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Pavement Utility Cuts

3. Controlling Pavement Cuts by Implementing Policy

While policies alone may not reduce the frequency of pavement utility cuts, certain types of policies should be implemented to control such things as the quality of repairs, the timing of utility cuts, or the information concerning cuts and repairs. These and other topics have become matters of great concern for state and local agencies who wish to control the access to their ROW but receive an overwhelming amount of requests from numerous entities.

This chapter discusses the types of policies available to state and local agencies; issues at the local, state and federal level regarding their implementation; several examples of successful policies and their implementation; and a survey describing the current state of practice among state highway agency policy.

3.1 Definitions

Some basic definitions with respect to right-of-way management, regulations, ordinances and policies are included in this section.

Adjacent Land Value - To establish the ROW rental value based on the market value of its adjacent property value. In this ROW compensation method, the market value of adjacent property (land only) per square foot is assigned to the related rights-of-way.

Combination Gross Revenue/Linear Foot Fee - A right-of-way compensation methodology that is adopted with certain telecommunications providers who may not generate significant revenues for a period of time. In this case, the local jurisdiction will implement the linear foot fee assessment until the company generates a mutually negotiated level of revenues. Upon achievement of the agreed upon revenue level, the percent of gross revenue methodology would then be implemented for the life of the franchise.

Degradation Fee - The estimated fee established at the time of permitting by the local government unit to recover costs associated with the decrease in the useful life of the right-of-way caused by the excavation.

Excavation - Any work in the surface or subsurface of the public ROW, including, but not limited to opening the public ROW; installing, servicing, repairing or modifying any facility(ies) in or under the surface or subsurface of the public right-of-way, and restoring the surface and subsurface of the public right-of-way.

Facility - Any tangible asset in the public right-of-way required to provide utility service. Includes any and all cables, cabinets, ducts, conduits, converters, equipment, drains, handholds, manholes, pipes, pipelines, splice boxes, surface location markers, tracks, tunnels, utilities, vaults, and other appurtenances or tangible things owned, leased, operated, or licensed by an owner or person that are located or are proposed to be located in the public right-of-way.

Fee per Access Line - The right-of-way compensation methodology that is rapidly replacing the percent of gross revenue formula historically used in franchise/rental agreements for local exchange telephone companies where a fee is assessed per access line.

Flat Annual Fee - Right-of-way compensation that many local jurisdictions are adopting to ensure receipt of a known revenue amount annually. Typically, franchise agreements that require this type of compensation will also include a provision allowing for a yearly escalator or inflation factor to adjust the annual fee for increases in service provided by the effected utility.

Franchise Agreement - An agreement executed to manage the occupant of public right-of-way. This document includes the rules, rights, and fees associated with using public property for private purpose and are applicable for those right-of-way occupants that provide services to the local, county and state jurisdictions.

In-kind Service - In-kind services received that can be negotiated in addition to or in lieu of cash to be used over a period of time, or infrastructure to be specified and installed.

License Agreements - Written for firms that are simply traveling through the area with facilities that serve other communities.

Linear Foot Fee - Rights-of-way compensation methodology that is typically utilized when the rights-of-way occupants require space along a specific route or for a limited purpose within the public rights-of-way.

Percentage of Gross Revenue - The most common method of compensation for use of the ROW when the utility requires ubiquitous access to the ROW.

Public Right-of-Way - The area across, along, beneath, in, on, over (above), under, upon, and within the dedicated public alleys, boulevards, bridges, courts, freeways, highways, lanes, parks, parkways, rivers, roads, sidewalks, spaces, streets, tunnels, viaducts, and any other place, area, or real property, other than real property owned in fee by a jurisdiction.

Restoration - The process by which an excavated public right-of-way and surrounding area, including pavement and foundation, is returned to the same or better condition that existed before excavation.

Trench - An excavation in the pavement, with the excavation having a length equal to or greater than the width of the pavement.

Utility Excavator - Any owner whose facility or facilities in the public right-of-way are used to provide electricity, gas, information services, sewer service, steam, telecommunications, traffic controls, transit service, video, water, or other services to customers.

Utility Service - Includes 1) those services provided by a public utility as defined in respective State Statutes; 2) service provided by, or the transporting of voice or data information by, a telecommunications right-of-way user as defined in respective State Statues; 3) service provided by cable communications systems as defined in respective State Statutes; 4) natural gas or electric energy or telecommunications service provided by a local government unit; 5) service provided by a cooperative electric association organized under the provisions of respective State Statutes; and 6) water, sewer, district cooling or heating systems.

3.2 Legislative Issues Regarding Policy Implementation

There are many issues regarding the ability of states and local municipalities to enact legislation and ordinances concerning utility construction and maintenance. Possibly the most important is the Telecommunications Act of 1996. This, and other aspects of the regulatory climate must be considered by agencies when developing policies, and when implementing them with regulations and ordinances. This section provides some basic information and points to consider regarding these issues.

3.2.1 Federal - 1996 Telecommunications Act

Implementation of the Act has had a major impact on jurisdictions. Some of the issues they have faced concerning telecommunications and cable television in the legislature are:(14)

  • Restrictions on a jurisdiction's right to control its rights-of-way

In many states, the telecommunication industry has supported legislation that requires standardized franchise agreements. Such legislation has taken the form of preventing cities from requiring telecommunications providers from making limited street cuts, or providing acceptable bonds or insurance or burying their cables in certain instances.

  • Limits on franchise fees, property taxes and other revenue

A number of states have limited the ability of local governments to collect franchise fees and property taxes, requiring that they all be collected and imposed at the state level. Proposals in other states have limited the right of local governments to charge as a franchise fee anything more than the actual cost to the jurisdiction associated with administering the franchise and/or managing the rights-of-way.

  • Prohibition on a jurisdiction's right to provide telecommunications or cable television service

Numerous jurisdictions have elected to provide communications services to their citizens. This is particularly true in communities that provide electric service. In some states, the telecom and cable industries have sought and won legislation that would prohibit or restrict cities from getting into the business or providing such service. For existing providers of telecommunications and cable service this ensures they will have no real competition since markets are small enough that it is unlikely that another privately owned provider would compete with the existing provider.

  • Siting of cellular towers

The Act imposed a number of conditions on jurisdictions regarding the size and location of a cellular tower in a community. First, jurisdictions cannot unreasonably discriminate among providers competing in the delivery of similar wireless services. Additionally, jurisdictions are not allowed to impose different setback, height, or safety restrictions in residential and commercial zones. Second, jurisdictions must act on all wireless tower permit requests within a reasonable time, taking into account the nature and scope of the request. Third, any decision denying a request must be in writing and substantiated by evidence contained in the written record of the decision-making body. Finally, fourth, jurisdictions can no longer be able to make zoning decisions based on the environmental effects of radio frequency emissions unless the facility is not in compliance with FCC emissions regulations.

  • Depriving cities of recourse to local circuit court

In some states, efforts have been made to require that all disputes between cities and telecom providers be settled by an arbitrator or the Public Service Commission rather than the local circuit court that is closest to the people.

3.2.2 At the State Level - Right of Way Compensation and Regulatory Limitations

State regulations must also adhere to provisions of the Telecommunications Act of 1996. Some states are faced with the challenge of developing and implementing rights-of-way policies and appropriate compensation methodologies for submerged lands in addition to uplands. Utilization of shared resourced agreements continue to be the growing mechanism states have identified as the best approach to allow utilities and other companies access to available rights-of-way. Some examples of this include:

  • Some fixed administrative/application fees are outdated and need to be revised more regularly (perhaps once every three years) in order to recover the cost of the permitting process.
  • The Consumer Price Index can be used as a means to adjust fees to current conditions.
  • States that require the state-owned land to return a fair market value for their easement fees generally rely on independent appraisal. Another method is to use property tax roll valuation of adjacent property to make their determination of market value.
  • State fees based on a per linear foot charge for fiber optic vary considerably from one state to another and additional investigation is needed to document the methodology behind the numbers.
3.2.3 At the Local Level - Right of Way Compensation and Regulatory Ordinances

Local governments may receive reasonable rental compensation from private commercial entities for their use of local public property for private economic gain, even where federal statutory law restricts local governments from denying access to ROW for telecommunications services. Their regulatory authority over their rights-of-way emanates from state constitutional or statutory authority. In most states, the state itself initially has title and authority to regulate the public streets and ROW, as the property is dedicated for public use. A majority of states delegate the authority to municipalities by statute, while a minority of states grant franchises to the telecommunications provider directly. While the majority of states do allow cities to be compensated, several do not. The statutory law in each state should be reviewed to determine a given city's authority to grant franchises and impose any limitations on them.

