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The Role of Antitrust and Pole-Attachment Oversight in TVA Broadband Deployment

ICLE Issue Brief I.       Introduction As part of the Infrastructure Investment and Jobs Act (IIJA), signed by President Joe Biden in November 2021, Congress provided $42.5 billion for . . .

I.       Introduction

As part of the Infrastructure Investment and Jobs Act (IIJA), signed by President Joe Biden in November 2021, Congress provided $42.5 billion for broadband deployment, mapping, and adoption projects through the Broadband Equity, Access, and Deployment (BEAD) program, with the stated goal of directing the funds to close the so-called “digital divide.”[1] But actions by pole owners—such as refusing to allow broadband companies to attach their lines on reasonable and nondiscriminatory terms—threaten to slow broadband deployment significantly.

In a recent letter to Assistant Attorney General Jonathan Kanter, Sen. Mike Lee (R-Utah) put forth the argument that the U.S. Justice Department (DOJ) should take action to address abuses of the pole-attachment process by local power companies (LPCs) regulated by the Tennessee Valley Authority (TVA).[2] His concern is that such abuses threaten to slow broadband deployment, especially to rural areas served by the TVA and the LPCs.[3] Among the abuses he details are:

  • Delaying or refusing to negotiate pole-attachment agreements with competitive broadband-service providers, including when the TVA LPC provides broadband service (itself or through a joint venture agreement) or is interested in doing so;
  • Initially refusing to negotiate pole-attachment agreements that would enable competitive broadband-service providers to obtain permits in sufficient time to meet federal grant deadlines;
  • Refusing to review pole-attachment applications on a scale or at the pace necessary to complete broadband projects in a timeframe required by federal grant programs;
  • Refusing to follow the standard industry practice of approving a contractor to process pole-access applications in a timely manner when the utility’s staff is insufficient to do the work, even when the broadband-service provider is willing to pay the entire bill for the contractor; and
  • Refusing to process pole-attachment applications at all, and failing to respond to provider outreach regarding the processing of applications for months on end.[4]

Section 224 of the Communications Act exempts municipal and electric-cooperative (“coop”) pole owners, such as the LPCs, from oversight by the Federal Communications Commission (FCC).[5] At the same time, the TVA’s authority over pole attachments is not subject to oversight by state governments.[6] This loophole means that it is the TVA, not the FCC, that sets the rates for pole attachments. The TVA’s rates are significantly higher than those of the FCC, [7] and the TVA’s LPCs often are able to avoid the access requirements that states and the FCC typically require.[8]

But avoiding state and FCC regulatory oversight is not the only loophole that the TVA and its LPCs can exploit: the TVA and the government-owned LPCs also may not be subject to antitrust law. These entities hold a resource critical for broadband deployment, while it is essentially impossible for private providers to build competing pole infrastructure. In situations like this, government entities that participate as firms in the marketplace—known in the literature as “state-owned enterprises” (SOEs)—should be subject to antitrust law in order to ensure access by private competitors.

Sen. Lee is correct that the DOJ should examine the practices of the TVA and its LPCs under antitrust law. Antitrust clearly applies to those LPCs that are private coops, which have no immunities. But Congress should clarify that the TVA and government-owned LPCs are likewise subject to antitrust law when they act according to their “commercial functions” or as “market participants.” They should also consider bringing the TVA and all of its LPCs under the purview of the FCC’s Section 224 authority over pole attachments.

II.     The Law & Economics of State-Owned LPCs and Rural Electrical Cooperatives (RECs)

A.    The Competition Economics of State-Owned Enterprises

SOEs’ incentives differ from those of privately owned businesses. Most notably, while a private business must pass the profit-and-loss test, SOEs often are not subject to the same constraints. This difference may manifest through setting up legal SOE monopolies against which no other firm can compete; exempting SOEs from otherwise generally applicable laws; extending explicit subsidies to SOEs, whether in the form of taxpayer-financed appropriations or government-backed bonds (which the government explicitly or implicitly promises to repay, if necessary); or cross-subsidies from other government-owned monopoly businesses.

As a result, SOEs do not need to maximize profits (with Armen Alchian’s caveat that private market participants may be modeled as profit maximizers even if that isn’t their true motivation[9]) and can pursue other goals. In fact, this is exactly why some supporters of SOEs like them so much: they can pursue the so-called “public interest” by providing ostensibly high-quality products and services at what are often below-market prices.[10]

But this freedom comes at a cost: not only can SOEs inefficiently allocate societal resources away from their highest-valued uses, but they may actually have greater incentive to abuse their positions in the marketplace than private entities. As David E.M. Sappington and J. Gregory Sidak put it:

[W]hen an SOE values an expanded scale of operation in addition to profit, it will be less concerned than its private, profit-maximizing counterpart with the extra costs associated with increased output. Consequently, even though an SOE may value the profit that its anticompetitive activities can generate less highly than does a private profit-maximizing firm, the SOE may still find it optimal to pursue aggressively anticompetitive activities that expand its own output and revenue. To illustrate, the SOE might set the price it charges for a product below its marginal cost of production, particularly if the product is one for which demand increases substantially as price declines. If prohibitions on below-cost pricing are in effect, an SOE may have a strong incentive to understate its marginal cost of production or to over-invest in fixed operating costs so as to reduce variable operating costs. A public enterprise may also often have stronger incentives than a private, profit-maximizing firm to raise its rivals’ cost and to undertake activities designed to exclude competitors from the market because these activities can expand the scale and scope of the SOE’s operations.[11]

Here, entities like the TVA and many of the government-owned LPCs that sell the electricity it produces are simply not subject to the same profit-and-loss test that a private power company would be. But even more importantly for the discussion of broadband buildout, many of these government-owned LPCs also provide broadband services (or intend to), effectively using their position as a monopoly provider of electricity to cross-subsidize their entry into the broadband marketplace. Moreover, LPCs often own the electric poles and control decisions about whether and at what rates to rent them to third parties (subject to TVA rate regulations), including to private broadband providers that may compete with the LPCs’ municipal-broadband offerings.

