*Pages 1--13 from Microsoft Word - 2248.doc* Federal Communications Commission DA 00- 1476 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of Mile Hi Cable Partners, L. P.; Mountain States Video, Inc., d/ b/ a TCI of Colorado, Inc.; United Cable Television of Colorado, Inc., d/ b/ a TCI of Colorado, Inc.; TCI Cablevision of Colorado, Inc.; Heritage Cablevision of Tennessee, Inc.; and TCI Cablevision of Florida, Inc., Complainants v. Public Service Company of Colorado, Respondent ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) File No. PA 98- 003 ORDER Adopted: June 29, 2000 Released: June 30, 2000 By the Deputy Chief, Cable Services Bureau: I. INTRODUCTION 1. In this Order we consider a pole attachment complaint (" Complaint"), filed with the Federal Communications Commission (" Commission") on April 1, 1998, by the above- captioned complainants (" Complainant") against the Public Service Company of Colorado (" Respondent"), pursuant to Section 224 of the Communications Act (" Pole Attachment Act") 1 and Part 1, Subpart J, of the Commission’s rules. 2 Respondent filed its Answer (" Response") on July 28, 1998. 3 Complainant filed its Reply (" Reply") on August 17, 1998. On September 14, 1998, Respondent moved to supplement its Response. 4 The Commission gave Respondent two extensions of time to file its Response, stating that no 1 Communications Act of 1934, as amended, 47 U. S. C. § 224. 2 47 C. F. R. §§ 1.1401- 1.1418. 3 We granted Respondent two extensions of time to file its Response. See In the Matter of Mile Hi Cable Partners, LP, et al. v. Public Service Company of Colorado, 13 FCC Rcd 13407 (1998) (" First Mile Hi Order"); see also, letter dated July 24, 1998 from Elizabeth W. Beaty, Chief, Financial Analysis and Compliance Division, Cable Services Bureau to Marjorie K. Connor, Hunton & Williams, counsel for Respondent (" July 24, 1998 letter"). On April 19, 1999, the Cable Services Bureau received notice of substitution of counsel for Respondent to LeBoeuf, Lamb, Greene & MacRae, LLP. 4 Complainant filed an opposition to the motion on September 22, 1998 and Respondent filed a reply to the opposition October 2, 1998. The exhibits offered in the supplement are pictures of alleged safety violations 1 Federal Communications Commission DA 00- 1476 2 further extensions would be considered. 5 We will deny Respondent’s motion to supplement its Response. On February 22, 1999, the Commission issued an order affirming its jurisdiction to resolve the Complaint. 6 Pursuant to the Commission’s rules, 7 further information was requested by the Commission via letter 8 and both Complainant and Respondent replied on May 3, 1999. 9 Our rules require that the parties seek first to resolve their differences by negotiation. 10 Based on our review of the record, we accept Complainant’s assertion that it has attempted to negotiate with Respondent. 11 2. Complainant requests that we declare an unauthorized attachment penalty unjust and unreasonable both at the original amount of $50.00 and the increased amount of $250.00. Complainant also asks that we declare that Complainant is not liable to Respondent for unauthorized attachment charges for attachments to drop poles prior to December 29, 1997, when Respondent notified Complainant of its intent to collect such fees. Further, Complainant requests that we determine that the imposition of the standard authorization process for drop poles is an unjust and unreasonable term or condition. Complainant also requests that we find that pole attachment fees for drop poles are unjust and unreasonable. Complainant asks that we declare that the pole audit costs billed to it constitute an unjust and unreasonable term or condition and that we order Respondent to provide Complainant with documentation to enable it to determine the validity of the pole audit. Lastly, Complainant asks that we order refunds of amounts paid and actual and punitive damages. In this Order, we grant the Complaint in part. 3. Pursuant to the Pole Attachment Act, the Commission has the authority to regulate the rates, terms, and conditions for attachments by a cable television system or provider of telecommunications service to a pole, duct, conduit, or right- of- way owned or controlled by a utility. The Commission shall provide that such rates, terms and conditions are just and reasonable. 12 The Pole Attachment Act grants the Commission general authority to regulate such rates, terms and conditions, except where such matters are regulated by a State. 