Execution of a franchise agreement or ordinance is the common process used to grant utilities permission to utilize the ROW for private economic gain. Typically, the utility pays the city for the use of the public streets in the form of franchise fees. The franchise fees that are paid to a city as compensation for using the public streets are sometimes called street rentals - not taxes. A franchise fee is the consideration paid for the rights granted by the franchise, and serves as compensation for use of the public property. The payment of franchise fees is a contractual obligation of the utility or franchisee.[15]

Some of the factors considered when negotiating the franchise fee are:

  1. The burden created by the franchisee's occupancy of the ROW.
  2. The inconvenience to citizens created by the franchisee's construction and use of the ROW.
  3. The damage caused to the ROW by the franchisee's construction.
  4. The diminution of the useful life of ROW caused by construction within it.
  5. Hazard to public safety occasioned by the franchisee's occupancy of ROW.
  6. Costs of monitoring and administering the franchisee.
  7. The value of the ROW affected by the franchisee's occupancy.
  8. Location of ROW sought to be occupied by the franchisee in their limited and finite capacity.
  9. Rates paid by franchisee under existing franchises.
  10. Any other criteria the municipal jurisdiction may deem appropriate.
3.3 Types of Policies

This section outlines the types of polices used to minimize utility street cuts and encourage the use of other methods, such as trenchless technology. This section also discusses specific regulations designed to use fees or construction standards to discourage utility construction and encourage shared use of facilities where possible.

3.3.1 Incentive-Based Policies

Selected states and cities were surveyed to determine what policies exist to monitor utilities and other companies' use of a jurisdiction's alleys, sidewalks, streets, tunnels, poles, conduits and ducts to provide their customers service and transact business. The results of this survey have helped identify incentives utilized to encourage use of trenchless technology and other incentive-based policies that attempt to minimize the impact of street cuts on state and local roads.

Trenchless technology is becoming more commonly used to meet underground construction needs. Trenchless technology provides an alternative to open trench construction in many cases and conditions. It is being used in many communities to lessen environmental and traffic impacts of open trench work. Other benefits include lessening the loss of revenue to businesses along the utility alignment and avoidance of differential settlement in trench restorations. The types of policies discussed in this section describe ways of encouraging utility companies and others seeking access to the public right-of-way to consider methods other than trenching.

Incentives to Encourage Use of Trenchless Technology

One method of implementing this type of incentive is in the form of permit or inspection fee waivers in return for the use of trenchless technology. Since in many cases trenchless technology is still more expensive than traditional trenching, especially in urban and suburban areas, financial incentives can encourage utility contractors to try the technology. Other methods of providing incentives for utility contractors to use trenchless technology is to reduce some of the administrative and regulatory processes necessary under traditional trenching operations. Obviously, any pavement degradation fee that applies to traditional trenches will not be applicable in most trenchless applications. Where limited excavation in the pavement area is necessary to a trenchless operation, the pavement degradation fee can be waived to provide an additional incentive. This should be done while maintaining adequate control over the ROW and the construction to ensure that the pavement, existing utilities, and other ROW components are not damaged.

Incentives to Encourage Less Damaging Types of Cuts

Some jurisdictions are strengthening and monitoring the type of excavations being made, the quality of excavation repairs and the effect of excavations on pavement life. While it is true that better utility cut repairs result in less pavement damage than poor-quality repairs, there is always some damage to the pavement structure. A method of incentive for contractors to put forth more effort to making better-quality pavement cut repairs is to decrease or eliminate any fees associated with the repairs. This could be in the form of waived degradation fees, reduced inspection fees, or others.

Encourage Coordination - Shared Trenching

Whenever possible, the use or formation of a Utility Coordinating Committee (UCC) is most helpful for new major utility installations. The permitting jurisdictions should always be represented at the committee's meetings. Utility coordination requires participation of privately-owned utility companies, jurisdictions, regulating bodies, public works agencies, highway departments and other interested groups. Since it is in the public interest to share the right-of-way, government and private industry must join in some sort of mutual planning action to protect the public interest. This action should include establishment of uniform regulations and a mutual liaison effort such as the Utility Coordinating Committee that will ensure a continuous formal interchange of information covering regulations, planning, designing, and scheduling of all major construction projects within the public right-of-way including the need for utilities to participate in joint trenching efforts. Failure for jurisdictions to perform this function adequately can result in liability to the jurisdictions and additional cost to the utilities. Typical problems addressed by UCCs include utility excavations in newly paved roads, disruption of essential utility service, injuries caused by inadvertent severing of utility facilities, location of utility poles, and environmental impacts of damaged facilities.

All states that responded to the survey stated that shared trenching was not a requirement but was encouraged. These same states agreed the number of excavations definitely could be reduced. The American Public Works Association (APWA) has published the following actions to support highway/utility coordination.(16)

Coordinating Actions for Highway Agencies
  • Develop and share a highway improvement program.
  • Include all construction and maintenance work in the highway improvement program planned for at least the next two years with longer time frames (5-6 years) desirable.
  • Hold regular meetings between utility company personnel and highway personnel to discuss upcoming project development and construction activities.
  • Notify utilities of projects prior to the design phase.
  • Route plans of highway projects to utilities for comment during the design phase.
  • Determine the impact of all projects on other facilities in or adjoining the ROWs.
  • Convene meetings of highway and utility personnel involved in project planning and development prior to each major phase of a project (planning, design and construction).
  • Identify and resolve conflicts before construction.
  • Share construction schedules with utilities.
  • Develop one point of contact in the highway agency to work with utilities on a project from inception to completion.
  • Publish maps each year showing municipality, county, state highway agency and utility projects.
  • Publish detailed descriptions or directories of projects and list project schedules, managers, and telephone numbers.
Coordinating Actions for Utilities
  • Develop a utility master plan in conjunction with other public planning efforts.
  • Provide capital improvement programs to highway agencies.
  • Update utility system plans every two to five years and provide them to public works and highway agencies.
  • Meet with local or state agencies to discuss projects, determine impacts, and explore alternatives to avoid potential conflicts.
  • Develop one point of contact to work with the highway agency on resolution of potential conflicts.
  • Seek to minimize the impact of utilities on highways with high traffic volumes, few alternative routes, or limited right-of-way.

While there are additional procedures that can be implemented, the aforementioned steps are imperative for a UCC to yield effective, positive results.

Encourage Coordination - Shared Resources

The term shared resource is used to describe a new partnership approach to obtaining a different form or compensation/value from the public ROW. These are public-private arrangements where each party taps the special resources of the other. The private partner gains access to public ROW and the public partner gains access to some form of compensation, whether in-kind telecommunications facilities or services, cash, or both. Shared resource projects have three distinct features:

  1. Public-private partnership.
  2. Private longitudinal access to public property (primarily roadway ROW) for telecommunications facilities.
  3. Compensation to the ROW owner above administrative costs.

Shared resource programs have been facilitated by the Federal Highway Administration's (FHWA) delegation of authority to states to determine their own utility accommodation policies and by the American Association of State Highway and Transportation Officials (AASHTO) Board of Directors' resolution that recognized fiber optics as distinct from other utilities and sanctioned their longitudinal installation in freeway rights-of-way.

