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HomeMy WebLinkAbout9 Establish Fees for Third Party Pole Attachment Agenda Item #9 To: From: Date: Subject: Board of Directors Robert Mescher March 18, 2015 Consideration of Establishing Fees for Third Party Attachments to Poles Owned by the District ACTION 1. WHY THIS MATTER IS BEFORE THE BOARD California Public Utilities Code, Section 9510 (AB 1027) requires publicly owned utilities, that own or control utility poles and support structures, to make available appropriate space and capacity on and in those structures to third party service providers on a nondiscriminatory basis. Section 9510 also allows publicly owned utilities to recover the costs of providing such space and capacity. Board action is required to establish an annual fee per foot of pole attachment, a one - time processing fee, and a penalty fee. 2. HISTORY The District has owned its electric utility poles since the beginning of the District (1927). In 1937, the District entered into an agreement with Pacific Telephone and Telegraph Company for pole attachments with a fee of $1.25 per pole. Pacific Telephone and Telegraph was eventually acquired by AT&T. On October 8, 2011, AB 1027 was passed which added Sections 9510 -9519 to the California Public Utilities Code. AB 1027 requires local publicly owned utilities (POU) to make appropriate space and capacity on their poles and support structures available for use by third party service providers. The bill specified that it does not apply to pole attachment contracts entered into prior to January 1, 2012. The bill also specified that its provisions do not apply to jointly owned poles. The District joined the Northern California Joint Pole Association (NCJPA) in July 2012. NCJPA is a non -profit organization comprised of various investor owned, municipal and public entities that provide electric, telephone, cable and wireless services. Each member holds joint equity in utility poles within their respective service territories around Northern California. Members of NCJPA make a joint undertaking to share expenses regarding ownership, maintenance, replacement, removal and disposal of jointly owned poles and appurtenances (mainly anchors). Liability of the structures is also shared. The main function of NCJPA is to calculate the values of each transaction based on costs. These costs are reconciled monthly by NCJPA and payments are made to the appropriate member. AT&T is also a member of NCJPA. Therefore, all joint pole transactions, ownership and expenses within our District shall be shared with AT&T. In order for AT&T to acquire its equity portion of ownership in poles within the District, AT&T needs to reimburse the District for that equity portion. Since joining the NCJPA, any new poles installed, or replaced, followed the NCJPA processes. Starting in late 2012, the District worked cooperatively with AT&T to prepare a “Purchase and Sales Agreement” for the partial interest in the District’s existing utility poles. AT&T drafted most of the agreement with input from District staff. The District and AT&T worked to gather the data required on the existing poles and the Purchase and Sales Agreement was finalized. This was completed by April of 2013. On July 17, 2013, the District’s Board approved this agreement with the understanding that AT&T would soon after, sign the agreement. AT&T continued to try to get authorization for the agreement over the next three months. On October 22, 2013, AT&T informed the District that “AT&T will not be pursuing this agreement." AT&T stated that they would remain attached to the poles under existing 1937 Agreement. On October 23, 2013, the District gave AT&T a one -year written notice of our intention to terminate the 1937 Agreement on October 31, 2014. In February 2014, the District met with AT&T to discuss the existing pole attachments. AT&T verbally agreed that it would sign an agreement to purchase the partial interest in the poles and we should update the cost with the new 2014 NCJPA data. District staff again worked with AT&T to update the agreement. By the middle of June 2014, the agreement was finalized and AT&T sent the agreement to their legal department and leadership for approval. District counsel continued to communicate with AT&T from late August through October 2014. On October 22, 2014, AT&T informed the District in writing that it was interested in continuing leasing space pursuant to Section 9510 (AB 1027) and requested the District to provide the annual fee the District intends to charge under section 9510 of the California Public Utilities Code. On October 29, 2014, the District reminded AT&T in writing that that the 1937 agreement would terminate on October 31, 2014 and requested information concerning the number of attachments per pole that AT&T was interested in leasing. On November 10, 2014, AT&T informed the District it wanted to continue to lease AT&T's attachments to the District -owned poles based on the District's records and requested the District to calculate the annual fee for those attachments. On December 18, 2014, the District informed AT&T that pursuant to and in compliance with PUC Section 9512, the District calculated the annual fee per foot of pole attachment to be $28.84. The