13 The Commission is authorized to adopt procedures necessary to hear and to resolve involving cable attachments and anecdotal incidents of service disruptions involving a wire identified as being a cable television wire. 5 See July 24, 1998 letter. 6 See In the Matter of Mile Hi Cable Partners, LP, et al. v. Public Service Company of Colorado, 14 FCC Rcd 3244 (1999) (" Second Mile Hi Order"). 7 47 C. F. R. § 1.1409 (a). 8 See letters dated April 1, 1999 to both parties from Patrick A. Boateng, Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau. 9 See Complainant’s "Response to Letter Inquiry" (" Complainant’s Answers") and Respondent’s "Answers of Public Service Company of Colorado to Questions of the Cable Services Bureau" (" Respondent’s Answers"). 10 47 C. F. R. § 1.1404 (l). 11 Complaint at ¶ 25. 12 47 U. S. C. §224 (b) (1). 13 47 U. S. C. § 224( b)( 1) and (2). Colorado has not certified that it regulates rates, terms and conditions of pole attachments. See Public Notice, "States That Have Certified That They Regulate Pole Attachments," DA 92- 201, 7 FCC Rcd 1498 (1992). 2 Federal Communications Commission DA 00- 1476 3 complaints concerning such rates, terms, and conditions. 14 A utility must charge a pole attachment rate that does not exceed the maximum amount permitted by the formula developed by the Commission. We have concluded that "where onerous terms or conditions are found to exist on the basis of the evidence, a cable company may be entitled to a rate adjustment or the term or condition may be invalidated." 15 II. BACKGROUND 4. Respondent began providing the referenced cable systems with access to its poles in 1981. 16 Complainant acquired the systems between 1991 and 1993, except for one that was acquired in 1988. 17 The original agreements (“ Old Agreement”) with Respondent for pole attachments by the cable systems were signed between 1983 and 1995 and are essentially the same, with minor revisions not relevant to this proceeding. 18 By letter dated May 15, 1995, Respondent sent a new agreement to Complainant for signature advising that the previous agreement was terminated effective 90 days from that date, which would have been August 13, 1995. Complainant acquiesced to the new agreements (“ New Agreement”) voicing its objections and reservations 19 in a cover letter to the signed agreements dated June 9, 1995. Respondent executed the agreement on June 26, 1995. In March 1996, Respondent commenced a survey of Complainant’s attachments to Respondent’s poles to identify attachments which were not authorized. 20 In seven invoices dated December 29, 1997, and one dated March 2, 1998, Respondent advised Complainant that it owed $5,951,985.62 for unauthorized attachments. 21 Complainant filed its Complaint on April 1, 1998. 5. The agreements between the parties require a written application for attachment 22 and approval by Respondent before attachment can be made. 23 The application is a form prescribed by 14 47 U. S. C. § 224( b)( 1). The Commission has developed a formula methodology to determine the maximum allowable pole attachment rate. See Adoption of Rules for the Regulation of Cable Television Pole Attachments, First Report and Order, 68 FCC 2d 1585 (1978); Second Report and Order, 72 FCC 2d 59 (1979); Memorandum and Order, 77 FCC 2d 187 (1980), aff'd, Monongahela Power Co. v. FCC, 655 F. 2d 1254 (D. C. Cir. 1985) (per curiam); and Amendment of Rules and Policies Governing the Attachment of Cable Television Hardware to Utility Poles, 2 FCC Rcd 4387 (1987). See also, Implementation of Section 703( e) of the Telecommunications Act of 1996, 13 FCC Rcd 6777 (1998) and Amendment of Rules and Policies Governing Pole Attachments, FCC 00- 116 (released April 3, 2000). 15 Amendment of Rules and Policies Governing the Attachment of Cable Television Hardware to Utility Poles, Memorandum Order and Opinion on Reconsideration, 4 FCC Rcd 468 at ¶ 25 (1989). 16 Response at p. 7. 17 Reply at Exhibit 1. 18 Complaint at p. 2, n. 1; Response at p. 7. The sample provided in the Complaint was executed on June 29, 1982. 19 The letter suggests that there was some discussion and unfruitful attempts at negotiation between the parties. 20 Response at Attachment 1. 21 Complaint at Exhibit 3. 22 Old Agreement §2.1; New Agreement §2.1. 3 Federal Communications Commission DA 00- 1476 4 Respondent plus a sketch identifying poles to which attachments are to be made. 24 The Old Agreement provides an application form 25 and sample map. 26 Both agreements also require notification of removal of an attachment. 