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Gulf Power v. FCC & USA, No. 11-1215 (D.C. Cir.)

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Released: October 27, 2011
ORAL ARGUMENT SCHEDULED JANUARY 19, 2012
USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 1 of 82
BRIEF FOR RESPONDENTS
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

NO. 11-1215

GULF POWER CO.,
PETITIONER,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.

ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION

SHARIS A. POZEN
AUSTIN C. SCHLICK
ACTING ASSISTANT ATTORNEY GENERAL
GENERAL COUNSEL


ROBERT B. NICHOLSON
PETER KARANJIA
ROBERT J. WIGGERS
DEPUTY GENERAL COUNSEL
ATTORNEYS


RICHARD K. WELCH
UNITED STATES
DEPUTY ASSOCIATE GENERAL COUNSEL
DEPARTMENT OF JUSTICE

WASHINGTON, D.C. 20530
LAUREL R. BERGOLD
COUNSEL

FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740


USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 2 of 82

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES



A. Parties and Amici


The parties, intervenors, and amici appearing before the Federal
Communications Commission in the proceedings leading to the order on
review are the Florida Cable Telecommunications Association, Inc., Bright
House Networks, LLC, Comcast Cablevision of Panama City, Inc., Cox
Communications Gulf Coast, LLC, Mediacom Southeast, LLC, and the Gulf
Power Company.
All parties, intervenors, and amici appearing before this Court are
listed in the Petitioner's Brief.

B. Ruling Under Review

Fla. Cable Telecomms. Ass'n, Inc.; Comcast Cablevision of Panama
City, Inc.; Mediacom Southeast, L.L.C.; and Cox Commc'ns Gulf, L.L.C.,
Cable Operators v. Gulf Power Co., Decision, 26 FCC Rcd 6452 (2011)
("Order") (J.A. ).

C. Related Cases

The Order has not previously been before this Court. Counsel are not
aware of any other related cases pending before this Court or any other court.





USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 3 of 82

TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................. i
TABLE OF AUTHORITIES .......................................................................... iii
GLOSSARY .................................................................................................. viii
STATEMENT OF ISSUES PRESENTED .......................................................1
STATUTES AND REGULATIONS ................................................................3
COUNTERSTATEMENT OF THE CASE ......................................................3
COUNTERSTATEMENT OF THE FACTS....................................................4
I.
Background ................................................................................................4
A. The Pole Attachments Act of 1978 .......................................................4
B. FCC v. Florida Power...........................................................................8
C. The 1996 Amendments Providing for Nondiscriminatory
Access....................................................................................................9
D. Challenges to the Amended Pole Attachments Statute and
Rules ....................................................................................................10
1.
Gulf Power I ....................................................................................11
2.
Gulf Power II...................................................................................12
3.
Alabama Power v. FCC ..................................................................12
II. This Proceeding........................................................................................16
A. Background .........................................................................................16
B. Initial Complaint Pleadings .................................................................17
C. Enforcement Bureau Decision and Reconsideration ..........................18
D. Evidentiary Hearing Before an ALJ....................................................21
E. The ALJ's Initial Decision ..................................................................23
i

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 4 of 82
F.
Gulf Power's Exceptions to the ALJ's Initial Decision......................24
G. The Order on Review..........................................................................25
SUMMARY OF ARGUMENT ......................................................................29
THE APPLICABLE STANDARDS OF REVIEW ........................................32
ARGUMENT ..................................................................................................33
I.
GULF POWER'S ARGUMENTS CHALLENGING THE
FCC'S APPLICATION OF ALABAMA POWER ARE
PROCEDURALLY BARRED. ...............................................................33
A. Gulf Power Is Judicially Estopped From Arguing That
The FCC Violated the APA By Applying Alabama
Power.
..................................................................................................33
B. Issue Preclusion Bars Gulf Power from Challenging the
Alabama Power Standard....................................................................36
II. THE ALABAMA POWER STANDARD CORRECTLY
DETERMINES JUST COMPENSATION FOR THE
TAKING OF UTILITY POLE SPACE...................................................41
III. THE COMMISSION PROPERLY CONSTRUED THE
ALABAMA POWER STANDARD. .........................................................50
IV. THE COMMISSION'S FINDINGS ARE SUPPORTED BY
SUBSTANTIAL EVIDENCE. ................................................................55
ii

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 5 of 82

TABLE OF AUTHORITIES

CASES


*
Alabama Power Co. v. FCC, 311 F.3d 1357 (11th
Cir. 2002), cert. denied, 540 U.S. 937 (2003).............................. 2, 4, 15,16,
17, 18, 22, 30, 32, 33, 43, 45, 49, 50, 53, 57, 58,
59, 61, 62
Alabama Power Co. v. FCC, 540 U.S. 937 (2003).................................. 19, 24
Alabama Power Co. v. FCC, 57 Fed. Appx. 416
(Table) (11th Cir. 2003) ..............................................................................18
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366
(1999) ..........................................................................................................11
Bartholdi Cable Co. v. FCC, 114 F.3d 274 (D.C.
Cir. 1997).............................................................................................. 66, 67
*
Brown v. Legal Found. of Wash., 538 U.S. 216
(2003) ..........................................................................................................49
California v. FERC, 495 U.S. 490 (1990).......................................................40
Chemical Mfrs. Ass'n v. EPA, 870 F.2d 177 (5th
Cir. 1989).....................................................................................................40
Chritton v. NTSB, 888 F.2d 854 (D.C. Cir. 1989) ..........................................63
Davis v. Wakelee, 156 U.S. 680 (1895) ..........................................................38
Dickson v. Nat'l Trans. Safety Bd., 639 F.3d 539
(D.C. Cir. 2011)...........................................................................................63
FCC v. Florida Power Corp., 480 U.S. 245 (1987) .............................. 6, 8, 10
Georgia Power Co. v. Teleport Commc'ns Atlanta,
Inc., 346 F.3d 1033 (11th Cir. 2003)...................................................... 4, 39
Globalstar, Inc. v. FCC, 564 F.3d 476 (D.C. Cir.
2009)............................................................................................................60
Gulf Power Co. v. FCC, 208 F.3d 1263 (11th Cir.
2000), rev'd, Nat'l Cable & Telecomms. Ass'n v.
Gulf Power Co
., 534 U.S. 327 (2002).................................................... 4, 15
*
Gulf Power Co. v. U.S., 187 F.3d 1324 (11th Cir.
1999)........................................................................................... 4, 12, 13, 14
iii

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 6 of 82
Highlands Hosp. Corp. v. NLRB, 508 F.3d 28 (D.C.
Cir. 2007).....................................................................................................64
Holland v. Nat'l Mining Ass'n, 309 F.3d 808 (D.C.
Cir. 2002).....................................................................................................41
Jifry v. FAA, 370 F.3d 1174 (D.C. Cir. 2004).................................................37
Klay v. All Defendants, 425 F.3d 977 (11th Cir.
2005)............................................................................................................39
Martin v. Dep't of Justice, 488 F.3d 446 (D.C. Cir.
2007)..................................................................................................... 42, 43
Metro. Transp. Auth. v. ICC, 792 F.2d 287 (2d Cir.
1986)..................................................................................................... 51, 53
*
Montana v. United States, 440 U.S. 147 (1979) ................................ 42, 45, 46
Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)............................................36
Nat'l Cable & Telecomms. Ass'n v. Gulf Power Co.,
534 U.S. 327 (2002) ....................................................................... 4, 6, 7, 56
Nat'l Tel. Co-op. Ass'n v. FCC, 563 F.3d 536 (D.C.
Cir. 2009).....................................................................................................36
New Hampshire v. Maine, 532 U.S. 742 (2001) ...................................... 38, 41
Sec. Indus. Ass'n v. Bd. of Governors, 900 F.2d 360
(D.C. Cir. 1990)...........................................................................................44
Souffront v. Compagnie des Sucreries, 217 U.S. 475
(1910) ..........................................................................................................46
Southern Co. Servs., Inc. v. FCC, 313 F.3d 574
(D.C. Cir. 2002).............................................................................................7
SuperTurf, Inc. v. Monsanto Co., 660 F.2d 1275
(8th Cir. 1981) .............................................................................................17
*
Taylor v. Sturgell, 553 U.S. 880 (2008) ................................................... 41, 45
Texas Power & Light Co. v. FCC, 784 F.2d 1265
(5th Cir. 1986) ...............................................................................................7
Texas Utils. Elec. Co. v. FCC, 997 F.2d 925 (D.C.
Cir. 1993).......................................................................................................7
United States Co. v. Miller, 317 U.S. 369 (1943) ...........................................56
iv

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 7 of 82
United States v. Causby, 328 U.S. 256 (1946)................................................48
United States v. Chandler-Dunbar Water Power
Co., 229 U.S. 53 (1913)...............................................................................56
United States v. Commodities Trading Corp., 339
U.S. 121 (1950) ...........................................................................................54
United States v. Cors, 337 U.S. 325 (1949) ....................................................54
Williamson Cnty Reg'l Planning Comm'n v.
Hamilton Bank of Johnson City, 473 U.S. 172
(1985) ..........................................................................................................68
Yamaha Corp. of America v. United States, 961
F.2d 245 (D.C. Cir. 1992) .............................................................. 42, 43, 44
Zedner v. United States, 547 U.S. 489 (2006) ................................................38

ADMINISTRATIVE DECISIONS


Alabama Cable Telecomms. Ass'n, Comcast
Cablevision of Dothan, Inc. et al. v. Alabama
Power Co.
, Order, 16 FCC Rcd 12209 (2001),
aff'd, Alabama Power v. FCC, 311 F.3d 1357
(11th Cir. 2002) ...........................................................................................19
Amendment of Comm'ns Rules and Policies
Governing Pole Attachments, Consolidated
Partial Order on Reconsideration, 16 FCC Rcd
12103 (2001) .................................................................................................7
Amendment of Rules and Policies Governing the
Attachment of Cable Television Hardware to
Util. Poles
, Report and Order, 2 FCC Rcd 4387
(1987), recon. denied, 4 FCC Rcd 468 (1989)..............................................7
Implementation of Section 224 of the Act: A
National Broadband Plan for Our Future, Report
and Order and Order on Reconsideration, 26 FCC
Rcd 5240 (2011), appeal docketed sub nom. Am.
Elec. Power Serv. Corp. v. FCC
, No. 11-1146
(D.C. Cir. filed May 18, 2011) ....................................................................28

STATUTES AND REGULATIONS


15 U.S.C. 79, et seq. (repealed 2005).............................................................9
v

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 8 of 82
47 C.F.R. 1.1409(e)(3) ............................................................................ 8, 44
47 U.S.C. 151 et seq .......................................................................................9
*
47 U.S.C. 224 .............................................................................................1, 5
47 U.S.C. 224(a)(4) ......................................................................................10
47 U.S.C. 224(b)(1)........................................................................................6
47 U.S.C. 224(d)(1)........................................................................................7
47 U.S.C. 224(e)...........................................................................................10
47 U.S.C. 224(f) ...........................................................................................25
47 U.S.C. 224(f)(1) ......................................................................................10
47 U.S.C. 224(f)(2) ......................................................................................10
47 U.S.C. 402(a)...........................................................................................44
*
47 U.S.C. 405 .................................................................................. 53, 58, 59
5 U.S.C. 706(2)(A) .......................................................................................32
Telecommunications Act of 1996, Pub. L. No. 104-
104, 110 Stat. 56, codified at 47 U.S.C. 151 et
seq
..................................................................................................................9

OTHERS


Alabama Power Co. v. United States, No. 02-1474
(S.Ct.), Government's Brief in Opposition to
Petition for Certiorari (July 2003),
www.justice.gov/osg/briefs/2003/0responses/toc3
index.html....................................................................................................42
Brief of Alabama Co. and Gulf Power Co.,
Alabama Power Co., 311 F.3d 1357 (Nos. 00-
14763-I & 00-15068-D), 2001 WL 34355823 ............................................38
Brief of Federal Communications Commission and
the United States of America, Alabama Power
Co.,
311 F.3d 1357 (Nos. 00-14763-I & 00-
15068-D),
http://hraunfoss.fcc.gov/edocs_public/attachmatc
h/DOC-310689A1.pdf.................................................................................38
vi

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 9 of 82
Reply Brief of Alabama Co. and Gulf Power Co.,
Alabama Power Co., 311 F.3d 1357 (Nos. 00-
14763-I & 00-15068-D), 2001 WL 34355827 ............................................38
Restatement (Second) of Judgments 27 (1982) ...........................................38
S. Rep. No. 95-580, 95th Cong. 1st Sess. (1977),
reprinted in 1978 U.S.C.C.A.N. 109 .............................................................5






























* Cases and other authorities principally relied upon are marked with
asterisks.

vii

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 10 of 82

GLOSSARY

1996 Act
Telecommunications Act of 1996,
Pub. L. No. 104-104, 110 Stat. 56

Act
Pole Attachments Act of 1978, codified
at
, 47 U.S.C. 224

ALJ Administrative
Law
Judge

Cable Operators


Florida Cable Telecommunications
Association, Inc.; Bright
House Networks, LLC; Comcast
Cablevision of Panama City, Inc.;
Mediacom Southeast, L.L.C.; and Cox
Communications Gulf Coast, L.L.C.