District followed the requirements set by AB 1027 to calculate an amount for the annual fee per foot of pole attachment and ensured compliance with AB 1027. That included: Providing appropriate space and capacity on and in its utility poles and support structures available for use by a third party; Requiring that the TDPUD Board determine the annual fee per foot of pole attachment pursuant to the formula specified in AB 1027; Ensuring that the annual fee per foot of pole attachment shall not exceed an annual amount determined by multiplying the percentage of the total usable space that would be occupied by the attachment by the annual cost of ownership of the pole and its supporting anchor, with a presumption that a single attachment occupies one foot of usable space and an average pole contains 13.5 feet of usable space; Establishing a one-time fee to process a request for attachment based on actual costs and a one-time fee for a rearrangement requested by a third party: and Imposing a penalty equal to three times the annual attachment fee plus a one - time processing fee for attachments reasonably shown to have been attached without authorization that are discovered on or after January 2012. Staff presented a workshop to the Board at its regularly scheduled public meeting on January 21, 2015 which included discussion of various pole attachment fees in accordance with the requirements of AB 1027. The District has owned its electric utility poles since the beginning of the District (1927). In 1937, the District entered into an agreement with Pacific Telephone and Telegraph Company for pole attachments with a fee of $1.25 per pole. Pacific Telephone and Telegraph was eventually acquired by AT&T. On October 8, 2011, AB 1027 was passed which added Sections 9510 -9519 to the California Public Utilities Code. AB 1027 requires local publicly owned utilities (POU) to make appropriate space and capacity on their poles and support structures available for use by third party service providers. The bill specified that it does not apply to pole attachment contracts entered into prior to January 1, 2012. The bill also specified that its provisions do not apply to jointly owned poles.The District joined the Northern California Joint Pole Association (NCJPA) in July 2012. NCJPA is a non -profit organization comprised of various investor owned, municipal and public entities that provide electric, telephone, cable and wireless services. Each member holds joint equity in utility poles within their respective service territories around Northern California. Members of NCJPA make a joint undertaking to share expenses regarding ownership, maintenance, replacement, removal and disposal of jointly owned poles and appurtenances (mainly anchors). Liability of the structures is also shared. The main function of NCJPA is to calculate the values of each transaction based on costs. These costs are reconciled monthly by NCJPA and payments are made to the appropriate member. AT&T is also a member of NCJPA. Therefore, all joint pole transactions, ownership and expenses within our District shall be shared with AT&T. In order for AT&T to acquire its equity portion of ownership in poles within the District, AT&T needs to reimburse the District for that equity portion. Since joining the NCJPA, any new poles installed, or replaced, followed the NCJPA processes. Starting in late 2012, the District worked cooperatively with AT&T to prepare a “Purchase and Sales Agreement” for the partial interest in the District’s existing utility poles. AT&T drafted most of the agreement with input from District staff. The District and AT&T worked to gather the data required on the existing poles and the Purchase and Sales Agreement was finalized. This was completed by April of 2013. On July 17, 2013, the District’s Board approved this agreement with the understanding that AT&T would soon after, sign the agreement. AT&T continued to try to get authorization for the agreement over the next three months. On October 22, 2013, AT&T informed the District that “AT&T will not be pursuing this agreement." AT&T stated that they would remain attached to the poles under existing 1937 Agreement. On October 23, 2013, the District gave AT&T a one -year written notice of our intention to terminate the 1937 Agreement on October 31, 2014. In February 2014, the District met with AT&T to discuss the existing pole attachments. AT&T verbally agreed that it would sign an agreement to purchase the partial interest in the poles and we should update the cost with the new 2014 NCJPA data. District staff again worked with AT&T to update the agreement. By the middle of June 2014, the agreement was finalized and AT&T sent the agreement to their legal department and leadership for approval. District counsel continued to communicate with AT&T from late August through October 2014. On October 22, 2014, AT&T informed the District in writing that it was interested in continuing leasing space pursuant to Section 9510 (AB 1027) and requested the District to provide the annual fee the District intends to charge under section 9510 of the California Public Utilities Code. On October 29, 2014, the District reminded AT&T in writing that that the 1937 agreement would terminate on October 31, 2014 and