PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ENERGY DIVISION RESOLUTION E-3788
December 19, 2002
Resolution E-3788. San Diego Gas and Electric Company requests approval to increase the electric and gas franchise fee surcharges to the ratepayers in the City of San Diego to collect additional revenues to cover increased franchise fees payable to the City of San Diego. Approved.
By Advice Letter 1407-E/1313-G Filed on May 14, 2002.
This Resolution approves San Diego Gas and Electric Company's (SDG&E) Advice Letter 1407-E/1313-G. Specifically, it approves increased surcharges to pass through increased franchise fees from the City of San Diego (City), and approves the City's use of the fees for its proposed underground conversion program by granting a deviation of the Commission's existing undergrounding rules.
In January 1971, SDG&E and the City entered into 50-year electric and gas franchise agreements. The agreements provided that SDG&E pay franchise fees of 3% of its gross receipts to the City during the first 30 years, and that the City and SDG&E establish the franchise fees for the last 20 years by good faith negotiations or binding arbitration.
The Commission, in July 1972, approved SDG&E's implementation of a franchise fee surcharge of 1.9% for electric and 1.0% for gas within the City to capture the difference between the City franchise fees and the average franchise fees SDG&E paid other cities and counties in its service area.
In January 2002, SDG&E and the City signed renegotiated franchise fee agreements. On May 14, 2002, SDG&E filed Advice Letter 1407-E/1313-G requesting approval of fee increases resulting from the renegotiated agreements.
The renegotiated agreements extend the existing 3% franchise fee but redefine "gross revenues" to include revenues collected from surcharges. As a result, SDG&E requests an increase of 3.88% (i.e. from 1.9% to 5.78%) to its existing electric franchise fee surcharge and an increase of 0.03% (i.e. from 1.0% to 1.03%) to its existing gas franchise fee surcharge to cover the increased fees to the City. The bulk (3.53%) of the electric increase is targeted by the City for underground conversion of overhead electric wires.
Based on SDG&E's revenue projections, the increase would result in an additional surcharge revenue amount of approximately $36.5 million per year for electric and $79,500 per year for gas. SDG&E estimates that this would result in a monthly increase of approximately $3.00 to a typical residential customer's electric bill, and approximately $0.01 to a typical residential customer's gas bill.
Notice of Advice Letter 1407-E/1313-G was made by publication in the Commission's Daily Calendar. SDG&E states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.
SDG&E's Advice Letter 1407-E/1313-G was timely protested by Maryanne Thompson, Tedd Bunce, Sunstone Hotel Properties, Inc., Idun Pharmaceuticals, Inc., California Retailers Association (CRA), San Diego Taxpayers Association (SDCTA), San Diego County Board of Supervisors, Utility Consumers' Action Network (UCAN), Longs Drug Stores, and Pacific Bell Telephone Company (Pacific).
SDG&E and the City each responded to the protests on June 10, 2002.
The following is a summary of the issues raised in the protests:
· Financial impact of proposed increases is substantial; utility rates are already too high; it is not timely to make additional increases (Tedd Bunce, Sunstone Hotel Properties, Inc., Idun Pharmaceuticals, Inc., CRA, SDCTA, San Diego County Board of Supervisors, UCAN, and Longs Drug Stores);
· Proposed fee increases are not justified (UCAN);
· Rate increases lead to loss of jobs through staffing reductions at affected businesses (Sunstone Hotel Properties, Inc);
· Rate increases cause a decline in Net Operating Income which could reduce business property values (Sunstone Hotel Properties, Inc);
· Proposed increases are special taxes which must be approved by two thirds of the voters (Pacific);
· The decision to increase fees was negotiated in closed sessions (SDCTA);
· Raising rates by an advice letter violates Public Utilities (PU) Code Section 454; an application is required (CRA);
· Filing is incomplete and doesn't comport with Commission D.89-05-063 guidelines because it does not demonstrate significant difference in fees nor set a basis for the surcharge (UCAN);
· The Commission should reevaluate system average franchise fees currently embedded in base rates and adjust surcharges accordingly (Maryanne Thompson and UCAN);
· Proposed electric surcharge increase is excessive (Maryanne Thompson, Sunstone Hotel Properties, Inc., Idun Pharmaceuticals, Inc., and CRA);
· Undergrounding only benefits residential customers; businesses shouldn't subsidize the proposed program (Sunstone Hotel Properties, Inc);
· Proposed undergrounding program results in ratepayer cross subsidies for telecommunications corporations (UCAN);
· Proposed additional undergrounding results in an unprecedented increase in Pacific's costs (Pacific);
· If approved, electric surcharge funds should pay for undergrounding of all lines on poles such as telephone and cable (Maryanne Thompson and Pacific);
· There is a lack of reporting requirements on the amounts spent versus collected for the undergrounding program (Maryanne Thompson and UCAN);
· Fees are paid to the City's General Fund with no auditing process in place to ensure they are spent for the described purpose (Maryanne Thompson);
· Electric surcharge increase is inconsistent with Commission policy in D.01-12-009 which states costs to ratepayers for undergrounding should not be increased (UCAN);
· Proposed program is inconsistent with Commission rules and policies in underground conversion tariffs (SDG&E's Rule 20 and Pacific's Rule 32) (UCAN and Pacific);
· Pace and scope of the utilities' current undergrounding programs, local governmental flexibility and control, and utility cost recovery are currently subject of the Commission's Rulemaking Proceeding (R.) 00-01-005 (UCAN and Pacific).