Cable Rate
The maximum pole attachment fee
permitted under section 224(d)(1) and
the FCC's regulations.


Commission (or FCC)


Federal Communications Commission

Gulf Power


Gulf Power Company



viii

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 11 of 82
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

NO. 11-1215

GULF POWER CO.,
PETITIONER,
V.
FEDERAL COMMUNICATIONS COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS.

ON PETITION FOR REVIEW OF AN ORDER OF THE
FEDERAL COMMUNICATIONS COMMISSION

BRIEF FOR RESPONDENTS

STATEMENT OF ISSUES PRESENTED

1
In the Order on review, the Federal Communications Commission
("FCC" or "Commission") held that Gulf Power Company violated the Pole
Attachments Act, 47 U.S.C. 224, and the Commission's rules, by
demanding price increases of more than 500 percent for allowing cable
television providers to exercise their statutory right to access the power

1 Fla. Cable Telecomms. Ass'n, Inc.; Comcast Cablevision of Panama City,
Inc.; Mediacom Southeast, L.L.C.; and Cox Commc'ns Gulf, L.L.C., Cable
Operators v. Gulf Power Co.
, Decision, 26 FCC Rcd 6452 (2011) ("Order"),
aff'g Initial Decision of Chief Administrative Law Judge Richard L. Sippel,
22 FCC Rcd 1997 (ALJ 2007) ("Initial Decision").

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 12 of 82
company's utility poles for the purpose of attaching cable transmission wires.
Gulf Power contended that the United States Constitution entitled it to impose
rates substantially higher than those permitted under the Pole Attachments
Act. The Commission, applying Alabama Power Co. v. FCC, 311 F.3d 1357
(11th Cir. 2002), cert. denied, 540 U.S. 937 (2003), a decision that upheld
against a constitutional challenge the FCC's application of the statutory
maximum pole attachment rate, rejected Gulf Power's argument. The
Commission concluded that, consistent with Alabama Power, payment of the
maximum rate under the Pole Attachments Act and the FCC's regulations
does not entail an unconstitutional taking in violation of the Fifth
Amendment.
The questions are as follows:
1. Are Gulf Power's arguments challenging the FCC's application of
the test for just compensation set forth in Alabama Power procedurally barred
by the doctrines of judicial estoppel and/or collateral estoppel?
2. If Gulf Power's arguments are not procedurally barred, does the
Alabama Power standard correctly determine the just compensation for the
taking of utility pole space, and did the FCC reasonably apply that standard to
the facts of this case?
3. Are the Commission's findings supported by substantial evidence?
2

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 13 of 82

STATUTES AND REGULATIONS

Relevant statutes and regulations are set out in the appendix attached to
this brief.

COUNTERSTATEMENT OF THE CASE

This case represents the fourth attempt by Gulf Power or its corporate
affiliate (Alabama Power Co.) to challenge the constitutionality of the Pole
2
3
Attachments Act. Having failed three times in the Eleventh Circuit, Gulf
Power now invites this Court to reach a different result.
For many years before this litigation, Gulf Power charged cable
television providers rates at or near the regulated Pole Attachment rate,
approximately $6.00 per utility pole, per year. In 2000, however, Gulf Power
deviated sharply from its longstanding pricing. It notified cable television
systems that it was unilaterally raising its pole attachment rates by over 500

2 Gulf Power and Alabama Power are wholly owned subsidiaries of
Southern Co. See Gulf Power Br. at iii (Southern Co. owns 100 percent of
the common stock of Gulf Power).
3 See Gulf Power Co. v. U.S., 187 F.3d 1324 (11th Cir. 1999) ("Gulf Power
I") (rejecting facial constitutional attack on the Pole Attachments Act); Gulf
Power Co. v. FCC
, 208 F.3d 1263 (11th Cir. 2000) ("Gulf Power II"), rev'd,
Nat'l Cable & Telecomms. Ass'n v. Gulf Power Co., 534 U.S. 327 (2002)
(dismissing as unripe a facial attack on the FCC's implementing rules);
Alabama Power, 311 F.3d 1357 (rejecting an as-applied Fifth Amendment
challenge). Gulf Power's affiliate, Georgia Power Company, also
unsuccessfully raised a Fifth Amendment challenge to a Commission-
imposed pole attachment rate. Georgia Power Co. v. Teleport Commc'ns
Atlanta, Inc
., 346 F.3d 1033, 1036 (11th Cir. 2003).
3

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 14 of 82
percent, to $38.06 per pole, per year. This new rate was substantially higher
than the maximum regulated rate permitted under the statute.
This precipitous rate increase led various cable television operators to
file a complaint with the FCC. The Commission ruled that Gulf Power's
increased rates violated the Pole Attachments Act and the FCC's rules.
Applying the constitutional standard set forth in Alabama Power, the
Commission held that the regulated pole attachment rate under the Pole
Attachments Act and the Commission's implementing rules provides Gulf
Power just compensation for the use of space on its utility poles by cable
television providers, and therefore comports with the Takings Clause of the
Fifth Amendment.
Gulf Power now petitions this Court for review of the FCC's Order.

COUNTERSTATEMENT OF THE FACTS

I.

BACKGROUND

A. The Pole Attachments Act of 1978

Since the inception of cable television, cable television companies have
leased space on existing telephone or electric utility poles for the attachment
of cable distribution facilities, i.e., coaxial or fiber optic cable and associated
equipment. The cable companies rent a portion of the unused space on the
pole for an annual or other periodic fee, and pay an additional one-time
"make-ready" fee to reimburse the utility for the initial expenses it would not
4

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 15 of 82
have incurred but for the cable attachment (such as the cost of preparing the
poles and attaching the wires). This arrangement benefitted cable television
providers and produced a new stream of revenue for utility pole owners,
which otherwise received no income from the unused space on their poles.
Responding to concerns that utility pole owners were "charg[ing]
4
monopoly rents" when leasing space on their poles, Congress enacted the
Pole Attachments Act of 1978, which is codified (as part of the
Communications Act) at 47 U.S.C. 224. Congress recognized that "[o]wing
to a variety of factors, including environmental or zoning restrictions," and
the substantial costs of erecting a separate pole network or entrenching cable
underground, the cable company usually has no alternative but to use
5
available space on existing utility poles. Congress further recognized that
the "local monopoly in ownership or control of poles" gives utility companies
6
the ability to charge unreasonably high pole attachment rates.

4 Nat'l Cable, 534 U.S. at 330.
5 S. Rep. No. 95-580, 95th Cong. 1st Sess. at 12-13 (1977), reprinted in 1978
U.S.C.C.A.N. 109, 120-121 (1977 Senate Report). See FCC v. Florida
Power Corp.
, 480 U.S. 245, 247 (1987) ("[u]tility company poles provide . . .
virtually the only practical physical medium for the installation of television
cables.").
6 1977 Senate Report at 12. See Nat'l Cable, 534 U.S. at 330; Southern Co.
Servs., Inc. v. FCC, 313 F.3d 574, 577 (D.C. Cir. 2002) ("[U]tilities often
exploited their market position to charge excessively high attachment rates.").
5

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 16 of 82
Section 224(b) of the Act directs the FCC to "regulate the rates, terms,
and conditions of pole attachments to provide that such rates, terms, and
conditions are just and reasonable, and . . . adopt procedures necessary and
appropriate to hear and resolve complaints concerning such rates, terms and

conditions." 47 U.S.C. 224(b)(1). See generally Texas Utils. Elec. Co. v.
FCC, 997 F.2d 925, 929 (D.C. Cir. 1993). By giving the Commission this
authority, Congress sought "to curb the extraction of monopoly profits by
utilities from cable operators in need of pole space." Texas Power & Light
Co. v. FCC, 784 F.2d 1265, 1267 (5th Cir. 1986). See Nat'l Cable, 534 U.S.
at 341 ("The very reason for the [Pole Attachment] Act is that as to wires
utility poles constitute a bottleneck facility, for which utilities could
otherwise charge monopoly rents.").
Section 224(d)(1) of the Act specifies that a cable attachment rate is
"just and reasonable":
if it assures a utility the recovery of not less than the
additional costs of providing pole attachments, nor
more than an amount determined by multiplying the
percentage of the total usable space, or the
percentage of the total duct or conduit capacity,
which is occupied by the pole attachment by the
sum of the operating expenses and actual capital
costs of the utility attributable to the entire pole,
duct, conduit, or right-of-way.

6

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 17 of 82
47 U.S.C. 224(d)(1). Thus, the statutory minimum rate the Commission
can allow is the utility's incremental or avoidable costs, i.e., a rate that would
reimburse the utility for expenses it would not have incurred but for the cable
attachment. The statutory maximum allowable rate is the "fully allocated"
cost of the attachment that is, a rate that includes a proportionate share of
the capital and operating costs of the utility pole, conduit, or right-of-way.
See Florida Power, 480 U.S. at 253. The upper bound (a share of the fully
allocated or fully distributed costs) and the lower bound (incremental or
marginal cost) define a zone of reasonable pole attachment rates.

The Commission codified in its rules a cost methodology that produces
rates in the upper end of the range of reasonableness prescribed in section
7
224(d)(1), i.e., the fully allocated cost of a pole attachment. These fully
allocated costs include components for the utility company's administrative,
maintenance and depreciation expenses, income taxes, and a return on
investment (or profit). Amendment of Comm'ns Rules and Policies
Governing Pole Attachments, Consolidated Partial Order on Reconsideration,
16 FCC Rcd 12103, 12121 ( 28) (2001). This cost methodology, known as

7 See, e.g., Amendment of Rules and Policies Governing the Attachment of
Cable Television Hardware to Util. Poles, Report and Order, 2 FCC Rcd
4387, 4388 ( 6) (1987), recon. denied, 4 FCC Rcd 468 (1989).
7

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 18 of 82
the Cable Formula or Cable Rate, yields the maximum pole attachment fee
8
permitted under section 224(d)(1).

B.