27 The New Agreement requires notification of completion of installation. 28 In both agreements all attachments must be made in accordance with specifications included in the agreement, 29 which include compliance with the National Electrical Safety Code (" NESC"). 30 In both agreements Respondent has the right to inspect attachments and require maintenance to maintain compliance with safety specifications. 31 Under both agreements Complainant must use competent employees knowledgeable about electric poles for its installation. 32 In both agreements Complainant must repair any damage done to a pole during installation. 33 In both agreements Complainant is required to indemnify Respondent for legal injury or adverse consequences resulting from the actions taken by Complainant in furtherance of the agreement. 34 The Old Agreement provided for a $50.00 charge for each unauthorized attachment. 35 The New Agreement provides for a $250.00 charge for each unauthorized attachment 36 and allows that, when an audit for unauthorized attachments is conducted and unauthorized attachments are found, Respondent may charge Complainant for the cost of the audit. 37 The New Agreement specifies that Complainant will pay Respondent the cost of all work performed for surveys, inspections, etc. 38 Lastly, the New Agreement specifies that the annual fee will be calculated using the Commission formula, 39 which means that the rate 23 Old Agreement §2.5; New Agreement §2.4. 24 Old Agreement §2.1; New Agreement §2.1. 25 Old Agreement, Exhibit B. 26 Old Agreement; Exhibit C. 27 Old Agreement §2.6; New Agreement §§ 2.7 &2. 8 28 New Agreement §2. 6. 29 Old Agreement,§ 2. 9; New Agreement §1. 30 Old Agreement, Specifications, Item 7; New Agreement, §2. 9 & Specifications, Item 7. 31 Old Agreement §2.10; New Agreement §2.10. 32 Old Agreement §3.10; New Agreement §3.12. 33 Old Agreement §3.6; New Agreement §3.8. 34 Old Agreement §3.7; New Agreement §3.9( a). 35 Old Agreement §6.7. 36 New Agreement §2.11( a). 37 New Agreement §2.11( b). 38 New Agreement §4. 3. 39 New Agreement §4.1( b). 4 Federal Communications Commission DA 00- 1476 5 will be the maximum permissible and based upon fully allocated costs. 6. Respondent’s contractor identified 25, 070 allegedly unauthorized attachments by Complainant. Respondent’s arrangement with the contractor provides compensation only for unauthorized attachments identified at a rate of $3.50 for each such attachment found. 40 Pursuant to the New Agreement, Respondent billed Complainant for $255.22 for each allegedly unauthorized attachment, $250.00 unauthorized attachment charge plus $3.50 paid to the contractor for the survey plus $1.72 for the pole attachment fee for the first half of 1998. 41 Respondent, however, only included 23, 231 poles on the invoices. 42 Respondent’s contractor used maps provided by Respondent, which included those provided by Complainant with applications when available, to identify poles for which authorization had been given. 43 Poles to which attachment had been made, but which were not identified on these maps, were deemed to have unauthorized attachments. 44 Respondent’s contractor also was given Respondent’s billing records to identify the number of poles for which Complainant had been paying an annual fee. 45 There are several instances where Respondent’s contractor found that Complainant was attached to fewer poles, including those alleged to be unauthorized, than the number for which Complainant had been paying the annual fee. 46 There are also significant instances where Complainant is allegedly attached to Respondent’s mainline poles without authorization. 47 40 Response at Attachment 1. 41 Complaint at Exhibit 3. 42 Id. The major discrepancy is on Invoice 03387 wherein Respondent charges for 1,980 allegedly unauthorized attachments in Littleton, but not 211 in Cherry Hills Village, 1,089 in Englewood, 9 in Greenwood Village, and 407 in Sheridan. Complaint at Exhibit 3. There are minor discrepancies on Invoices 03383 (difference of 17 poles), and 03385 (difference of 16 poles). Id. 43 Respondent’s Answers at No. 3. 44 Id. 45 Id. 46 See, e. g., Complaint at Exhibit 3, Invoice 03380: San Luis/ San Pablo, Invoice 03382: Northglenn, Invoice 03383: City and County of Denver, and Invoice 03385: Jefferson County 47 See, e. g., Complaint, at Exhibit 3, Invoice 03384, Invoice 03385: Golden, Lakewood, Invoice 03387: Adams County, Commerce City, and Invoice 03389. 