Survey data revealed that six states have already begun shared resource projects with significant benefit to their state and local communities. Other states have taken slightly different approaches. For example, New York has an open request for proposals (RFP) that continuously seeks applicants to use their right of way for telecommunications. Minnesota and others have issued an RFP with a closing date and awarded the contract to a single company who in turn will install, operate and maintain a telecommunication facility for state and private use. The telecommunication provider usually is responsible for subleasing conduit space and fiber to others at fair and non-discriminatory rates. There does not appear at this time to be a single best model, but the shared resource approach appears to be a new tool that states can use to increase the valuation of the highway rights-of-way.

The following is a list of some pros and cons of the shared resource approach:

  • Flexible compensation provides telecommunication facilities, services, cash or all of the above.
  • Avoids out-of-pocket cost of the state for installing telecommunications infrastructure.
  • Speeds up installation of telecommunications throughout the state.
  • Maximizes use of state assets (interstate ROW) not previously available.
  • Facilitates telecommunications service to previously un-served areas such as rural communities.
  • Ensures that states' telecommunications needs are met.
  • Successful partnerships may lead to other mutually beneficial projects.
  • Lack of technical knowledge to implement new approach.
  • Limited time - market conditions dictate private vendor interest.
  • Determining the value of a bartered arrangement to the state is complicated.
  • If compensation is similar to a barter arrangement, it is difficult to determine if proposed compensation is appropriate.
  • May attract more telecommunication companies than can be supported in limited ROW space.
3.3.2 Fee-Based Policies

Another type of policy that can be considered is the implementation of fees and other economically-based measures to reduce and/or control the utility cuts made in the right-of-way. Generally, fees are assessed to recover administrative costs such as managing the permit process, inspecting utility cut repairs, and other activities conducted by the agency due to right-of-way access. The compensation received should generally be over and above administrative costs. Such fees that are beyond administrative costs can be in the form of pavement degradation fees, lane-rentals, and penalties for poor repairs.

Compensation can be goods and services, cash or a combination of both. The choice is determined by legal restrictions on cash revenues or the jurisdiction's need for communication infrastructure and services. If the jurisdiction receives cash, the receipts can be earmarked for identified telecommunication or transportation projects. It is important for the jurisdiction to identify how cash revenues would be used since the allocation could possibly eliminate any negative actions by utilities and/or telecommunication companies that are assessed the rental fee. In-kind services received can be negotiated in addition to cash to be used over a period of time, or infrastructure to be specified and installed. Examples of such in-kind goods and services are described in table 1. It is believed that in-kind compensation is easier to achieve with wireline versus wireless providers because wireline projects are more extensive and cover a wider geographic territory whereas wireless projects tend to be very site specific.

Table 1. Examples of In-Kind Goods and Services.
Type of Communication Provider Type of In-kind Goods and Services that can be Provided
Wireline Fiber optic conduit, inner ducts, dark fiber, equipment to "light" the fiber, equipment maintenance and/or upgrading; operations of communications equipment, future upgrades, cost-free or reduced fee communications service, etc.
Wireless Space on private towers for equipment, installation of public sector antennae, construction of equipment sheds and installation of support equipment, back-up service or redundancy, wireless call box installation, cost-free or reduced fee communications services on private system, etc.
Assess Appropriate Rights-of-Way Fees

Assessing ROW rental or franchise fees is most common for local utilities, cable companies and competitive local exchange companies (CLEC). Local utilities include local exchange telephone companies, electric, gas, water and steam. CLECs are companies that compete with local exchange carriers in the area of providing access to long distance carriers, private line and local telephone service. A review of the types of franchises or licenses granted by the cities surveyed revealed that there are three general categories of utility users of public ROW, described in table 2. Research into local governments' ROW compensation arrangements for these categories indicates ROW fees are generally assessed in the manner described in table 3. Table 4 details the comparison of gross revenues derived from rights-of-way fees for selected cities.

Gross receipts based franchise agreements generally permit utilities to have unlimited access to public space and ROW for a specific purpose such as providing electric or gas service within the City. These franchises typically regulate pole placement, conduits, buried cable and all other aspects of the utility's activities in public ROW. In return for ROW access, the franchised utilities agree to pay the City based on a percentage of all gross receipts from operations within the City. Utilities are typically required to pay property, utility and other taxes such as sales, use, special taxes and assessments for public improvements, in addition to gross receipts franchise fees.

Table 2. Utility Users of Public Rights-of-Way.
Type Category of Use ROW Valuation Method
Franchise Local Distribution Networks (i.e. local exchange carrier, competitive access provider, water, steam, chilled water, electric, gas service and solid waste) Percentage of Gross Revenues
License Interstate Carriers (i.e. long distance telephone, gas pipe interstate) Linear Foot Fee
License Private Networks (i.e. hospitals, universities, private companies and non profit agencies) Linear Foot Fee
Table 3. Rights-of-Way Assessment.
Type Compensation Method Fee Range
Local distribution networks Percent of gross revenue or receipts .05% to 10%
Local distribution networks Linear foot, Fee per access line $0.001 to $5.50 per ft
Interstate carriers Flat fee / linear foot $0.30 to $5.50 per ft
Private networks Flat fee / linear foot $0.30 to $5.50 per ft
Table 4. Gross Revenues from Rights-of-Way Fees.
City Electric Franchise Fee Telephone Franchise Fee
Revenue % Gross Receipts Revenue % Gross Receipts
Chicago $ 63,000,000 4% $29,580,000 3%
Houston $ 60,000,000 4% $26,900,000 Flat Fee
St. Louis1 $ 26,000,000 10% $12,000,000 10%
New Orleans $ 9,000,000 2.5% $3,000,000 3%

1 St. Louis has a gross receipts tax instead of a franchise fee.

Once implemented, it is important to monitor fee assessments to ensure companies are in compliance with negotiated terms; but most importantly to determine if the arrangement is working or if there should be contractual changes. Things to consider during this phase are:

  1. Is the jurisdiction recouping all of its direct and indirect costs associated with management of the applicable land or public utility easement? If not, the jurisdiction may consider increasing the fee assessed.
  2. Are the construction and maintenance activities being conducted in accordance with established jurisdiction rules and guidelines?
  3. Is there resale or sublease activity occurring that did not exist during the application phase?

Additional reasons for monitoring existing fiber optic fee arrangements include:

  • Unanticipated Challenges. Certain aspects of the relationship may be different in practice than anticipated, for example, the State may find that legal challenges to earmarked cash revenues argues for in-kind arrangements.
  • Change in Communications Needs. The State's communications needs may be different than forecast, arguing for a greater or lesser reliance on in-kind compensation.
  • Shift in Communications Design. The State's communications blueprint may change such that less communications capacity of a particular type in one area and more in another area than originally planned. This might be the case if there were a shift from wireline to mixed wireline-wireless systems coupled with increased demand for wireline capacity in adjacent areas.
  • Increase in Demand for Communications. Both public and private demand for communications capacity may be greater than originally forecast and the public sector would benefit from increased capacity.

The fiber optic fee process adopted by the State is very important. Issues addressed in this section of the report highlight some of the steps that should be considered. Establishment of an overall telecommunications policy is critical as such a policy ensures consistent handling of state-owned land users and ROW access users.

Linear Foot Fee

Generally, the linear foot charge is used for limited access to public ROW as in the case of a telecommunications operator building a limited network in a downtown urban area. Many of the cities surveyed used this method for fiber optic local loop, interstate long distance carrier and interstate pipeline companies. For example, Atlanta and Chicago use the percentage of gross receipts model for utilities such as local exchange, electric and gas companies. Philadelphia, on the other hand, only charges a linear foot fee.