FCC v. Florida Power



In 1987, the Supreme Court in Florida Power rejected a claim that the
Pole Attachments Act, as originally enacted, effected a taking of property
without just compensation in violation of the Fifth Amendment. 480 U.S.
245. The Court held that there was no per se taking because the Act at that
time did not require utilities to give cable operators access to space on utility
poles. The Court also determined that the rates computed under the Cable
Formula, which provided for the recovery of fully allocated costs, are not
confiscatory and therefore satisfy the constitutional standards for rate
regulation. Id. at 254.

8 47 C.F.R. 1.1409(e)(3). That subsection prescribes the following formula
to determine the maximum rate: Maximum Rate = (Space Occupied by
Attachment/Total Usable Space) x Net Cost of Bare Pole x Carrying Charge
Rate. See Order at n.7 (J.A. ).



8

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 19 of 82

C. The 1996 Amendments Providing for Nondiscriminatory

Access

In the Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56, codified at 47 U.S.C. 151 et seq. ("1996 Act"), Congress made
fundamental changes to telecommunications regulation designed to eliminate
legal and economic barriers to entry in local telephone and other
telecommunications markets. See generally AT&T Corp. v. Iowa Utils. Bd.,
525 U.S. 366, 371 (1999). Among these changes were amendments to the
Public Utility Holding Company Act, 15 U.S.C. 79, et seq. (repealed 2005),
allowing utility companies to enter communications businesses from which
they previously had been barred. See 15 U.S.C. 79z-5c (as amended by
section 103 of the Telecommunications Act of 1996).
Congress recognized that the entry of utilities companies into
telecommunications markets would give those companies an incentive to
refuse to enter into pole attachment agreements with cable or
telecommunications competitors on a nondiscriminatory basis. To address
this anticompetitive concern, Congress added a mandatory access provision
to the Pole Attachments Act. That provision requires any utility that chooses
to use its poles, ducts, conduits, or rights-of-way, at least in part, for wire
communications to "provide a cable television system or any
telecommunications carrier with nondiscriminatory access to any pole, duct,
9

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 20 of 82
conduit, or right-of-way owned or controlled by it." 47 U.S.C. 224(f)(1).
Subsection (f)(2) authorizes a utility to deny access "on a non-discriminatory
basis where there is insufficient capacity and for reasons of safety, reliability
and generally applicable engineering purposes." 47 U.S.C. 224(f)(2).
The 1996 Act made no modification to the range of reasonable rates
prescribed by section 224(d). Thus, after the adoption of the 1996 Act, "as
before, the FCC determines the compensation a utility may receive for
providing access by setting a `just and reasonable' rate within the range of
minimum to maximum rates Congress set forth in the Act." Gulf Power I,
187 F.3d at 1327.

D. Challenges to the Amended Pole Attachments Statute

and Rules
Following the enactment of the mandatory nondiscriminatory access
provisions of the 1996 Act, Gulf Power took the position that it had a
constitutional right to charge pole attachment rates in excess of the maximum
prescribed by the Cable Formula and section 224(d). In a series of cases filed
in the Eleventh Circuit, Gulf Power, its affiliated company Alabama Power,
and other utilities argued that limiting pole attachment rates to the maximum
rate permitted by section 224 and the FCC's implementing rules constitutes a
taking of their property without just compensation in violation of the Fifth
Amendment.
10

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 21 of 82
1.

Gulf Power I


In Gulf Power I, 187 F.3d 1324, Gulf Power and other utilities filed a
civil action seeking a declaration that the Act's mandatory access provision
violates the Fifth Amendment because it effects a per se taking of utility
property without an adequate process for securing just compensation. The
utilities specifically argued that they might not receive just compensation
because the FCC cannot lawfully prescribe a rate above the maximum rate
prescribed in section 224(d) and a reviewing court cannot order the
Commission to set a rate above the maximum statutory rate. Id. at 1336.
The Eleventh Circuit agreed that the mandatory access provision
effects a physical taking of a utility's property, id. at 1328-31, but rejected the
utilities' claim that the statute is facially unconstitutional, id. at 1331-38. The
court explained that the FCC's initial rate determination, coupled with the
availability of judicial review of that administrative decision, provides a
constitutionally adequate process for ensuring that a utility receives just
compensation. In response to the utilities' argument that the process would
be inadequate if the just compensation rate exceeded the statutory rate, the
court pointed out that Gulf Power and the other utilities had "not shown the
just compensation rate will ever fall outside the statutory range, let alone that
it will do so in most cases." Id. at 1336 n.9. The court held that the
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hypothetical "possibility that the just compensation rate might exceed the
statutory maximum rate" was not ripe for decision. Id. at 1338.
2.

Gulf Power II


The same day the utility companies sought declaratory relief in Gulf
Power I, a group of utilities companies including Gulf Power sought judicial
review of a Commission rulemaking order that, among other things, adopted
a formula to govern pole attachment rates used in the provision of
telecommunications services. See Gulf Power II, 208 F.3d at 1269. The
utilities argued that the rules facially violate the Fifth Amendment because
they effectuate a taking of utility property without just compensation. The
Court dismissed that constitutional argument as unripe for judicial review,
explaining that it "is essentially the same argument the utilities made to the
Gulf Power I panel." Id. at 1272, 1273.
3.

Alabama Power v. FCC


Gulf Power renewed its constitutional challenge in Alabama Power,
311 F.3d 1357. That case involved the lawfulness of Alabama Power
Company's increase of its pole attachment rates to levels greatly exceeding
the maximum rate permitted under section 224 and the Cable Formula. Gulf
Power and its affiliate, Alabama Power, each filed petitions for review of a
decision of the Commission's Cable Services Bureau finding that the
12

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proposed increases were unreasonable, and therefore invalid, under section
224 and the Commission's rules. Those petitions were consolidated with
Alabama Power's subsequent petition for review of the Commission order
affirming the staff decision. See id. at 1366-67.

Both utilities, which jointly litigated the case before the Eleventh
9
Circuit, argued that the Fifth Amendment standard for determining just
compensation to a utility company for the use of pole space should be based
upon replacement cost or fair market value, which often yields a rate
substantially in excess of the regulated rate.

The Eleventh Circuit issued its decision in November 2002. The court
first dismissed on jurisdictional grounds the petitions for review of the Cable
Services Bureau decision that had been filed by Gulf Power and Alabama
Power. 311 F.3d at 1366-67. Because Alabama Power had properly invoked
the court's jurisdiction by filing a petition for review of the Commission-level
order, however, the court decided the merits of the Fifth Amendment
challenge. See id. at 1367-71.

9 These two wholly owned subsidiaries of the Southern Company retained
the same attorneys, who filed joint briefs on behalf of both companies. An
attorney representing both Alabama Power and Gulf Power likewise
presented oral argument before the Eleventh Circuit.
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Although the Eleventh Circuit viewed the mandatory access
requirement of section 224(f)(1) as creating a per se physical taking, it held
that the FCC's cable attachment rate provides just compensation to Alabama
Power for the use of its space on the utility pole and therefore does not violate
the Takings Clause of the Fifth Amendment. The court pointed out that "just
compensation is determined by the loss to the person whose property is
taken." Id. at 1369. Unlike most property, the court explained that space on
utility poles is not necessarily "rivalrous," i.e., the loss to the owner may not
equal the gain to the taker. Thus, when there is sufficient space on the pole to
accommodate all attachments, the court reasoned that the cable company's
attachments "do[] not foreclose any other use" of the pole and the power
company incurs "no lost opportunity . . . or other burden" by the attachment.
Id. at 1369. In such cases, the court explained that the "marginal cost" that
is, "the increment to total cost that results from producing an additional
increment of output" (SuperTurf, Inc. v. Monsanto Co., 660 F.2d 1275, 1281
(8th Cir. 1981)) (quotations omitted) "will be sufficient to compensate the
pole owner." 311 F.3d at 1370.

The Eleventh Circuit pointed out that Alabama Power had made no
allegation, let alone a showing, that its poles were at full capacity. Id. at
1370. Because a rate based upon the Cable Formula enables a utility to
14

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 25 of 82
recover far more than the marginal costs of accommodating a new
attachment, the court held that the regulated rate "necessarily provides just
compensation." Id. at 1370-71.
The court, however, held open the possibility that if a utility company
were to show that space on its poles were rivalrous, a cable attachment rate
based upon the Cable Formula might not provide just compensation. Id. at
1370. The Court determined that a utility company could advance a claim
that a rate based upon the Cable Formula does not provide just compensation
by satisfying a two-part test. Under that test, the utility company must
establish "with regard to each pole that (1) the pole is at full capacity and
(2) either (a) another buyer of the space is waiting in the wings or (b) the
power company is able to put the space to a higher valued use with its own
operations." Id.
Alabama Power filed a petition for rehearing en banc, which was
denied by the Eleventh Circuit. Alabama Power Co. v. FCC, 57 Fed. Appx.
416 (Table) (11th Cir. 2003). The Supreme Court subsequently denied
certiorari. Alabama Power Co. v. FCC, 540 U.S. 937 (2003).
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II.

THIS PROCEEDING

A. Background

Comcast Cablevision of Panama City, Inc., Media Southeast L.L.C.,
Cox Communications Gulf Coast, and Time Warner Cable (collectively the
"Cable Operators") provide cable service in communities throughout Florida.
For many years, these companies (or their predecessors-in-interest)
voluntarily had entered into contracts with Gulf Power to lease space on Gulf
Power's poles. Compl. (July 10, 2000) at 4 ( 11) (J.A. ). During the July
1999-June 2000 time period, these contracts required the Cable Operators to
pay Gulf Power approximately $6.00 per pole, per year. Order at 9 (J.A. ).
The contracts also required the Cable Operators to pay the cost of all make-
10
ready work needed to accommodate their attachments, plus a 15 percent
markup if Gulf Power performed the make-ready work. Order at 9 (J.A. );
Initial Decision at 11 (J.A. ).
In 2000, Gulf Power notified the Cable Operators that, at the expiration
of the contract term, the annual pole attachment rates would increase to
$38.06 per pole, per year, an increase that exceeded by more than 500 percent
both the existing pole attachment rates and the maximum permissible rate

10 "`Make-ready' generally refers to the modification of poles or lines or the
installation of equipment to accommodate new attachments." Order at n.26
(J.A. ).
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under the Cable Formula. See Order at 19 (J.A. ). Gulf Power maintained
that it would no longer provide voluntary access to its poles and that
henceforth any attachments would be governed by the Act's mandatory
access provision for which it was entitled to just compensation under the
Takings Clause of the Fifth Amendment. Gulf Power Co.'s Resp. to Compl.
(Aug. 9, 2000) (J.A. ).

B.

Initial Complaint Pleadings
On July 10, 2000, the Cable Operators filed with the FCC's
Enforcement Bureau a complaint against Gulf Power alleging violations of
section 224. Compl. (J.A. ). The Cable Operators alleged that Gulf Power's
"exorbitant" rate of $38.06 per pole did not "comply with the Commission's
11
methodology for calculating pole attachment rates." Id. at 8 (J.A. ).
The
Cable Operators also claimed that Gulf Power violated section 224 and the
Commission's rules by unilaterally terminating the existing pole attachment
agreements and forcing the Cable Operators to accept massive rate increases.
The Cable Operators asked the Commission to, inter alia, declare the $38.06
pole attachment rate unlawful, prohibit any rate increase that exceeds the

11 The Cable Operators alleged that the rates in their current contracts with
Gulf Power slightly exceeded the maximum rate under the Cable Formula but
they had "no dispute" with paying the moderately higher rates to which they
had agreed. Compl. at 7 n.4 (J.A. ).
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 28 of 82
maximum authorized by the Commission's rules, and order Gulf Power to
pay refunds. Id. at 8-9 (J.A. ).
In response, Gulf Power conceded that its proposed price "does not
comply with the Commission's methodology for calculating pole attachment
rates." Resp. to Compl. at 34 ( 28) (J.A. ). It also "[a]dmit[ted] that the
Commission's cable rate calculation formula yields an annual attachment rate
under [s]ection 224 of approximately $4.61." Id. at 22 ( 19) (J.A. ).
Claiming that the pole attachments are a taking under the Act's mandatory
access provisions, however, Gulf Power asserted that it was entitled to just
compensation under the Fifth Amendment and that the Cable Formula failed
to provide just compensation. Gulf Power Resp. to Compl. at 34-48 ( 28)
(J.A. ).

