All Aboard for Reformed Railroad Right-of-Way Crossing Rules

When utilities, including broadband providers, need to cross railroad rights-of-way to serve customers, some railroad operators have been known to press their advantage. Several states have addressed utility complaints by establishing standardized rates and setting up processes to create a more reasonable and predictable system. Eliminating this obstacle to deployment is another step in bringing broadband to the communities that need it the most.

Party Concerns

Often railroads obtained title to real property during 19th century acquisitions as the infrastructure was being built. They want to preserve as much of their authority and title rights as possible and to ensure that they can receive the maximum value for their interest in the land.

For utilities, cost of deployment is a primary concern. When railroads demand unreasonable fees at crossings or drag out negotiations as a delay tactic, they also impinge on a utility’s ability to meet operational deadlines. Safety and engineering integrity can be negatively impacted by difficult negotiations, unreasonable demands, or exorbitant costs.

Different States, Different Stories

Few states have addressed the problem with statutes establishing standard utility fees for railroad right-of-way crossings. David L. Thomas, Managing Member of the strategic utility planning firm Eagle 1 Resources (E1R) has worked with telecommunications companies and other utilities to negotiate railroad crossing arrangements. He's seen that standard crossing fees set down in statute benefit deployment by ending delay and reducing costs and would like to see the trend pass to every state.

seal-wisconsin.png In South Dakota and Iowa, the fee had been established at $750. Wisconsin allows railroads to charge $500 [PDF see page 12] and state law in Illinois, where railroads have a strong presence in metro areas, puts the standard fee at $1,500 and requiring the utility to pay the land management company that handles properties for railroads.

Nebraska, where the significant barriers prevent municipalities from offering telecommunications services to the general public, directs their statute specifically at agreements between telecommunications carriers and railroads. Other states typically apply the standard crossing fee to any utility that requires conduit or wire, regardless of whether the utility is public or private. Nebraska's statute establishes a standard fee of $1,250.

Thomas describes Wisconsin’s rule as ideal for utilities in places where railroads have traditonally charged a fee because it requires no other compensation. If a rail operator feels that there are “special circumstances” that warrant a higher fee from the utilities, the company can petition the state’s Public Utility Commission. Unlike laws in Minnesota and South Dakota, rail operators are expected to pay for the cost of flaggers and utilities don’t have to obtain insurance.

In states where insurance is required, rail operators have often demanded that utilities purchase special insurance directly from the railroads at inflated prices. Similarly, they have required special inspectors and flaggers that the railroads have brought from other states, charging utilities unreasonable prices for reimbursement. By exploiting the flagging loophole, says Thomas, railroads can turn a $500 per day expectation into a to $3,000 per day expense. Not so in Wisconsin.

Stories from the Field

Greg Dean, Director of Industry Relations for the South Dakota Telecommunications Association (SDTA), says that their organization and similar groups representing utilities tried to work together at one time to draft a master agreement. Their hope was that such a document would eliminate the need for contentious negotiations between railroads and utilities, but their efforts fell flat. Instead, they lobbied for and managed to pass a standard railroad crossing fee statute.

seal-south-dakota.png In 2014, the South Dakota State Legislature adopted a $750 standard crossing fee for utilities. Like statutes in Minnesota and other states that would come later, the law allowed railroad operators to charge utilities for flagging and prevented railroad operators from charging when the crossing sits in a public right-of-way. The issue wasn’t solved, however, as railroads still found ways to recoup the fees ended by the reform.

Utilities often hire third-party contractors to deploy fiber under railroad crossings and railroads started implementing a “right-of-way entry fee” charged to contractors hired by utilities, rather than the utilities themselves. The fee was as high as $3,000 per crossing, driving up the cost of deployment. Railroads had found yet another way to circumvent the statute and profit from telecommunications deployment.

In 2016, the utilities collectively lobbied the legislature to revise the law [PDF] as it had been passed in 2014. The revision passed with only one vote opposed. 

By adding the sentence:

“No other fee may be assessed by the railroad or by any railroad agent, contractor, or assignee to the utility or to any agent or contractor of the utility.”

South Dakota was able to end the railroads' practice of using an additional, indirect fee to undermine the law. Since then, says Dean, he's not aware of other railroad right-of-way crossing issues facing utilities.

How Much?!

In Minnesota, utilities have also endured large fees imposed by railroads until the State Legislature passed SF 877 in 2016. With state law constructed in a manner that allowed railroad operators broad discretion, it was not unusual for railroads to charge high annual fees. Some required utilities to pay an amount that would continue in perpetuity, increasing each year and even doubling annually.

Brent Christensen, President and CEO of the Minnesota Telecom Alliance (MTA), describes a situation in Fosston, Minnesota:

"Garden Valley Telephone wanted to install fiber to their [Fosston's] city hall. In order to do it, they would have to parallel railroad tracks for a couple of blocks and cross the railroad at one point. The bill from the railroad to do this on an annual basis for 20 years was going to come to $72,000…And they were in the public right-of-way the whole route."