This raises two significant issues for competition policy:

  • Because government-owned municipal-broadband providers focus on speed and price, rather than profitability, they can sometimes offer greater speeds at lower prices than private providers, deterring private buildout and competition using what, in other contexts, would be referred to as “predatory pricing” (e., the government can use its unique monopoly advantages to indefinitely set prices too low)[12]; and
  • LPCs that offer municipal-broadband services can raise rivals’ costs by refusing to deal with private broadband providers that want to attach equipment to their poles (an “essential facility” or “critical input”) or by offering access only on unreasonable and discriminatory terms.

In Verizon Communication Inc. v. Law Offices of Curtis V. Trinko LLP,[13] the U.S. Supreme Court explained the reasoning behind a very limited duty to deal under antitrust law:

Compelling… firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.[14]

In sum, a private market participant is constantly looking to acquire monopoly power by innovating and better serving customers, and temporary monopolies—acquired through a legitimate competitive process—are not unlawful. If successful, this process provides incentive for more innovation and competition, including incentives for competitors to build their own infrastructure.

But this is not so when it comes to SOEs, which can prevent competition in a way that private market participants cannot, due to their special access to legal mechanisms like eminent domain, taxes, below-market-rate loans, government grants of indefinite monopolies, and cross-subsidies from their own monopolies in adjacent markets. As a result, SOEs possess both special ability and incentive to raise rivals’ costs through refusals to deal or predatory pricing.

Ironically, the lack of a profit motive may make SOEs uniquely positioned to harm competition. Thus, it may make sense to impose on SOEs a duty to deal on reasonable and nondiscriminatory terms when it comes to pole attachments.

B.     The Economics of Co-Ops[15]

According to the National Rural Electric Cooperative Association, the trade association for rural electricity co-ops (RECs):

  • Co-ops serve 56% of the U.S. landmass and 88% of the nation’s counties, including 93% of the 353 persistent poverty counties.
  • They account for roughly 13% of all electricity sold in the United States.
  • More than 90% of electric co-ops serve territories where the average household income is below the national average. One in six co-op consumer-members live at or below the poverty line.
  • Cooperatives serve an average of eight consumer-members per-mile of electric line, but this average masks the extremely low-density population of many co-ops. If the handful of large co-ops near cities were removed, the average would be lower.
  • More than 100 electric cooperatives provide broadband service and more than 200 co-ops are exploring the option and conducting feasibility studies to do so.[16]

There are some important differences between electric co-ops and investor-owned power companies. Most importantly, co-ops are owned by their consumers. Economics helps explain why this form of organization could be pro-competitive in some situations, but the history of RECs suggests that government support and corporate rules particular to co-ops are the main reasons that we continue to rely on co-ops to distribute electricity in rural areas of the United States. As a result, RECs—especially those that distribute electricity generated and transmitted by the TVA—have incentives more like those of state-owned enterprises (SEOs) than private firms.

In other words, RECs also have the incentive and ability to act anticompetitively—e.g., by refusing to deal with private broadband providers who wish to attach to the poles they own.

1.       Why Do We Have So Many RECs?

The classic law & economics examination of firms’ choice of business organization comes from Henry Hansmann, in his book The Ownership of Enterprise.[17] He explained that the choice of ownership for any firm is driven by costs. The form that is chosen by a particular firm is that which “minimizes the total costs of transactions between the firm and all of its patrons.”[18] These costs include both transaction costs with those patrons who are not owners, and the costs of ownership, such as monitoring and controlling the firm.

Hansmann argued that the form of consumer-owned co-ops predominates in the distribution of electricity in rural areas because it is a response to the threat of natural monopoly, where high barriers to entry and startup costs suggest that one firm is likely to dominate.[19] This is particularly true in geographic areas with low population density, because the costs of building out infrastructure is extremely high per individual consumer. As such, consumers would likely be subject “to serious price exploitation if they were to rely on market contracting with an investor-owned firm.”[20] Thus, the choice is among rate regulation of an investor-owned utility, municipal ownership, or consumer ownership through a co-op.

Hansmann argued that consumer co-ops best align “the firm’s interests with those of its consumers” because they have lower overall costs than other forms of ownership in rural areas.[21] This is because electricity is a “highly homogeneous [commodity] with few important quality variables that affect different users differently.”[22] Moreover, relatively stable farm and nonfarm residential households account for the overwhelming majority of the membership and demand for electricity in rural areas, “creating a dominant group of patrons with relatively homogenous interests.”[23]

As a result, the costs of monitoring and controlling these natural monopolies are relatively lower for the consumers as owners than they would be as citizens overseeing a public utility commission in charge of regulating an investor-owned utility, or a board in charge of a municipally owned utility.

On the other hand, the history of RECs suggests that their formation and persistence may be more due to government intervention than as a market response to consumer demand. As Hansmann himself recognized, RECs received significant public subsidies in the form of below-market loans from the Rural Electrification Administration (REA), though he argues that these loans were not significant subsidies for the first 15 years); exemption from federal corporate income tax; and preferential access to power generated by the TVA.[24] On top of that, the REA essentially organized many co-ops in their early days.[25]

Nonetheless, Hansmann argues:

These subsidies have undoubtedly been important in encouraging the formation and growth of cooperative utilities, and therefore the great proliferation of rural electric cooperatives does not provide an unbiased test of the viability of the cooperative form. Evidently, however, the federal subsidies have not been critical to the success of cooperatives in the electric power industry. Even before the federal programs were enacted, there already existed forty-six rural electric cooperatives operating in thirteen different states. Also, as already noted, there was no net interest subsidy to the cooperatives for the first fifteen years of the REA. And in its early years, the REA also offered low-interest loans to investor-owned utilities that wished to extend service into rural areas, but found little interest in these loans among the latter firms.[26]

In an excellent 2018 law-review article, however, Debra C. Jeter, Randall S. Thomas, & Harwell Wells systematically detail the great lengths to which the REA went to organize co-ops in rural areas.[27] The authors convincingly argue that the co-op model was not adopted as a market response, but primarily due to the REA’s organizational efforts and the subsidies bestowed upon them.