C. Enforcement Bureau Decision and Reconsideration

In May 2003, the FCC's Enforcement Bureau, acting under authority
delegated to it by the Commission, issued an order granting the complaint.
Memorandum Opinion and Order, 18 FCC Rcd 9599 (2003) ("Bureau
Decision") (J.A. ). The Bureau found that Gulf Power had failed to justify
the $38.06 rate using the Cable Formula and thus concluded that the rate
increase is unreasonable under section 224 and the Commission's rules. Id.
at 17 (J.A. ). The Bureau ordered that the rates contained in the parties'
18

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 29 of 82
prior pole attachment agreements remain in effect, pending further
negotiations between the parties. Id. at 3.
The Bureau also rejected Gulf Power's assertion that the Cable
Formula fails to provide just compensation under the Takings Clause of the
Fifth Amendment. The Bureau explained that the Commission, in the agency
order affirmed by Alabama Power, had determined that the Cable Formula,
plus the payment of make-ready expenses, provides more than "just
compensation." Id. at 15 (citing Alabama Cable Telecomms. Ass'n,
Comcast Cablevision of Dothan, Inc. et al. v. Alabama Power Co., Order, 16
FCC Rcd 12209, 12223-36 ( 32-61) (2001), aff'd, Alabama Power v. FCC,
311 F.3d 1357(11th Cir. 2002). The Bureau also explained that Gulf Power
had submitted no evidence in this proceeding that would satisfy the two-part
test articulated by the Eleventh Circuit's Alabama Power decision. Id. at 15
(J.A. ).
On June 23, 2003, Gulf Power asked the Enforcement Bureau to
reconsider its decision and set the proceeding for a full evidentiary hearing.
Gulf Power Co.'s Pet. for Recons. and Req. for Evidentiary Hr'g (June 23,
2003) ("Gulf Power Pet.") (J.A. ). Gulf Power pointed out that the Eleventh
Circuit's decision in Alabama Power was issued after the record in this case
had closed. As a result, Gulf Power claimed that it had no opportunity to
19

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 30 of 82
present evidence specifically targeted to the two-part Alabama Power test
relied upon by the Bureau in rejecting its constitutional claim.
Although Gulf Power argued that Alabama Power was incorrectly
decided, it told the Bureau that once that case becomes "final, either through
denial of certiorari review or an ultimate ruling on the merits by the Supreme
Court, it will be binding upon the FCC -- it will set the standard." Gulf
Power Co.'s Reply to Complainants' Opp'n to Pet. for Recons. (Aug. 13,
2003) at 5-6 ("Gulf Power Reply") (J.A. ). Gulf Power argued that a
hearing would give it "the opportunity to meet the Eleventh Circuit standard
should it [i.e., Alabama Power] ultimately stand as binding precedent." Id. at
4 (J.A. ) (emphasis altered). Alabama Power became final on October 6,
2003, when the Supreme Court denied certiorari. 540 U.S. 937.
In September 2004, the Enforcement Bureau granted Gulf Power's
petition and instituted a formal evidentiary hearing before an Administrative
Law Judge ("ALJ") to permit Gulf Power to try to show that it satisfied the
two-part Alabama Power standard. Hearing Designation Order, 19 FCC Rcd
18718 (2004) (J.A. ). Because Gulf Power was the moving party with
respect to the Petition, the Bureau ruled that Gulf Power would bear the
burden of proof. Id. at 8 (J.A. ).
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D. Evidentiary Hearing Before an ALJ

In April 2006, an ALJ conducted a five-day evidentiary hearing in
which the parties presented documentary evidence and cross-examined
witnesses. In his opening presentation, Gulf Power's attorney characterized
Alabama Power as "a very important case that applies to this proceeding.
Gulf Power may not like what it says, but . . . for the purposes of this
proceeding, we have to live with what it says." Tr. at 638 (J.A. ).
Gulf Power sought to show that its poles were at full capacity on the
basis of three types of evidence: (1) an analysis of the space specifications of
typical poles and space requirements showing that Gulf Power could not
accommodate more than three attachments without performing make-ready
work (Order at n.104 (J.A. ); Initial Decision at 12-13 (J.A. )); (2) a
survey of a portion of its poles, known as the Osmose Study, that showed that
74 percent of those poles could not accept additional attachments without
make-ready adjustments or reconfigurations (Order at 15 (J.A. ); Initial
Decision at 15-17 (J.A. )); and (3) characteristics of 100 exemplar poles,
many of which would require make-ready before they could accommodate an
additional attachment (Order at 15) (J.A. )). Gulf Power classified poles
that could accommodate additional attachments through make-ready work to
be at full capacity. See Tr. at 654.
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 32 of 82
The Cable Operators' economic expert, Patricia Kravtin, testified that a
pole that can accommodate an attachment without displacing or excluding an
existing attachment is not at full capacity. Compls. Exh. A, at 31-32 (J.A. ).
Ms. Kravtin explained that "if the addition of another attachment on the pole
does not preclude the pole owner's ability to accommodate another
attachment or another use, then by definition there is available or effective
capacity on the pole." Id. at 26 (J.A. ). Ms. Kravtin stated further that "the
ability to perform make-ready work on a pole provides direct evidence of the
nonrivalrous condition of the pole." Id. at 32 (emphasis omitted) (J.A. ).
Michael Dunn, one of Gulf Power's witnesses, acknowledged on cross-
examination that "a rearrangeable pole," i.e., a pole that could accommodate
another attachment with make-ready work, "would not be at full capacity."
Tr. at 726-27 (J.A. ).
Ms. Kravtin testified that Gulf Power "routinely performs make-ready
[and] rearrangements . . . for itself, its joint pole owners, and other third-party
attachers" to accommodate new attachments. Compls. Exh. A, at 33 (J.A. ).
12
Gulf Power did not dispute that testimony.

12 See Order, FCC 05M-50 (ALJ, released Oct. 12, 2005) (J.A. ) (Gulf
Power admits its "historical willingness to accommodate attachers by
performing make ready."); Initial Decision at 23 (J.A. ).
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 33 of 82
Gulf Power presented no evidence showing that it was unable to
accommodate any attachment due to insufficient space on its poles. Id. at
23 (J.A. ). Mr. Dunn conceded that he was unaware of any instances in
which Gulf Power denied any party access to a utility pole "because another
cable operator was there." Compls. Exh. 86 (Dunn Deposition) at 129
(J.A. ). See Initial Decision at 15 (J.A. ).

E.

The ALJ's Initial Decision

In an order released in January 2007, the ALJ, applying the Alabama
Power test, held that "Gulf Power ha[d] failed to show that any pole is at full
capacity and that (1) the Cable Formula has cost it an opportunity to rent
space to someone else at a higher rate or that (2) it is prevented from putting
the space to a higher valued use within its own operations." Initial Decision
at 26 (J.A. ).
The ALJ rejected Gulf Power's argument that a pole is at full capacity
if any make-ready work is needed to accommodate an attachment. Id. at
22 (J.A. ). The ALJ pointed out that make-ready modifications and
rearrangements on poles "are normal to accommodate new attachments" and
that "Gulf Power is never out of pocket" because the cable operator pays
make-ready expenses. Id. at 19 (J.A. ). The ALJ further observed that
Gulf Power had "[failed to identify] any instance when it was prevented from
23

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 34 of 82
accommodating an attachment because of cable attachments." Id. at 23
(J.A. ).
Based on the record evidence, the ALJ found that Gulf Power had
"failed to prove . . . any pole's utilized capacity makes impossible the
attachment of any potential user waiting in the wings, or that [the Cable
Operators'] cable attachments deny Gulf Power an alternative opportunity of
higher value." Id. at 28 (J.A. ). The ALJ therefore concluded that "Gulf
Power has not lost any opportunity and . . . [its] utility poles are `for practical
purposes nonrivalrous.'" Id. at 20 (quoting Alabama Power, 311 F.3d at
1369) (J.A. ). It followed that the regulated rate, "which provides for
recapturing allocated costs," is "entirely just and equitable." Id. at 27
(J.A. ).

F.

Gulf Power's Exceptions to the ALJ's Initial Decision


On March 2, 2007, Gulf Power filed exceptions to the Initial Decision.
In its Exceptions, Gulf Power asserted that Alabama Power, while wrongly
decided, "remains the law" and must be "harmonize[d] . . . with other
binding precedent." Gulf Power Exceptions (Mar. 24, 2007) at 4
(J.A. ).
Gulf Power argued that the "most critical error" in the Initial Decision
is the ALJ's determination that a utility pole is not at full capacity "so long as
24

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 35 of 82
capacity can be expanded to accommodate a new attacher." Id. at 1 (J.A. ).
Gulf Power claimed that the ALJ's consideration of make-ready work in
ascertaining whether a pole is at full capacity is inconsistent with Alabama
13
Power, other precedent from the Eleventh Circuit and section 224(f). Id. at
4-10 (J.A. ). Gulf Power did not contest the Initial Decision's finding that it
had failed to prove that it could put the pole space occupied by the Cable
Operators to a higher-valued use in its own operations.

G. The Order on Review

On April 12, 2011, the Commission, in the Order on review, denied
Gulf Power's exceptions and affirmed the ALJ's determination that Gulf
Power failed to make "the evidentiary showing required by . . . Alabama
Power to seek compensation in excess of the Cable Rate for the Cable
Operators' attachments." Order at 23 (J.A. ). The Commission thus
concluded that Gulf Power failed "to show that it is entitled to compensation
above the Cable Rate." Id. at 37 (J.A. ).
The Commission held that Gulf Power failed to satisfy its burden of
showing its poles are at full capacity under the Alabama Power standard. Id.