In addition to protests, the Energy Division has received approximately 235 letters from residents of the City, and a letter from The California Alliance for Utility Safety and Education (CAUSE) in support of the undergrounding surcharge proposed in Advice Letter 1407-E/1313-G. Supporters state that undergrounding improves safety, reliability, aesthetics and neighborhoods. In addition, CAUSE states that the advice letter is consistent with Assembly Bill (AB) 1149 which directed the Commission to promote a longer, more continuous underground system and allow local governments more flexibility and control for planning and implementation.
In Advice Letter 1407-E/1313-G, SDG&E proposes to pass through increased costs to customers in the City. These costs are the result of increased City franchise fees, with the majority of the additional revenue targeted for underground conversion of electric utility lines. The first issue is whether it is appropriate to consider this request through the Commission's advice letter process. UCAN requests that an application be required instead to address the issues raised in the protests. SDCTA believes a new process should be initiated due to concerns over the limited opportunity for public input and the magnitude of the proposed rate increase. Pacific believes that the proposed increases are special taxes that must be approved by two thirds of the voters. SDG&E states that D. 89-05-063 specifically authorizes the use of an advice letter filing for this circumstance. CRA disagrees; it claims that while a "true" franchise fee negotiated between a utility and a municipality might properly be the subject of an advice letter, a properly noticed application is required if the municipality intends to spend the revenues from the increased franchise fee on underground conversion of utility lines.
Contrary to the assertions made by some of the protestants, we believe the advice letter process is an appropriate vehicle to consider the increased franchise fee surcharges. An application is not necessary to address issues raised in protests. There are no legal issues that require more extensive briefing and there are no material issues of disputed fact that require hearing pursuant to an application. A draft of this Resolution was mailed for comment giving parties an opportunity to respond to the Commission's proposed actions regarding issues posed by the advice letter.
While an application would yield notice to customers affected by the rate change, this would be redundant of the efforts already undertaken by the City. The City`s process to consider and approve the revised franchise fee agreements, detailing the underground conversion program, involved actions that were publicly noticed and approved by the City Council. The City states that its process complied with all applicable procedures and legal requirements with numerous opportunities for the public to be heard. This Commission should not judge the lawfulness of the procedures that a city takes to enact an ordinance or amend an agreement. Similarly, we should not question a city's judgment and interpretation of the law regarding whether the franchise fee increases constitute "special taxes" requiring a vote of the citizens.
With respect to D. 89-05-063, we note that while it authorized the advice letter process, that process was for utilities to initiate surcharges in those instances where a local governmental entity imposes or increases franchise fees which rise to a total level significantly exceeding the average level of those imposed by the other local governmental entities within the utility's service area. In particular, the decision states that as part of its advice letter filing, the utility must demonstrate such significant difference, set forth the basis asserted for the surcharge, and identify administrative costs incurred by the utility as a result of the proposed surcharge. UCAN and Maryanne Thompson claim that SDG&E's advice letter inadequately demonstrates these requirements.