Even if RECs were a market response to natural monopoly in rural areas at the time of their adoption, that does not mean that they would necessarily continue to be the most economically efficient model. At a given point of time, economies of scale and high costs of entry may mean that the market can only support one firm (i.e., natural monopoly). But over the last 80-90 years, underlying conditions that may have made co-ops the most efficient model may have changed. As we argued in a 2021 white paper:

[I]n any given market at a given time, there is likely some optimal number of firms that maximizes social welfare. That optimal number—which is sometimes just one and is never the maximum possible—is subject to change, as technological shocks affect the dominant paradigms controlling the market. The optimal number of firms also varies with the strength of scale economies, such that consumers may benefit from an increase in concentration if economies of scale are strong enough… And it is important to remember that the market process itself is not static. When factors change—whether a change in demographics or population density, or other exogenous shocks that change the cost of deployment—there will be corresponding changes in available profit opportunities. Thus, while there is a hypothetical equilibrium for each market—the point at which the entry of a new competitor could reduce consumer welfare—it is best to leave entry determinations to the market process.[28]

In fact, as Jeter, Thomas, & Wells go on to argue, rules particular to the co-op model make it nearly impossible to change the form of ownership through merger or acquisition.[29] These rules—adopted as part of the model acts promoted by the REA—prevent what the great Henry Manne called “the market for corporate control” that would otherwise discipline co-op managers.[30]

As has been noted by even the strongest supporters of the co-op model[31]—and seemingly undermining Hansmann’s assessment that consumer-ownership is the most effective form of organization for these entities—RECs suffer from a lack of oversight by consumer-owners, with very few ever showing up to even vote for their board of directors:

[32]

This lack of oversight from the ownership means that the board of directors can engage in all kinds of abuses, as detailed extensively by Jeter, Thomas, & Wells.[33]

Without sufficient incentives for oversight by consumer-owners or a functioning market for corporate control, there is no basis to conclude that RECs remain the best business model for distributing electricity. Their ubiquity is more due to the REA’s organizational efforts and ongoing government benefits—in the form of subsidies, tax exemptions, and preferences from the TVA—than market demand.

2.       The Competition Economics of RECs and Pole Attachments

Due to the privileged position enjoyed by RECs, particularly those that distribute electricity from the TVA, they have a unique ability and incentive to act anticompetitively toward broadband providers that want to attach to the poles they own.

Much like municipally owned electricity distributors, RECs are not motivated solely by profit maximization. RECs also have similar advantages, like access to eminent domain, below-market loans, tax exemptions, and the ability to cross-subsidize entry into a new market (like broadband) from its dominant position in electricity distribution.

On the other hand, unlike municipally owned electricity distributors, RECs can go out of business, and thus must earn sufficient revenues to remain a going concern. This means that the incentives for RECs to act anticompetitively are at least as strong as those of investor-owned firms, and may be even as strong as those of state-owned enterprises. This is especially notable, when so many RECs either have entered or are planning to enter the broadband market.

In such cases, there are strong incentives for RECs to refuse to deal with private broadband providers that are trying to deploy in—and introduce competition to—their rural areas, as Sen. Lee’s (R-Utah) recent letter to the U.S. Justice Department suggests, many of these co-ops have done exactly that.[34]

The economic logic that drives a limited duty to deal under antitrust law is that enforced sharing rarely makes sense because it reduces the incentives to build infrastructure. [35] But creating new rural infrastructure (like poles) is cost-prohibitive—at least, without the same subsidies, eminent-domain power, and other advantages that RECs have historically enjoyed. Thus, RECs may rightfully have a duty to deal with broadband providers on a reasonable and nondiscriminatory basis.

Moreover, many RECs receive little oversight from rate regulators when it comes to pole attachments. And when they do, like those RECs that distribute electricity from the TVA, the formula allows for much higher rates than the FCC would allow.[36] As a result, pole costs are much higher for broadband companies dealing with poles owned by co-ops and municipalities that are not subject to the FCC’s authority (see Figure II).[37]

III.   The Complicated Nature of Antitrust Immunities

There is, however, a complication. In his letter to the DOJ, Sen. Lee rightly complains that:

TVA’s regulatory practices enable such behavior: there is no reason why TVA’s regulation of the pole rental rates charged by its LPCs requires TVA to somehow exempt those LPCs from generally-applicable rules that protect competition by requiring pole owners to provide pole access to third parties on reasonable terms. TVA should be using its authority over LPC distribution contracts to require LPCs to offer reasonable, non-discriminatory, and prompt pole access to third-party broadband providers (particularly recipients of taxpayer-funded broadband grants) in unserved areas, rather than giving its LPCs a free pass from those requirements.[38]

Unfortunately, while Lee’s letter is addressed to the DOJ’s antitrust chief, it isn’t clear whether antitrust laws even apply to the behavior he observes. This is primarily because of two legal doctrines: federal sovereign immunity from lawsuit and state-action immunity from antitrust.

