Valuation and Compensation for Accommodating Utility and Communications Installations in Public Rights-of-Way (2023)

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163 Appendix C – State DOT Case Study Interviews Colorado Department of Transportation Case Study Upon recommendation of the research team, the project advisory panel selected the Colorado Department of Transportation (CDOT) for a case study due to their unique fee structure and valuation approach. The CDOT interview included representatives from Intelligent Transportation Systems (ITS), Utility Management, Permitting and Operations. The research team provided CDOT representatives with the research objectives and interview questions in advance of the interview. CDOT advised that multiple offices and an assortment of policies and legislation are involved in accommodation of utilities, including broadband and fiber optic telecoms, small-cell and macro-cell facilities. Accordingly, they arranged for representatives knowledgeable about these topics to participate in the interview to communicate a complete understanding of CDOT’s approach. Colorado’s fees for utility accommodation follow various federal and state laws depending on the type of utility, whether the installation crosses or is installed longitudinally within highway ROW. CDOT does not charge a fee for a standard accommodation permit. CDOT has a long history of receiving compensation for accommodation of utilities, specifically for telecoms/data facilities longitudinally installed within state highway rights-of-way (ROW). In 1997 Colorado enacted a law allowing telecom companies longitudinal access to all state highway rights-of-way (ROW) in exchange for compensation. Longitudinal access is revenue generated through a lease agreement or Public Private Partnership (P3) agreement and only applies to broadband/telecoms, macrocell and small cell/5G utilities. When companies voluntarily enter a P3, CDOT can use its assets to negotiate the P3 agreement – swapping, bartering or financially. CDOT follows FCC fee-structure guidance for small-cell/5G installations. Private utilities and macro-cell towers are property management leases unless tied to a P3. CDOT also has legislation allowing the department to require joint trench use or shared conduits. The interview included discussions about general utility permitting, broadband and fiber optic lines along state highway ROW, and small and macrocellular structures. General Utility Permit Fee The CDOT interview covered general utility permits and fees. This area of permitting operates in a non-revenue generating capacity; fees are not collected. Private utilities desiring a permit to enter CDOT ROW must enter into a lease agreement.

164 Telecoms Longitudinal Fees Colorado’s law allows telecom facilities longitudinal access in exchange for compensation. The compensation approach applies to all state highway ROW. Utilities can provide compensation through a lease based on fair value of the occupied land. For telecoms who want to compensate fair land value, CDOT is considering a method and approach for determining and implementing an annual lease rate outlined in an Arizona DOT white paper. CDOT will be vetting this approach with an industry work group, evaluating the methodology of determining a cost to use CDOT ROW. While CDOT owns 87% of its ROW in fee title, the remainder is easements across federal lands (e.g., Forest Service, Bureau of Land Management, tribal lands). CDOT will be exploring a method to determine value where CDOT does not own ROW in fee title. They are looking at an approach that NM DOT and AZ DOT pioneered. This approach looks at the value of the highway as an asset with pavement, shoulders, safe passage, guardrails. DOTs create the highway asset and maintain it as a convenient and safe environment for fiber to be placed and accessed. Without the highway, a telecom would have to navigate geophysical barriers, cut down trees, create and maintain access roads, etc. Telecoms have not been successful in acquiring longitudinal access for long sections of ROW due to the typical high costs based solely on fair value of the ROW. Almost all telecoms have abandoned the approach of compensating solely on ROW valuation as a basis for fee. Lease P3 agreements have proven to be more effective. There are 77 P3 lease agreements currently in place. If a company wants to partner with CDOT, lease fees may be waived as determined in a P3 agreement. CDOT can use its assets to negotiate a P3 agreement – swapping, bartering, and financial. CDOT’s Fiber Management Team (comprised of Regional Leadership + ITS Team leadership) reviews each proposed agreement to make sure it meets state criteria (not spending more than $50,000 in state funds and ensuring fair value is offered. This approach is unique to CDOT highway operations. The fair value question comes up a lot. CDOT does not prescribe fair value criteria. Leaving an un-prescribed fair value allows the utility to assess their ability to add assets to the deal where they have better buying power and the assets have more value to the DOT. For example, the telecommunication company’s cost for adding an extra conduit and fiber while doing their work is much lower than what it would cost the DOT to go and install it themselves. The DOT estimates the value of asset offered by the telecom, at DOT’s cost to hire a contractor to install the conduit and fiber. Another example is the value of lit fiber provided by the telecom would be equivalent to what the DOT would pay to lease lit fiber. The telecom can provide the services at a lower cost than DOT could acquire the same services.