Table 5. Survey of Selected Cities.
City Population Company Fee, $/lf
Albuquerque, NM 384,736 AT&T 0.60
Atlanta, GA 394,017 AT&T 5.00
Western Union 5.00
Baltimore, MD 736,014 Bell Atlantic 0.06
Birmingham, AL 265,968 AT&T 2.00
Boca Raton, FL 61,492 Telecommunication services 2.00
Chicago, IL 2,783,730 Lightnet 5.50
Des Moines, IA 193,187 Teleph, telegr, communications sys 1.00
Other 1.00
Flint, MI 140,761 AT&T Communications 1.00
Fort Worth, TX 447,619 AT & T 1.00
MCI 1.00
Other 1.33
Philadelphia, PA 1,586,000 Aerial/Electric 0.0011
Telecommunications 0.0007
Pittsburgh, PA 369,879 Telecommunications 1.00
Phoenix, AZ 983,403 City Signal 0.60
Richmond, VA 202,798 Bell Atlantic 0.02
St. Louis, MO 396,685 Other 1.50
St. Paul, MN 272,235 Any Franchise 1.00
Tulsa, OK 367,302 US Sprint 0.75
Average Linear Foot Fee $ 1.50

In addition to the cities below, the rate charged by a public transit authority to telecommunication providers for the use of their facilities is included. The Washington Metropolitan Area Transit Authority uses the public ROW to operate the public mass transit rail system within DC. ROW is leased for the installation of fiber optic cables ranging from $1.60 to $3.80 per linear foot per year.

The City of Atlanta charges certain ROW tenants a $5.00 per linear foot for the usage of the City's rights-of-ways and the City of Pittsburgh charges $1.00 per linear foot (See table 5).

Over time, the term of franchise agreements has decreased. Initially, agreements were made for extensive periods of time, such as 30, 40 or 50 years. The recent trend has been for the agreement to have a term of 10 or 15 years, with incorporation of a provision outlining the city's right to renegotiate and a clause for inflation factors. Based on the information obtained from the survey, the average agreement term is approximately 18.3 years. Franchise agreements normally specify the compensation basis and method of calculating the franchise fee. Additionally, the franchise agreements are normally initiated through an application process that includes review(s) by the city, coordination of different city departments and/or localities, and approval by the City Council (or an applicable legislative branch).

Research of State Fees and Process for Fiber Optic Facilities

The research for this section focused on the national market to evaluate what other states charge for access to ROW, excavations, proposed methodologies for valuing corridors, negotiation guidelines for easements, fiber optic use of both uplands and submerged, and how they process requests. A survey was developed that identified listed states to be contacted. The survey was designed to gather the following information. Although this survey was directed at fiber optic facilities, the results may be applicable to many other types of utilities as well. This survey is different from that discussed in section 3.4.

  • Fees charged for use of state-owned land (upland and submerged).
  • How the state processes requests.
  • Fees charged for use of highway ROW.
  • The state's current methodology for valuing corridors (business costs, revenues, land values, etc.) and negotiating with fiber optic companies.

The following is a listing of the initial states chosen for the survey with their respective estimated populations:

Table 6. Initial States Selected for Fees Survey.
State Population State Population
Alabama 4,351,999 New York 18,175,301
Alaska 614,010 North Carolina 7,546,493
California 32,666,550 Oregon 3,281,974
Georgia 7,642,207 South Carolina 3,835,962
Louisiana 4,368,967 Texas 19,759,614
Maryland 5,134,808 Virginia 6,791,345
Mississippi 2,752,092 Washington 5,689,263
Survey Results

The following observations were made either as a direct response from survey respondents, or as part of the analysis of survey results regarding state land and rights-of-way permits and fees:

  • All states surveyed have a permit process in place to allow fiber optic companies to use state land to install fiber optic cable.
  • Most states (70 percent) have established a fee for that purpose. Some states do not charge any fees for the permit.
  • Most states (5 of 7 responding) charge an easement or encroachment fee that ranges from $0.61 to $3.50 per linear foot.
  • Other states charge an administrative fee or application fee that is designed to recover a portion or full cost of administering the permitting process ranging from $50 to $400.
  • Only one state (California) appears to have a mechanism in place to recover the full actual cost of each encroachment permit.
  • Two states (Texas and North Carolina) charge both an administration/application fee and easement fee.
  • There does not appear to be significant difference in fees charged for uplands or submerged lands. Some states charge different fees but others do not.

The observations below address the states' procedures to process requests to access state land or ROW.

  • Most states rely on the fiber optic company to submit a request for a permit - a reactive process.
  • Only three states (New York, Maryland and Virginia) have a proactive process in place where the state seeks vendors/companies to propose how they can better use or share the ROW. Most of these are initiated by the state highway agency rather than state ROW offices.

Finally, the following observations relate to the states' current methodologies for valuation.

  • Some states' fixed administrative/application fees are outdated and need to be revised more regularly (ex. once every three years) if they want the fee to recover the cost of the permitting process.
  • Only one state used the Consumer Price Index as a means to adjust fees to current conditions.
  • States that require the state-owned land to return a fair market value for their easement fees generally rely on independent appraisal. Only one state used property tax roll valuation of adjacent property to make their determination of market value.
  • State fees based on a per linear foot charge for fiber optic vary considerably from one state to another and additional investigation is needed to document the methodology behind the numbers, if any.
Case Studies

This section highlights selected states as examples of state practices for lease of land and highway ROW. Short summaries of the experiences from Maryland, New York, and Oregon follow.

Maryland The State's Natural Resources department has negotiated two land licenses with two interstate gas pipeline companies who have current gas pipeline easements and are adding fiber optic facilities in same ROW corridor. The first license charge was $3.50 per linear foot of conduit and capped the installed fiber strands at 200. Adding fiber stands over 200 would require the company to request Natural Resources to approve an increase. The second land license was set at $3.50 per linear foot of conduit times the ratio of strand of fiber installed over 200. This was done to address changed technology that increased the number of fiber strands in the bundle. The license is for 10 years with two 10-year renewal options. Natural Resources has not encountered the submerged land issue but would not envision a different fee structure. Submerged lines only increase complexity of work and raise environmental restrictions that may increase company costs.

Normally, each department owning state land receives and processes land license requests related to use of their land. However, these two licenses were processed differently because they qualified as high tech projects, and the state had passed a new law to focus its efforts on high tech and established a separate review and approval process.

In both cases, companies submitted requests to Natural Resources to use fiber on state-owned lands using previously granted gas line easements. After the company's request was reviewed and processed, Natural Resources sent them to Budget and Management and a Special Legislative High-Tech Review Committee for approval. Furthermore, to fund high-tech investment, the state created a "high-tech fund" in which proceeds from all licenses of state lands from high tech ventures would be deposited (rather than to individual departments) and then made these funds available to improve the technological capabilities of state agencies.

The State Highway Administration (SHA) negotiates all fees for fiber optic use of the ROW under a new approach begun recently. The SHA has prepared an RFP for Resource Sharing of any Maryland's public ROW and state-owned land and released it this year. The RFP is good for five years and requests fiber optic companies to submit proposals on how best to utilize the state land and highway ROW. The SHA then evaluates each proposal as it is submitted and negotiates compensation based on Maryland's fiber optic needs for that specific project. The proposal follows the high-tech review process previously mentioned.

Compensation for a corridor ranges from cash to bartered fiber infrastructure or a combination of both. The SHA uses some of the following benchmarks to evaluate each proposal: past usage fees collected, what other states charge or what railroads charge, and also consider the current fiber facility needs for Maryland state government, the intelligent highway system or Network Maryland (extending fiber to all schools, libraries, etc.). Each compensation package will be different because timing and needs change.

New York No fee is charged for a permit, but an extensive permit review process is in place to protect state-owned land especially for wetlands and environmentally sensitive areas of the state. The company submits a standard application for a permit to use state-owned lands to the department that owns the land. Assistance is available to assist in developing the least disruptive corridor in a pre-application conference. All requests for use of submerged lands (wetlands, protected bodies of water and streams) must be reviewed by Environmental Conservation and General Services Departments and potentially the US Corps of Engineers. No permit fees, administrative fees or fixed fees are charged. Compensation is negotiated based on each company's proposal and use of public highway ROW for the benefit of the State. A rule of thumb is to recover approximately $1.00 per linear foot of fiber installed - assumed to be an industry standard about ten years ago. Fees and terms will vary depending on the company's proposal.