A.    Federal Sovereign Immunity and the TVA

Normally, the federal government is immune from lawsuit under the ancient (and deeply flawed[39]) doctrine of sovereign immunity, except where explicitly waived by statute. The TVA is a wholly owned corporate agency and instrumentality of the federal government. Thus, federal courts have typically found that the TVA and other federal entities operating in the marketplace are exempt from antitrust.[40] This is despite the fact that the TVA’s enabling statute states:

Except as otherwise specifically provided in this chapter, the Corporation… may sue and be sued in its corporate name.[41]

There is, needless to say, nothing in the chapter that actually says the agency can’t be sued for antitrust violations. The older cases finding the TVA to be exempt from antitrust are likely to be found wrongly decided under the logic of the U.S. Supreme Court’s most recent case dealing with TVA’s immunity from suit. In 2019, the Court took up Thacker v. TVA,[42] which asked whether the TVA was immune from lawsuits for negligence. The Court rejected the lower court’s reasoning that the TVA was immune for torts arising from its “discretionary functions,” substituting a new test as to whether the TVA was acting pursuant to its governmental function or a commercial function. As the Court stated:

Under the clause—and consistent with our precedents construing similar ones—the TVA is subject to suits challenging any of its commercial activities. The law thus places the TVA in the same position as a private corporation supplying electricity. But the TVA might have immunity from suits contesting one of its governmental activities, of a kind not typically carried out by private parties.[43]

The Court also gave examples to help distinguish the two:

When the TVA exercises the power of eminent domain, taking landowners’ property for public purposes, no one would confuse it for a private company. So too when the TVA exercises its law enforcement powers to arrest individuals. But in other operations—and over the years, a growing number—the TVA acts like any other company producing and supplying electric power. It is an accident of history, not a difference in function, that explains why most Tennesseans get their electricity from a public enterprise and most Virginians get theirs from a private one. Whatever their ownership structures, the two companies do basically the same things to deliver power to customers.[44]

The test to be applied, therefore, is “whether the conduct alleged to be negligent is governmental or commercial in nature… if the conduct is commercial—the kind of thing any power company might do—the TVA cannot invoke sovereign immunity.”[45] Here, that arguably means that, when the TVA is acting pursuant to its commercial function, it should not receive immunity from antitrust suit.

On the other hand, Congress gave the TVA broad ratemaking authority and contractual powers. One federal court (previous to Thacker) rejected an antitrust challenge to the TVA’s ratemaking formula because it was a “valid governmental action and [therefore] exempt from the antitrust laws of the United States.”[46]

As noted above, some LPCs have entered into the municipal-broadband market and act as competitors to private broadband companies who want to attach to poles owned by LPCs. Thus, even though competition economics would suggest that LPCs would have a greater incentive to raise rivals’ costs by charging a monopoly price, the TVA would likely argue that it is acting in its government function when it sets those rates.[47] If courts agree, then antitrust law would not be able to reach that problem.

Consistent with the Court’s reasoning in Thacker, however, courts could find that antitrust law reaches agreements between wholesalers (like the TVA) and retailers (like the LPCs) to charge certain rates for pole attachments to competitors in an adjacent market. This would arguably be an example of the TVA acting as any other power generator would, pursuant to its commercial function, through some type of price-maintenance agreement. As it stands, it isn’t clear which way the courts would go.

Congress should strongly consider clarifying that the TVA is not exempt from antitrust scrutiny when it acts pursuant to a commercial function, including when it sets anticompetitive rates for pole attachments that would slow broadband buildout. This clearly affects the market for access to LPC-owned utility poles.

B.     State Action Immunity and the LPCs

Even if the commercial versus government distinction is clarified with respect to the TVA, there is a further wrinkle as it relates to antitrust scrutiny of LPCs. This concerns how the TVA’s actions interact with state-action immunity in antitrust law.

Grounded in the 10th Amendment, the Supreme Court has found there is immunity from antitrust laws for conduct that is the result of “state action.”[48] This doctrine has been interpreted to immunize anticompetitive conduct pursuant to state and local government action from antitrust claims, so long as “the State has articulated a clear … policy to allow the anticompetitive conduct, and second, the State provides active supervision of [the] anticompetitive conduct.”[49] When it comes to municipalities, however, the Court has found that “[o]nce it is clear that state authorization exists, there is no need to require the State to supervise actively the municipality’s execution of what is a properly delegated function.”[50]

The Supreme Court has also left open the possibility of an exception to state-action immunity when government entities themselves are acting as market participants.[51] In one case dealing with a local municipally owned power plant in Louisiana, the Supreme Court did not grant broad immunity from antitrust laws, in part because:

Every business enterprise, public or private, operates its business in furtherance of its own goals. In the case of a municipally owned utility, that goal is likely to be, broadly speaking, the benefit of its citizens. But the economic choices made by public corporations in the conduct of their business affairs, designed as they are to assure maximum benefits for the community constituency, are not inherently more likely to comport with the broader interest of national economic well-being than are those of private corporations acting in furtherance of the interests of the organization and its shareholders.[52]

While there are a few cases applying this distinction in lower federal courts,[53] there is no Supreme Court caselaw determining how to differentiate when, for the purposes of state-action immunity, municipal corporations act as market participants versus when they act as government entities. Jarod Bona and Luke Wake have proposed applying a test similar to the one the courts use in dormant Commerce Clause cases.[54] The distinction made by the Supreme Court in Thacker and discussed above may also be applicable.

Government-owned LPCs are creatures of states or municipalities. As such, they would certainly argue they are immune from antitrust scrutiny, even when they refuse to deal with private broadband providers with whom they compete while withholding a critical input (i.e., the ability to attach to their poles). But there are two problems with this argument.

First, it seems unlikely that the LPCs could argue that they are acting pursuant to a clearly articulated policy of displacing competition when they refuse to deal with broadband providers. As Sen. Lee pointed out in his letter, there are state laws that would impose a duty to deal on reasonable and nondiscriminatory terms, but for any exemptions to that authority due to the TVA.[55] For instance, North Carolina and Kentucky require all pole owners not subject to FCC Section 224 authority to offer nondiscriminatory pole access.[56]

On the other hand, they could appeal to the TVA’s contract authority,[57] in addition to the TVA’s stated policy that its purpose is “to provide for the … industrial development” of the Tennessee Valley.[58] But even if this grants the TVA authority to regulate rates for pole attachments, it doesn’t mean the TVA has enunciated an articulable policy of displacing competition in refusing to deal with broadband providers. It also would appear to be contrary to the purpose of promoting industrial development to forestall broadband deployment in the Tennessee Valley because LPCs that also have municipal-broadband systems don’t want that competition. In other words, their refusal to deal is not protected by an appeal to any articulable policy to displace competition, either by a state or the TVA.

