On March 22, 2018, the Ontario Energy Board (“OEB”) issued its Final Report on Wireline Pole Attachment Charges¹ (the “Final Report”) setting the amount that telecom carriers will pay to attach wirelines to electricity poles. In the Final Report, the OEB has set a province-wide charge of $43.63 per pole/per attacher/per year. The updated charge will apply to all electricity distributors that do not currently have an OEB-approved utility-specific wireline pole attachment charge.² This is said to impact around 10 per cent of the province’s electricity distribution poles, because there are current utility-specific wireline pole attachment charges approved by the OEB for Hydro One ($41.28), Toronto Hydro ($42.00), Hydro Ottawa ($53.00) and InnPower ($38.82), which together own about 90 per cent of the electricity poles in Ontario.³ The OEB’s determinations only apply to wireline pole attachments. Wireless attachments to electricity poles continue to be subject to market-based pricing, as described below.

Background

Pole attachment charges ensure that Canadian “Carriers” (as defined by the Telecommunications Act⁴) attaching to electricity poles pay an appropriate share of the cost of buying, installing and maintaining the poles. The revenues received by electricity distributors (for both wireless and wireline pole attachments) are credited in whole or in part to utility ratepayers who have paid for the installation and upkeep of electricity poles through their delivery rates.

The pole attachment fees to be charged to Carriers for pole attachments were previously approved by the OEB in a generic proceeding in 2005 (the “CCTA” case).⁵ In that case, the OEB decided that all licensed electricity distributors shall provide access to their power poles to all Carriers (including cable companies). The OEB also decided that the same “pole attachment rate” should apply for all distributors, and to all Carriers. There was significant debate about the method to be used to calculate the appropriate “pole attachment rate”. The OEB decided that the rate should take account of the “incremental or direct” costs of attachment, as well as a portion of the fixed or common costs of each power pole. Taking all of this into account, the OEB ordered that the “pole attachment rate” would be $22.35 per pole per year.⁶ This was to be included as a condition to each electricity distributor’s licence.

There have been a number of OEB rate proceedings in recent years where wireline pole attachment fees have been an issue (including Toronto Hydro⁷, Hydro One⁸ and Hydro Ottawa⁹ rate applications).

In the Toronto Hydro and Hydro One cases, Carriers argued that the OEB does not have jurisdiction to set the charges for pole attachments pursuant to the rate setting provisions of the OEB Act (section 78).¹⁰ The Carriers argued that this is not an electricity rates issue. The OEB decided in the Toronto Hydro case that it does have jurisdiction under section 78 because pole attachment rates are incidental to the distribution of electricity as the poles are an essential facility properly considered while setting rates.¹¹

These recent rate applications have set relevant wireline pole attachment fee amounts for the applicant utilities, based on the evidence presented in each case. The determinations (or settlements) were made by use of the methodology for calculating wireline attachment fees that was adopted in the 2005 CCTA case. These proceedings did not determine the question of whether the generally applicable methodology for determining wireline pole attachment fees should be updated.

The OEB’s “comprehensive policy review”

In November 2015, the OEB commenced a generic process to determine the approach to set future wireline pole attachment fees.¹² According to the OEB, its review of pole attachment fees planned to consider the methodology to be used to determine charges, including the appropriate treatment of revenues that the Carriers may receive from third parties for allowing additional cables to be attached to existing cables (referred to as “overlashing”). An earlier case comment published in Energy Regulation Quarterly¹³ discussed the process that the OEB launched to undertake to review these fees, with assistance from a stakeholder working group (the “Pole Attachment Working Group” or “PAWG”) and an expert consultant.

Over the course of the OEB’s review process, the PAWG met four times, and an expert (Nordicity Group Ltd.) was retained to provide a report summarizing the current pole attachment landscape within Ontario and recommend an appropriate framework methodology for setting wireline pole attachment charges. Nordicity’s report, entitled the “OEB Wireline Pole Attachment Rates and Policy Framework”¹⁴ (the “Nordicity Report”), was released on December 18, 2017 in conjunction with a draft OEB Report on policies for wireline pole attachment rates charged by electricity distributors.