13 Section 224(f) states that "a utility providing electric service may deny a
cable television system or any telecommunications carrier access to its poles,
ducts, conduits, or rights-of-way, on a non-discriminatory basis where there is
insufficient capacity and for reasons of safety, reliability and generally
applicable engineering purposes." 47 U.S.C. 224(f).
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 36 of 82
at 24-31 (J.A. ). The Commission explained that a utility pole is not at
full capacity "when an electric utility can accommodate a new attachment, in
compliance with applicable safety codes, by using conventional techniques
that the utility uses in its own operations." Id. at 24 (J.A. ). The
Commission concluded that Gulf Power had failed to show specific poles that
could not accommodate a new attachment without use of an unconventional
attachment technique or a pole replacement. Id. at 24-25 (J.A. ).
The Commission rejected Gulf Power's assumption, in determining
whether a pole is at full capacity, that the existing attachments on that pole
are static. The Commission explained that Gulf Power's view, if accepted,
"would give utilities the ability to avoid their statutory obligation to provide
access to usable pole space based solely on the placement of their own
attachments." Id. at 28 (J.A. ).
The Commission also rejected as fundamentally flawed the Osmose
study and the exemplar poles evidence on which Gulf Power relied to show
full capacity. Those studies, the Commission explained, incorrectly classified
a pole at full capacity whenever any make-ready work -- "no matter how
insignificant" -- was required to accommodate a new attachment. Id. at 25
(J.A. ). The Commission likewise found unpersuasive Gulf Power's claim
that it had showed "structural" rivalry on its poles based upon the amount of
26

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 37 of 82
usable space for attachments on a typical joint-use pole and "systematic"
rivalry based on spacing requirements when a pole has multiple attachers. Id.
at n.104. (J.A. ). The Commission pointed out that "Gulf Power can and
does accommodate multiple attachers on its poles, and it failed to identify a
single instance when it was unable to accommodate a new attacher because of
existing cable attachments." Id. The Commission further explained that the
notion of "`systematic' rivalry" was inconsistent with the requirement in
Alabama Power that the utility company prove "full capacity `with regard to
each pole.'" Id. at 25 (J.A. ) (quoting Alabama Power, 311 F.3d at 1370).
The Commission rejected Gulf Power's claim that the agency's
approach to full capacity is inconsistent with Southern Company v. FCC, 293
F.3d 1338 (11th Cir. 2002), and section 224(f). Order at 26 (J.A. ). The
Commission acknowledged that the Eleventh Circuit in Southern Company
had invalidated an FCC rule requiring utilities companies to expand capacity
to accommodate a proposed attachment when the parties had agreed that
capacity on a given pole was insufficient, but pointed out that the court, in
affirming other pole attachment rules, upheld as reasonable the agency's
construction of the phrase "insufficient capacity" in section 224(f) to signify
"the actual absence of usable physical space on a pole." Id. (quoting
Southern Co., 293 F.3d at 1349) (J.A. ). The Commission explained that its
27

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 38 of 82
analysis of full capacity in this case is consistent with the construction of
14
"insufficient capacity" upheld in Southern Company. Id. at 26 (J.A. ).
The Commission held that Gulf Power had failed to show under the
second part of the Alabama Power test that other buyers were "waiting in the
wings" or that it had a higher valued use for the pole space sought by the
Cable Operators. Order at 32-35 (J.A. ). The "linchpin" of this part of
the test, the Commission explained, "is proof of rivalry for pole space." Id. at
33 (J.A. ). And to demonstrate such rivalry, Gulf Power must show that
"someone was competing with the Cable Operators for space on poles that
were at full capacity" so that "`forcing the power company to rent space that
could be occupied by another firm (or put to use by the power company
itself)'" would result in a lost opportunity. Id. (quoting Alabama Power, 311
F.3d at 1370).
The Commission found that "Gulf Power failed to adduce evidence
that anyone (including Gulf Power) is competing for the use of space

14 The Commission also pointed out that its analysis is consistent with the
agency's interpretation of the phrase "insufficient capacity" in its recent
broadband rulemaking order. Order at n.84 & 22 (J.A. ) (citing
Implementation of Section 224 of the Act: A National Broadband Plan for
Our Future
, Report and Order and Order on Reconsideration, 26 FCC Rcd
5240, 5341-42 ( 231-34) (2011) ("Broadband Rulemaking Order"), appeal
docketed sub nom. Am. Elec. Power Serv. Corp. v. FCC
, No. 11-1146 (D.C.
Cir. filed May 18, 2011)).

28

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 39 of 82
occupied by the Cable Operators on poles that are at full capacity." Id. at 34
(J.A. ). The Commission found that Gulf Power's evidence regarding the
higher pole attachment rents that the Cable Operators pay to another utility
company and the higher pole attachment rents other attachers pay to Gulf
Power "shed[] no light on whether there is rivalry for space on Gulf Power
poles occupied by the Cable Operators." Id. The Commission also found
unpersuasive Gulf Power's evidence of high pole attachment prices in
unregulated markets because "the relevant market in this case is regulated, as
directed by Congress." Id.
Finally, the Commission rejected Gulf Power's claim that, under
Alabama Power, a buyer "waiting in the wings" (311 F.3d at 1390) can be a
hypothetical buyer rather than an actual buyer. Id. at 35 (J.A. ). The
Commission explained that "[r]ivalry for space on poles at full capacity must
be real, not hypothetical. Otherwise, Gulf Power has not suffered any lost
opportunity." Id. at n.122 (J.A. ).

SUMMARY OF ARGUMENT

1. The bulk of Gulf Power's arguments before this Court challenge the
FCC's application in the Order of the constitutional standard for just
compensation applied by the Eleventh Circuit in the Alabama Power case.
These arguments are procedurally barred. First, the doctrine of judicial
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 40 of 82
estoppel bars Gulf Power from arguing that the Commission erred in applying
the Alabama Power standard without conducting its own independent
analysis of the correctness of that decision in adjudicating the Cable
Operators' complaint. Gulf Power repeatedly told the Commission in the
proceedings below that the agency was bound by Alabama Power. The
utility company should not now be heard to argue that the Commission erred
in applying that case.

The doctrine of issue preclusion also bars Gulf Power's substantive
constitutional challenge to the takings standard adopted in Alabama Power.
Gulf Power (joined by its corporate affiliate) fully litigated before the
Eleventh Circuit the appropriate Fifth Amendment standard for determining
just compensation to a utility for the use of its pole space. Having lost before
the Eleventh Circuit, it is collaterally estopped from relitigating the same
issue in this Court.

2. Even if Gulf Power's substantive constitutional argument were not
procedurally barred, it lacks merit. The Alabama Power standard correctly
measures just compensation for the taking of utility pole space in terms of the
utility company's loss. The standard appropriately recognizes that where a
cable attachment does not foreclose any other use of the pole space, the utility
company's cost is very small -- no more than the marginal costs of the cable
30

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 41 of 82
attachment -- and thus the Cable Rate, which exceeds marginal costs,
necessarily provides just compensation. On the other hand, where the utility
company can show its pole space is rivalrous because its pole is at full
capacity and the cable attachment therefore presents an opportunity cost, the
Alabama Power standard appropriately recognizes that the utility might be
entitled to greater compensation. Because Alabama Power and the FCC's
Order held that just compensation was the higher Cable Rate (not marginal
costs), Gulf Power's contention that marginal costs are inadequate
compensation is beside the point. Moreover, Alabama Power correctly used
an alternative to fair market value (which measures the amount a willing
buyer would pay to a willing seller) because as to nonrivalrous pole space,
the loss to the property holder is not equal to the gain of the property taker.
In addition, utility poles are a bottleneck facility and fair market value
measures just compensation only where fair market conditions exist.

3. The Commission in its Order correctly applied the Alabama Power
standard. The Commission properly construed the Eleventh Circuit's opinion
to require a utility to demonstrate full capacity with regard to each pole; it
reasonably determined a pole was not at "full capacity" when a new
attachment could be accommodated through rearrangements or with
31

USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 42 of 82
conventional attachment techniques; and it properly determined that a buyer
"waiting in the wings" means an actual buyer, not a hypothetical buyer.
4. Substantial evidence supports the Commission's determinations that
Gulf Power had not satisfied its burden of identifying poles that were at full
capacity and that the utility company had shown neither the existence of a
buyer waiting in the wings nor that a cable attachment had deprived it of a
higher-valued use in its own operations. It is undisputed that Gulf Power
failed to identify any instance in which it was unable to accommodate a new
cable attachment because its utility poles were at full capacity.

THE APPLICABLE STANDARDS OF REVIEW

Gulf Power bears a high burden to establish that the Order on review is
"arbitrary, capricious, [or] an abuse of discretion." 5 U.S.C. 706(2)(A).
Under this "highly deferential" standard, the court presumes the validity of
agency action. E.g., Nat'l Tel. Co-op. Ass'n v. FCC, 563 F.3d 536, 541 (D.C.
Cir. 2009). The court must affirm unless the Commission failed to consider
relevant factors or made a clear error in judgment. E.g., Motor Vehicle Mfrs.
Ass'n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983)..
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To the extent that constitutional claims are not procedurally barred,
they are reviewed de novo. Jifry v. FAA, 370 F.3d 1174, 1182 (D.C. Cir.
2004).

ARGUMENT

I.

GULF POWER'S ARGUMENTS CHALLENGING THE
FCC'S APPLICATION OF ALABAMA POWER ARE
PROCEDURALLY BARRED.

A. Gulf Power Is Judicially Estopped From Arguing That

The FCC Violated the APA By Applying Alabama Power.


Ordinarily, parties seeking judicial review of an administrative decision
argue that the agency erred by failing to adhere to judicial precedent. In this
case, Gulf Power argues that the Commission erred because it followed a
federal court of appeals' precedent on a matter of constitutional law. See
Gulf Power Brief at 25 (contending that the Commission unlawfully applied
Alabama Power without undertaking a "reasoned analysis concerning its
validity."); see also id. at 24 (application of Alabama Power violated the
Administrative Procedure Act). Gulf Power does not argue that Alabama
Power presented distinguishable facts or different legal issues. To the
contrary, Gulf Power correctly characterizes Alabama Power as "nearly
identical" to this case. Gulf Power Petition at 3 (J.A. ). Gulf Power's
argument reduces to the contention that the Commission was obligated
independently to assess the merits of Alabama Power in its adjudication (akin
33

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to review by the United States Supreme Court). Gulf Power is estopped from
presenting that argument, which is incorrect in any event.
The doctrine of judicial estoppel provides that "where a party assumes
a certain position in a legal proceeding, and succeeds in maintaining that
position, he may not thereafter, simply because his interests have changed,
assume a contrary position." New Hampshire v. Maine, 532 U.S. 742, 749
(2001) (quoting Davis v. Wakelee, 156 U.S. 680, 689 (1895)). See Zedner v.
United States, 547 U.S. 489, 504 (2006).
Although critical of Alabama Power, Gulf Power repeatedly asserted in
the proceedings below that the Commission was bound by that decision. Gulf
Power told the Enforcement Bureau in its reconsideration petition that
Alabama Power is "binding upon the FCC -- it will set the standard." Gulf
Power Reply at 5-6 (J.A. ). Gulf Power likewise told the ALJ in the
evidentiary hearing that Alabama Power "applies to this proceeding." Tr. at
638 (J.A. ). And Gulf Power told the Commission in its exceptions to the
Initial Decision that Alabama Power "remains the law," characterizing that
case as "binding precedent." Gulf Power Exceptions at 4 (J.A. ). After
repeatedly arguing before the Commission that Alabama Power is binding
law, Gulf Power should not be permitted inconsistently to argue before this
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Court that the Commission erred in applying that precedent in the Order on
review.
In any event, the Commission did not err by following Alabama
Power. Alabama Power is the leading case on the just compensation owed to
a utility company for the use of its pole space under the Fifth Amendment.
The constitutional analysis in Alabama Power has been followed by other
panels of the Eleventh Circuit, see, e.g., Klay v. All Defendants, 425 F.3d
977, 985 (11th Cir. 2005); Georgia Power Co., 346 F.3d at 1036, (rejecting a
Fifth Amendment challenge to a Commission-imposed pole attachment rate
by another wholly-owned subsidiary of Southern Company). In the nine
years since its issuance, Alabama Power has never been reversed, overruled,
or even criticized by any court. On the precise constitutional issue decided in
Alabama Power, there is no contrary judicial precedent.
The Commission correctly followed that precedent in this case. Had
the FCC deviated from Alabama Power in the adjudication and ruled in favor
of Gulf Power, the Cable Operators likely would have sought judicial review
of that decision in the Eleventh Circuit. And any Eleventh Circuit panel
hearing such a challenge, bound by the Alabama Power circuit precedent,
would have had no choice but to reverse the FCC. Accordingly, Gulf
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Power's argument that the FCC abused its discretion in following a
dispositive appellate precedent is meritless.
Contrary to Gulf Power's position, adherence to precedent is "a
cardinal and guiding principle of adjudication." California v. FERC, 495
U.S. 490, 499 (1990). Federal courts of appeals, not administrative agencies,
have "special competence" in interpreting the Constitution. Chemical Mfrs.
Ass'n v. EPA, 870 F.2d 177, 200 (5th Cir. 1989). Gulf Power's contention
that the Commission had to justify its adherence to Alabama Power flies in
15
the face of a fundamental principle of jurisprudence.