Second, under the caselaw that does exist, government-owned LPCs are market participants that should not receive antitrust immunity. For instance, in one case, a private arena owner challenged under antitrust law an exclusive contract between a municipal-arena owner and LiveNation.[59] The court held that state-action immunity was “less justified” because the municipality’s “entertainment contracts” reflected “commercial market activity,” not “regulatory activity.”[60] Here, the LPCs’ actions as both power companies and municipal-broadband providers reflect commercial-market activity more than regulatory activity. They shouldn’t be able to claim immunity from antitrust for this refusal to deal, any more than a private broadband provider could.

In sum, the LPCs’ anticompetitive refusal to deal appears to be separate from the rates set by the TVA pursuant to its ratemaking authority or contractual powers. They should be subject to antitrust law. But due to uncertainty in this area, Congress should clarify that LPCs are not immune from antitrust scrutiny, and consider codifying the market-participant exception to state-action immunity in antitrust statutes.

IV.   Section 224 of the FCC Act

In his letter, Sen. Lee noted that, under Section 224 of the Communications Act, “Congress determined that poles and conduits are essential facilities that lack a viable market-based alternative, which led it to require utilities to extend nondiscriminatory access to utility poles to cable operators and competitive telecommunications providers.”[61] While acknowledging that TVA distributors are not subject to Section 224, Lee argued that “the congressional conclusion that poles are essential facilities that lack a viable market-based alternative holds for all poles.”[62] Lee further noted that the “TVA’s regulation of its LPCs’ pole attachment rates also impedes competition by setting rates well above the rates set by the FCC and deemed compensatory by the U.S. Supreme Court, inflating the cost for competitive broadband providers unaffiliated with TVA LPCs to offer service.”[63]

Theoretically, government-owned LPCs and cooperative LPCs are subject to some oversight when they run services like municipal broadband, either from voters or member-owners. But it is implausible that such oversight can be truly effective, given that these pole owners are not subject to normal market incentives and have their own conflicts of interest that encourage hold-up problems. Combined with their ability to cross-subsidize operations in broadband from their electricity customers, it should be clear that these entities pose a host of potential public-choice problems.[64]

Indeed, as FCC Commissioner Brendan Carr has noted:

I continue to hear concerns from broadband builders about unnecessary delays and costs when they seek to attach to poles that are owned by municipal and cooperative utilities. Unlike what we are doing in today’s item, there is a strong argument that Section 224 does not give us authority to address issues specific to those types of poles. Therefore, I encourage states and Congress to take a closer look at these issues—and revisit the exemption that exists in Section 224—so that we can ensure deployment is streamlined, regardless of the type of pole you are attaching to.[65]

We echo both Sen. Lee’s and Commissioner Carr’s sentiments here. The FCC’s important work on this matter stands to benefit millions of Americans trapped on the wrong side of the digital divide. The co-op and municipal loophole poses a major obstacle to achieving these ends. Insofar as Congress prioritizes quick and efficient broadband buildout, the TVA and its LPCs should not be able to thwart these goals through anticompetitive rates and refusals to deal. Congress should revisit this issue and grant the FCC jurisdiction over these types of pole owners.

V.     Conclusion

Sen. Lee’s letter to the DOJ highlights issues that are extremely important to closing the digital divide. Broadband deployment could be harmed as a result of the practices by the TVA and the LPCs. If DOJ Antitrust Division chief Jonathan Kanter is serious about taking on gatekeeper power,[66] he should start here: with public entities granted a truly unassailable gatekeeper position over private markets. But even more importantly, Sen. Lee’s letter highlights the need to reform antitrust immunities that apply to SOEs. Economics suggests government monopolies are a greater harm to competition than private ones. Antitrust law should reflect that reality.

Appendix A: Sen Mike Lee Letter to DOJ

[1] 47 U.S.C. § 1702(b) (2018).

[2] See, infra, Appendix A [hereinafter “Lee Letter”].

[3] Broadband Assessment Report, Tennessee Valley Authority (Dec. 2022), https://www.tva.com/energy/technology-innovation/connected-communities/broadband-assessment-report.

[4] See Lee Letter, supra note 2, at 1-2.

[5] See 47 U.S.C. § 224(a)(1) (2018) (“The term ‘utility’ means any person who is a local exchange carrier or an electric, gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications. Such term does not include any railroad, any person who is cooperatively organized, or any person owned by the Federal Government or any State.”).

[6] See Lee Letter, supra note 2, at n.2.

[7] Pole Attachment Fee Formulas Adopted by TVA and the FCC, Tennessee Advisory Commission on Intergovernmental Relations (Jan. 2017), available at https://www.tn.gov/content/dam/tn/tacir/commission-meetings/january-2017/2017January_BroadbandAppL.pdf.

[8] See Lee Letter, supra note 2, at n.4.

[9] See Armen A. Alchian, Uncertainty, Evolution, and Economic Theory, 58 J. Pol. Econ. 211 (1950).

[10] See, e.g., Jonathan Sallet, Broadband for America’s Future: A Vision for the 2020s, at 50-51 (Oct. 2019), available at https://www.benton.org/sites/default/files/BBA_full_F5_10.30.pdf.

[11] David E.M. Sappington & J. Gregory Sidak, Competition Law for State-Owned Enterprises, 71 Antitrust L.J. 479, 499 (2003).

[12] See Ben Sperry, Islands of Chaos: The Economic Calculation Problem Inherent in Municipal Broadband, Truth on the Market (Sept. 3, 2020), https://truthonthemarket.com/2020/09/03/islands-of-chaos-the-economic-calculation-problem-inherent-in-municipal-broadband.

[13] 540 U.S. 398 (2004).

[14] Id. at 408-09.

[15] This section is adapted from Ben Sperry, Broadband Deployment, Pole Attachments, & the Competition Economics of Rural-Electric Co-ops, Truth on the Market (Aug. 16, 2023), https://truthonthemarket.com/2023/08/16/broadband-deployment-pole-attachments-the-competition-economics-of-rural-electric-co-ops.

