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For these reasons, utilities may be inclined to take a conservative investment approach, choosing not to stray from their core business. This strategy offers reasonable assurance of recovering their costs. If utilities choose to establish a separate telecommunications subsidiary, additional issues will involve PUCs and possibly the Federal Energy Regulatory Commission (FERC). PUCs may require the subsidiary to reimburse the utility for using its rights-of-way, utility poles, personnel, office and equipment, and the like. Regulators are perpetually on the lookout for cross-subsidization.
Most electric utility telecommunications systems are classified as private carriers under the Federal Communications Act. But if electric utilities substantially increase the scope and nature of the telecommunications services they offer, they may become common carriers subject to additional regulation at the state and federal level. Common carrier status might require utilities, among other things, to provide access to poles and rights-of-way as well as to telecommunications services.
Section 224 of the Federal Communications Act requires the Federal Communications Commission (FCC) to set rates for pole attachment by cable television systems if a PUC does not. The FCC's pole attachment rates are, however, much lower than utilities believe fair. Nevertheless, the courts have held that section 224 is not an unconstitutional "taking" within the ambit of the Fifth Amendment, and have also upheld the FCC's jurisdiction to set rates even when the cable operator transmits nonvideo matter over its wires.
The legal questions here include whether cable companies have an unfair advantage over other competitors in the telecommunications field because they have a right to FCC-regulated pole attachment rates; whether the FCC will require utilities to offer pole attachment (they are not so required under the present system); whether electric utilities will need to use the poles of other companies, such as telephone companies; and whether the FCC's current formula for setting pole attachment rates should be changed. Most of these issues will have to be resolved by legislation since section 224 ("The Pole Attachment Act") is a creature of Congress.
A PUHCA Detour
Registered holding companies and their subsidiaries are currently prohibited from engaging in telecommunications business by the Public Utility Holding Company Act of 1935 (PUHCA). PUHCA restricts the business activities of associated companies in a registered holding company system to those functionally related to the electric utility business. However, exempt holding companies and free-standing utilities are free to diversify.
In the context of the information highway, PUHCA reform is a hot topic. If Congress does not reform PUHCA to permit registered holding company systems to enter the telecommunications business, the playing field will be tilted in favor of nonregistered companies. If Congress does so reform PUHCA, both the FERC and the PUCs will want Congress to address the Ohio Power problem. In that case (Ohio Power Co. v. FERC, 954 F.2d 779 [D.C.Cir. 1992]), the court held that the Securities and Exchange Commission (SEC) has exclusive authority to set the rate for sales between associates of a registered holding company system. Therefore, the FERC and PUCs are forced to permit passthrough of such SEC-established rates.