B.

Issue Preclusion Bars Gulf Power from Challenging the
Alabama Power Standard.


Gulf Power's substantive challenge to the just compensation standard
set forth in Alabama Power is barred by the doctrine of issue preclusion (also
known as collateral estoppel). That doctrine precludes "`successive litigation
of an issue of fact or law actually litigated and resolved in a valid court

15 Holland v. Nat'l Mining Ass'n, 309 F.3d 808 (D.C. Cir. 2002), see Gulf
Power Br. at 24-25, is inapposite. That case involved whether Chevron
deference was due to an agency's interpretation of its statute, where it was
unclear whether the agency had adhered to a prior judicial construction of the
statute because it felt compelled to do so or because it independently believed
the interpretation to be reasonable. This Court "remand[ed] the case to the
agency for clarification of [its] position." 309 F.3d at 810. Holland therefore
does not support Gulf Power's claim that the FCC was obligated to justify its
application of a dispositive constitutional holding by a court of appeals.
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determination essential to the prior judgment,' even if the issue recurs in the
context of a different claim." Taylor v. Sturgell, 553 U.S. 880, 892 (2008)
(quoting New Hampshire v. Maine, 532 U.S. 742, 748-49 (2001)). By
precluding persons from raising issues "that they have had a full and fair
opportunity to litigate," id. at 892 (quoting Montana v. United States, 440
U.S. 147, 153 (1979)), the doctrine protects against "the expense and
vexation attending multiple lawsuits, conserves judicial resources, and fosters
reliance on judicial action by minimizing the possibility of inconsistent
decisions." Montana, 440 U.S. at 153154.

Under the law of this circuit, issue preclusion bars a party from
relitigating an issue decided adversely to that litigant in a prior case where
three conditions are met. First, the issue must have been contested and
submitted for judicial determination in the prior case. Second, the issue must
have been actually and necessarily determined by a court of competent
jurisdiction. Third, preclusion must not work a basic unfairness to the litigant
bound by the earlier determination. E.g., Martin v. Dep't of Justice, 488 F.3d
446, 454 (D.C. Cir. 2007) (citing Yamaha Corp. of America v. United States,
961 F.2d 245, 254 (D.C. Cir. 1992)).

Each of those elements is present in this case. Thus, Gulf Power is
barred from relitigating the constitutional issue that the Eleventh Circuit
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resolved against it in Alabama Power. First, the appropriate Fifth
Amendment standard for determining just compensation to a utility company
for the use of its pole space was "`contested by the parties and submitted for
judicial determination in the prior case.'" Martin, 488 F.3d at 454 (quoting
Yamaha, 961 F.2d at 254). Gulf Power argued in Alabama Power that the
standard should be based upon replacement cost or fair market value, which
often yields a just compensation rate substantially in excess of the regulated
rate. Brief of Alabama Co. and Gulf Power Co., Alabama Power Co., 311
F.3d 1357 (Nos. 00-14763-I & 00-15068-D), 2001 WL 34355823. See Reply
Brief of Alabama Co. and Gulf Power Co., Alabama Power Co., 311 F.3d
16
1357 (Nos. 00-14763-I & 00-15068-D), 2001 WL 34355827. The
17
Commission vigorously opposed that argument.

16 Preclusion "results from the resolution of a question in issue, not from the
litigation of specific arguments directed to the issue." Sec. Indus. Ass'n v.
Bd. of Governors
, 900 F.2d 360, 364 (D.C. Cir. 1990). "[I]t is the entire issue
that is precluded, not just the particular arguments raised in support of it in
the first case." Yamaha, 961 F.2d at 254. Thus, where, as here, "the
previously litigated `issue was one of law, new arguments may not be
presented to obtain a different determination of that issue.'" Id. at 254
(quoting Restatement (Second) of Judgments 27, cmts at 253 (1982)).
17 Brief of Federal Communications Commission and the United States of
America, Alabama Power Co., 311 F.3d 1357 (Nos. 00-14763-I & 00-15068-
D), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-310689A1.pdf..
38

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Second, the Eleventh Circuit in reaching its decision squarely rejected
Gulf Power's proposed just compensation standard. The court held that the
Cable Rate provides a utility company with just compensation under the Fifth
Amendment for the use of its space on utility poles unless the utility
establishes "with regard to each pole that (1) the pole is at full capacity and
(2) either (a) another buyer of the space is waiting in the wings or (b) the
power company is able to put the space to a higher valued use with its own
operations." Alabama Power, 311 F.3d at 1370.

Finally, no unfairness will result by precluding Gulf Power from
relitigating in this case the just compensation standard that applies to utility
pole space. Gulf Power already has presented its views fully on that issue to
the Eleventh Circuit, and there is no equitable reason to permit Gulf Power to
relitigate its position in this Court.

The Eleventh Circuit ultimately dismissed Gulf Power's petition for
review, thereby relegating Gulf Power to the status of a non-party amicus
curiae, see Alabama Power, 311 F.3d at 1357 n.17. But that does not defeat
the application of issue preclusion under the specific circumstances in this
case. Although issue preclusion generally applies only to parties to the earlier
litigation, "the rule against non-party preclusion is subject to exceptions."
Taylor, 553 U.S. at 893. If a person has "`control' over the litigation in
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which th[e] judgment was rendered," id. at 895 (quoting Montana, 440 U.S.
at 154) or openly "`assists in the prosecution or defense of an action in aid of
some interest of his own . . . [that person] is as much bound . . . as he would
be if he had been a party.'" Montana, 440 U.S at 154 (quoting Souffront v.
Compagnie des Sucreries, 217 U.S. 475, 486-87 (1910)) (ellipses in original).

These principles apply with full force here. Until the day that the
Alabama Power decision was issued, Gulf Power controlled the prosecution
of the case jointly with its corporate affiliate, Alabama Power. Gulf Power
was a signatory to the joint petitioners' opening brief; it was a signatory to
the joint petitioners' reply brief; and it is our understanding that its counsel
presented oral argument on behalf of both utility companies.
Notwithstanding the Eleventh Circuit's subsequent dismissal of its petition
for review, Gulf Power had a full and fair opportunity to present to the
Eleventh Circuit its position on the just compensation standard that applies to
18
the taking of utility pole space.

Issue preclusion is particularly appropriate here, because Southern
Company is using its wholly-owned subsidiaries to afford it repeated

18 The fact that Gulf Power purported to "reserve[] the right to argue that
Alabama Power was wrongly decided" does not trump application of the
doctrine of issue preclusion. See Gulf Power Exceptions at 4 n.2 (J.A. ).
That reservation wrongly presupposes that Gulf Power had a right to relitigate
issues it unsuccessfully had raised in the Alabama Power case.
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opportunities to litigate issues that clearly would be precluded if litigated in
its own name. Southern Company has another wholly-owned subsidiary,
Mississippi Power Co., which is located in the Fifth Circuit. See Southern
Co. 2010 SEC 10-K at page 1-1 (Feb. 25, 2011). If this Court considers and
rejects on the merits Gulf Power's constitutional claim, under Gulf Power's
theory, Mississippi Power could again raise the issue before the Commission,
and ultimately seek judicial review in the Fifth Circuit giving Southern
Company subsidiaries four opportunities to present the same issue in three
courts of appeals. Issue preclusion is designed to prevent such duplicative
and wasteful litigation.

II.

THE ALABAMA POWER STANDARD CORRECTLY
DETERMINES JUST COMPENSATION FOR THE
TAKING OF UTILITY POLE SPACE.

Consistent with the Eleventh Circuit's decisions in Alabama Power,
Gulf Power I, and Gulf Power II, the FCC's Order assumes that the
nondiscriminatory access provision of the amended Pole Attachments Act
41

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19
effects a taking of the utility's property. It then applies the just
compensation standard set forth in Alabama Power to determine whether the
regulated Pole Attachments Act rate comports with the Takings Clause of the
Fifth Amendment.
Contrary to Gulf Power's argument, the Alabama Power standard
properly applies established takings jurisprudence to determine the just
compensation due to a utility company for the use of its pole space by a cable
attachment. Consistent with Supreme Court precedent, the Alabama Power
standard measures just compensation in terms of "the loss to the person
whose property is taken," 311 F.3d at 1369 (citing United States v. Causby,
328 U.S. 256 (1946)). See Brown v. Legal Found. of Wash., 538 U.S. 216,
235-36 (2003). In calculating that loss, Alabama Power properly took into
account the fact that utility pole space may not be rivalrous, i.e., the cable

19 The government had taken the position in those prior cases that pole
attachments do not effect a per se physical taking. See, e.g., Alabama Power
Co. v. United States
, No. 02-1474 (S.Ct.), Government's Brief in Opposition
to Petition for Certiorari at 11 n.3 (July 2003),
www.justice.gov/osg/briefs/2003/0responses/toc3index.html. While the
government continues to believe that its argument is correct, this Court need
not reach (and could not properly reach) the question whether a taking
occurred in this case. As shown below, even assuming that pole attachments
effect a taking of Gulf Power's property, the regulated rate provides just
compensation under the Fifth Amendment.
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attachment does not necessarily preclude other uses of the pole space. 311
F.3d at 1369.
As the court in Alabama Power recognized, where pole space is
nonrivalrous, the cable company's attachment does not "foreclose any other
use" i.e., the attachment does not cost the utility anything in terms of "lost
20
opportunity or any other burden." Id. Thus, the utility's loss is very slight
no more than the marginal costs of the cable attachment. Because the Cable
Rate established by the Commission under the Pole Attachments Act
substantially exceeds marginal costs, Alabama Power correctly concluded
that the Cable Rate "necessarily provides just compensation" for the use of
nonrivalrous pole space. Id. at 1370-71. On the other hand, where the utility
company can show that pole space is rivalrous by demonstrating that the
pole is at full capacity and the cable company's attachment deprives the
utility company of a lost opportunity Alabama Power recognizes that the
utility company may be entitled to compensation above the Cable Rate. Id.