5 Federal Communications Commission DA 00- 1476 6 III. DISCUSSION A. Pole Audit Costs 7. In enacting the Pole Attachment Act, Congress recognized that Commission involvement in pole attachment matters would include the review of "pole attachment practices." 48 We stated that the "conditions" of pole attachments include both the reasonableness of contract provisions and the reasonableness of pole owner practices in implementing such provisions. 49 The New Agreement contains a clause which states that Respondent may conduct a facility audit to verify authorized pole attachments. 50 It also states that if the audit discloses an unauthorized attachment, Respondent may require Complainant to pay the cost of the audit. 51 Complainant does not challenge the contract term but Respondent’s application of the term in this case. Complainant asserts that Respondent’s charges for the costs of the pole audit are not just and reasonable because they include costs unrelated to Complainant’s attachments. 52 Specifically, Complainant argues that the audit benefited Respondent by providing a complete mapping of its system. 53 Complainant also asserts that Respondent has not answered its request for information to verify the cost. 54 Respondent states that its contractor was paid $3. 50 for each unauthorized attachment it located and that Respondent’s costs were passed along to Complainant. 8. We previously stated that a utility cannot engage a contractor to perform a pole count and disregard the costs because the attacher is responsible for paying for it. 55 We also stated that the survey work should be done at a competitive rate in consonance with the nature of the work to be done. 56 The cost of an inspection of pole attachments should be borne solely by the cable company only if cable attachments are the sole attachments inspected and there is nothing in the inspection to benefit the utility or other attachers to the pole. 57 Also, a separate charge or fee for periodic inspections of the pole plant, including a pole count survey, is not justified if the costs associated with the inspection are already included in the rate, 48 Newport News Cablevision, Ltd. Communications, Inc. v. Virginia Electric and Power Company, PA 87- 006, DA 92- 500, 7 FCC Rcd 2610 at ¶ 4 (1992), citing S. Rep. No. 580, 95 th Cong., 1 st Sess. at 14 (1977). 49 Id. at ¶ 4. 50 New Agreement § 2.11 (b). 51 Id. 52 Complaint at ¶¶ 69- 71. 53 Id. 54 Complaint at ¶¶ 67- 68. 55 See Cable Texas v. Entergy at ¶ 14. 56 Id. 57 See In the Matter of Cable Texas, Inc. v. Entergy Services, Inc., File No. PA 97- 006, DA 99- 751, 14 FCC Rcd 6647 at ¶ 13 (1999) (" Cable Texas v. Entergy"); see also Newport News Cablevision, Ltd. v. Virginia Power, 7 FCC Rcd 2610 at ¶ 8 (1992). 6 Federal Communications Commission DA 00- 1476 7 based on fully allocated costs, which the utility charges the cable company. 58 We look closely at charges in excess of fully allocated costs to ensure that there is no double recovery for expenses for which the utility has been reimbursed through the annual fee. 59 9. In order to determine whether the amount billed to Complainant for the pole count survey is excessive, we must consider whether the field count was related solely to cable attachments or contained an element of benefit to Respondent and, if the project was solely a field count of pole attachments, whether the cost for the survey was reasonable. 60 Respondent has made no attempt to show that the survey was limited to cable attachments. Although Respondent stated that it paid its consultant $3. 50 per pole for 23,231 unauthorized attachments for a total of $81,308.50, which Respondent passed through to Complainant, Respondent also states that it paid its consultant $244,164.00 for a two year audit of its entire service area. 61 Respondent also made no attempt to show that the unauthorized attachment survey charges were directly related to the actual costs of conducting the survey. However, there is nothing before us that would indicate that the costs of the audit charged to Complainant are unreasonable based solely on the sum of the charge to Complainant. 62 Therefore, we conclude that, despite the methodology used to calculate the survey charges, the total charges to Complainant appear to be a reasonable reflection of the actual cable- related costs associated with the audit. However, Respondent must provide an explanation that supports the conclusion that the charges for the survey are not otherwise included in the carrying charges and the annual rate. Complainant must also be given access to all pertinent records so that it may verify the results of the audit as it pertains to the number of unauthorized attachments in order to verify the cost of the audit. 