A federal court jury in Missouri last year issued a major verdict regarding the use of electric utility easements for commercial telecommunication purposes. While the case is currently under appeal, the ruling is one that all utilities need to be aware of before embarking on any effort to add new or additional services using the power line easements they already have in place. Many of these easements date back decades, and were granted for the sole purpose of permitting the installation of power lines. They may predate many modern technologies, including fiber optic lines, which are commonly used for data transmission today, presenting an obstacle adding this service, particularly since updating these easements one at a time can be a costly and painstaking effort.

The jury in the case referred to above found that compensation was owed to the plaintiffs for the fair market rental value of the defendants’ use of the utility easements for commercial telecommunication purposes. The lawsuit alleged that the defendant utilities had installed some 2,000+ miles of fiber optic lines within easements that were limited to electric transmission and distribution line purposes. The plaintiffs asked the court to declare that the defendants had no legal rights to use the easements for commercial telecommunication purposes as well as bringing claims for trespass, disgorgement of profits, an injunction to prevent future commercial fiber optic uses of the easements, and punitive damages. The defendant utilities and their subsidiaries admitted many of the facts related to their telecommunication activities, however, they denied that such activities were inconsistent with their easement rights.

The court agreed with the plaintiffs and ruled that the defendants’ actions exceeded the rights granted in more than 3,000 individual easements and court orders. The court stated resolving such issues required consideration of “how changing technologies should be harmonized with historic real property principles,” and also said that deciding if “an additional use is reasonable and necessary depends on whether the additional use represents only a change in the degree of use, or whether it represents a change in the quality of the use. If the change is in the quality of the use, it is not permissible... where the additional use exceeds that which is authorized by the easement... a landowner may be entitled to compensation.”

It is important to note that real property law is generally a subject for state jurisdiction. While the basic principles of real property law are broadly similar across most jurisdictions, the specific law and the analysis of the facts under that law will vary from state to state. It is important to note that some states have already prohibited or are actively seeking to prohibit rural broadband delivery through electric utilities, as another NYT article discussed recently. (To see that article, click here.) Therefore, before proceeding with a new or additional use on an existing easement, utility companies must conduct a careful analysis of the land rights supporting a particular project under the laws of the specific state(s) involved.

In an article entitled “The New Greatest Thing, Co-ops revitalize their mission and their communities by offering broadband service” published in the November 2015 issue of RE Magazine provided an overview of the effort to offer high speed broadband service to residents of underserved rural areas. While the article was primarily devoted to the benefits of this effort, near the end of the article a section entitled “The Fine Print” offered some cautions. That section is repeated below. (Subscribers can access the full article through the RE Magazine archive, by clicking here.)

Ty Thompson, NRECA vice president and deputy general counsel for director and member legal services, cautions co-ops to review their Electric Cooperative Act and any applicable state laws before deploying a broadband program. They should work closely with their attorneys, he says, regarding their ability to engage in or own another entity engaged in the telecommunications business.

“Unfortunately, some acts may not permit it,” he says. “I also urge cooperatives to check their easements and state law regarding their ability to install fiber optic cable and use it for non-electric purposes. Some easements may not permit it.”

For example, a Missouri electric cooperative and its subsidiary are appealing a sizable trial court judgment [The case referenced above, Ed.] after a ruling that some of the co-op’s easements did not permit using fiber optic cable for commercial telecommunication purposes.

Thompson also advises that electric cooperatives engaged in the telecommunications business or owning telecommunications subsidiaries “should not use electric revenue, employees, or assets to subsidize the telecommunications business.”

Since the effort to bring broadband to rural areas using power company rights of way typically involves installing fiber lines that will cross many landowners’ properties, the risk associated with large awards cannot be ignored. Accordingly, Mr. Thompson’s advice should be scrupulously followed in order to protect your company from liability. The decisions and jury verdict in the Missouri case offer an example of what can happen.