We believe that these decision requirements make sense in the context of a city that is for the first time increasing its franchise fees to significantly above the utility's system average. In this case, however, this Commission established in 1972 that the City's franchise fees were significantly greater than system average franchise fees and approved the implementation of surcharges to capture the difference. There is no need to re-establish that the City fees after the proposed increases are even higher above that average now. Furthermore, the system average franchise fees and the surcharge fees have been subject to review in SDG&E's cost of service proceedings since 1972.
On the other hand, SDG&E should be responsible for demonstrating the basis for the increase in surcharge fees and identify any additional costs associated with that increase. We believe that SDG&E has adequately justified the increase and demonstrated that there are no additional related costs at the present time. SDG&E states that administrative costs to implement the increase are negligible because it has had a City surcharge for about 30 years.
We next address the merits of the remaining issues raised by the protests. Tedd Bunce, Sunstone Hotel Properties, Inc., Idun Pharmaceuticals, Inc., CRA, SDCTA, San Diego County Board of Supervisors, UCAN, and Longs Drug Stores are concerned with the magnitude, financial impact on residents and businesses, timing, and justification of the proposed franchise fee increases. Maryanne Thompson and UCAN also are concerned with a perceived lack of reporting and auditing requirements. Through its public process, the City considered all of these concerns but nonetheless decided to increase its franchise fees. We note that cities are empowered by California state law to charge public utilities franchise fees in exchange for the utilities' use of public streets for distribution of gas, electricity, water or steam. We should not dispute the City's authority or right to impose or levy a fee upon utility customers or the utility itself, which the City, as a matter of general law has jurisdiction to impose, levy, or increase. Thus, the amount of money the City charges as a franchise fee as well as the accounting of that money are decisions for the City and not this Commission.
This Commission does have regulatory authority over public utilities and, under that authority, has adopted rules that electric and communication utilities must abide by for the replacement of overhead electric and communications facilities with underground facilities. To the extent that the fees are to be spent on an SDG&E-managed1 underground conversion program that deviates from Commission rules, Commission authorization is required.
In particular, the Commission has adopted comprehensive, statewide rules in tariffs that govern when and where a utility may remove overhead lines and replace them with new underground service, and who shall bear the cost of the conversion (see SDG&E's Rule 20 and Pacific's Rule 32). Projects must meet certain criteria to receive ratepayer funding. In general, to qualify for ratepayer funding, projects must be located in areas affected by general public interest. Even under those circumstances, private property owners must pay for any costs that are incurred for the installation of more than 100 feet of a service lateral. The SDG&E/City proposed underground conversion program would not have to meet the "public interest" criterion (i.e. the additional program will expand undergrounding to residential streets), and will use ratepayer funds to pay for pavement resurfacing and customer lateral conversions on private property. We note that once the City receives a franchise fee that money is no longer ratepayer money and the City is free to use it as it sees fit except where the City's actions may overlap our jurisdiction over SDG&E's corporate actions.
After thoroughly reviewing the advice letter, over 235 letters in support, protests, and responses to protests, we believe a deviation of the undergrounding rules is appropriate in this circumstance. Elected officials in city government, representing the citizens of the City, following public notice and hearings, decided additional revenues were needed to fund an underground conversion program beyond that funded through SDG&E's base rates. The City has determined that the program is in the public interest and we should not second-guess that decision. We will, however, require SDG&E and the City to submit a semiannual report to the Director of the Energy Division on the progress of the underground conversion construction until such time that the conversion program is completed or the franchise fee is no longer collected.
Before granting approval, however, we must address all remaining issues raised in protests. Sunstone Hotel Properties, Inc. states that undergrounding only benefits residential customers and that businesses shouldn't subsidize the proposed program. In instances where a utility uses a surcharge to collect above average franchise fees, the Commission has specified that the surcharge should be billed and collected from "all classes of customers including residential, commercial, and industrial, as well as municipal and wholesale, within the local governmental area of the local governmental entity imposing the level of taxation and fees significantly in excess of the average" (D. 89-05-063, p. 70). Thus, the Commission does not allocate the costs of fees paid by utilities according to how the taxing jurisdiction spends its revenues.