The State Department of Transportation (DOT) continuously advertises in the NY Contract Reporter and seeks Requests for Proposals from fiber optic companies to use state highway ROW based on the State's Accommodation Plan for Fiber Optic Facilities. Each quarter, the DOT Property Management Division receives and reviews proposals, negotiates terms and approves use of ROW for fiber.

Oregon The State land office charges a fee for each crossing of state land (with the least impact), the greater of: 100 percent of fair market value (FMV), $250, or the highest comparative compensatory payment. Permits for use of submerged land under State control such as "navigable rivers" are granted at no cost except in cities. In cities, the land use compensation is tied to adjoining appraisal property value of land on each side of the river at the access corridor. The company completes an application, provides local plans and zoning compliance sign off; state land office processes application and coordinates with adjoining owners and other properties of interest. Any altering of state waterway requires a special permit. The DOT does not charge a permit, administrative or application fee for use of the conventional highway ROW for fiber optic cable; however, companies must apply for and be granted a permit to install fiber optic cable in the ROW.

Companies submit a letter of request to the DOT district office in which the project is located and include plat maps detailing starting and ending points, scope of work, traffic control plans, and engineering drawings certified by an engineer. The DOT reviews, coordinates and approves plans, and issues permits. Fair market value is determined by use of real estate property tax roll (assumed to be market values) for adjoining property adjusted for placement; surface use: 100 percent of fair market value, and aerial and underground use: 1/3 of fair market value.

Assess Appropriate Pavement Degradation Fees

Jurisdictions around the US are conducting studies to determine the effects of utility cuts on the service life of pavements. Many of these jurisdictions accumulate data using pavement management systems to quantify the effects of the cuts and study current cuts practices. The results of these studies have confirmed that a city's streets are a valuable public asset, which the government agency holds in trust for its citizens. Therefore, it is reasonable and in the public interest to impose pavement degradation fees to be paid by excavators in order to recover the increased repaving and reconstruction costs caused by excavation which are currently borne by taxpayers. It is also reasonably in the public interest to structure the fee, and any exclusions, in a manner that discourages excavation in newly-paved streets and encourages excavators to minimize excavation and to coordinate necessary excavation with the city's repaving schedule. For the most part, these types of fees are higher for newer streets and lower for older streets including those scheduled for imminent repaving. It is recommended that proceeds from pavement degradation fees be allocated to a dedicated fund or account, instead of the general fund, that will be used solely for repaving and reconstruction of the city's streets. A sample calculation to determine an appropriate pavement degradation fee is given in Appendix A.

The City and County of San Francisco enacted a street damage restoration fee, ranging from $1.00 / ft2 for streets between 15-20 years old (since last reconstruction) to $3.50 / ft2 for streets less than five years old.

Assess Appropriate Permit Fees

The permit fee is intended to capture the administrative costs of approving, monitoring, tracking, and inspecting pavement utility cuts. Sometimes the inspection fee is a separate item. For example, the City and County of San Francisco charges a $25 administrative fee for each block in which excavation is proposed. Also, a fee of $8.61 / m2 ($0.80 / ft2) for inspection is assessed. The administrative fee is to compensate the "Department [of Public Works] for the cost incurred to administer provisions of the code".

Violations of the permit and/or the code can result in fines. Normally, an agency will provide for a certain amount of time, such as 24 - 72 hours to remedy the situation and become compliant once again. These penalties are often high, on the order of $1,000 per day per violation. Most codes also specify civil and/or criminal penalties for extreme cases of violation.

Some specific violations, usually enumerated in a regulation or ordinance, are:

  1. Excavation without a permit.
  2. Excavation without proof of the permit issuance on site.
  3. Excavation without proper notice to the Underground Service Alert (One Call System).
  4. Excavation without proper public notice.
  5. Excavation that violates the traffic code.
  6. Excavation that violates the regulations concerning excavation sites that include, but are not limited to, protection of the excavation, housekeeping and removal of excavated and hazardous material.
  7. Excavation that does not meet restoration requirements concerning backfill, replacement of pavement base and finished pavement.
  8. Excavation that exceeds the scope of the permit, including, but not limited to, obstructing the path of automobile or pedestrian travel in excess of the permitted area.
Assess Lane-Rental Fees

A method used extensively to limit the time during which a contractor will have traffic lanes closed to traffic is to rent the lane to the contractor. This practice is most often implemented in one of two ways. The first is for the contractor requesting a cut permit to be given a certain amount of time in which to complete the work. Beyond this amount of time, each impacted lane must be rented from the agency until the repairs are complete to the satisfaction of the agency. The second method is that the contractor must rent the lane from the agency throughout the entire duration of the construction work.

Require Deposits to Protect Against Poor Repairs

In addition to permit fees and inspection costs, some jurisdictions also may require deposits and/or performance bonds to ensure the public right-of-way, where the work occurred, is restored in accordance with the jurisdiction's requirements. Pavement excavation costs taxpayers additional money annually in increased street maintenance because of damage caused to the original life of the pavement. Some of this money could be obtained through deposits and other charges to the utility contractors for future repair of the street. This type of requirement could be considered similar to the pavement degradation fee. The difference is that the degradation fee is never returned to the contractor, whereas a deposit would be returned after a specified amount of time, provided that the repair performs satisfactorily during that time. The City of San Francisco ordinance in Appendix B contains a deposit requirement.

Assess Penalties for Non-Compliance or Failed Repairs

The City and County of San Francisco has one of the most stringent trench restoration requirements in the country. Permits for street excavations are required; the permitted backfilling materials and procedures are prescribed; and there is a three-year moratorium on excavation in newly surfaced or reconstructed streets.(2) When pavement cut repairs fail, often the agency is left to cover the costs of additional repairs. By implementing a policy of penalties for failed repairs, an agency can recover some of the costs for these activities. An important consideration for this and other policies such as requiring deposits, etc., is that each repaired cut must be tracked and associated with the utility contractor that made it. In the future, if a repair fails, the appropriate contractor must be approached for payment of the penalty.

Implementation of San Francisco's excavation ordinance was intended to have the effects of improving the smoothness of city streets, preserving taxpayers' investment in the streets, and minimize the impact of failed repairs on neighborhoods and the streets they must use every day.

3.3.3 Requirement-Based Policies

Many jurisdictions have developed and implemented regulations to preserve the life of streets within their jurisdiction. Rather than attempt to provide incentives or to implement direct fees for pavement utility cuts, many state and city agencies have implemented regulations or ordinances that require certain actions or prohibit others. This type of policy sets forth actions that must or must not be done. This section describes some of the policies that can be instituted by state regulation or city ordinance to require or prohibit certain activities in the ROW.

Require Agency-Owned Utilities to Meet Repair Quality Standards

Often, agency regulations and ordinances specifically exempt from the standards those utilities that are owned by the agency. However, most agency-owned utilities are water and wastewater. Sometimes these types of utilities require more excavation and pavement cuts, and to a greater extent than other utilities. In addition, when such utilities rupture, much greater damage is done to the pavement structure than if an electrical or telephone line is severed. In addition, in environments where agency-owned utilities are exempt from such requirements, and in order to save money for the agency, the cut repairs are sometimes made to a lower quality level than those required of private contractors.

Require Justification for Not Using Trenchless Technology

Upon receiving an application to excavate, many jurisdictions are discussing the use of trenchless technology with utility applicants. Often, trenchless may not be the feasible nor practicable from an engineering or economic standpoint. However, in areas where an agency is encouraging or requiring the use of trenchless technology, a contractor can be asked to justify his reasons for not using it. The reasons can then be reviewed by the public works director or state utilities engineer, who will then either approve the request or ask for further justification. If the reasons submitted are not adequate to the agency's authorized representative, the request can be denied and the trenchless technology can be required. In situations such as this, however, the agency then takes much more responsibility for disruptions to the pavement, existing utilities, or other components of the ROW if problems arise.