165 From the telecom’s point of view, there can be value in working with one property owner, avoiding private land leases and simpler construction along a highway with contiguous access. CDOT also considers indirect value of fiber used for highway operations – such as reduced crashes, reduced emergency response time, operational value, improved commerce, etc. CDOT does not grant any property rights in lease agreements including P3s. A typical P3 has an up-front payment and annual lease payments for twenty years. Lease fees for dark fiber increase 3% annually. CDOT has two people working full-time on longitudinal telecoms leases and P3s. As a result of FHWA’s recent rules on the Broadband Mobile Now Act, three new positions have been established. The positions are Fiber Development Manager, Coordinator for P3 and projects, and GIS. CDOT intends to publish GIS maps showing all telecoms in CDOT ROW, following Utah DOT’s model. Cellular Device Permits/Fees CDOT sets small cell fees based on FCC’s fee structure guidance. There are no other fees. Macro cells are normally property management leases, unless tied to a P3. Grass Roots Coalition of State DOTs CDOT is a member of an ad hoc coalition which began with the Four-Corner states of Utah, Colorado, Arizona and New Mexico. Idaho subsequently joined. Oklahoma and Nevada are joining for the next annual meeting. Coalition states meet to share experiences and best practices and align their processes, so the telecoms industry has more consistent expectations working across cross state lines. Alternative Uses of Highway ROW CDOT is exploring whether to allow solar in the ROW. There are concerns about creating exclusive use with solar installations. Once land is occupied no other company can occupy the space. CDOT believes EV installations could be synergistic with highway operations but has questions about policies which might treat electric vehicle charging installations different from solar or other utility activities. There are policy reservations about alternative uses of the ROW rooted in historical federal prohibitions against profit making activities on the ROW. CDOT is hesitant to move forward without a solid legal basis. Lessons Learned How did Colorado successfully retain their legal framework for longitudinal compensation since inception in 1997? Major telecommunication companies are very satisfied with CDOT’s program and are not pushing for changes to the law. One reason may be that telecoms can accelerate their business development. CDOT’s program provides them the ability to install new or expanded services over long distances

166 that otherwise wouldn’t be feasible due to having to deal with hundreds of property owners, multiple government regulations, lack of access, geophysical constraints and higher costs. Colorado is a home-rule state, meaning that local governments can decide whether to adopt state statutes. The state has to maintain a healthy relationship with local governments in order to advance policy initiatives. This results in a relationship where the Legislature and the Governor’s administration have a mindset to listen and not anger the local leaders. Local community leaders seen huge benefits from CDOT’s program, especially in remote areas. Fiber optic services are fast becoming commerce corridors, where communities need access to grow economically, educate their citizens, and enhance their access to medical care. The executive branch of government office supports CDOT’s compensation program because 1) the state is a partner in accelerating fiber-related services to under-served populations, 2) CDOT is able to expand its ITS capabilities improving highway operations and safety for the traveling public, and 3) it enables industry to deliver their products in a competitive environment – lowering price and increasing accessibility. When parties have occasionally proposed legislation that would water down or remove the compensation law, the political movers have consistently worked to kill the proposals in committee. CDOT indicated that their staff liaison between the DOT and the legislature has also been very instrumental in keeping the program intact. When the highway has to be widened or other appurtenances installed and the telecom has to be relocated, who pays is dependent on the lease agreement language – usually CDOT pays. When P3s expire how does a DOT re-evaluate a new agreement? CDOT requires longitudinal installations to be placed at the edge of the ROW to avoid conflicts with highway widening and maintenance work. Interestingly, the telecoms still get fiber cuts on the ROW line in addition to cuts from delineator posts, guardrail and signs posts. CDOT is considering allowing micro-trenching in the paved shoulder where it would be more protected, although there is concern about locate companies working on the paved shoulder close to traffic. CDOT is developing a system for managing and tracking workflow – processing, approvals, invoicing. DOTs don’t know how to invoice companies or handle annual recurring invoices for a 20-year period. It may be challenging to determine the value of dark fiber lease rates. CDOT would like to keep lease rates at or above industry rates. The broad appeal and value of CDOT’s telecom compensation program beyond transportation purposes can induce political pressure to keep lease rates below industry prices. This can be challenging for DOTs where transportation dollars are restricted to transportation purposes, not to be used for other initiatives. Scope creep can occur.