[16] See Brian O’Hara, Rural Electrical Cooperatives: Pole Attachment Policies and Issues, at 2, NRECA (Jun. 2019), available at https://www.cooperative.com/programs-services/government-relations/regulatory-issues/documents/2019.06.05%20nreca%20pole%20attachment%20white%20paper_final.pdf.

[17] Henry Hansmann, The Ownership of Enterprise (2000).

[18] Id. at 21.

[19] See id. at 169.

[20] Id.

[21] Id. at 170.

[22] Id.

[23] Id.

[24] See id. at 173

[25] See id.

[26] Id.

[27] See Debra C. Jeter, Randall S. Thomas, & Harwell Wells, Democracy and Dysfunction: Rural Electrical Cooperatives and the Surprising Persistence of the Separation of Ownership and Control, 70 Ala. L. Rev. 316, 372-395 (2018).

[28] Geoffrey A. Manne, Kristian Stout, & Ben Sperry, A Dynamic Analysis of Broadband Competition: What Concentration Numbers Fail to Capture, at 28, 32 (ICLE White Paper – June 2021), available at https://laweconcenter.org/wp-content/uploads/2021/06/A-Dynamic-Analysis-of-Broadband-Competition.pdf.

[29] Jeter et al., supra note 27, at 419-39.

[30] See Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).

[31] See John Farrell, Matt Grimley, & Nick Stumo-Langer, Report: Re-Member-ing the Electric Cooperative, Inst. For Local Self-Reliance (Mar. 29, 2016), https://ilsr.org/report-remembering-the-electric-cooperative/#Missing%20Members (“More than 70 percent of cooperatives have voter turnouts of less than 10 percent [] including Wilson’s Jackson Energy Cooperatives, which averages just under 3 percent turnout.”).

[32] Id.

[33] Jeter et al., supra note 27, at 397-400.

[34] See Lee Letter, supra note 2, at 1-2.

[35] See Trinko, 540 U.S. at 408-09.

[36] See Pole Attachment Fee Formulas Adopted by TVA and the FCC, supra note 7.

[37] See NCTA, Pole Attachments, https://www.ncta.com/positions/rural-broadband/pole-attachments (last accessed Sept. 4, 2023).

[38] Lee Letter, supra note 2, at 2.

[39] See Ben Sperry, When Violations of the Law Have No Remedy: The Case of Warrantless Wiretapping, Competitive Enterprise Institute (Aug. 8, 2012), https://cei.org/blog/when-violations-of-the-law-have-no-remedy-the-case-of-warrantless-wiretapping.

[40] See, e.g., Webster Cty. Coal v. Tennessee Valley Authority, 476 F.Supp. 529 (W.D. Ky. 1979) (finding the TVA is exempt from antitrust law); Sea-Land Serv. Inc. v. Alaska R.R., 659 F.2d 243 (D.C. Cir. 1981), cert. denied, 455 U.S. 919 (1982) (finding the Alaska Railroad exempt from antitrust law).

[41] 16 U.S.C. §831c(b) (2018).

[42] 139 S. Ct. 1435 (2019).

[43] Id. at 1439.

[44] Id. at 1443-44.

[45] Id. at 1444.

[46] City of Loudon v. TVA, 585 F.Supp. 83, 87 (E.D. Tenn. Jan. 30, 1984).

[47] The TVA could also argue that the rate formula for pole attachments that it sets is subject to the filed rate doctrine and thus exempted from antitrust scrutiny. The filed rate doctrine does not allow courts to second-guess agency determinations of rates. See Keogh v. Chicago & Northwest Railway Co., 260 U.S. 156 (1922). While the original case on the filed rate doctrine dealt with the literal situation of regulated entities filing rates which were approved by a regulator, courts have extended the doctrine to other situations where a regulator uses its authority to set rates. Cf. Wortman v. All Nippon Airways, 854 F.3d 606, 611 (9th Cir. 2017) (“While the filed rate doctrine initially grew out of circumstances in which common carriers filed rates that a federal agency then directly approved, we have applied the doctrine in contexts beyond this paradigmatic scheme.”) The unique situation with the TVA is that there is no clear statutory ratemaking authority over pole attachments, but they have asserted the ability to do so under their contract powers, raising the same issue of whether this is a governmental function or market function. See TVA Determination of Regulation on Pole Attachments 2 (Jan. 22, 2016), available at https://tva-azr-eastus-cdn-ep-tvawcm-prd.azureedge.net/cdn-tvawcma/docs/default-source/about-tva/guidelines-reports/determination-on-regulation-of-pole-attachments-7-12-2023.pdf. Even if the filed rate doctrine applies, though, it would not stop an enforcement action aimed at an injunction or declaratory relief by the DOJ, just treble damages sought by a private litigant. See Keogh, 260 U.S. at 162 (“[T]he fact that these rates had been approved by the Commission would not, it seems, bar proceedings by the Government.”).

[48] See, e.g., Parker v. Brown, 317 U.S. 341 (1943) and its progeny.

[49] North Carolina State Bd. of Dental Examiners v. FTC, 574 U.S. 494, 506 (2015) (internal citations omitted).

[50] Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).

[51] See, e.g., City of Columbia v. Omni Outdoor Advertising Inc., 499 U.S. 365, 379 (1991) (“We reiterate that, with the possible market participant exception, any action that qualifies as state action is ‘ipso facto… exempt from the operation of the antitrust laws…’”); FTC v. Phoebe Putney Health Systems Inc., 568 U.S. 216, 226 n.4 (“An amicus curiae contends that we should recognize and apply a ‘market participant’ exception to state-action immunity because Georgia’s hospital authorities engage in proprietary activities… Because this argument was not raised by the parties or passed on by the lower courts, we do not consider it.”).

[52] City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 403 (1978).