Minnesota courts are clear that the railroad’s interests are subordinate to those of the public and yet railroads have continued to charge crossing fees in public rights-of-way. In a 2015 court case, the Eighth Judicial District reaffirmed that rule and dismissed a case brought by the Minnesota Valley Regional Rail Authority (MVRRA) against several telecommunications companies in Yellow Medicine County.

The MVRRA demanded that Clara City Telephone Company enter into a license agreement and pay for the right to run their conduit in the MVRRA's claimed right-of-way. Clara City Telephone refused, and the court determined that the company was not obligated to enter into an agreement or pay MVRRA because railroad rights-of-way "are subservient to the public highway right-of-way" even if streets are built after a railroad obtains its right-of-way interest.

The court went on to determine that using the public highway for fiber optic deployment was a proper highway use, and that several Minnesota statutes allow utilities to use the public right-of-way for utility lines. As long as there is no additional burden imposed on the land in question, ruled the court, telecommunications providers are not required to obtain permission to deploy in the public right-of-way and they are not obligated to pay a railroad operator who may have a right-of-way interest in the public right-of-way.

moneytrain-04.png Read the Order on Motions for Summary Judgment for Minnesota Valley Regional Rail Authority v. Hanson Communications, Inc. et al. here [PDF].

Those Darn Delays

In addition to unreasonable fees, the delays caused by railroads have been a concern from telecommunications utilities. As part of their comments to the FCC in 2017, Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment [PDF], NTCA — The Rural Broadband Association suggested a federal “model code” that addresses both fees and time limits. See pg. 16 for the comments on railroad troubles.

The NTCA also referred to delay as a problem in their 2018 comments [PDF], recommending a second time that railroads’ position as “gatekeepers” should be revoked. On page 6, NTCA wrote:

Also common are delays of several months for boring under railroad crossings...typically for work that begins and ends in the public right-of-way, never touches railroad property, and is completed in an hour.

When broadband infrastructure deployment falls behind schedule, each day reduces the total potential revenue. People waiting to be connected become impatient and when they have to wait longer than expected to obtain service, a delay can sour the subscriber relationship.

Straightening it Out in Minnesota

After decades of complaints, the Minnesota Legislature passed SF 877 in 2016. Several organizations representing utility industries advocated to pass the bill, including the MTA, the Minnesota Municipal Utilities Association (MMUA), the Minnesota Rural Electric Association (MREA), and the Cooperative Network.

The legislation added a new section to state law, creating a process and limits for involved parties. SF 877 also codified case law precedent establishing that railroads could not charge utilities for lines in public rights-of way. The other states passing standardized fee and process railroad right-of-way crossing legislation or administrative rules include this same provision.

Of the legislation, Christensen notes:

“This legislation was critical as our members are deploying broadband to some of the most rural parts of our state. Railroads have no right to make money off of public rights-of-way, the law makes that clear.”

Other provisions in the bill:

  • Established a $1,250 standard fee per facility to the railroad operator. One conduit and its contents are considered “one facility.” That fee increases each year, based on the Producer Price Index.
  • If a utility submits an application and engineering design, a certificate of insurance, and the required fee, they can commence construction in 35 days unless the rail operator objects. Objections must be based on a “serious threat to safe operations” and notice of the objection must be served in writing to the utility.
  • A utility may file their own objection if a railroad imposes a condition or requirement that’s not allowed in statute. Either party can petition the Minnesota Public Utilities Commission (PUC) for mediation or arbitration and the PUC has 120 days to issue an order.
  • Railroad operators may require utilities to pay additional costs, such as flagging expenses associated with traffic at the crossing. They may also require a utility to relocate if the crossing is “essential” to railroad operations and the utility's presence will interrupt that activity.

logo-LMC.png Read more dos and don’ts by reviewing Chapter 180, Sec. 2, 237.045 Railroad Rights-of-Way; Crossing or Paralleling by Utilities.

Who’s Eligible in Minnesota? Pretty Much Everybody

Both private and public entities, such as Internet access companies and municipal utilities or cooperatives, benefit from the change. A broad range of types of utilities can take advantage of the law, not only those that deploy fiber optic infrastructure. If a public or private utility needs to cross a railroad with tubes or wires in Minnesota, the standard right-of-way crossing fee should apply.

Research attorney Hakeem Onafowokan at the League of Minnesota Cities suggests that communities committed to existing agreements with railroads review the terms and consider alternate possibilities:

If your utility has a crossing agreement in place for which you are still paying annual fees, you may want to consider reviewing the termination conditions in the agreement with your city attorney. If the city has cumulatively paid more than $1,250 in fees for that crossing, you may want to consider terminating the agreement, if the contract allows.

Chipping Away at Challenges

Deploying the broadband networks that communities need for fast, affordable, reliable connectivity is no easy task. Obstructions created by railroads have added unnecessary cost and delay to critical infrastructure projects and may have even tipped the scales enough to quash plans where the need is the greatest.

By implementing rules that end railroads' ability to exploit their power with respect to utilities, states with firm right-of-way crossing rules improve the broadband ecosystem. Local communities and private sector providers which deploy fiber networks will have the ability to better predict costs and deploy broadband infrastructure with less delay.

Image of Minnesota railroad crossing by Sharon Mollerus [CC BY 2.0]