63 As more fully discussed below, the number of unauthorized attachments, and therefore the total charge for the audit, should be reduced. B. Unauthorized Attachment Penalties 10. The terms and conditions of pole attachment agreements and the practices implementing pole attachment agreements, including penalties for unauthorized attachments, must be just and reasonable. 64 Respondent may takes steps to ensure that attachments made to its poles are in accordance with agreed upon safety standards 65 so long as the terms and conditions imposed are just and reasonable. 66 58 Amendment of Rules and Policies Governing the Attachment of Cable Television Hardware to Utility Poles, 2 FCC Rcd 4387 at ¶ 44 (1987). 59 Id. See also, In the Matter of Texas Cable & Telecommunications Association, et al. v. Entergy Services, Inc. et al., File No. PA 97- 005, DA 99- 1118, 14 FCC Rcd 9138 (1999); and Teleprompter Corp. v. Houston Lighting and Power Co., 49 Rad. Reg. 2d 1301 (1981). 60 Id. at ¶ 9. 61 See Response at Attachment 1. Respondent does not state whether the contract with DCP Consulting was awarded competitively. We note that Ms. Linda Major, who awarded the contract on behalf of Respondent is now a partner in DCP consulting. Id. 62 The audit examined approximately 115,000 attachments and Complainant was billed $3.50 for each one alleged to be unauthorized or $81,308.50. This is approximately $0.70 per pole; a rate that our experience suggests may be reasonable. See, e. g., Cable Texas v. Entergy at ¶ 16 (survey cost per pole set at $1.40). 63 Reply at p. 13. 64 Second Mile Hi Order at ¶ 19. 7 Federal Communications Commission DA 00- 1476 8 Unauthorized penalty fees are not per se unreasonable. 67 Although an unauthorized attachment penalty may exceed the annual pole attachment rate, the amount of the penalty and the circumstances under which it is imposed must be just and reasonable. 68 In this case, Complainant and Respondent disagree on the amount of the penalty and the number of unauthorized attachments upon which it is imposed. 11. The parties have agreed on an authorization process, which neither disputes is just and reasonable. 69 The process allows Respondent to collect payment for attachments and to monitor compliance with safety codes. 70 Complainant asserts only that the penalty provided for unauthorized attachments is excessive either in an amount of $250.00 per pole or $50.00 per pole. Complainant offers evidence to demonstrate that industry practice is to impose a penalty of $15.00 to $25.00 or one based upon a limited number of years. 71 Respondent variously characterizes the penalty fee as "an unauthorized attachment penalty of a one- time charge;" 72 both liquidated damages and a penalty including elements of "deterrent value, unknown safety risk value, back rent and administrative cost factors;" 73 and a liquidated damages clause. 74 In calculating its penalty, Respondent assumes that Complainant’s unauthorized attachments have been on the poles for fourteen years. It then calculates the present value of back rent and asserts that if the unauthorized attachment penalty remained at $50.00 Complainant would have a financial incentive to attach to poles and no incentive to comply with the agreement. 75 12. The applications process provides assurance to Respondent that it will be compensated for Complainant’s attachments and satisfied that Complainant’s attachments are in compliance with safety codes or negotiate with Complainant to resolve any disagreements regarding safety issues. 76 The 65 Id. 66 47 U. S. C. §224( b). 67 See In the Matter of Williamsburg Cablevision v. Carolina Power and Light Co., PA 82- 007, and Alert Cable TV of North Carolina, Inc. v. Carolina Power and Light, PA 82- 0012, 52 Rad. Reg. 2d. 1697, aff'd sub nom. Alert Cable TV of North Carolina, Inc. v Carolina Power and Light Company, 1985 FCC LEXIS 3679 (1985). 68 Second Mile Hi Order at ¶ 19. 69 With the exception of drop poles, which we discuss below. 70 See Response at p. 8; Complaint at ¶ 15. 71 Complaint at ¶ 28 and at Exhibit 10. 72 Response at p. 5. 73 Id. 74 Id. at p. 7. 75 Response at pp. 17- 18. 76 The applications process may be used for various purposes by different utilities, such as notifying the utility of the need for make- ready work or to requesting rectification of pre- existing safety violations. Some agreements, such as here, provide for an optional engineering survey to identify any special conditions affecting the proposed attachment. See Old Agreement §2. 