Establish Moratorium Periods for New Pavement

A pavement utility cut moratorium can be implemented by an agency to protect newly-built or rehabilitated pavements for a period after construction. In establishing such a policy, the agency must provide opportunities for the utility companies to perform their necessary work in the area prior to construction. There must also be a clause that allows utility cuts in cases of emergency. This type of requirements-based policy is likely the most common among city agencies today.

Require Repaving Area Larger than Cut to Mitigate Pavement Damage

Many studies have indicated that a utility cut damages an area of pavement larger than the actual area of the excavation, and state and city agencies often require contractors to repave an area larger than the immediate area of the cut. The City of Houston, for example, requires the utility contractors reconstruct the street from curb to curb wherever a utility cut is made between them. Policies such as this must clearly describe the method of determining the area of pavement that must be reconstructed. One drawback to this approach may be that since making a utility cut damages the pavement, reconstructing the street in a larger area may not improve the situation, but may simply enlarge the affected area. Such reconstructions must be performed with an attempt to match the current elevations and conditions existing in the pavement structure. This type of reconstruction is easier to do in portland cement concrete pavements, since the new material can be tied into the existing material and can match the existing elevations more easily.

Enhance Inspection and Enforcement of Specification Requirements

Often the inspection procedures in a city or state are less effective than they could be. Additional or enhanced regulations on the repair quality and inspection standards can greatly improve the overall quality of pavement utility cut repairs. The extra cost of such improvements to the inspection work force can be offset by fees established or adjusted to recover those costs.

3.4 Survey of the State of Practice

In addition to the aforementioned survey, each state highway agency, and many cities and state leagues of cities in the United States were requested to complete a survey to determine the type of rights-of-way practices and policies that are utilized to manage access by utilities and other companies. Another objective of the survey was to determine how these agencies encourage the use of alternative methods for installing and maintaining underground facilities. Surveys were sent to 138 state agencies, selected cities, and municipal leagues. Responses were received from the following 28 state highway agencies, shown in table 7. The remainder of this section describes the responses given to the survey.

Table 7. ROW Practices and Trenchless Technology Usage Survey Respondents.
Alabama Idaho Michigan Pennsylvania
Alaska Illinois Minnesota South Dakota
Arkansas Indiana Missouri Tennessee
Colorado Iowa Montana Texas
Florida Kansas New York Virginia
Georgia Louisiana North Carolina West Virginia
Hawaii Maine Ohio Wisconsin
3.4.1 Franchise/Permitting Process

Approximately 93 percent of the respondents have an established formal process in place to allow utilities and other companies to utilize the rights-of-way.

3.4.2 Franchise/Model Agreements

While the majority of the respondents have a formal franchise/permitting process in place, only Louisiana, New York, Alaska, Missouri, North Carolina, Pennsylvania, South Dakota, Texas and Wisconsin actually require utilities to execute franchise, permit, encroachment, ROW access or occupancy agreements to utilize ROW. The same states have also drafted model agreements for services provided by certain utilities to ensure consistency of the application process and methods of compensation.

3.4.3 Franchise Agreement Requirements for ROW Access

Alaska, Georgia, Illinois and Indiana assess and receive franchise fees and/or utility taxes as described in table 8.

Table 8. Assessment of Franchise Fees by State.
Question Alaska Georgia Illinois Indiana
How is fee or tax calculated? Basis not provided Based on administrative costs FMV of lease Basis not provided
ROW access initiated by whom? DOT/PF Regional Utilities Engineer PSC approves certificate; GDOT issues agreements No response INDOT
How does this work with other departments Established formal review process Done verbally No response Informal routing
How much revenue received from each franchise? Electric - $150,000Telecommunication - $100,000CATV - $50,000Sewer - $50,000Water - $50,000 Approximately $2.5 million per year from telecom companies only Information not provided Not provided
3.4.4 Permit Required Before Access

Ten of the agencies require utilities to pay permit fees for construction, maintenance, pole attachment, bridge attachment and other type of permits. The required fees vary from as little as $20 to over $5,000 per permit or project. These same agencies have inspection policies in place to ensure pavement repairs are conducted in compliance with established agency policies.

3.4.5 Underground Conduit Owned

None of the respondents own any conduit.

3.4.6 License Fee Assessments

Illinois, Iowa, Louisiana, Missouri, New York, Pennsylvania and Wisconsin have license fee assessments for bridges, tunnels or poles.

3.4.7 Jurisdiction Tax Revenues

This information was not readily available for any of the DOT's.

3.4.8 Cell Tower Construction

Only 39 percent of the agencies have experienced cell tower construction, primarily by wireless telecommunication providers. The number of sites varies from 1 to 85 as detailed in the following table.

Table 9. Cell Tower Construction in State ROW.
Agency Number of Sites
Colorado 10-20
Florida 70
Hawaii 6
Indiana A few
Louisiana 1
Michigan MDOT only
Minnesota MNDOT lease
New York 5
Virginia 85
South Dakota 1 or 2
Wisconsin 1
3.4.9 Antenna Attachments

Only Georgia, New York and Virginia have agreements involving antenna attachments. The users involved primarily are Metricom and Ricochet Wireless.

3.4.10 Trenchless Technology Use

Almost all of the respondents utilize or require trenchless technology, and overall report favorable results. Details of this part of the survey are described in section 4.4.1. The major obstacles mentioned are:

  • Accurately locating other utilities in the bore path (congested rights-of-way).
  • Limited ROW for set up, costs, soil impediments and equipment.
  • Local contractors still using the old wet bore machines.
  • Location of buried lines and quality control of the operation.
  • Soil conditions and contractor experience.
  • Operator training and the use of vacuum excavation.
  • Lack of guidelines or specifications.
  • Cost on larger applications.
  • Space to set up and the safety aspects of the operation.
  • Too much infrastructure in shallow areas.
  • Minor pavement damages to riding surfaces.
  • Constrained by heavily traveled areas.
  • Large pipe bends.

The major attitudes that inhibit the use of trenchless technology focused on cost, damage to existing facilities, knowledge of contractors and effective use of equipment.

3.4.11 ROW Management Systems Used

The majority of the agencies do not claim to have effective tracking systems in place to monitor construction and other activities in the ROW. While degradation fees are not being assessed, some agencies do require construction bonds for certain projects. Moratorium policies on newly paved roads average 5 - 7 years. Most agencies enforce One Call Damage Programs and penalties for violation of excavation policies.

3.4.12 Use of Jurisdiction-Owned Land

As previously mentioned, agencies are now entering into Shared Resource Agreements for use of state-owned land by telecommunications, fiber optic and other companies. The compensation provision included in these types of agreements varies from state to state.

3.5 Additional Policies

This section summarizes new and innovative approaches for managing utility cut activities and to minimize such cuts. Inspection and enforcement activities using computer tools for tracking and monitoring street cut activities, and measuring compliance with city or state construction standards are among those included.

3.5.1 GIS Implementation

Geographic Information Systems (GIS) are being utilized by jurisdictions more every year. Currently, these systems have become more important as the General Accounting Standards Board continues to develop and implement accounting policies that require jurisdictions to record and monitor the value of rights-of-way infrastructure and other activities. Some jurisdictions are also taking advantage of these enhanced requirements to incorporate tracking systems within developed GIS programs to monitor utility construction and maintenance activities more effectively.

3.5.2 Cut Repair Warranties

Most state and local jurisdictions require utilities to guarantee, or to be responsible for, the condition of excavation permanent repairs for at least 2 years, and as many as 5 to 10 years. In case utilities fail to adhere to this obligation, construction deposits may be required until expiration of the warranty period to ensure availability of appropriate funds to repair pavement deterioration not handled by utilities in a timely manner. In order to make a system or policy such as this work for to the benefit of the agency, however, a system must be in place to track the individual utility cuts and the contractor or utility company that made the cut and repair. Without this information, it would be impossible to establish a claim against the responsible party.

