IV. Comments on Draft Arbitrator's Report

The Draft Arbitrator's Report (DAR) was mailed to the parties for comment on July 1, 2004. SureWest and SBC filed comments on the DAR on July 12, 2004, and, at the Arbitrator's request, SBC filed reply comments on August 27, 2004.

A. SureWest Comments

SureWest raises three issues in its comments. First, SureWest contends that the GSF costs it identifies are legitimate costs to consider in ratemaking exercises. SureWest cites the Commission's statement in D.98-04-062 that "computation of the pole attachment fee should be consistent with the methodology utilized in determining the cost of these facilities for other ratemaking purposes."24 Thus, according to SureWest, the Commission should act no differently than in any other ratemaking context when setting pole and conduit rates.

The DAR already addresses this point:


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.

One need only examine the extensive record in the UNE proceeding, A.01-02-024 et al., to realize that ratemaking can be a very complex process. To assert that the Commission should conduct ratemaking for the purpose of setting pole and conduit rates as the Commission is conducting the UNE proceeding really gets us nowhere.

Moreover, I am granting SureWest recovery of appropriate costs associated with its operation of poles and conduit. I simply reject SureWest's GSF methodology, which includes recovery of costs SureWest concedes bear no relationship, or only a partial relationship, to its actual pole and conduit operations.

Furthermore, as SBC points out in its reply comments, SureWest takes the D.98-04-062 quotation out of context, because it deals only with depreciation. The full quotation states: "[T]he Commission here is establishing a fee for a utility service and thus the computation of the pole attachment fee should be consistent with the methodology utilized in determining the cost of these facilities for other ratemaking purposes. We shall adopt the straight-line depreciation accounting methodology as proposed by [the California Cable Television Association.]"25 There is no dispute about depreciation in this case, and nothing else in D.98-04-062 helps SureWest's case. Thus, I make no changes to the DAR based on this SureWest comment.

Second, SureWest takes issue with the DAR's finding that "There is an insufficient record to engage in a full-scale ratemaking exercise with regard to GSF costs."26 In response, SureWest asks rhetorically, "if the Commission is unprepared to undertake the necessary analysis to set appropriate rates in this proceeding, when will SureWest ever have the opportunity to address rates for pole attachments and conduit?"27

However, this is a problem of SureWest's own creation, because it asked to include costs in its rate computation that SBC proved had no relationship to poles and conduits. In light of SBC's showing at hearing, SureWest did not recalculate its costs to only include those that the evidence showed related to poles and conduits. Nor, as SBC points out in its comments on the DAR, did SureWest provide any description of what procedure it used to determine which Part 32 accounts to include in its proposed GSF allocation.28

Thus, SureWest failed to establish that its costs were appropriate or that this Commission has established another method of cost allocation for poles and conduits. I adopted the FCC methodology, which compensates SureWest for appropriate costs. Thus, in my view, SureWest has had the opportunity to address rates for pole attachments and conduit. While the result is a methodology SureWest does not support, it is a fair result nonetheless.

Third, SureWest claims that the DAR artificially overstates the number of attachers for calculating pole attachment rates. SureWest claims that the DAR mixes apples and oranges by starting with 2.7 attachers - the figure both sides agree upon to represent the average number of attachers on each of SureWest's 11,915 poles - and adding one attacher (for a total of 3.7 attachers) to the poles on which SBC proposes to attach. To combine the average of 2.7 with the actual of one attacher reflects confusion in the DAR, SureWest claims.

I disagree. The parties agree that the 2.7 average figure does not include SBC as an attacher. The only way that SBC can get the benefit of the fact that its presence on a pole increases the number of attachers among which the costs should be spread is to count SBC as an additional attacher on that pole.

It is true that another possible outcome would be to calculate a new average based on the number of SureWest poles to which SBC attachers. If, for example, SBC attaches to 1191 (or 10 percent) of SureWest's 11,915 poles, the average number of attachers - spread over SureWest's entire stock of poles - will increase 10 percent (0.1), rather than by one. However, for some reason, SureWest does not support this method, but rather advocates that only the 2.7 rate be used - a rate that all concede does not include SBC as an attacher.