2, New Agreement §2. 2. An application may be denied only in limited circumstances. See 47 C. F. R. §1.1403( a). Lack of capacity on a particularly facility does not automatic entitle a 8 Federal Communications Commission DA 00- 1476 9 requirement of authorization prior to attachment, when applied in a fair and reasonable manner, is not unjust or unreasonable and Complainant is obligated to comport with the agreed to procedure. The only benefit to Complainant of failure to make application for attachment is the annual fee that it would not pay due to Respondent’s ignorance of the particular attachment. An unauthorized attachment provides no benefit to Complainant with regard to safety. Complainant is under the same obligation to make its attachments safely and incurs the same liability for any safety violations for unauthorized attachments as it does for authorized ones. Any compromise to the integrity of the pole jeopardizes Complainant’s installation and service as it does that of Respondent. 13. Respondent suggests that the cost avoided by Complainant for unauthorized attachments is the present value of fourteen years of annual fees 77 plus some speculative amount related to supposed increased safety risks and administrative costs. 78 First, it is unreasonable to infer that the alleged unauthorized attachments at issue have existed for fourteen years. 79 Second, because Complainant must always comply with safety concerns, there is no cost avoided by Complainant related to safety issues. Third, because Complainant is obligated to pay the maximum allowable rate, which is based upon fully allocated costs, any indirect administrative costs are recovered in the annual fee. 80 Finally, Complainant may be charged the direct costs of the audit. We find that Complainant has met its burden to show that Respondent’s penalty fees are unreasonable. 14. We believe that a reasonable penalty for unauthorized attachments will not exceed an amount approximately equal to the annual pole attachment fee for the number of years since the most recent inventory or five years, whichever is less, plus interest at a rate set for that period by the Internal Revenue Service (" IRS") for individual underpayments pursuant to Section 6621 of the Internal Revenue Code. 81 The information submitted by Complainant 82 summarizes our experience and demonstrates that an amount equal to no more than five years annual fee is reasonable. This penalty will provide incentive for Complainant to comply with a reasonable applications process while encouraging utilities not to delay audits of unauthorized attachments. We believe that use of the higher IRS underpayment interest rate rather than the overpayment interest rate is appropriate for unauthorized attachment penalties, although we note that the IRS interest rates for individual underpayments and overpayments are currently the same. 83 utility to deny an application. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd 15499 at ¶¶ 1162- 1163 (1996). 77 Response at p. 18. 78 Response at p. 19, n. 28. 79 In addition to partial surveys done in 1987 and 1992 (see Respondent’s Answers at No. 1), Complainant acquired the systems less than 14 years ago. Also, Respondent states that the audit that generated this complaint was triggered by its perception that new construction was occurring without authorization. See Respondent’s Answers at No. 2. 80 See Texas Cable & Telecommunications Association, et al. v. Entergy Services, Inc., et al., DA 99- 1118, 14 FCC Rcd 9138 (1999). 81 26 U. S. C. §6621; see also 26 C. F. R. §§ 301.6621- 1. Current interest rates can be found at Rev. Rul. 2000- 30, 2000- 25 I. R. B. 1262. 82 Complaint at Exhibit 10. 83 Cf. In the Matter of Long- Term Telephone Number Portability Tariff Filings, 14 FCC Rcd 17339 (1999) 9 Federal Communications Commission DA 00- 1476 10 The unauthorized attachment penalty is imposed in lieu of any amounts recoverable for unpaid annual fees, however, the actual cost of the audit is in addition to the penalty fee. 15. Complainant also argues that it is unfair to charge it for unauthorized attachments to drop poles prior to December 29, 1997, when Respondent notified Complainant of its intent to collect such fees. We agree. Respondent has not demonstrated that inclusion of drop poles in the authorization process was Respondent’s practice prior to 1996, when it conducted the survey. The record in this case supports Complainant’s assertion that the practices of the parties did not include drop poles in the authorization regime prior to December 29, 1997, when Respondent informed Complainant that drop poles would be included in future. 