The City of Modesto, CA, instituted an ordinance that gives utility contractors a choice when trenching in the city streets. Essentially, if the contractor signs a warranty requiring the cut to be maintained by the contractor for the remainder of the pavement life, the contractor would be exempt from paying a pavement degradation fee. If not, a pavement degradation fee is assessed at the time of the permit application. Certain exemptions are allowed, depending on the current condition of the street, and the time until the city plans to reconstruct the street. Horizontal Directional Drilling (discussed in section 4.1.1 of this report) is also exempt from the degradation fee.

3.5.3 Automated Permit System

In addition to enhancing existing GIS systems, jurisdictions are eliminating the manual processing of permitting and inspection activities. The automation of these tasks has allowed jurisdictions better to monitor issued permits from the beginning to the end of a given project. Additionally, automation of these tasks has:

  • Reduced the length of time taken to process a submitted permit application.
  • Enhanced the accuracy of processed permit data.
  • Provided up-to-date historical and current information for management reports.
  • Streamlined number of staff required to process and inspect permits.
  • Allowed online capability for submitting permit applications and associated required support electronically.

See the discussion in section 4.4.2 for information on how this has worked for the City of Houston and the utility companies requesting permits.

3.6 Implementation

This section briefly discusses the methods and models for implementing the policies described throughout chapter 1. These include procedures for developing franchise agreements and permitting processes, establishing the level of fees and penalties for various activities, and developing and passing regulations and ordinances to implement the policies.

3.6.1 Franchise and Permitting Procedures

At a minimum, an established ROW policy or franchise/permitting procedure should include:

  • Provisions requiring the telecommunication provider or utility to indicate the specific location the company wants to access.
  • Requirement for providers to state reason for access.
  • Type and level of compensation required for access.
  • Type and costs of permits required.
  • Length of time land or ROW is needed.

Additional provisions that should be included are:

  • Provision that addresses denominating compensation in generic or equivalent-value terms to allow revisions in type and placement of equipment, or shifts between barter and cash.
  • Provisions that deal with capacity expansion.
  • Provisions that describe the type and degree of changes that can be re-negotiated when leases are renewed.

Several options available for permit application methods are shown in table 10.

Table 10. Application Options.
Approach Pros Cons
One-time Window of Opportunity Imposes time limit on administrative involvement with telecommunication provider; construction on specific land or easement segments minimized by installing infrastructure at one time. Total number of applicants and therefore total compensation to the State may be restricted; possibly interpreted as barrier to entry.
Limited Window of Opportunity Imposes time limit on administrative involvement with telecommunication provider; construction on specific land or easement segments minimized by installing infrastructure at one time; allows expansion later at the State's discretion. Total number of applicants and therefore total compensation to the State may be restricted; possibly interpreted as barrier to entry, though planned "reopening" of window may address barrier issue.
Open Application Period Clearly, a non-discriminatory and no-barriers approach; probably enhances total compensation received by the State. Extends period of construction and installation on land, thus poses safety concerns and possibility of damage to existing infrastructure; ongoing administrative burden.
Planned Excess Physical Capacity Easy to accommodate subsequent applicants without disruptive construction on land. Can impose some financial burden on initial applicants, though costs of incremental capacity are a fraction of total costs, may discourage primary tenants if perceived as threat to their customer base.
3.6.2 Methods for Developing Level of Fees

There are at least six key ways to determine the value of land or rights-of-way to be used by utilities. However, no single approach will yield a completely accurate value. These approaches are:

  1. Competitive Auction - High bid(s) in competitive bidding situation assumed to reveal market value of access.
  2. Valuation of Adjacent Land - Proximate real estate values used as a guide to value.
  3. Cost of Next Best Alternative - Cost of communications infrastructure on highway ROW or other public property compared with total cost of next best alternative site (installation plus access and transactions costs using privately held parcels, railroad or utility ROW, etc.).
  4. Needs-Based Compensation - Target level of compensation for barter compensation based on public sector communications needs, rather than independent estimates of private willingness to pay or market value.
  5. Historical Experience - Data on documented shared resource and commercial lease agreements used as a guide to value of access to public property, adjusted to account for differences in property characteristics.
  6. Market Research - Potential private sector applicants are contacted to determine interest, partnership conditions, and approximate willingness to pay.

The common methodologies used to establish appropriate fees are:

  • Percentage of Gross Revenue
    This is the most common method of compensation for use of the ROW when the utility requires ubiquitous access to the ROW.
  • Linear Foot Fee
    This methodology is typically utilized when the ROW occupants require space along a specific route or for a limited purpose within the public ROW.
  • Combination Gross Revenue/Linear Foot Fee
    Often, this methodology is adopted with certain telecommunications providers who may not generate significant revenues for a period of time. In this case, the local jurisdiction will implement the linear foot fee assessment until the company generates a mutually negotiated level of revenues. Upon achievement of the agreed upon revenue level, the percent of gross revenue methodology would then be implemented for the life of the franchise.
  • Fee per Access Line
    This compensation methodology is rapidly replacing the percent of gross revenue formula historically used in franchise/rental agreements for local exchange telephone companies where a fee is assessed per access line.
  • Flat Annual Fee
    Many local jurisdictions are adopting this methodology to ensure receipt of a known revenue amount annually. Typically, franchise agreements that require this type of compensation will also include a provision allowing for a yearly escalator or inflation factor to adjust the annual fee for increases in service provided by the affected utility.
  • Adjacent Land Value
    To establish the ROW rental value based on the market value of its adjacent property value. In this method, the market value of adjacent property (land only) per square foot is assigned to the related rights-of-way.
  • In-kind Service
    In-kind services received can be negotiated in addition to cash to be used over a period of time or infrastructure to be specified and installed. Examples of such in-kind goods and services are given in table 1. It is believed that in-kind compensation is easier to achieve with wireline versus wireless providers because wireline projects are more extensive and cover a wider geographic territory whereas wireless projects tend to be very site specific.
  • Impact Cost-Based Fee
    A fee structure that includes components that cover the cost of making the permanent pavement repair and the increased life cycle cost (takes into account pavements that have not received utility cuts compared to identical pavements that have received utility cuts) resulting from permanently damaged pavement.
  • Acquisition Cost
    This approach to valuing the rental value of public ROW incorporates the use of the estimated cost of acquiring and developing the ROW based on a jurisdiction's acquisition costs. There are not many local governments that utilize this approach because simpler methodologies are available to calculate a fair compensation for rental of ROW such as the percent of gross receipts model.
3.6.3 Model Ordinances (Rulemaking Documents)

Franchise and license agreements are powerful tools in managing the occupants of public ROW. These agreements outline the rules, rights, and fees associated with using public property for private purpose. By definition, franchise agreements are applicable for those ROW occupants that provide services to local, county and state jurisdictions. License agreements are written for firms that are simply traveling through the area with facilities that serve other communities. The power that jurisdictions have is regulated through state law. Federal law may dictate who may have access to ROW, but on what condition this occupancy occurs is clearly under local control. The franchise and license agreement serves as the device to set these conditions.

