IX. Public Utilities Code Sections 851 and 853(b)

In the OIR, we raised the possibility of exempting BPL transactions, pursuant to our authority under § 853(b), from the requirements of Pub. Util. Code § 851.31 (OIR, pp. 5-6.) Some parties applaud this approach, while others criticize it. We now confirm that we are adopting a policy of exempting certain BPL transactions from § 851.

A. Party Positions

PG&E supports exempting BPL transactions from § 851 review. It argues that such review is not necessary to protect the public interest and calls § 851 review an "unnecessary regulatory hurdle." (PG&E Opening Comments, p. 14.)

SDG&E concurs. It argues that requiring a § 851 application "necessarily would result in delay and uncertainty." (SDG&E Opening Comments, p. 20.)

Ambient and Current also support exempting BPL transactions from § 851. As Current puts it, "Sec. 851 proceedings can be contentious and time consuming. Such regulatory uncertainty would substantially hinder the development of BPL and would stand in stark contrast to the Commission's efforts to promote competition in communications by providing regulatory certainty through appropriate use of § 853 exemptions." (Current Opening Comments, pp. 23-24.)

SCE does not oppose an exemption from § 851 for BPL. SCE, however, recommends that the Commission "consider a uniform approach to § 851 requirements for all communications providers regardless of the technology on which service is based." (SCE Opening Comments, p. 6.)

TURN, on the other hand, vigorously contests the proposed exemption from § 851. It contends that an exemption is unnecessary, illegal, and inconsistent with the Commission's expressly stated standards for granting § 853(b) exemptions. TURN argues that it is Commission policy to only grant exemptions in extraordinary circumstances. (TURN Opening Comments, pp. 18-26.)

CCTA opposes providing an exemption from § 851 when the exemption is solely for BPL projects. It argues that such an exemption would be discriminatory and inconsistent with federal law and policy, because the exemption would favor one technology over another. CCTA adds that an exemption is simply unnecessary, as compliance with § 851 will not hinder BPL deployment. (CCTA Opening Comments, pp. 2-8.)

Other parties opposing an exemption from the requirements of § 851 include CISPA, DisabRA, DRA, Greenlining, San Francisco, and UCAN. (CISPA Opening Comments, p. 5; DisabRA Opening Comments, p. 5; DRA Opening Comments, pp. 5-7; Greenlining Opening Comments, p. 6; San Francisco Opening Comments, pp. 2-4; UCAN Opening Comments, pp. 26-27.)

B. Discussion

Pub. Util. Code § 851 exists to protect the quality of utility service provided to ratepayers, and to protect ratepayers' investment in utility assets. While it serves an important purpose, § 851 application proceedings can sometimes be both contentious and time-consuming, and a full review of every transaction is not always necessary to protect the public interest. Here a lengthy § 851 proceeding would be inconsistent with our stated policy goal of not impeding the rapid deployment of BPL technology.

Although previously the Commission has expressed concerns that the granting of § 853(b) exemptions runs the risk that "would create an exception that swallowed the rule,"32 the plain language of § 853(b) does not limit its application to extraordinary circumstances. Section 853(b) provides that "the commission may from time to time by order or rule, and subject to those terms and conditions as may be prescribed therein, exempt any public utility or class of public utility from this article if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest."

Moreover a review of the specific use of § 853(b) to exempt transactions from § 851 shows that the Commission has employed a variety of policies and standards when applying § 853(b). Indeed, the Commission has granted a number of exemptions without any finding of extraordinary circumstances.

Often exemptions arise in circumstances that would be difficult to deem "extraordinary" under almost any standard. For example, in D.05-07-039, the Commission granted SDG&E an exemption from § 851 for any contract negotiated with solar photovoltaic or small wind project as long as (i) the contract is the result of an open solicitation, (ii) the agreement meets a least-cost best-fit test, (iii) the contract does not involve an affiliate of SDG&E, and (iv) the bidder has access to SDG&E property. In the decision, the Commission lists several reasons for granting the exemption. First, the Commission contends that a § 851 review could "delay implementation." Second, the Commission maintains that the involvement of SDG&E property is "small." Third, the Commission observes that the property would be used "to generate electricity for the utility's customers."

Similarly, in D.05-06-016, the Commission granted PG&E and SCE a § 853(b) exemption from a § 851 review of the transfer of emission reductions to the California Air Resources Board or local air districts. In reaching this result, the Commission simply noted that it has given exemptions in the past where review served no public interest. It further stated that "because PG&E and Edison will be obtaining the emission reduction from customers solely as a result of the conversion program and the assignment of these reduction will bring about permanent air quality improvements without having any impact on the ability of the two utilities to serve their customers, an exemption from the requirements of § 851, pursuant to § 853(b), is appropriate."33 This decision does not consider whether these circumstances are "extraordinary."

