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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION E-3788

RESOLUTION

Resolution E-3788. San Diego Gas and Electric Company

By Advice Letter 1407-E/1313-G Filed on May 14, 2002.

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SUMMARY

This Resolution denies San Diego Gas and Electric Company's (SDG&E) Advice Letter 1407-E/1313-G without prejudice. SDG&E's request should be filed as an application to allow the collection of additional information, grant parties an opportunity to be heard, enable the Commission to rely upon a more fully developed record, and yield notice to customers affected by the proposed rate change.

BACKGROUND

In January 1971, SDG&E and the City of San Diego (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 because the City franchise fees exceeded the average franchise fees SDG&E paid other cities and counties in its service area.

In December 2001, SDG&E and the City renegotiated the 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,

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

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.

PROTESTS

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:

In addition to protests, the Energy Division has received approximately 160 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.

DISCUSSION

Energy Division has reviewed the advice letter, letters in support, protests, and responses to protests. Due to the number of protests, the complexity of the issues raised, and other concerns, SDG&E's request should be filed as an application rather than an advice letter. The application process would allow additional information to be collected, grant parties an opportunity to be heard beyond that provided for in the advice letter process, and enable the Commission to rely upon a more fully developed record before reaching a decision on this matter.

CRA, UCAN, and SDCTA request that an application or new process be required because they have concerns over the magnitude of the proposed rate increase and/or the limited opportunity for public input. We agree that a 3.88% increase to SDG&E's existing electric franchise fee surcharge which results in additional revenues of approximately $36.5 million per year is substantial, and that the application process would be more appropriate as it yields notice to customers affected by the proposed rate change.

In this advice letter, SDG&E proposes to pass through increased costs resulting from increased City franchise fees to customers in the City, but states that the amount of money and how it will be spent is a decision for local government and not the Commission. We agree the Commission should not dispute or seek to dispute the authority or right of the City to impose or levy a fee upon utility customers or the utility itself, which the City, as a matter of general law or judicial decision, has jurisdiction to impose, levy, or increase. 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 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. 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.

Pacific, UCAN, and Maryanne Thompson 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 currently 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).

Also, D.01-12-009 required data tracking and standardized reporting to track the safety, service reliability, and lifetime costs from both overhead and underground projects to be able to make valid and reliable comparisons between systems. Although not raised by any protestants to this advice letter, this type of information, specific for the underground program proposed in this advice letter, should be considered. We are concerned that although putting utility lines underground may be aesthetically preferred, there may be increased operating costs to the utility to maintain underground lines. These costs may be significantly higher than the costs of maintaining overhead systems. To address this issue, SDG&E should include in its application its best estimates of its costs of operating and maintaining underground lines as compared to overhead lines. In its application, SDG&E should also indicate how any such additional costs attributable to the undergrounding to be performed using the City's franchise fee funds would be allocated (i.e. to all ratepayers through base rates or to ratepayers of City by way of the franchise fee surcharge).

COMMENTS

Public Utilities Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission. Section 311(g)(2) provides that this 30-day period may be reduced or waived upon the stipulation of all parties in the proceeding.

The 30-day comment period for the draft of this resolution was neither waived nor reduced. Accordingly, this draft resolution was mailed to parties for comments, and will be placed on the Commission's agenda no earlier than 30 days from today. Comments were filed by ___________ on __________.

FINDINGS

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. Although the Commission has no jurisdiction to determine the authority of the City to impose fees on the utility, it does have jurisdiction over allowing SDG&E to deviate from Commission rules governing utility undergrounding.

6. Due to the number of protests, the complexity of the issues raised, and other concerns articulated in this resolution, SDG&E's request should be filed as an application rather than an advice letter.

7. The application process allows the collection of additional information, grants parties an opportunity to be heard, and yields notice to customers affected by the proposed rate change.

8. This Commission should rely upon a more fully developed record before reaching a decision on this matter.

9. To the extent they request that SDG&E's Advice Letter 1407-E/1313-G be considered in a formal application or process, the protests of CRA, UCAN, and SDCTA are granted in part. All other protests are denied without prejudice.

10. Advice letter 1407-E/1313-G should be denied without prejudice.

THEREFORE IT IS ORDERED THAT:

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 denied without prejudice.

2. SDG&E may file an application to request the authority it seeks in Advice Letter 1407-E/1313-G. The application shall include SDG&E's best estimates of its costs of operating and maintaining underground lines as compared to overhead lines. SDG&E shall also indicate whether any additional costs attributable to the undergrounding to be performed using the City's franchise fee funds will be allocated to all ratepayers through base rates or to ratepayers of City by way of the franchise fee surcharge.

3. This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on October 3, 2002; the following Commissioners voting favorably thereon:

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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.

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