There are certain elements that should be included in all franchise agreements. The following is a general outline of the provisions and standards in a franchise or license type of agreement.[16]

  1. Parties to the Agreement
    This section outlines the corporations that are involved in the agreement. It should also explain what the franchise plans to do and any other information pertinent to the parties address and other information. There should be a clause that requires occupants to "register" on a given timeline or when business / ownership conditions change. In an age when mergers and divestitures seem common place, ROW managers are frustrated by not knowing who is in charge. Who in the company has authority over the capital planning, engineering, and construction activities?
  2. Purpose and Rights of the Agreement
    This section points out the goals and objectives of the franchise agreement. It outlines the need to protect and manage the ROW authority to assure adequate utility and communication services; all in relation to protecting the public health, safety, and welfare. State in this section that you plan to cover costs and receive fair compensation for ROW use.
  3. Definitions
    The franchise agreements should contain a clear set of terms, phrases, words and other meanings that are clear to the jurisdiction and franchisee.
  4. Scope of Agreement
    This section outlines the branch of authority for the use of the ROW by the franchisee. The following items are important to this section:
    1. The franchise given is a non-exclusive right to the franchisee.
    2. Outline clear authority as to what the franchisee can do in the ROW. It is common practice with some occupants of the ROW to rent their facilities to others. In most cases, there should be clear direction that sharing facilities, such as, attachments to poles, is not allowed without a franchise agreement from the jurisdiction.
    3. Outline what the franchisee can construct and how they should coordinate activities with other utilities. If a jurisdiction requires that additional facilities be installed for use by the municipal corporation or others, that should be outlined in this section.
    4. Include general information about obtaining permits and review of all construction documents by the jurisdiction. More detail on this subject is found in subsequent parts of the franchise agreement.
  5. Term
    The franchise agreement should outline the effective term limits of the agreement. This is normally done for a period of years with agreeable extensions from both parties. The jurisdiction must retain the right to modify or re-write ROW ordinances. New ordinance conditions will apply even if the effective term of the agreement has not expired.
  6. Compensation
    There are numerous ways to compensate the municipality for the right to occupy the rights-of-way. Compensation is comprised of three parts: Administrative fees, reimbursement (inspection, designation of facilities, etc.) and property rental.

    There are two different schools of thought on what and how much the jurisdiction can charge. Some claim municipalities are compensated only for reimbursement of costs. Others support the right to assess a fee based on the value of the property occupied. There is precedence for occupancy fees for cable service and the newer telecommunications firms (wireless and fiber optic firms). The challenge is coming from the established landline companies and other utilities (gas, water, etc.). Many of these companies were regulated by state legislation to warrant a public benefit statute much like government agencies. These regulations require firms to expand service as broad as possible. The new start-ups often choose only the profitable corridors (business centers, etc.) to extend service.

    If a jurisdiction wishes to structure a franchise agreement to include both types of compensation, then there is precedent to proceed in that manner. There is ample argument to support treating incumbent users offering traditional services (established under government regulations) differently from new entities with no obligations to the public at large. When establishing rate schemes, consider the service more than the company. Telephone, water, sewer, electric and gas may be thought to be essential public services much like transportation services. However, cable TV, data services, video and internet services are not essential for public welfare. Compensation structures can be totally difference for these different classes of services.

    This section should also include any request or requirements that the franchisee provide facilities for jurisdictional use. This can be done in addition to or in lieu of actual franchise fees.

    It is not uncommon for a franchisee to provide numerous services such as cable TV, telephone and broad band internet services. There should be clauses within the franchise agreement that require that the services be unbundled (separated) and presented to the municipalities for complete verification that fees were calculated appropriately. As noted previously, a company may be assessed fees for only certain services.
  7. Permits and Construction Standards
    Franchise agreements should include permitting requirements and the approval process for construction. Applicants should submit all plans for approval and provide as-built drawings as necessary. It may be best to have construction standards included within the ROW ordinance and have the franchise agreement refer to that ordinance. Many communities are concerned about the plight of numerous wires attached to power poles. If the community requires undergrounding of facilities, then that should be clearly stated within this section.
  8. Security and Performance Bonds
    If a jurisdiction requires performance bonds or other financial guarantees during the performance of the work, this should be clearly outlined in the franchise agreement. Avoid the use of bonds whenever possible. Court action is required to release any money. It's better to establish bank letters of credit or hold cash in an agency account.
  9. Relocation of Facilities
    The jurisdiction should protect itself by requiring the franchisee to relocate facilities whenever the jurisdiction requires such relocation. It may also be necessary that some facilities be moved because a third party wishes to gain entrance to the ROW. Under those circumstances, it should be clear that the third party should pay for the relocation of the occupants. The best way to prevent the need to relocate is to have proper planning of the initial location of all occupants. Try to keep all private companies at the extreme edges of the rights-of-way so that it allows the jurisdiction the clear use of rights-of-way for road, sewer, water, and drainage facilities. Situations are constantly encountered where ROW is full. No law exists mandating access when such approval will affect system reliability or increase the potential for catastrophic failures or repair costs. Simply put, if the only space available is over top of the sewer main, just say no. Most utilities will push to have old facilities abandoned in place. This is happening in the natural gas industry because of the environmental restrictions on disposing of old mains. Often these facilities are not mapped nor are they marked during stake out requests. A municipality needs to determine whether an abandoned facility should be removed as part of this franchise agreement.
  10. Replacement Franchise
    At this time many communities are writing ROW ordinances or other types of codes. These codes are also being upgraded on a continuing basis as the utility industry changes. There should be a clause within the franchise agreement that requires the franchisee to remain consistent with applicable requirements of any amended or new regulatory ordinances.
  11. Assignment and Transfer
    The industry is going through extensive de-regulation and mergers. It is often difficult to determine exactly who is the owner of the facilities. There should be a section that clearly requires the franchisee to inform the municipal owner and to seek approval for the assignment or transfer of the franchise agreement terms. The goal is not to prohibit this transfer but to clearly understand who is taking over the company and the applicable persons to contact should problems arise with the maintenance and/or coordination of the ROW.
  12. Indemnification and Waiver
    Include a section that indemnifies the municipality against all claims and/or losses and liabilities because of the franchisee's having occupancy within the ROW.
  13. Insurance and Bonds
    In this section, the franchisee should be made aware of exactly all limits and conditions required by the jurisdiction. Certificates and endorsements should be filed with the jurisdiction. There should also be a clause that states if there is a change in the insurance that a notice should be given directly to the municipality.
  14. Termination
    There should be a clause that outlines all the conditions of which this agreement could be terminated by either of the parties. Should termination occur, there should be clauses that indicate that all facilities shall be removed at the expense of the franchisee.
  15. Miscellaneous Provisions
    Most jurisdictions have various clauses that are to be included in agreements or contracts. These may include some or all of the following:
    1. The agreement should be binding on both parties.
    2. Choice of law should be clearly stated where any disputes should be presented to the courts. Generally that should be within the state of the municipality.
    3. Severability of provisions. Some provisions of the agreement may be considered invalid or illegal. This type of clause generally states that should this occur, other provisions shall stay in force.
    4. Consent requirements. This generally says that approvals pursuant to this agreement shall not be unreasonably withheld or delayed.
    5. Representation and warranties. This statement warrants that each of the parties in this agreement have authority to enter into and perform the obligations under this agreement.
    6. Financial review. This provision allows the municipal auditor to look at the books of the company to make sure that the revenues and other calculations are consistent with the agreement.
    7. Gratuities, kickbacks and conflicts of interest. Generally, there are clauses that cover that no gratuities shall be offered to municipal employees. Kickbacks are of course illegal, and those conflict of interests are avoided.
3.6.4 Summary

The policies described in this chapter - primarily to control the frequency of pavement utility cuts - can be implemented beginning with the methods of establishing appropriate fees and following model rulemaking documents such as the outline presented in section 3.6.3. In addition, several appendices to this report contain sample regulations and ordinances that have been in use by states and municipalities for several years.

The next chapter discusses the application of developments in technology to reduce the frequency of pavement utility cuts. However, conditions may often arise where policies are needed to encourage the use of this technology. Many of the types of policies described in this chapter may be of use in implementing and encouraging climate for trenchless and other technologies.

[15] West, The Information Highway Must Pay Its Way Through Cities: A Discussion of the Authority of State and Local Governments to be Compensated for the Use of Public Rights-of-Way, 1 Mich.Tel.Tech.L.Rev.2(1995)

[16] American Public Works Association, Utility and Public Right-of-Way Committee, Model Franchise and License Agreement

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Updated: 04/19/2018
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