In D.04-03-020, the Commission granted an exemption from § 851 review to the assignment of accounts receivable by Lodi Gas Storage to securitize a short term line of credit. There the Commission observed that the authority granted to it by § 853(b) permitted such an exemption. It further stated that statutes urged the Commission to create competition for gas storage, and the Commission had adopted a "let the market decide" policy for gas storage as a further justification of an exemption.34 Once again, the Commission did not discuss whether these are "extraordinary" circumstances.

In D.02-10-008, the Commission, pursuant to § 853(b), exempted PG&E's sales of electric meters to customers. The Commission simply found that "it would be unduly cumbersome and uneconomic to require individual filings by utilities for each individual meter sale. Such a requirement would not serve the public interest."35 The decision did not consider whether these circumstances were "extraordinary."

Given this brief review of past Commission decisions, it is clear that TURN is incorrect when it asserts that this Commission has in the past only granted exemptions from § 851 pursuant to § 853(b) in extraordinary circumstances. (See TURN Opening Comments, p. 19.) Instead, these decisions show that the Commission has granted exemptions in a number of matters where the circumstances are quite ordinary.

In other situations, even when the Commission could have reached a finding of an "extraordinary circumstances," the Commission did not do so. For example, in D.05-10-013, the Commission granted a § 853(b) exemption from § 851 in order to eliminate the review of a proposed agreement that would allow encroachment on specified easements. Although this exemption was granted during an anticipated energy shortage and the exemption could have readily passed an "extraordinary circumstances" standard, the Commission simply invoked the language of § 853(b) and found that a § 851 approval was "not necessary in the public interest." In addition to citing § 853(b), the Commission relied on D.01-06-006, which permitted SDG&E to lease space at substations during the energy crisis, once again without finding that "extraordinary circumstances" were present.

Moreover, even when one examines the specific cases in which the Commission cited "extraordinary circumstances" as warranting a § 853(b) exemption, it is clear that the Commission's notion of "extraordinary" is highly elastic. In D.02-01-055, the Commission exempted the sale of six of PG&E's electric distribution facilities to customers made 12 years earlier, citing PG&E's mistake in failing to seek approval as creating an "exceptional circumstance." The Commission found that the Commission's implicit approval of the sale (in a prior decision ordering the sale), PG&E's error, and the passage of time created "extraordinary circumstances."36 Likewise, in D.04-07-021, the Commission granted PG&E another exemption for 255 similar transactions that had failed to secure approval. After granting an exemption for the entire period preceding the decision, the decision then granted § 851 approval on a going forward basis for all the transactions.

The review of these decisions makes it clear that a § 853(b) exemption may be granted whenever the Commission makes a policy determination that application of § 851 is not necessary in the public interest. As made evident by the plain wording of § 853(b), the Commission need not establish that "extraordinary circumstances" are at issue.

An exemption in this matter supports three important Commission policies: (i) encouragement of public access to broadband system; (ii) promotion of competition in the broadband market; and (iii) reduction of scrutiny for routine transactions. These Commission policies are consistent with goals set forth by the State legislature and are discussed in greater detail below.

First, granting an exemption in this matter is reinforces our policy of encouraging public access to advanced telecommunications services. This Commission policy is stated in § 882(a) of the Pub. Util. Code. The provision states that the Commission shall ensure that "advanced telecommunications services are made available as ubiquitously and economically as possible."37 It also declares that we should aspire "to provide all citizens and businesses with access to the widest possible array of advanced communications services."38

Second, granting exemption to BPL transactions from review under § 851 will further this Commission's long-standing goal to promote competition in the broadband market. Pub. Util. Code § 709 states that California's policy for telecommunications is "to remove the barriers to open and competitive markets and promote fair product and price competition in a way that encourages greater efficiency, lower prices, and more consumer choice."39

Exemption under § 853(b) of the application of § 851 to these BPL-related transactions is consistent with this policy enunciated by the legislature. BPL has the potential to bring competitive benefits in the broadband market, and our granting a § 853(b) exemption reduces barriers to BPL providers' encouraging open and competitive markets. Review under § 851 would create a regulatory mechanism where incumbent carriers could seek to delay entry by BPL providers and hence retard the growth of competition in the broadband market. 40 With this delay comes greater uncertainty that will further deter entry.

Third, a policy of the Commission is to reduce the level of scrutiny for routine transactions, such as those at issue in this proceeding. This policy is reinforced by the existence and language of § 853(b), which broadly allows the Commission to take a hands-off approach when the Commission determines that such a policy is in the public interest.41

Moreover such an exemption is consistent with the precedents established in D.02-10-008 (which exempted PG&E meter sales from review), D.05-07-039 (which exempted photovoltaic and small scale wind contracts from review), D.05-06-016 (which exempted the transfer of emission rights from review), and D.04-03-020 (which exempted the securitization of receivables by Lodi Storage from review).