The Nordicity Report addressed relevant regulatory decisions, pole attachment data and findings from meetings of the working group. It recommended an appropriate framework methodology for setting wireline pole attachment charges using 2005 to 2015 data to derive a new recommended province-wide wireline pole attachment rate. Nordicity recommended a province-wide rate (subject to circumstances in which a rate will be determined on a utility cost-specific basis) because it was not possible to determine accurately the cost per pole according to different geographic locations and because the examination of the data did not reveal major systemic cost differences.¹⁵ Using an equal sharing methodology for the allocation of indirect pole-related costs, Nordicity calculated the province-wide pole attachment rate to be $42.19 per attacher.¹⁶

The OEB’s Draft Report on a Framework for Wireline Pole Attachment Charges¹⁷ (the “Draft Report”) agreed with much of the Nordicity Report, but it made certain adjustments to arrive at a provincial wireline pole attachment rate. Among other things, the OEB used six years of historical data (considered to be more reflective of current costs than Nordicity’s 2005 to 2015 data) and it added an inflationary adjustment to escalate costs from 2015 dollars to 2018 dollars. In the result, the OEB came to an annual rate of $52.00 per attacher per year per pole (rounded down from $52.37), including inflation to 2018.¹⁸ The OEB, in its Draft Report, said that this set of data and information represents more than 90 per cent of the “pole population” in the province and is considered to be one of the most comprehensive pole attachment data sets ever collected.¹⁹

After a comment period, the OEB issued the Final Report on March 22, 2018. The Final Report summarizes the process undertaken and, in large part, adopts the findings and recommendations in the earlier OEB Draft Report and Nordicity Report.

The OEB has determined that it is in the public interest to set a province-wide wireline pole attachment charge of $43.63.²⁰ The charge is calculated based on an allocation of “common costs” of electricity poles between electricity distributors and wireline attachers. The OEB’s new wireline pole attachment charge ($43.63) is lower than the $52.00 recommended in the OEB’s draft Report – the reduction arises from the OEB’s decision to remove “vegetation management costs” from the pole attachment charge.²¹

Implementation of the OEB’s Final Report

The new wireline pole attachment charge will apply to all licensed distributors that have not received OEB approval for a distributor-specific pole attachment charge (which is all distributors except the four named above).²² The new charge will be implemented in two steps. From September to December 2018, the charge will increase to $28.09 (to represent an inflation increase from 2005). Then, on January 1, 2019, the new charge of $43.63 will apply. The wireline pole attachment charge will be adjusted annually based on the OEB’s inflation factor commencing on January 1, 2020.

At their next cost of service rate application, distributors will have the option to adopt the then-current standard wireline pole attachment charge or to apply for a utility-specific rate, based on their own costs.

The OEB’s Final Report directs distributors who are implementing the new wireline attachment charge to record incremental revenues in a new variance account related to pole attachment charges. The balance in the new account will be refunded to ratepayers in the distributor’s next cost based rate application. The OEB will issue accounting directions related to the establishment of the variance account.²³

As a later step, the OEB’s Final Report promises “a follow-up policy consultation at a time to be determined”. As part of this next review, the OEB indicates that it “will consider moving from a cost-based approach for establishing the pole attachment charge to a value-based approach, which is more reflective of a competitive market and the OEB’s approach to wireless attachments.”²⁴

Wireless Pole Attachment Charges

The OEB’s Final Report applies only to wireline attachments to electricity poles. It does not deal with attachments of wireless communication devices to electricity poles.

Until recently, the OEB set the charges for both wireline and wireless attachments. In the 2011 “CANDAS” proceeding,²⁵ the OEB was asked by the Canadian Distributed Antenna Systems Coalition (“CANDAS”) to confirm that the CCTA decision applied equally to “wireless” attachments, as it did to “wireline” attachments. At that time, some distributors had taken the position that pole access did not need to be granted for “wireless” attachments. In its Decision on a Preliminary Motion in the CANDAS proceeding, the OEB confirmed that the findings in the CCTA decision, including the pole attachment rate and the associated requirement on distributors to provide access apply to both wireline and wireless attachments.²⁶

Subsequently, Toronto Hydro brought an application to the OEB requesting that the OEB forbear from regulating the terms, conditions and rates for wireless attachments.²⁷ This would allow Toronto Hydro to charge competitive rates. A settlement agreement was reached and approved by the OEB, under which Toronto Hydro was permitted to provide access for wireless attachments to its poles on commercial terms normally found in a competitive market.²⁸ Toronto Hydro agreed that it would credit net revenue from wireless attachments against its revenue requirement.

Following the Toronto Hydro decision, the OEB initiated a consultation to consider whether all rate-regulated distributors should be permitted to charge market rates for attachment of wireless telecommunications devices to utility poles. ²⁹ The responses received in that process generally supported allowing market rates. On July 30, 2015, the OEB issued a letter indicating that it has decided to allow distributors to charge market rates for wireless pole attachments.³⁰ Subsequently, the OEB amended the electricity distribution licences for each distributor to allow them to charge market rates to Carriers and cable companies for wireless pole attachments.³¹ This means that those rates will not be regulated by the OEB.