[53] See, e.g., Edinboro Coll. Park Apartments v. Edinboro Univ. Found., 850 F.3d 567 (3d Cir. 2017); VIBO Corp. v. Conway, 669 F.3d 675 (6th Cir. 2012); Freedom Holdings Inc. v. Cuomo, 624 F.3d 38 (2d Cir. 2010); Hedgecock v. Blackwell Land Co., 52 F.3d 333 (9th Cir. 1995).

[54] See Jarod M. Bona & Luke A. Wake, The Market-Participant Exception to State-Action Immunity from Antitrust Liability, 23 J. Antitrust & Unfair Comp. L. Section of the State Bar of Ca., Vol. 1 (Spring 2014), available at https://www.theantitrustattorney.com/files/2014/05/Market-Participant-Exception-Article.pdf.

[55] See Lee Letter, supra note 2, at 2.

[56] Id. at n.4; N.C. Gen. Stat. § 62-350(a) (requiring all pole owners to offer non-discriminatory pole access); 807 Ky. Admin. Regs. 5:015 § 2(1) (same).

[57] 16 U.S.C. § 831i (2018) (“Board is authorized to include in any contract for the sale of power such terms and conditions, including resale rate schedules, and to provide for such rules and regulations as in its judgment may be necessary or desirable for carrying out the purposes of this Act”).

[58] 16 U.S.C. § 831 (2018).

[59] See Delta Turner Ltd. v. Grand Rapids-Kent County Convention/Arena Authority, 600 F.Supp.2d 920 (W.D. Mich. 2009).

[60] Id. at 929.

[61] Lee Letter, supra note 2, at n.5.

[62] Id.

[63] Id. at n.3.

[64] See Vincent Ostrom & Elinor Ostrom, Public Goods and Public Choices, in Alternatives for Delivering Public Services: Toward Improved Performance (1979) (“[I]nstitutions designed to overcome problems of market failure often manifest serious deficiencies of their own. Market failures are not necessarily corrected by recourse to public sector solutions.”).

[65] Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment, WC Docket No. 17-84, Second Further Notice of Proposed Rulemaking (March 16, 2022) (Statement of Commissioner Brendan Carr), available at https://docs.fcc.gov/public/attachments/FCC-22-20A3.pdf.

[66] See, Assistant Attorney General Jonathan Kanter Delivers Opening Remarks at the Second Annual Spring Enforcers Summit, U.S. Justice Department (Mar. 27, 2023), https://www.justice.gov/opa/pr/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-second-annual-spring (“Gatekeeper power has become the most pressing competitive problem of our generation at a time when many of the previous generations’ tools to assess and address gatekeeper power have become outmoded.”).

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Telecommunications & Regulated Utilities

Amicus Brief in US Supreme Court’s Loper Bright v Raimondo

Amicus Brief QUESTION PRESENTED Whether the court should overrule Chevron v. Natural Resources Defense Council, or at least clarify that statutory silence concerning controversial powers expressly but . . .

QUESTION PRESENTED

Whether the court should overrule Chevron v. Natural Resources Defense Council, or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

INTEREST OF AMICI CURIAE

The Manhattan Institute for Policy Research (“MI”) is a nonpartisan public policy research foundation whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility. To that end, MI has historically worked sponsored scholarship and filed briefs supporting economic freedom against government overreach.

Richard Epstein is the Laurence A. Tisch Professor of Law at New York University. He also serves as the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution and the James Parker Hall Distinguished Service Professor of Law emeritus and a senior lecturer at the University of Chicago.

Todd Zywicki is George Mason University Foundation Professor of Law at George Mason University Antonin Scalia School of Law and a research fellow of the GMU Law and Economics Center.

Justin “Gus” Hurwitz is a senior fellow and academic director of the Center for Technology, Innovation, and Competition at the University of Pennsylvania Carey Law School.

Geoffrey Manne is the president and founder of the International Center for Law and Economics and a distinguished fellow at Northwestern University’s Center on Law, Business, and Economics.

This case interests amici because it involves an agency regulation that was not explicitly authorized by statute. Indeed, it gives the Court a chance to revisit Chevron—either overruling it or clarifying that statutory silence does not require judicial deference.

SUMMARY OF ARGUMENT

Family-run fishing businesses face a fraught and competitive environment even before the intrusion of burdensome regulations. Here, the National Marine Fisheries Service (“NMFS”) promulgated a rule for certain classes of herring boats that sweeps in most such businesses, as portrayed in the Oscar-winning movie CODA. If a vessel needs a monitor and has not already been assigned one under a federally funded program, it must pay for one itself. The cost for most herring boats exceeds $710 per sea day.

Petitioners, four family-owned and -operated fishing companies, contend that the industry-funding requirement which is not explicitly authorized by statute—will have a devastating economic impact on the herring fleet and will disproportionately impact small businesses, destroying historic communities.

The district court ruled for the government, finding that various provisions of the Magnuson-Stevens Fishery Conservation and Management Act (“MSA”) together conferred broad authority on the NMFS to implement regulations to carry out fishery management plan’s measures. Without any analysis, the court also found that, even if the statute were ambiguous, the government’s reading would be reasonable under Chevron Step Two and thus worthy of judicial deference. A divided panel of the D.C. Circuit affirmed, reasoning that the MSA’s authorization for the placement of monitors, through silence on funding, left room for agency discretion. This Court granted certiorari to determine whether the Court should overrule Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

The Court should now take this opportunity to overhaul the Chevron-deference regime, because this experiment in rebalancing the relationship between administration and judicial review has failed. It has led to agency overreach, haphazard practical results, and the diminution of Congress. Although intended to empower Congress by limiting the role of courts, Chevron has instead empowered agencies to aggrandize their own powers to the greatest extent plausible under their operative statutes, and often beyond. Congress has proved unequal to the task of responding to this pervasive agency overreach and now has less of a role in policymaking than in the pre-Chevron era. Courts, in turn, have become sloppy and lazy in interpreting statutes. It’s a vicious cycle of legislative buckpassing and judicial deference to executive overreach.