20 Gulf Power argues that the Alabama Power "decision was based upon a
fictional presumption (a one-million foot utility pole with only one potential
attacher)" and "unsupported hypothetical imagery" unrepresentative of actual
utility poles. See Gulf Power Brief at 17, 29. Gulf Power's reading is too
literal. The court's hypothetical merely illustrated its basic point that utility
pole space can be nonrivalrous. See Alabama Power, 311 F.3d at 1369.
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21
In an attempt to manufacture a circuit split, see Gulf Power Brief at
25, Gulf Power mounts a lengthy attack on the Alabama Power decision.
This criticism, which pervades the company's brief while scarcely
mentioning the Order on review in this case is beside the point and, in any
event, unfounded.
Gulf Power faults Alabama Power for allegedly holding that marginal
costs are just compensation for the taking of pole space except in certain
circumstances. See id. at 18, 23, 27-28, 31-34, 56-57. In fact, both Alabama
Power and the Order on review held that the compensation due to the utility
company was the Cable Rate, "which provides for much more than marginal
cost," Alabama Power, 311 F.3d at 1370. See Order at 23 (J.A. ) (holding
that "the Cable Rate provides just compensation to Gulf Power for the use of
pole space by the Cable Operators."). Furthermore, because the
Commission's rules entitle Gulf Power to set the annual pole attachment fee
pursuant to the Cable Formula, 47 C.F.R. 1.1409(e)(3), Gulf Power's
compensation for the use of its pole space is never limited to its marginal
costs. In arguing that marginal costs fail to provide just compensation for the

21 Gulf Power is based in Florida and the poles at issue are located in that
State. See generally Bureau Order at 2 (J.A. ). The company could have
filed its petition for review in the Eleventh Circuit, see 47 U.S.C. 402(a),
but instead chose to file its petition for review in this Court.
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use of its utility pole space, Gulf Power challenges a holding that the
22
Commission (and the Alabama Power court) never made.
Nor is there any merit to Gulf Power's assertion that this case involves
"the government commanding Gulf Power to give up property for essentially
no compensation." Gulf Power Brief at 27. Because Gulf Power's contracts
with the Cable Operators require the cable companies to pay for any
applicable make-ready costs, the compensation that the utility company
actually receives for the use of its pole space is make-ready expenses (Gulf
Power's non-recurring costs) plus at least the Cable Rate (which reflects a
portion of Gulf Power's fully distributed costs, including a return on

22 Gulf Power states that it "could locate no . . . reported decision [other
than Alabama Power] in which marginal costs were considered just
compensation for a physical taking." See Gulf Power Brief at 32. However,
Metro. Transp. Auth. v. ICC, 792 F.2d 287 (2d Cir. 1986), a case cited in Gulf
Power's brief, see Gulf Power Brief at 32, considered marginal costs to be
just compensation in a situation where, as here, the property was non-
rivalrous. In that case, the agency ordered a commuter railroad to permit
Amtrak use of its track for Amtrak's intercity trains. Amtrak's use of the
trackage did not interfere with the commuter railroad's use of the same
trackage for its own trains. The court of appeals, assuming that that there was
a taking, stated that the "compensation is adequate since the commuter
railroad, in obtaining avoidable costs [i.e., marginal costs], will receive what
it would have had but for the taking." Id. at 297. The court further explained
that "the owner . . . will be put into the same position monetarily as it would
have occupied if the property had not been taken, and this is precisely the
guiding principle of what is just compensation." Id. The court thus rejected
the commuter railroad's "claim that [the] adoption of the avoidable cost
methodology is constitutionally infirm." Id. at 298.
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23
investment). Indeed, because the attachers separately pay up-front make-
ready costs, the annual pole rate is additional revenue that Gulf Power can use
to defray expenses that otherwise would be borne by the utility and its
ratepayers.
Moreover, although Gulf Power now complains about the inadequacy
of its compensation, for decades before enactment of the Act's mandatory
access provisions, Gulf Power voluntarily entered into contracts with the
Cable Operators that set pole attachment rates at or near the Cable Rate, plus
reimbursement for make-ready expenses. See Complaint at 2 (J.A. ).
During that period, Gulf Power was under no obligation to sell under the pre-
1996 regime if it thought it was not receiving an adequate return under the
regulated rates. Yet it still elected to lease space to cable operators at those
rates.
Equally unavailing is Gulf Power's contention that Alabama Power
erroneously employed the concept of nonrivalrous property in its takings
analysis. As noted above, settled law requires just compensation to be
measured by "the owner's pecuniary loss," Brown, 538 U.S. at 240, not by
the gain to the taker. It was entirely appropriate for the Alabama Power

23 Some of Gulf Power's contracts with the Cable Operators entitle it to a
pole attachment rate slightly higher than the Cable Rate. See n.11, supra.
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court, in calculating loss to the utility company associated with the cable
attachment, to consider that pole space is nonrivalrous, i.e., that the loss to the
owner may not equal the gain to the taker. Alabama Power, 311 F.3d at
1369. See Metro. Transp. Auth. v. ICC, 792 F.2d at 297. This analysis
properly took account of the undisputed fact that a cable attachment does not
necessarily preclude other uses of the pole space.

Gulf Power argues that utility pole space is rivalrous because "the loss
to the owner (use of pole space) is exactly the same as the gain to the taker
(use of the pole space)." Gulf Power Brief at 29. That argument misses the
mark. The physical property in takings cases is always the same; the question
is its value to the parties involved. Where pole space is nonrivalrous, the
cable attachment by definition does not result in a loss of value to the utility.
In that situation, the cable attachment does not prevent the utility from
placing its own attachments on the pole, accommodating other attachers, or
using that space in any other manner. The slight loss to the utility of
nonrivalrous pole space is not congruent with the high value of the pole space
to the cable operator, which uses the pole space to provide service to its
customers.
Finally, there is no merit to Gulf Power's claim that the Alabama
Power court erred in not basing compensation upon a market value analysis.
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Gulf Power Brief at 32-36. Although market value is ordinarily used as a
measure for just compensation, the Supreme Court has long held that there is
no "rigid rule for determining what is `just compensation' under all
circumstances." United States v. Commodities Trading Corp., 339 U.S. 121,
123 (1950). In some cases, "market value . . . may not be the best measure of
value." United States v. Cors, 337 U.S. 325, 332 (1949).
As Gulf Power acknowledges, the Supreme Court in Brown v. Legal
Foundation of Wash., 538 U.S. 216 -- a case that Gulf Power characterizes
as "strikingly similar" to this one -- "departed" from a fair market valuation.
Gulf Power Brief at 25, 56. In Brown, the Supreme Court considered the just
compensation for a governmental taking of interest earned on certain pooled
escrow accounts. The Court found the governmental confiscation of the
interest to be a "per se" physical taking and held that just compensation "is
measured by the property owner's loss rather than the government's gain."
538 U.S. at 235-36. Because the property holders' net losses were zero (i.e.,
the transaction costs associated with the property-holder obtaining the interest
exceeded the amount of interest earned), the Court held that the just
compensation due to the property holders under the Fifth Amendment also
was zero. Id. at 240.
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The interest in Brown, like the nonrivalrous utility pole space at issue
here, represents the unusual situation where the loss to the property owner
(zero) is not equivalent to the property taker's gain (the monetary value of the
interest taken). In that atypical circumstance, Brown (like Alabama Power)
recognizes that it is appropriate to use an alternative to fair market value (i.e.,
what a willing buyer would pay in cash to a willing seller) in measuring the
property owner's loss.
Moreover, courts look to fair market value as a measure of just
compensation only where fair market conditions exist. See United States Co.
v. Miller, 317 U.S. 369, 374 (1943) (fair market value "denotes what it fairly
may be believed that a purchaser in fair market conditions would have given"
for the property) (emphasis added) (internal quotations omitted). "Utility
poles constitute a bottleneck facility, for which utilities could otherwise
charge monopoly rents." Nat'l Cable, 534 U.S. at 341. The Supreme Court
has long recognized that just compensation does not include compensation
for the monopoly power that a particular owner may exert. Cors, 337 U.S. at
334 (government cannot be compelled to pay "hold up value" for property
taken); Miller, 317 U.S. at 375 ("special value to the condemnor . . . must be
excluded"); see also United States v. Chandler-Dunbar Water Power Co.,
229 U.S. 53, 79, 81 (1913). The Alabama Power court correctly declined to
49

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use a fair market valuation for attachment space on a nonrivalrous utility pole
for which there is no free market, particularly when monopoly power is
present. For these reasons, Gulf Power's claim that the Cable Operators pay
above the regulated rate for pole attachments in unregulated markets is
unavailing.

III.

THE COMMISSION PROPERLY CONSTRUED THE
ALABAMA POWER STANDARD.

Gulf Power contends that the Commission erroneously interpreted the
Alabama Power test in three ways: (1) by requiring Gulf Power to prove full
capacity with regard to each pole; (2) by interpreting full capacity as a pole
that could not accommodate a new attachment unless Gulf Power employed a
unique attachment technique or replaced the pole; and (3) by construing the
court's reference to another buyer "waiting in the wings" to refer to an actual
buyer, not a hypothetical buyer. Gulf Power Brief at 36-44. None of these
contentions has merit.

Per Pole Standard. The Alabama Power standard plainly states that
"before a power company can seek compensation above marginal cost, it
must show with regard to each pole that (1) the pole is at full capacity and
(2) either (a) another buyer of the space is waiting in the wings or (b) the
power company is able to put the space to a higher-valued use with its own
operations." 311 F.3d at 1370 (emphasis added). Gulf Power argues that the
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Commission misinterpreted this standard because it imposed a requirement
that Gulf Power "prov[e] full capacity with regard to each pole." Gulf Power
Brief at 37 (quoting Order at 25 (J.A. ) (quoting Alabama Power, 311 F.3d
at 1370). Gulf Power acknowledges that the Commission "accurately quotes"
the Alabama Power decision, but -- stringing together a few isolated
references the Eleventh Circuit made to pole networks -- contends that the
court really intended to permit a utility to make the requisite showing "on
either a pole-by-pole basis or along a network of poles." Id. at 37 (emphasis
omitted).

Gulf Power has not always construed Alabama Power in this fashion.
In its petition for reconsideration to the Bureau, Gulf Power recognized that
"the Eleventh Circuit's standard . . . imposes a per pole evidentiary burden
upon Gulf Power." Gulf Power Petition at i (J.A. ) (emphasis added). That
interpretation honors the text of the Eleventh Circuit's decision. Had the
court intended to permit a utility company to make the requisite showing on a
per network basis, it would not have stated that the utility must make that
showing "with regard to each pole." 311 F.3d at 1370. In any event, as Gulf
Power has failed to make the requisite showing either on a per pole or a per
network basis, its argument, even if it were accepted, would not alter the
result in this case.
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Full Capacity. The Commission properly determined that a pole is not
at "full capacity" "[w]hen a new attacher could be accommodated by
rearranging existing attachments or with conventional attachment techniques
to the same extent that the utility uses them." Order at 24 (J.A. ). As the
Commission reasonably explained, taking into account such routine
rearrangements and make-ready techniques is necessary to prevent utility
companies from avoiding their statutory obligation to provide cable
companies access to their poles by the inefficient placement of the
attachments. Order at 28 (J.A. ).

There is no merit to Gulf Power's claim that the Commission's
construction of "full capacity" is inconsistent with the Alabama Power and
the Southern Company decisions. Gulf Power Brief at 8-41. The Court in
Alabama Power was well aware that utilities routinely use make-ready
techniques to accommodate additional attachments, see 311 F.3d at 1368, and
its definition of full capacity reasonably reflects that understanding.
Moreover, as the Commission explained in its Order, the Commission's
determination is consistent with Southern Company. See Order at 26-27
(J.A. ). The rule invalidated by the Eleventh Circuit in that case required
utilities to expand capacity when the parties had agreed that capacity on a
given pole was insufficient. In affirming a different Commission rule,
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however, the court explicitly upheld the agency's interpretation of
"insufficient capacity" to denote "the actual absence of usable physical space
on a pole," id. at 26 (J.A. ) (quoting Southern Co., 293 F.3d at 1349)), and
the Commission's analysis of full capacity in its Order is consistent with that
judicially approved construction.

Gulf Power claims that the Commission in construing "full capacity"
engaged in the unlawful retroactive application of a rule because it relied
upon the statutory definition of "insufficient capacity" set forth in the
Broadband Rulemaking Order. See Gulf Power Brief at 40-41. That
argument is unavailing. First, section 405 of the Communications Act bars
Gulf Power from presenting issues of law or fact on which the Commission
"has been afforded no opportunity to pass." 47 U.S.C. 405. See, e.g.,
Globalstar, Inc. v. FCC, 564 F.3d 476, 483-84 (D.C. Cir. 2009). Because
Gulf Power did not present its argument to the Commission in a
reconsideration petition or otherwise, section 405 bars the company from
raising it for the first time on judicial review.