UCAN, Pacific Bell and Maryanne Thompson raise issues regarding the cross subsidization of ratepayer funds for telecommunications utilities. They argue that when electric lines are undergrounded, cable and telephone lines attached to the electric poles also have to be undergrounded, and that cable and telephone companies will incur additional costs as a result. The City has agreed to pay a portion of the cable companies' costs out of the franchise fee surcharge monies but has not reached a similar agreement with Pacific.2 Currently, telecommunications companies do not have a mechanism for recovering the costs of their conversions. Telecommunications companies' compensation for undergrounding costs is an issue in Phase 2 of the Commission's Order Instituting Rulemaking (R.) 00-01-005. Specifically, in the Phase 1 decision of that rulemaking, the Commission stated that it would explore "the creation of a fair, equitable, and competitively neutral recovery mechanism for telecommunications carriers and cable companies to recover their undergrounding costs" (D.01-12-009, p. 26). Until this issue is resolved in Phase 2, Pacific may seek the rate relief necessary to recover its costs through an application process.
Other issues such as the pace and scope of the utilities' current undergrounding programs and local governmental flexibility and control are also under consideration in Phase 2. UCAN and Pacific argue that Advice Letter 1407-E/1313-G should not be approved until these issues are resolved. While we do not want to prejudice the examination of issues currently under review in Phase 2, we are not convinced that SDG&E/City proposed underground conversion program should be delayed pending the outcome of that proceeding. Accordingly, we will grant a deviation and note that the findings in this Resolution related to said deviation shall not have precedental effect.
The Commission will continue to retain jurisdiction over the construction of the underground conversion of SDG&E facilities. We make note at this time that any undergrounding construction must be in compliance with Commission General Orders 128, Rules for Construction of Underground Electric Supply and Communication Systems, and 165, Inspection Cycles for Electric Distribution Facilities.
On October 24, 2002, a draft of this alternate resolution was distributed for comment pursuant to Public Utilities Code sections 311(e) and 311(g) and Rule 77.7 of the Commission's Rules of Practice and Procedures. Comments were filed by Maryanne Thompson on October 28, 2002; Pacific, the City, San Diego County Board of Supervisors, and UCAN filed comments on October 30, 2002. The City and SDG&E replied to comments on November 4, 2002.
Maryanne Thompson asserts that this alternate resolution adopts a mechanism that is in conflict with prior Commission decisions and results in a cross subsidy of costs by non-City residents. She suggests a remedy to grant the advice letter but to impose conditions 1) to require the City to fully pay the undergrounding costs of all cable, electric, and phone serves, subject to an allowance for the City's pro rata share, and 2) to require SDG&E to demonstrate the lack of cross subsidy or file a new surcharge rate.
Pacific believes that the alternate resolution commits legal error, leaving unresolved numerous and complex issues raised in protests. Specifically, Pacific states that the alternate does not offer an exemption from tariff Rule 32 requirements nor does it offer the same opportunity it offers SDG&E to recover the costs it will incur as a result of the underground program.
UCAN opposes the alternate resolution on the following grounds: 1) it creates a cross-subsidization of undergrounding costs by SDG&E ratepayers living outside of the City, 2) creates a cross-subsidization of undergrounding costs by Pacific's customers, 3) violates Commission rules in D.01-12-009, and 4) premises its findings of informed public input without regard to the procedural inadequacies of the City's process.
Given the magnitude of the financial impact on residents and businesses, the San Diego County Board of Supervisors urges the Commission to require a properly noticed application in order to allow public comments before reaching a decision in this matter.
The City and SDG&E believe the comments in opposition to the alternate resolution are without merit. The City fully supports the alternate believing that it upholds and ensures consistency with applicable Commission precedent and results in an order that is based on an appropriate interpretation and application of Commission rules and policy governing ratemaking, undergrounding, and public interest. The City states that the alternate resolution properly recognizes the City's own authority and the extensive public and democratic processes used by the City in considering and approving the revised franchise fee agreement. SDG&E believes the Commission should respect the decision of the City to increase the franchise fees it collects from SDG&E and to spend most of that increase on undergrounding additional overhead facilities in the City.