While the rates to be charged for wireless pole attachments will not be regulated, that does not mean that the distributors can retain the associated revenues for their shareholders. Instead, the revenues will be credited as an offset to the distributor’s revenue requirement. It is not clear whether the Board will adopt the suggestion made in the consultation that a distributor be allowed to retain a portion of the wireless pole attachment revenues, as an incentive to maximize the amounts received for the benefit of ratepayers.

Implications

In the immediate term, there will not be substantial impacts from the OEB’s Final Report. Some distributors will transition to the new (higher) fee for wireline attachments over the next two years. However, as noted, the current fees charged for wireline attachments for most (90 per cent) electricity poles in Ontario have been approved in distributor-specific rate proceedings. In the coming years, those specific fees will have to be re-set as the relevant distributors rebase/reset their rates. At that time, the affected distributor may choose to adopt the then-applicable province-wide fees, or they may choose to have specific fees approved based on the allocation of their own costs using the methodology described in the Final Report. Therefore, over time, it can be expected that all distributors will be charging wireline pole attachment fees at least as high as the level indicated in the Final Report. This will benefit electricity ratepayers.

Whether regulators in other Canadian provinces adopt the OEB’s approach remains to be seen. When Nordicity looked at pole attachment regulation several years ago, there was little consistency as to the level of oversight and approved fees for wireline attachments in other provinces.³² It was clear, though, that any regulator-approved fees in other provinces were much lower than the amount approved by the OEB in the Final Report ($43.63 per pole/per attacher/per year). Should regulators in other provinces take a similar approach to that set out in the Final Report, then Carriers will find themselves paying substantially more.

*David Stevens is a partner at Aird & Berlis LLP, and is an editor and contributor for EnergyInsider.ca.

1.   Ontario Energy Board, Wireline Pole Attachment Charges, EB-2015-0304, (Toronto: OEB, 22 March 2018) (“Final Report”).
2.   Ontario Energy Board, Backgrounder, “OEB updates province-wide wireline pole attachment charge”, 22 March 2018.
3.   Final Report, supra note 1 at 4.
4.   Telecommunications Act, SC 1993, c 38.
5.   Application pursuant to section 74 of the Ontario Energy Board Act, 1998 by the Canadian Cable Television Association (CCTA) for an Order or Orders to amend the licenses of electricity distributors, RP-2003-0249.
6.   Decision and Order (2005), RP-2003-0249 (OEB).
7.   Toronto Hydro-Electric System Limited Application for electricity distribution rates for the period from May 1, 2015 to December 31, 2019 (2015), EB-2014-0116 (OEB) [EB-2014-0116].
8.   Hydro One Networks Inc. Application for electricity distribution rates for 2015 to 2019 (2015), EB-2013-0416/EB-2014-0247 (OEB).
9.   Hydro Ottawa Limited Application for electricity distribution rates for the period from January 1, 2016 to December 31, 2020 (2015), EB-2015-0004 (OEB).
10.   Ontario Energy Board Act 1998, SO 1998, c 15, Schedule B, s 78.
11.   EB-2014-0116, supra note 7.
12.   Review of Miscellaneous Rates and Charges (2015), EB-2015-0304 (OEB).
13.   David Stevens, “Pole Attachment Charges – Ontario Energy Board Initiates a Comprehensive Review” (2016) 4:1  Energy Regulation Q.
14.   Nordicity, OEB Wireline Pole Attachment Rates and Policy Framework (14 December 2017) (the “Nordicity Report”).
15.   Ibid at 73.
16.   Ibid at 70.
17.   Draft Report of the Board Framework for Determining Wireline Pole Attachment Charges (2017), EB-2015-0304 (OEB).
18.   Ibid at 32.
19.   Ibid at 10.
20.   Final Report, supra note 1 at 4.
21.   Ibid at 42-43.
22.   Ibid at 51.
23.   Ibid at 52.
24.   Ibid at 5.
25.   Application by Canadian Distributed Antenna Systems Coalition for certain orders under the Ontario Energy Board Act, 1998 (2012), EB-2011-0120 (OEB).
26.   Decision on Preliminary Issue and Order (2012), EB-2011-0120 (OEB).
27.   Application by Toronto Hydro-Electric System Limited for an order pursuant to section 29 of the Ontario Energy Board Act,1998 (2014), EB-2013-0234 (OEB).
28.   Settlement Proposal (2014), EB-2013-0234 (OEB).
29.   Re Wireless Attachment Consultation (2014), EB-2014-0365 (OEB).
30.   Ibid.
31.   Amending Rate-Regulated Electricity Distributor Licences to Authorize Market Rates for Wireless Pole Attachments (2016), EB-2016-0115 (OEB).
32.   Nordicity, Pole Attachment Regulation, Canada,U.S.,U.K. and Other Jurisdictions (March 2014) at 8-13.