These considerations lead us to the conclusion that the public interest is best served by rapid deployment of BPL technologies, rather than by a more rigorous but necessarily lengthy review process of individual BPL-related transactions. Conducting § 851 reviews in this context is not "necessary in the public interest," and it is both reasonable and consistent with the statutory language of § 853(b) to exempt these transactions from § 851 review.

Even though a plain reading of the statute does not require that transactions meet a standard of "extraordinary" to merit an exemption, this transaction would meet a Commission "extraordinary" standard regardless. The possibility of bringing another broadband communications channel into the homes of Californians would clearly offer an "extraordinary" opportunity, which specific lengthy § 851 reviews would frustrate. We prefer to eliminate any such § 851 regulatory uncertainty and delay, and the additional barriers to deploy they create. These considerations, when reviewed in light of our expansive interpretation of "extraordinary" in past Commission decisions, establish that the proposed transaction would pass an "extraordinary" standard.

CCTA's claim that the Commission would improperly discriminate in favor of BPL if it allowed BPL an exemption from § 851 is not well founded. Technologies competing with BPL are not identical: They do not provide advanced services in identical manners or by identically-situated entities. For example, Comcast did not need to file a § 851 application at this Commission to provide broadband advanced services over its cable infrastructure, nor did Verizon Wireless need to file a § 851 application to provide wireless broadband service on its licensed radio spectrum. Also, given the head starts of other technologies such as DSL and cable modem service, reducing potential regulatory barriers to the deployment of BPL will actually do more to level the playing field than to tip it.

Contrary to the tenor of some opponents of the use of a § 853(b) exemption from § 851, the mere use of § 853(b) does not necessarily mean that utilities are given carte blanche to do as they please. Section 853(b) expressly provides that in granting an exemption from § 851 the Commission may prescribe terms and conditions and establish rules or impose requirements on that exemption.

In this context it is important to address whether, having exempted BPL transactions from Commission review, we should impose conditions to protect the environment. In particular, we must address the following question: Should we require a review for BPL transactions under the California Environmental Quality Act (CEQA)?

CEQA is a flexible statute, and broad activities associated with California's utility infrastructure already qualify for a categorical exemption from the requirement to conduct a CEQA review. In particular, CEQA Guideline 15301 grants a categorical exemption to a number of "Class 1" activities:

Class 1 consists of the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the time of the lead agency's determination. The types of "existing facilities" itemized below are not intended to be all-inclusive of the types of projects which might fall within Class 1. The key consideration is whether the project involves negligible or no expansion of an existing use.

Examples include but are not limited to:

(b) Existing facilities of both investor and publicly-owned utilities used to provide electric power, natural gas, sewerage, or other public utility services;


(e) Additions to existing structures provided that the addition will not result in an increase of more than:

    (1) 50 percent of the floor area of the structures before the addition, or 2,500 square feet, whichever is less; or  

    (2) 10,000 square feet if: 

      (A) The project is in an area where all public services and facilities are available to allow for maximum development permissible in the General Plan and

      (B) The area in which the project is located is not environmentally sensitive.

These CEQA Guidelines establish categorical exemptions for the minor alteration of facilities used to provide utility service and minor additions to existing facilities, the exact situation that we will generally have as California deploys broadband over power lines. 42

Thus we recognize that if the Commission were to subject these individual transactions to a CEQA review, the result would be nothing more than a paper-pushing exercise. The Commission would, after a review, inevitably conclude that these activities qualify for a categorical exemption.

We do not believe this paper-pushing exercise is necessary. So, pursuant to § 853(b), we exempt from § 851 and any further conditions those transactions that can be accomplished by the use or modification of "existing facilities," such as the use of existing electrical underground or overhead lines, or the placement of couplers, load monitoring devices, and equipment on existing poles or in existing buildings. As a result of the use of § 853(b) exemption, this Commission will not be reviewing these individual transactions and the Commission's requirement of a CEQA review is not triggered.

This exemption, however, will not alleviate utility companies' responsibility to abide by our many existing environmental protections that relate to utility wires and infrastructure. BPL equipment must be installed in or on existing utility structures consistent with any and all applicable existing environmental mitigation measures, particularly those measures applicable to the utility infrastructure on which it is constructed or installed.

To complete our discussion of categorical exemptions, we note that grants of the CEQA exemptions have limits. Pursuant to CEQA Guideline 15300.2, categorical exemptions do not apply when any of the following conditions occur: 1) there is a reasonable possibility that the activity may have a significant effect on an environmental resource of hazardous or critical concern; 2) the cumulative impact of successive projects of the same type in the same place, over time, is significant; 3) there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances; 4) a project may result in damage to scenic resources; 5) a project is located on a hazardous waste facility site; or 6) a project may cause a substantial adverse change in the significance of a historical resource.