84 In response to our questions, Complainant states that it never submitted an application to attach to drop poles. 85 Respondent states that it receives applications for drop pole attachments 86 and that the previous pole total included on the invoices to Complainant includes drop poles. 87 Respondent did not directly answer our question concerning whether the number of drop poles identified as having unauthorized attachments is the total number of drop poles to which Complainant has attachments. Further, although Respondent asserts it used applications from Complainant in its audit to identify authorized attachments; 88 it did not produce any such applications for attachments to drop poles submitted to it by Complainant. Lastly, the Old Agreement included a requirement that an application for attachment to poles include a sketch "showing the detailed location of poles being applied for." 89 It refers to Exhibit C as the sketch to be included. Exhibit C gives a detailed example with a key showing various types of poles. They are all mainline poles; no drop poles are depicted. Based on the record, we find that Respondent’s application of the authorization process to drop poles prior to 1998 is retroactive and unreasonable. 16. We determine, therefore, that it is unreasonable for Respondent to charge unauthorized attachment penalties for drop poles prior to 1998. We also determine that it is unreasonable for Respondent to charge unauthorized attachment penalties based on a total number of allegedly unauthorized attachments without giving Complainant credit for paying for allegedly non- existent attachments. Respondent shall recalculate the number of unauthorized attachments, to include credit for the allegedly non- existent attachments for which Complainant paid an annual pole attachment fee, and to exclude drop poles from the count. Also, Respondent’s contractor’s fee was contingent upon finding unauthorized attachments and resulted in 22% of identified attachments being deemed unauthorized. This is in contrast to an earlier survey conducted in 1992 which found only 281 unauthorized attachments by the Complainant and a survey conducted in 1987 which found an unspecified number of unauthorized attachments existing before the cable system was even acquired by Complainant. 90 Therefore, for the remaining unauthorized attachments, Respondent shall provide Complainant with access to all pertinent records so that it may (overpayment rate appropriate when the interest is not a penalty). 84 Complainant’s Answers at no. 1. 85 Id. at no. 3. 86 Respondent’s Answers at no. 4. 87 Id. 88 Respondent’s Answers at no. 3. 89 Old Agreement, §2.1. 90 Respondent’s Answers at no. 1. 10 Federal Communications Commission DA 00- 1476 11 verify the results of the audit, both for the calculation of the survey costs and the penalty fees. 91 Complainant may be charged a reasonable copy fee for records provided by Respondent. C. Drop Poles 17. Finally, Complainant asserts that it is industry practice for utilities not to require separate applications or payment for attachments to drop poles. 92 A service drop is an adjunct line to the electric supply or communications main line. 93 Where it is necessary to maintain ground clearances a pole may be used to provide support for the service drop. 94 A subscriber service drop is a cable connecting a subscriber to the cable distribution network via a tap located on or near a distribution pole. In cases where it is necessary for the drop to cross a roadway, a drop pole is placed on the side of the roadway opposite the cable tap and the drop is hung over the roadway suspended on the distribution pole and the drop pole. The cable then enters the subscriber's premises from the drop pole. Poles used for service drops are usually 30 feet or less in height and are typically smaller in diameter than supply line poles. 18. In Amendment of Rules and Policies Governing Pole Attachments, 95 we determined not to exclude poles which are 30 feet or less in height from the pole attachment rate formula calculations. We did not distinguish drop poles from mainline poles. It is reasonable for a utility to include the cost of drop poles when calculating its annual pole attachment rate to the extent the utility has not been fully compensated for the drop poles in make- ready charges. The drop poles must be included in the pole count when calculating the cost of a bare pole. In this case, Respondent may charge an annual pole attachment fee for drop poles beginning in 1998, after the date it provided Complainant with notice that it would be charging an annual fee for drop poles. 