In any event, the argument is without merit. The Commission in this
case applied the Alabama Power standard in resolving Gulf Power's
constitutional claim. In doing so, the Commission reasonably determined
that lack of "full capacity" under Alabama Power has the same meaning as
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"insufficient capacity" under section 224(f), as that statutory phrase is defined
in the Broadband Rulemaking Order. That application does not constitute
retroactive rulemaking.

Buyer Waiting in the Wings. The Commission properly construed
Alabama Power's reference to "another buyer of the space . . . waiting in the
wings" to connote "an actual buyer, not a hypothetical buyer." Order at 35
& n.122 (J.A. ). The Alabama Power court reasoned that "[w]hen a pole is
full and another entity wants to attach, the government taking forecloses an
opportunity to sell space to another bidding firm -- a missed opportunity that
does not exist in the nonrivalrous scenario." 311 F.3d at 1370. Unless the
utility shows an actual attacher that the utility company cannot accommodate
(or the deprivation of a higher valued use in its own operations), the court
explained that there is no missed opportunity that would justify a pole
attachment rate greater than the Cable Rate. Id. at 1370. The existence of a
hypothetical buyer simply does not show a "`lost opportunity' foreclosed by
the government." Alabama Power, 311 F.3d at 1371. See Order at n.122
(J.A. ).

Gulf Power argues that the court in Alabama Power "contemplated
that a hypothetical buyer would suffice" because it described fair market
value as what a willing buyer would pay in cash to a willing seller. Gulf
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Power Brief at 43. The court made clear, however, that it was using "an
alternative to fair market value," and the requirement that the utility company
show the existence of a buyer "waiting in the wings" or a higher-valued use
was to prove a "lost opportunity," not to measure fair market value. Alabama
Power, 311 F.3d at 1368, 1370, 1371. There is a difference between using
hypothetical buyers in computing fair market value once a loss is established,
and using hypothetical buyers to show the fact of a loss. Where, as here, there
is no evidence of an actual buyer waiting in the wings who cannot be
accommodated, the utility has not substantiated a loss, and thus there is no
need to determine how to measure it. In short, Gulf Power misunderstands --
and incorrectly applies -- the Alabama Power standard.

IV.

THE COMMISSION'S FINDINGS ARE SUPPORTED BY
SUBSTANTIAL EVIDENCE.

Gulf Power argues that the Order should be reversed because it
allegedly had submitted substantial evidence in the administrative proceeding
that its poles were at full capacity and that it could put the pole space to a
higher valued use in its own operations. Gulf Power Brief at 44-53. As
shown in this section, the Commission reasonably concluded that Gulf
Power's evidence was insufficient to satisfy its burden of proof as to those
issues. In any event, Gulf Power is wrong in claiming that its alleged
submission of "substantial evidence" to support its position shows that the
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Commission erred. Where, as here, there is conflicting record evidence, "a
conclusion may be supported by substantial evidence even though a plausible
alternative interpretation of the evidence would support a contrary view."
E.g., Dickson v. Nat'l Trans. Safety Bd., 639 F.3d 539, 542 (D.C. Cir. 2011)
(quoting Chritton v. NTSB, 888 F.2d 854, 856 (D.C. Cir. 1989)). The Court
thus "`will reverse for lack of substantial evidence only when the record is so
compelling that no reasonable factfinder could fail to find to the contrary.'"
Highlands Hosp. Corp. v. NLRB, 508 F.3d 28, 31 (D.C. Cir. 2007) (quotation
omitted).
In any event, substantial evidence supports the Commission's
conclusion that Gulf Power failed to meet its burden of proof under the
Alabama Power test. The Commission reasonably found that Gulf Power had
not shown that its poles were rivalrous simply by presenting evidence of
standard pole heights and space allocations. Notwithstanding those height
and space limitations, the record showed that Gulf Power, through
rearrangements and standard make-ready techniques, can and routinely does
accommodate multiple attachments on its utility poles. Order at n.104 & 29
(J.A. ). Indeed, the Commission found that Gulf Power "failed to identify a
single instance when it was unable to accommodate a new attacher because of
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existing cable attachments." Id. at n.104 (J.A. ). Gulf Power does not
dispute that finding.

The Commission also reasonably rejected Gulf Power's attempt to
satisfy its burden of proof by relying on the Osmose pole study and the
exemplar poles evidence. Gulf Power's claim that this evidence showed its
poles were full was based upon the incorrect assumption that poles are at full
capacity if any make-ready work is needed to accommodate a new
attachment, no matter how routine or insignificant. As the Commission
pointed out, Gulf Power failed to satisfy its burden "to identify poles that
could not accommodate a new attachment unless Gulf Power employed a
unique attachment technique or the pole was changed out." Id. at 25 (J.A.
). But even if Gulf Power had shown that its poles were at full capacity, it
"would not be entitled to compensation above the regulated rate for the
independent reason that it also failed to show that other attachers were
`waiting in the wings' or that it could have put attachment space to a higher-
valued use within its own operations." Id. at n.102 (J.A. ).
Gulf Power argues the Commission erred in finding that the utility
company had failed to show specific utility poles were at full capacity
because Gulf Power's hearing Exhibit 86 allegedly shows that a Cable
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 68 of 82
24
Operator representative "admitted" that three utility poles were "full." That
argument is unavailing for several reasons. First, neither Gulf Power nor the
Cable Operators argued below that the three poles were at full capacity, and
thus section 405 bars Gulf Power from raising this argument on review. 47
25
U.S.C. 405.
Second, Exhibit 86 itself is internally inconsistent and contradictory on
the subject of whether the three poles were at full capacity. Although a list in
the exhibit classifies the three poles as "full," the email attached to that list
questions "whether it's truly accurate to call 3 of the poles `full.'" GP-Exh.
86 (J.A. ). Moreover, the only witness addressing Exhibit 86 in the hearing
testified that he did not agree that the three poles were at full capacity. Tr. at
1714 (Testimony of Michael Harrelson) (J.A. ).

24 Exhibit 86 consists of (1) a list and brief description of specific poles
classified by category, e.g., "poles that are full", and (2) an email attaching
that list.
25 Gulf Power's submission of Exhibit 86 at the hearing did not give the
Commission a fair opportunity to consider the claim that the three poles were
at full capacity. Exhibit 86 was submitted to the ALJ, not to the Commission,
and "[i]t is `the Commission' itself that must be afforded the opportunity to
pass on the issue." Bartholdi Cable Co. v. FCC, 114 F.3d 274, 279 (D.C. Cir.
1997). In any event, "the Commission `need not sift pleadings and
documents to identify' arguments that are not `stated with clarity' by a
petitioner," id. -- or indeed arguments that are not advanced at all. Gulf
Power was "responsib[le] for flagging the relevant issues which its
documentary submissions presented" to the Commission, id. at 280, and it did
not do so with respect to Exhibit 86.
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Third, even if the three poles were at full capacity, Gulf Power would
not be entitled to compensation above the regulated rate because it had not
shown either that another attacher was "waiting in the wings" or that it was
deprived of the opportunity to put the space to a higher-valued use in its own
operations. See Order at n.102 (J.A. ).
Gulf Power's claim that it presented substantial evidence that it would
be able to put the pole space to a higher-valued use in its own operations is
equally unavailing. See Gulf Power Brief at 51-53. The company did not
raise this argument before the Commission, and thus it is barred by section
405 from raising it before this Court. 47 U.S.C. 405. The fact that Gulf
Power presented testimony on this subject in the hearing before the ALJ is
insufficient to preserve the issue for judicial review. Bartholdi Cable, 114
F.3d 274, 279.
In any event, there is no record evidence that Gulf Power was deprived
of a lost opportunity because it was unable to use its pole space for a higher-
valued use in its own operations. Although Gulf Power argues that
transformers and street lights are higher-valued uses, it does not claim that
any cable attachment precludes those uses. To the contrary, citing its own
witness's testimony, Gulf Power acknowledges that it could accommodate
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 70 of 82
such uses with "some type of make-ready." See Gulf Power Brief at 52
(quoting GP-B at 38-39).
Finally, Gulf Power claims that the right to exclude the Cable
Operators is a higher-valued use that warrants compensation above the
regulated rate. Gulf Power Brief at 51-52. That argument is without merit as
it challenges the alleged taking itself, not the just compensation for that
alleged taking. "`The Fifth Amendment does not proscribe the taking of
property; it proscribes taking without just compensation.'" Brown, 538 U.S.
at 235 (quoting Williamson Cnty Reg'l Planning Comm'n v. Hamilton Bank
of Johnson City, 473 U.S. 172, 194 (1985)).
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 71 of 82

CONCLUSION

The Court should deny the petition for review and affirm the
Commission's Order.
Respectfully
submitted,
SHARIS A. POZEN
AUSTIN C. SCHLICK
ACTING ASSISTANT ATTORNEY
GENERAL COUNSEL
GENERAL


PETER KARANJIA
ROBERT B. NICHOLSON
DEPUTY GENERAL COUNSEL
ROBERT J. WIGGERS

ATTORNEYS
RICHARD K. WELCH

DEPUTY ASSOCIATE GENERAL
UNITED STATES
COUNSEL
DEPARTMENT OF JUSTICE

WASHINGTON, D.C. 20530
/s/ Laurel R. Bergold


LAUREL R. BERGOLD
COUNSEL

FEDERAL COMMUNICATIONS
COMMISSION
WASHINGTON, D.C. 20554
(202) 418-1740
October 27, 2011
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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 72 of 82
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT


GULF POWER CO.,
PETITIONER,
v.
NO. 11-1215
F

EDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS.



CERTIFICATE OF COMPLIANCE

Pursuant to the requirements of Fed. R. App. P. 32(a)(7), I hereby
certify that the accompanying "Brief for Respondents" in the captioned case
contains 13,435 words.

/s/ Laurel R. Bergold
Laurel R. Bergold

Counsel
Federal Communications Commission
Washington, D.C. 20554
(202) 418-1740 (Telephone)
(202) 418-2819 (Fax)
October 27, 2011



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USCA Case #11-1215 Document #1338425 Filed: 10/27/2011 Page 82 of 82
11-1215

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Gulf Power Company, Petitioners

v.

Federal Communications Commission and The United States of
America, Respondents.

CERTIFICATE OF SERVICE

I, Laurel R. Bergold, hereby certify that on October 27, 2011, I
electronically filed the foregoing Brief for Respondents with the Clerk of the
Court for the United States Court of Appeals for the D.C. Circuit by using
the CM/ECF system. Participants in the case who are registered CM/ECF
users will be served by the CM/ECF system.
Some of the participants in the case, denoted with asterisks below, are not
CM/ECF users. I certify further that I have directed that copies of the
foregoing document be mailed by First-Class Mail to those persons, unless
another attorney at the same mailing address is receiving electronic service.
Eric B. Langley
Robert J. Wiggers
Allen M. Estes
Robert B. Nicholson
J. Russell Campbell
U.S. Department of Justice
Balch & Bingham LLP
Antitrust Division Appellate
1901 Sixth Avenue North
Section, Room 3224
Suite 1500
950 Pennsylvania Avenue, N.W.
Birmingham, Alabama 35203
Washington, D.C. 20530
Counsel for: Gulf Power Company
Counsel for: USA
John D. Seiver
*Ralph A. Peterson
Christopher A. Fedeli
Beggs & Lane
Davis Wright Tremaine LLP
501 Commendencia Street
1919 Pennsylvania Avenue, N.W.
Pensacola, FL 32502-5953
Suite 800
Counsel for: Gulf Power Company
Washington, D.C. 20006
Counsel for: Florida Cable
Telecommunications Association, In.,
Comcast Cablevision of Panama
City, Inc., et al.

/s/ Laurel R. Bergold

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