requested information concerning the number of attachments per pole that AT&T was interested in leasing. On November 10, 2014, AT&T informed the District it wanted to continue to lease AT&T's attachments to the District -owned poles based on the District's records and requested the District to calculate the annual fee for those attachments. On December 18, 2014, the District informed AT&T that pursuant to and in compliance with PUC Section 9512, the District calculated the annual fee per foot of pole attachment to be $28.84. The District followed the requirements set by AB 1027 to calculate an amount for the annual fee per foot of pole attachment and ensured compliance with AB 1027. That included: Providing appropriate space and capacity on and in its utility poles and support structures available for use by a third party; Requiring that the TDPUD Board determine the annual fee per foot of pole attachment pursuant to the formula specified in AB 1027; Ensuring that the annual fee per foot of pole attachment shall not exceed an annual amount determined by multiplying the percentage of the total usable space that would be occupied by the attachment by the annual cost of ownership of the pole and its supporting anchor, with a presumption that a single attachment occupies one foot of usable space and an average pole contains 13.5 feet of usable space; Establishing a one-time fee to process a request for attachment based on actual costs and a one-time fee for a rearrangement requested by a third party: and Imposing a penalty equal to three times the annual attachment fee plus a one - time processing fee for attachments reasonably shown to have been attached without authorization that are discovered on or after January 2012. Staff presented a workshop to the Board at its regularly scheduled public meeting on January 21, 2015 which included discussion of various pole attachment fees in accordance with the requirements of AB 1027. The District has owned its electric utility poles since the beginning of the District (1927). In 1937, the District entered into an agreement with Pacific Telephone and Telegraph Company for pole attachments with a fee of $1.25 per pole. Pacific Telephone and Telegraph was eventually acquired by AT&T. On October 8, 2011, AB 1027 was passed which added Sections 9510 -9519 to the California Public Utilities Code. AB 1027 requires local publicly owned utilities (POU) to make appropriate space and capacity on their poles and support structures available for use by third party service providers. The bill specified that it does not apply to pole attachment contracts entered into prior to January 1, 2012. The bill also specified that its provisions do not apply to jointly owned poles.The District joined the Northern California Joint Pole Association (NCJPA) in July 2012. NCJPA is a non -profit organization comprised of various investor owned, municipal and public entities that provide electric, telephone, cable and wireless services. Each member holds joint equity in utility poles within their respective service territories around Northern California. Members of NCJPA make a joint undertaking to share expenses regarding ownership, maintenance, replacement, removal and disposal of jointly owned poles and appurtenances (mainly anchors). Liability of the structures is also shared. The main function of NCJPA is to calculate the values of each transaction based on costs. These costs are reconciled monthly by NCJPA and payments are made to the appropriate member. AT&T is also a member of NCJPA. Therefore, all joint pole transactions, ownership and expenses within our District shall be shared with AT&T. In order for AT&T to acquire its equity portion of ownership in poles within the District, AT&T needs to reimburse the District for that equity portion. Since joining the NCJPA, any new poles installed, or replaced, followed the NCJPA processes. Starting in late 2012, the District worked cooperatively with AT&T to prepare a “Purchase and Sales Agreement” for the partial interest in the District’s existing utility poles. AT&T drafted most of the agreement with input from District staff. The District and AT&T worked to gather the data required on the existing poles and the Purchase and Sales Agreement was finalized. This was completed by April of 2013. On July 17, 2013, the District’s Board approved this agreement with the understanding that AT&T would soon after, sign the agreement. AT&T continued to try to get authorization for the agreement over the next three months. On October 22, 2013, AT&T informed the District that “AT&T will not be pursuing this agreement." AT&T stated that they would remain attached to the poles under existing 1937 Agreement. On October 23, 2013, the District gave AT&T a one -year written notice of our intention to terminate the 1937 Agreement on October 31, 2014. In February 2014, the District met with AT&T to discuss the existing pole attachments. AT&T verbally agreed that it would sign an agreement to purchase the partial interest in the poles and we should update the cost with the new 2014 NCJPA data. District staff again worked with AT&T to update the agreement. By the middle of June 2014, the agreement was finalized and AT&T sent the agreement to their legal department