19. Complainant also argues that time constraints placed upon it in making service connections 96 and the delays inherent in the application process for attachments, 97 make it unreasonable to include drop poles in the regular applications process. On the other hand, it is reasonable for Respondent to insist that it be notified of attachments to drop poles so that it may inspect them for compliance with safety specifications as well as charge a pole attachment rate for use of the poles. We believe that attachments to drop poles are adjuncts to attachments that are approved in the normal application process. As noted above, the provisions of the agreement assure that Complainant will diligently pursue its share of the joint responsibility for meeting safety requirements when attaching to any poles, including drop poles. 91 Respondent denies that it counted overlashed wires as a separate attachment. If Complainant’s review of the survey indicates that overlashed wires were counted as a separate attachment, these should also be removed from the total count. 92 Complaint at ¶ 54. 93 NESC §2. 94 Complaint at ¶ 51. 95 In the Matter of Amendment of Rules and Policies Governing Pole Attachments, Report and Order, CS Docket No. 97- 98, FCC 00- 116,15 FCC Rcd 6453 (2000). 96 Complaint at ¶ 59. 97 Complaint at ¶ 58. 11 Federal Communications Commission DA 00- 1476 12 For drop poles, therefore, notification to Respondent of Complainant’s use of a drop pole is reasonable but Complainant need not wait for approval prior to attaching. IV. CONCLUSION 20. We conclude that the unauthorized attachment penalty fee imposed by Respondent is excessive. We also conclude that the retroactive imposition of the application process to drop poles is not just and reasonable. Therefore, we will order Respondent to recalculate the total unauthorized pole attachment penalty imposed on Complainant in accordance with this order. We will also order Respondent to recalculate is costs for the pole count survey in accordance with this order and allow Complainant access to the records necessary to verify the count and the cost. On a prospective basis, we find that it is reasonable for Respondent to receive compensation for Complainant’s use of its poles, including any drop poles. However, we find that drop poles are subject to notification requirements but not prior approval requirements separate from the approval of the attachment for which it is an adjunct. V. ORDERING CLAUSES 21. Accordingly, IT IS ORDERED, pursuant to Sections 0.321 and 1.1401- 1.1418 of the Commission's Rules, 47 C. F. R. §§ 0.321 and 1.1401- 1.1418, that the complaint referenced herein IS GRANTED TO THE EXTENT INDICATED HEREIN. 22. IT IS FURTHER ORDERED, pursuant to Sections 0.321 and 1.1401- 1.1418 of the Commission's Rules, 47 C. F. R. §§ 0.321 and 1.1401- 1.1418, that the unauthorized attachment penalties in the amount of $50 and $250 are UNREASONABLE. 23. IT IS FURTHER ORDERED, pursuant to Sections 0.321 and 1.1401- 1.1418 of the Commission's Rules, 47 C. F. R. §§ 0.321 and 1.1401- 1.1418, that Respondent calculate a new unauthorized attachment penalty and a new total amount for unauthorized attachment penalties in accordance with this Order. 24. IT IS FURTHER ORDERED, pursuant to Sections 0.321 and 1.1401- 1.1418 of the Commission's Rules, 47 C. F. R. §§ 0.321 and 1.1401- 1.1418, that Respondent calculate a new total amount for the actual costs of the pole count audit in accordance with this Order. 12 Federal Communications Commission DA 00- 1476 13 25. IT IS FURTHER ORDERED, pursuant to Sections 0.321 and 1.1401- 1.1418 of the Commission's Rules, 47 C. F. R. §§ 0.321 and 1.1401- 1.1418, that Respondent provide to Complainant all maps and other documents created during or supporting Respondent’s pole count audit and an explanation and verification of its methodology for calculating the cost. 26. IT IS FURTHER ORDERED, pursuant to Sections 0.321 and 1.1401- 1.1418 of the Commission's Rules, 47 C. F. R. §§ 0.321 and 1.1401- 1.1418, that Respondent shall develop a simplified procedure in accordance with this Order, for Complainant to notify Respondent that Complainant is attaching to a drop pole. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau 13