In the absence of a proposal by SureWest to add this percentage to the 2.7 figure, and in recognition of the fact that including SBC as one attacher results in a fair rate for SBC on the poles to which SBC attaches, I adopt SBC's methodology.

B. SBC Comments

SBC asks that the DAR be clarified in small ways; SureWest does not oppose SBC's request. I make several small changes to reflect SBC's request. Where I make no change, it is because I have considered SBC's request and either find it superfluous, reject the request for reasons already contained in the DAR, or find the change to be contrary to the record or the law.

Findings of Fact

2. Including GSF costs as SureWest proposes would necessitate a full-scale ratemaking exercise.

3. There is an insufficient record to engage in a full-scale ratemaking exercise with regard to GSF costs.

4. SureWest proposes that a flat percentage of every account conceivably related to poles and conduits be assumed as part of its pole/conduit cost structure.

5. SureWest's allocation of costs from the foregoing accounts is very imprecise, and includes costs SureWest agrees bear no relationship to poles or conduits.

6. Under the FCC methodology for allocating overhead costs, the utility may only include costs from certain, specifically identified Part 32 accounts in calculating pole and conduit rates.

7. Section 767.5 applies only to cable companies seeking to attach to utility poles and place facilities in utility conduits.

8. There is no evidence in this case that the general ratemaking doctrines we have used in other, very different contexts (e.g., regarding the CHCF-B and UNEs) apply here.

9. SureWest is not proposing allocation of actual identifiable overhead costs to pole and conduit rates, but assumes that its cost mismatches work themselves out automatically.

10. SureWest's GSF methodology has no support in any cited pole/conduit case.

11. The parties agreed in Exhibits 200-C and 201-C to pole and conduit rates assuming various outcomes.

12. The record supports a conduit rate of $0.95 per inner duct foot per year.

13. The record supports a pole rate of $6.79 per pole per year.

14. Case law and the California cable television statute do not assist me to determine the portion of each pole that should be allocated to the pole owner and attachers in calculating the pole rate.

15. SureWest's proposed 50-50 cost allocation percentage for poles finds no support in any CPUC or FCC decision.

16. The pole owner has rights of ownership that are more valuable than those of a pole lessee.

17. The pole rate for SBC will be used only for those SureWest poles to which SBC attaches.

18. It is technically feasible for the SBC CLEC to use the interoffice fiber facility at issue in this proceeding.

19. SureWest did not object to SBC's placement of the interoffice fiber facility when it was installed.

20. Installing a new interoffice fiber facility would be expensive.

Conclusions of Law

21. D.98-04-062, D.98-10-058 and D.03-05-055 are not applicable in reaching a conclusion regarding the inclusion of GSF costs.

22. The FCC methodology provides a reasonable basis for allocating overhead costs to pole and conduit rates.

23. A pole lessee should not bear 50% of pole costs, but rather some lesser percentage.

24. Under § 767.5, pole attacher/lessee bears only 7.4% of the net costs of the pole.

25. If SBC is bearing a portion of pole costs, SBC should be included as an attacher in calculating those costs.

26. It is not inherently anticompetitive for a CLEC to realize certain economies of scale and scope resulting from the proximity of its existing local exchange facilities to MSLECs' service territories.

27. SureWest did not establish that SBC placed the interoffice facility to later cream skim SureWest's customers with its SBC CLEC operation.

ORDER

Dated September 30, 2004, at San Francisco, California.

CERTIFICATE OF SERVICE

I certify that I have by mail, this day served a true copy of the original attached Final Arbitrator's Report on all parties of record in this proceeding or their attorneys of record.

Dated September 30, 2004, at San Francisco, California.

NOTICE

Parties should notify the Process Office, Public Utilities Commission, 505 Van Ness Avenue, Room 2000, San Francisco, CA 94102, of any change of address to ensure that they continue to receive documents. You must indicate the proceeding number on the service list on which your name appears.

(END OF APPENDIX A)

24 SureWest Comments on DAR at 2. 25 SBC Reply Comments on DAR at 4, quoting D.98-04-062 (emphasis added). 26 DAR, Finding of Fact 3. 27 SureWest Comments on DAR at 3. 28 SBC Reply Comments on DAR at 7.

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