Following review of the comments and replies to comments, we do not change the overall outcome of the alternate resolution. We did modify the language to 1) indicate that no additional costs have been identified at the present time, 2) clarify that Pacific is allowed to deviate from its tariff Rule 32 requirements, and 3) remove the suggestion that Pacific's shareholders could absorb costs. To the extent the comments identify the potential for Pacific's recovery of its undergrounding costs to be subsidized by its customers who are not residents of the City, the Commission can address and resolve this issue in the proceeding evaluating Pacific's application to recover these costs. The remaining comments do not demonstrate factual, legal, or technical errors but rather re-argue positions previously stated.
1. SDG&E filed Advice Letter 1407-E/1313-G requesting Commission approval to increase its franchise fee surcharges paid to the City by 3.88% and .03% for electric and gas, respectively.
2. 3.53% of the electric franchise fee surcharge increase is to be used by the City to implement the undergounding program specified in the electric franchise agreement.
3. Protests were filed by Maryanne Thompson, Tedd Bunce, Sunstone Hotel Properties, Inc., Idun Pharmaceuticals, Inc., CRA, SDCTA, San Diego County Board of Supervisors, UCAN, Longs Drug Stores, and Pacific.
4. SDG&E and the City responded to the protests.
5. An application is not required; the advice letter process is an appropriate vehicle to consider the increased franchise fee surcharges.
6. This Commission should not judge the lawfulness of the procedures that a city takes to enact an ordinance or amend an agreement, nor should we question a city's authority to impose, levy or increase franchise fees.
7. Although the Commission has no jurisdiction over a city's authority to impose franchise fees on a utility, it does have jurisdiction over allowing a utility to deviate from Commission rules governing undergrounding.
8. A deviation of SDG&E's Rule 20 and Pacific's Rule 32 is appropriate in this circumstance because elected officials in city government, representing the citizens of the City, following public notice and hearings, decided additional revenues were needed to fund an underground conversion program beyond that funded through SDG&E's base rates.
9. SDG&E and the City should submit a semiannual report to the Director of the Energy Division on the progress of the underground conversion construction until such time that the conversion program is completed or the franchise fee is no longer collected.
10. The franchise fee surcharges should be billed and collected from all customer classes.
11. Until the issue of telecommunications companies' compensation for undergrounding costs is decided in Phase 2 of R. 00-01-005, Pacific may seek the rate relief necessary to recover its costs through an application process.
12. Issues decided in this Resolution should not be deemed to have any precedental effect in Phase 2 of R. 00-01-005.
13. Any undergrounding construction must be in compliance with Commission General Orders 128, Rules for Construction of Underground Electric Supply and Communication Systems, and 165, Inspection Cycles for Electric Distribution Facilities.
14. Protests of Maryanne Thompson, Tedd Bunce, Sunstone Hotel Properties, Inc., Idun Pharmaceuticals, Inc., CRA, SDCTA, San Diego County Board of Supervisors, UCAN, Longs Drug Stores, and Pacific are denied.
15. Advice letter 1407-E/1313-G should be approved.
1. The request of the SDG&E to increase its electric and gas franchise fee surcharges paid to the City in accordance with the franchise agreements as requested in Advice Letter 1407-E/1313-G is approved.
2. SDG&E and Pacific shall be granted a deviation of the Commission rules governing utility undergrounding to implement the SDG&E/City proposed underground conversion program proposed in Advice Letter 1407-E/1313-G.
3. SDG&E and the City shall submit a semiannual report to the Director of the Energy Division on the progress of the underground conversion construction until such time that the conversion program is completed or the franchise fee is no longer collected.
4. Construction of the underground conversion shall be in compliance with Commission General Orders 128 and 165.
5. This Resolution is effective today.
I certify that the foregoing resolution was duly introduced, passed and adopted at a continuation meeting of the Public Utilities Commission of the State of California held on December 19, 2002; the following Commissioners voting favorably thereon:
WESLEY M. FRANKLIN
LORETTA M. LYNCH
HENRY M. DUQUE
GEOFFREY F. BROWN
MICHAEL R. PEEVEY
/s/ CARL W. WOOD
1 The Memorandum of Understanding between SDG&E and the City regarding implementation of the renegotiated franchise agreements provides that the City and SDG&E will cooperate to develop and implement an underground program but that SDG&E will act as lead utility over all electric line undergrounding projects including design, engineering, and construction for a minimum of the first 2 years.
2 UCAN objects to the use of fees collected from electric ratepayers to fund the costs of undergrounding telecommunications and cable facilities.