In its Comments on the Draft Decision, PG&E points out that CEQA Guideline 15304(f) provides an exemption from CEQA for "minor trenching and backfilling where the surface is restored." (Id., p. 2.) Subject to the limitations set forth above in our discussion of CEQA Guideline 15300.2, we allow transactions which may result in minor trenching and backfilling where the surface is restored to be eligible for treatment under § 853(b). But such trenching and backfilling cannot be done, for example, in a waterway, wetland, or in an area with known cultural or biological resources, and cannot result in the removal of healthy, mature, scenic trees, nor in significant erosion or sedimentation of surface waters.43

Pursuant to our § 853(b) authority, we will require parties to file an application seeking Commission approval of any transaction that does not qualify for a categorical exemption from CEQA. 44 The Commission will conduct a CEQA review, and based on that review and a public interest finding, will either approve or reject the proposed transaction. So while we continue to exempt these transactions from § 851, we will subject them to an application process, leading to a Commission decision, that requires our Staff to conduct a CEQA review and the Commission will reach a finding, based on that review, of whether the transaction is adverse to the public interest.

Finally, we find no reason to exempt the sale of utility assets related to any BPL transaction from § 851 under a § 853(b) exemption. All discussion of BPL transactions in the OIR and pleadings related to leases or other agreements for use of utility-owned infrastructure. No sale of utility assets was discussed. Should any utility wish to sell utility assets for BPL purposes, approval for such sales must be sought via a § 851 application.

C. Commission Notification

In the OIR, we discussed requiring a utility to use an advice letter to notify the Commission of agreements in which the utility allows a BPL company to install equipment on the utility's infrastructure. (OIR, p. 10.) We recognize, however, some problems with the use of an advice letter. For example, if an advice letter is protested, the matter may require the issuance of a Commission Resolution.45 A contested advice letter resulting in a Commission Resolution raises a number of the same concerns raised by an application under § 851, such as triggering potentially lengthy revenue allocation and CEQA issues.

The Commission has no interest in further litigation and review if a utility grants a BPL developer access to its infrastructure in a manner that is consistent with this decision. Accordingly, we are not going to require the filing of an advice letter for approval of any utility/BPL contracts.

We do, however, believe it is important for this Commission to have notice when a utility permits a company to install a BPL system on its network. Accordingly we will require utilities to provide the Directors of the Telecommunications Division and Energy Division notice of any lease or other financial arrangement with a BPL company, including the name of that company, the nature of the services to be provided, the date entered, and the applicable categorical exemption citation. Should any such lease or other contract not be disclosed, or otherwise be inconsistent with this decision, this Commission may open an OII for violation of this decision. Should any utility object to using this process for a particular transaction, the utility may submit an application to the Commission under Pub. Util. Code § 851.

31 Pub. Util. Code § 851 states, in relevant part, that "No public utility...shall sell, lease, assign, mortgage, or otherwise dispose of or encumber the whole or any part of its...line, plant, system, or other property necessary or useful in the performance of its duties to the public...without first having secured from the commission an order authorizing it so to do." Section 853(b) reads: (b) The commission may from time to time by order or rule, and subject to those terms and conditions as may be prescribed therein, exempt any public utility or class of public utility from this article if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest. The commission may establish rules or impose requirements deemed necessary to protect the interest of the customers or subscribers of the public utility or class of public utility exempted under this subdivision. These rules or requirements may include, but are not limited to, notification of a proposed sale or transfer of assets or stock and provision for refunds or credits to customers or subscribers.

32 D.04-08-048, p. 7.

33 D.05-06-016, 2005 Cal. PUC Lexis 223, 50-51 (Cal. PUC 2005).

34 D.04-03-020, 2004 Cal. PUC LEXIS 144, 5-7 (Cal PUC 2004).

35 D.02-10-008, 2002 Cal. PUC LEXIS 636 (Cal. PUC 2002).

36 D.02-01-055, 2002 Cal. PUC LEXIS 7-9 (Cal. PUC 2002).

37 Pub. Util. Code § 882(a).

38 Pub. Util. Code § 882(b)(1).

39 Pub. Util. Code § 709(g).

40 For example, due process considerations may require evidentiary hearings in some cases.

41 For example, the Commission's GO 69-C creates an exemption from § 851 for revocable licenses of utility property that meet certain conditions, and does not require the existence of extraordinary circumstances.

42 According to Current, "BPL deployments simply involve placements of equipment on existing utility infrastructure...BPL involves no trenching or other activities which might trigger CEQA." (Current Reply Comments, pp. 11-12.)

43 14 CCR 15300.2.

44 Pursuant to § 701.

45 Given the number of parties and range of positions in this proceeding, it is quite possible that there may be protests to advice letters seeking approval of utility contracts with BPL providers.

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