e.g. an electric utility) of a large majority of SureWest poles should be included as an attacher, which increases SureWest's total number of attachers (not including SBC), to 2.7. SBC also stipulates to this figure (setting aside the issue of whether SBC itself should be included). Thus, once one adds SBC itself, the number of attachers that should be presumed in setting pole rates for SBC should be 3.7. I so find.

F. Interoffice Fiber Facility

The final issue for resolution here relates to whether the SBC CLEC may use a fiber facility the SBC ILEC constructed for its own use. The SBC CLEC participating in this proceeding wishes to use separate strands of fiber from those used by its ILEC operation to provide out-of-SBC-territory competitive services to customers in SureWest's ILEC franchise area.

SureWest claims that to allow such use would give the SBC CLEC an unfair competitive advantage over SureWest, and that SBC should have to build a separate facility. SureWest believes that SBC placed its interoffice facility close to several SureWest business customers with the intention of providing local service to the customers through SBC's CLEC operation.

SBC claims it installed its facilities in SureWest's conduit, and if it passes near several SureWest customers, it is because SureWest placed the conduit there, not SBC. SBC claims SureWest did not object to the placement at the time; SureWest counters that it did not have the right to object. SBC claims it would cost over $1 million to construct a duplicate facility.

I find in favor of SBC on this claim. The Commission acknowledged in D.98-01-024 that SBC might use its existing facilities for its CLEC operation, and that this fact was not inherently anti-competitive:

To the extent Pacific's physical proximity to the [California mid-sized LEC] MSLEC service boundaries permits it to cost effectively build out its facilities, Pacific's ability to compete will likely be enhanced . . . . While Pacific is positioned to realize certain economies of scale and scope resulting from the proximity of its existing local exchange facilities to the MSLECs' service territories, its position as a new [CLEC] entrant is not that of a dominant carrier. We see nothing inherently anticompetitive about a particular [CLEC], through economies of scale, being able to offer service more efficiently than certain competitors.²²

Nor does SureWest claim any technical infeasibility in SBC using the interoffice facility. At the hearing, I asked SureWest's witness, "if Pacific were to attach to the existing interoffice facility... whether there would be a technical problem with their attachment; whether it would affect telephone service offered by Roseville or anyone else in that area." The witness stated, "we probably would agree that there would be no technical problem...."²³

SureWest's claim that SBC installed the facility to later cream skim SureWest's large business customers is not supported in the record. SureWest claims that SBC's witness, Ms. Smith, stated that SBC ILEC consulted with the SBC CLEC when planning the construction of the interoffice facility. However, Ms. Smith's testimony was clear that even though she was responsible for SBC's out-of-franchise operations, she "had no say in where th[e interoffice] cable would go....I knew that I had customers out there that I would like to get to, but the route on the cable was not determined by my input." SureWest cites the testimony of its own witness in support of the proposition that SBC installed the interoffice facility to serve future SBC CLEC customers in SureWest's territory, but the witness is simply surmising that this was SBC's motivation.

Finally, I do not believe it makes sense for SBC to have to construct duplicate facilities for its CLEC when existing facilities are already in place and have the capacity to accommodate additional telephone traffic. Laying facilities is expensive, and can have environmental impact on the community where it is built. I see no reason for SBC to build duplicative facilities, and I authorize SBC's CLEC to use the existing facilities for its services.