Chevron deference rests on the presumption that Congress won’t over-delegate and that agencies will be loyal agents. But the past 40 years have shown that Congress loves passing the buck and agencies are actually principals who pursue their own interests. The time has more than come for the Court to revisit Chevron, whether it chooses to overrule it explicitly or keep it nominally under a newly restricted standard. Cf. Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (preserving Auer deference but reworking it so completely that both Chief Justice Roberts, who joined Justice Kagan’s majority opinion, and Justice Kavanaugh, who joined Justice Gorsuch’s effective dissent, noted that there wasn’t much difference between the two).

 

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Antitrust & Consumer Protection

The IEA’s Net Zero Pathway Is Economically Illiterate

Popular Media The International Energy Agency (IEA) is either woefully economically ignorant or intent on misleading world governments with respect to the so-called net zero energy transition. . . .

The International Energy Agency (IEA) is either woefully economically ignorant or intent on misleading world governments with respect to the so-called net zero energy transition. This much is clear to me, as an economist, after reading the recent report from the RealClearFoundation and the Energy Policy Research Foundation (EPRF) on the IEA’s net zero scenario.

Read the full piece here.

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Telecommunications & Regulated Utilities

As Global Temperatures Set New Records, Policyholder Advocates Continue to Deny the Science

Popular Media We learned this week that July 4’s average global temperature of 62.92 degrees Fahrenheit was the world’s hottest day since at least 1979, when the . . .

We learned this week that July 4’s average global temperature of 62.92 degrees Fahrenheit was the world’s hottest day since at least 1979, when the U.S. National Centers for Environmental Prediction began keeping records, and potentially the hottest in about 125,000 years.

And yet, in a world in which even ExxonMobil concedes the reality of climate change and touts that it is “playing a leading role in the transition to a lower-emission future,” it appears that insurance “consumer advocates” constitute the group most steadfast in their refusal to come to grips with what adapting to a warmer planet inevitably entails.

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Financial Regulation & Corporate Governance

Plaintiffs’ Remedy Lies in the Messy Democratic Process

Popular Media The 16 young Montanans who have sued in state court seeking a judicial declaration that the state of Montana‘s policies violate their right to a . . .

The 16 young Montanans who have sued in state court seeking a judicial declaration that the state of Montanas policies violate their right to a clean and healthful environment under Article IX, Section 1, of the Montana Constitution are surely both sincere and well intentioned. Climate change is a serious public concern that should focus the attention of Montana law makers. The plaintiff s allege that the states policies violate their constitutional rights by both contributing to and failing to do enough to combat climate change. They may well be right about the effects of state policies, but it is not within the competence or authority of the judiciary to second guess or override those policies. The trial judge has recognized as much by indicating that the only remedy she will consider is a declaratory judgment. But even a declaration that state policies violate the constitutional right to a clean and healthful environment would require the judge to conclude that there are better policies the executive and legislature should enact.

Read the full piece here.

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Telecommunications & Regulated Utilities

Prop 103’s Author Isn’t the Final Word on What Prop 103 Says

Popular Media It’s been 35 years since Californians voted by a narrow majority to pass Proposition 103, completely overhauling how the nation’s largest state regulates the business of . . .

It’s been 35 years since Californians voted by a narrow majority to pass Proposition 103, completely overhauling how the nation’s largest state regulates the business of insurance.

That’s an awfully long time. So long, it seems, that even the man who wrote Prop 103 appears to have forgotten what it actually says.

Read the full piece here.

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Financial Regulation & Corporate Governance

Amicus Brief of Zycher, Manne, Epstein, & Boudreaux in NTE Carolinas v Duke Energy

Amicus Brief Summary of Argument Courts should approach predatory pricing claims with caution because price cutting is central to competition and because false positive errors can chill . . .

Summary of Argument

Courts should approach predatory pricing claims with caution because price cutting is central to competition and because false positive errors can chill competition to the detriment of economic efficiency and consumer welfare.

Total average system cost is not an appropriate price floor for finding predation; the district court was right to reject a fixed-cost standard. This Court should reject claims based on the allegedly exclusionary effect of pricing not shown to be below short-run incremental cost. Moreover, a contention that Duke Energy’s discount or rebate structure was “exclusionary” should not change the analysis, because the timing of price reductions should not be relevant.

 

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Antitrust & Consumer Protection

Exploring the Outer Boundaries of Antitrust: Should Competition Enforcement Promote Sustainability?

Presentations & Interviews Video from the International Center for Law & Economics’ (ICLE) March 24, 2023 event “Exploring the Outer Boundaries of Antitrust: Democracy, Sustainability, & Industrial Policy” . . .

Video from the International Center for Law & Economics’ (ICLE) March 24, 2023 event “Exploring the Outer Boundaries of Antitrust: Democracy, Sustainability, & Industrial Policy” in Madrid, Spain. Moderated by Ainhoa Veiga, a partner with the firm Araoz & Rueda, “Can & Should Policymakers use Competition Enforcement to Promote Sustainability Goals?” features panelists Maurits Dolmans, a partner with Cleary Gottlieb Steen & Hamilton LLP; Julian Nowag, an associate professor of EU law at Lund University; Cento Veljanovski, founder and managing partner of Case Associates; and ICLE Senior Scholar Julian Morris. The full video is embedded below.

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Antitrust & Consumer Protection

What Transmission Markets Can Learn from the FCC’s Pole-Attachment Problem

TOTM Large portions of the country are expected to face a growing threat of widespread electricity blackouts in the coming years. For example, the Western Electricity . . .

Large portions of the country are expected to face a growing threat of widespread electricity blackouts in the coming years. For example, the Western Electricity Coordinating Council—the regional entity charged with overseeing the Western Interconnection grid that covers most of the Western United States and Canada—estimates that the subregion consisting of Colorado, Utah, Nevada, and portions of southern Wyoming, Idaho, and Oregon will, by 2032, see 650 hours (more than 27 days in total) over the course of the year when available enough resources may not be sufficient to accommodate peak demand.

Read the full piece here.

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Telecommunications & Regulated Utilities