and leadership for approval.District counsel continued to communicate with AT&T from late August through October 2014. On October 22, 2014, AT&T informed the District in writing that it was interested in continuing leasing space pursuant to Section 9510 (AB 1027) and requested the District to provide the annual fee the District intends to charge under section 9510 of the California Public Utilities Code. On October 29, 2014, the District reminded AT&T in writing that that the 1937 agreement would terminate on October 31, 2014 and requested information concerning the number of attachments per pole that AT&T was interested in leasing.On November 10, 2014, AT&T informed the District it wanted to continue to lease AT&T's attachments to the District -owned poles based on the District's records and requested the District to calculate the annual fee for those attachments. On December 18, 2014, the District informed AT&T that pursuant to and in compliance with PUC Section 9512, the District calculated the annual fee per foot of pole attachment to be $28.84. The District followed the requirements set by AB 1027 to calculate an amount for the annual fee per foot of pole attachment and ensured compliance with AB 1027. That included: Providing appropriate space and capacity on and in its utility poles and support structures available for use by a third party; Requiring that the TDPUD Board determine the annual fee per foot of pole attachment pursuant to the formula specified in AB 1027; Ensuring that the annual fee per foot of pole attachment shall not exceed an annual amount determined by multiplying the percentage of the total usable space that would be occupied by the attachment by the annual cost of ownership of the pole and its supporting anchor, with a presumption that a single attachment occupies one foot of usable space and an average pole contains 13.5 feet of usable space; Establishing a one-time fee to process a request for attachment based on actual costs and a one-time fee for a rearrangement requested by a third party: and Imposing a penalty equal to three times the annual attachment fee plus a one - time processing fee for attachments reasonably shown to have been attached without authorization that are discovered on or after January 2012. Staff presented a workshop to the Board at its regularly scheduled public meeting on January 21, 2015 which included discussion of various pole attachment fees in accordance with the requirements of AB 1027. 3. NEW INFORMATION On February 9, 2015, AT&T identified a needed change to the annual pole attachment fee calculation for administrative costs element. Staff reviewed its calculation, compared it to other pole attachment calculations of other utilities, and concluded that four modifications to the calculation were necessary: 1.Administrative Element -As AT&T pointed out, the administrative element of 103% was incorrectly calculated too high, as it was as a ratio of all administrative costs to only the net pole investment. It has now been revised to 5.50%; the ratio of all administrative costs to all fixed assets. 2.Net Pole Investment -After further review, the Net Pole Investment of $2,275,911 was determined to be understated. Prior to implementing Governmental Accounting Standards Board Pronouncement 33 -Accounting and Financial Reporting for Non -Exchange Transactions (GASB 33), that was effective in 2001, the value of the power poles contributed by developers were not required to be recorded on the balance sheet as assets. The District did not retroactively adjust the book value of the assets because GASB 33 did not require it. Therefore, the $2,275,911 understated the actual net pole investment. The District’s net investment in poles and fixtures necessary for use by a third party service provider was determined as follows: The number and age of District’s poles were taken from the District’s GIS records. The District’s current poles were installed between 1920 and 2014. Since the accounting system does not contain all of the data on the installed cost of each pole, it was necessary to estimate the installed cost of the poles identified by the GIS system. A proxy installed cost for each year was determined by using the estimated installed cost (reduced by estimated salvage) for a replacement pole in 2014, and discounting that 2014 cost each year by the change in the Consumer Price Index. Depreciation rates were based on a 33 -year service life. The 2014 pole replacement cost was based upon the most recent three year average cost of pole replacements. The net pole investment has been revised to $4,959,566. (Attachment 1) 3.Cost of Borrowing -The cost of borrowing was not included in the original calculation. other utilities include a cost of borrowing in their pole attachment fee as part of the annual capital cost of borrowing funds to pay for poles. The District's borrowing costs are 4% and therefore the revised calculation includes 4%. On February 9, 2015, AT&T identified a needed change to the annual pole attachment fee calculation for administrative costs element.Staff reviewed its calculation, compared it to other pole attachment calculations of other utilities, and concluded that four modifications to the calculation were necessary:1.Administrative Element -As AT&T pointed out, the administrative element of 103% was incorrectly calculated too high, as it was as a ratio of all administrative costs to only the net pole investment. It has now been revised to 5.50%; the ratio of all administrative costs to all fixed assets.2.Net Pole Investment -After further review, the Net Pole Investment of $2,275,911 was determined to be understated. Prior to implementing Governmental Accounting Standards Board Pronouncement 33 -Accounting and Financial Reporting for Non -Exchange Transactions (GASB 33), that was effective in 2001, the value of the power poles contributed by developers were not required to be recorded on the balance sheet as assets. The District did not retroactively adjust the book value of the assets because GASB 33 did not require it. Therefore, the $2,275,911 understated the actual net pole investment. The District’s net investment in poles and fixtures necessary for use by a third party service provider was determined as follows: The number and age of District’s poles were taken from the District’s GIS records. The District’s current poles were installed between 1920 and 2014. Since the accounting system does not contain all of the data on the installed cost of each pole, it was necessary to estimate the installed cost of the poles identified by the GIS system. A proxy installed cost for each year was determined by using the estimated installed cost (reduced by estimated salvage) for a replacement pole in 2014, and discounting that 2014 cost each year by the change in the Consumer Price Index. Depreciation rates were based on a 33 -year service life. The 2014 pole replacement cost was based upon the most recent three year average cost of pole replacements. The net pole investment has been revised to $4,959,566. (Attachment 1) 3.Cost of Borrowing -The cost of borrowing was not included in the original calculation. other utilities include a cost of borrowing in their pole attachment fee as part of the annual capital cost of borrowing funds to pay for poles. The District's borrowing costs are 4% and therefore the revised calculation includes 4%. 4.Required Rate of Return -The required rate of return was not included in the original calculation. Other utilities include a required rate of return in their pole attachment fee as part of the annual capital costs, based upon return on investment. “Required rate of return” is the minimum annual percentage earned by an investment that will induce a utility to invest in projects. The revised calculation includes 10%. The revised calculation of the annual fee per foot of pole attachment is $19 (Attachment 2). This fee is comparable to other utilities’ pole attachment fees: $18 Sacramento Municipal Utility District $18 Los Angeles Department of Water and Power $19 City of Pasadena Water and Power $19 City Azusa Light and Power $19 City of Colton $22 Riverside Public Utilities Attachment 3 is Resolution 2015 -03 which establishes: 1.An annual fee per foot of pole attachment of $19; 2.A one-time fee to process a request for new attachments based on actual costs of $110 per pole attachment (Attachment 4); and 3.A penalty for attachments, reasonably shown to have been unauthorized and are discovered on or after January 2012, of three times the annual attachment fee plus the one-time processing fee of $110 per pole attachment. If the resolution is passed, the fees would be effective May 17, 2015. Robert Mescher Michael D. Holley Administrative Services Manager General Manager 4. FISCAL IMPACT The future annual revenue from AT&T to reimburse the District for AT&T's pole attachments on the District's poles is estimated to be $210,000. This estimated revenue assumes 4,500 poles with an average of 2.5 feet of attachments per pole. 5. RECOMMENDATION Adopt Resolution 2015-03 establishing an annual fee of $19 per foot of pole attachment, a one-time processing fee of $110, and a penalty of three times the annual attachment fee plus a processing fee. 4.Required Rate of Return -The required rate of return was not included in the original calculation. Other utilities include a required rate of return in their pole attachment fee as part of the annual capital costs, based upon return on investment. “Required rate of return” is the minimum annual percentage earned by an investment that will induce a utility to invest in projects. The revised calculation includes 10%.The revised calculation of the annual fee per foot of pole attachment is $19 (Attachment 2).This fee is comparable to other utilities’ pole attachment fees: $18 Sacramento Municipal Utility District $18 Los Angeles Department of Water and Power$19 City of Pasadena Water and Power$19 City Azusa Light and Power$19 City of Colton$22 Riverside Public Utilities Attachment 3 is Resolution 2015 -03 which establishes: 1.An annual fee per foot of pole attachment of $19; 2.A one-time fee to process a request for new attachments based on actual costs of $110 per pole attachment (Attachment 4); and 3.A penalty for attachments, reasonably shown to have been unauthorized and are discovered on or after January 2012, of three times the annual attachment fee plus the one-time processing fee of $110 per pole attachment. If the resolution is passed, the fees would be effective May 17, 2015.