VI. Discussion

With very few exceptions, the public favors undergrounding for safety, reliability, aesthetic benefits, and property value increases. The value of the workshops and the PPHs was to affirm the reasonableness of the current undergounding program, and to identify some non-controversial measures that would immediately improve the current program administration of undergrounding. While some parties initially proposed increasing the funding for conversion projects once the energy crisis took hold, there was no further discussion of increasing ratepayer contributions to the program. It makes sense to revisit this topic after the Commission obtains better cost data in phase 2 of this proceeding.

The conversion of existing overhead lines to underground is historically expensive. The alleged cost is $1 million per mile, and under the current funding mechanism, 130 to 180 miles are converted each year.¹¹ At the current rate, it will take many, many decades to underground the entire state's distribution system. In phase 2 of this proceeding, we will evaluate the cost data and explore whether or not more undergrounding could be performed if we adopted incentive mechanisms or third party bidding. These issues could not be resolved without hearings.

Currently, the state is facing an energy crisis, with ratepayers seeing increased electric and gas bills. The Commission, therefore, is interested in ways to improve the existing system without increasing the cost to ratepayers. Although the actions contemplated in this decision would not increase the current funding amounts, it is likely they will increase the costs and rates; but only within the limits of the existing funding level.

A. Commission Recommendations

Following the year-long study, the Commission determines that the underground conversion program should continue. Because the study did not include any evidentiary hearings, the Commission proposes a two-phase strategy for improving the current undergrounding program. In this order we propose reforms that can be enacted based on the information already in the record of the proceedings. We reserve for phase 2, those actions or proposed changes that could benefit from evidence, testimony, and cross-examination.

What we propose in this order is to 1) expand the Rule 20A criteria; 2) extend the use of rule 20A funds by allowing cities to a) leverage funds with 20B funds and b) mortgage 20A funds for five years; 3) improve the communication between the utilities and residents; 4) require standardized reporting from the utilities; and 5) order the creation of an up-dated Undergrounding Planning Guide.

1. Limited Expansion of the Definition of the Public Interest:

Because the demand for Rule 20A funds is greatest, there was much focus on this particular rule. Much of the debate and discussion among interested parties was finding the right balance between creating expanded options for cities to define public interest projects versus imposing those program costs on ratepayers. Consumer groups were concerned with granting cities too much freedom for public interest programs because they might by applied unfairly. As a result of the debate, it is reasonable to expand Rule 20A criteria to include a few more areas within the definition of public interest. It makes sense to allow for the application of Rule 20A funds for arterial streets or major collectors.¹²

2a. Increased Leverage of 20A and 20B Funds:

In response to the cities' concerns about wanting to accomplish more undergrounding with the same money, it makes sense to allow Rule 20A funds to be used in combination with Rule 20B funds. The value of creating this flexibility might be to allow the following to happen: Rule 20A funds could be used to seed Rule 20B projects;¹³ utility owned streetlights and transformers could be undergrounded; the amount of money apportioned among all affected homeowners could be reduced; and low-income property owners could be subsidized.¹⁴

2b. Allow Cities to Mortgage Rule 20A Allocations For Up to Five Years

Cities are currently allowed to mortgage their undergrounding allocations for three years. Cities have argued that extending that to a five year period would increase the number of large projects they could pursue. Once a city has established a master undergrounding plan and identified a specific project area, the city may mortgage its allotment for a total of five years, whether the funds are retroactive or prospective.

3. Improve Communication on the Status of Undergrounding Projects:

Almost all of the non-utility participants expressed frustration with the current program. Parties felt that they were unable to tap into a knowledgeable utility person who could tell them about project delays, or where they were in the queue, let alone general information about the program. It makes sense that each utility would provide a staff person to help customers and local officials understand the conversion process. Therefore, the involved utility and the city shall meet at least once every six months¹⁵ with residents who are in the queue for conversion projects and meet at least once every other month with residents once a conversion project is under way to insure that there is a continuing dialogue concerning the progress of the project, anticipated and unanticipated delays, and a completion date. The city will facilitate the meetings by providing a venue and noticing the affected residents. Once the utility commits to a conversion project, within thirty days of the commitment, the utility must appoint a "point" person who will be readily available to answer questions from residents and the local government and be present at the monthly progress meeting. This access to information and the status of projects will go a long way towards helping customers understand the program and how it is going to affect them. In addition to the above in-person meetings and point person, the utility will also provide a web site for each committed conversion project that will be updated regularly to provide information on the progress of the project.

4. Improve the Collection of Cost Data Through Standardized Reporting:

One of the surprises that surfaced during the course of workshops and PPHs was the lack of data on the program. This severely limited the options for Commission consideration in this phase of the proceeding. Among the categories of data lacking were: per mile data, data about the correlation of undergrounding and reliability, and the tracking of the varying technologies that had been implemented. Without this data, the Commission could not pursue such policy determinations as to whether or not third parties could perform undergrounding cheaper, if undergrounding improves reliability, or which technologies should be pursued because they achieved the greatest cost/benefit.

Therefore, the three electric investor owned utilities (utilities) must meet and confer and design a standardized reporting mechanism. Many interested parties, including cities, want to have some input in the design of this mechanism. Therefore, to begin the process, the utilities shall schedule a workshop, within 90 days of the date this decision issues, and invite the service list to attend. Following the workshop, the utilities, along with Commission staff, will meet, within 90 days of the workshop, and work together to design a standardized data collection and reporting system incorporating ideas from the workshop. Following the meet and confer, the utilities shall file a Joint Statement setting an agreed upon data tracking mechanism that incorporates the key points specified in this order.

This standardized form or mechanism, applicable to all utilities involved in undergrounding conversion projects, will keep data on each circuit, including the percentage of overhead and underground lines, what technology is used, and the age of the equipment. The utilities will then file the data annually with the Commission Energy Division, by March 31, and use the data as the basis for annual reports to the local governments regarding current and pending Rule 20A projects in their local. The goal of the data tracking and standardized reporting is to allow the utilities, the Commission, and interested parties to track the safety, service reliability, and lifetime costs for both overhead and underground projects and make valid and reliable comparisons between systems.

5. Improve Coordination Among the Utilities, the CPUC, Municipalities and the Residents Through an Updated Undergrounding Planning Guide

Pacific Gas & Electric, Pacific Bell, and the League of California Cities¹⁶ are ordered to meet and confer on the drafting an updated Undergrounding Planning Guide, and report to the Energy Division as to when the update could be available, both in hard copy, and on the CPUC website.¹⁷

Such a resource would be valuable to everyone in understanding the process, who to contact, and how the program flows. Much of the updating effort is already underway because of the workshops.

B. Issues for Phase 2

A number of topics were raised as being significant to improving the current underground conversion program, but the Commission was not able to rule on them at this time. As a result, the Commission will schedule hearings to create a record to develop recommendations on such policy matters as incentives versus competitive bidding, etc. Therefore, the assigned ALJ will notice a Prehearing Conference (PHC) in this proceeding for the purpose of scheduling evidentiary hearings and dates for the service of Phase 2 testimony. The subjects that will be explored in Phase 2 will include, but not be limited to, the following:

· whether or not to establish standards for conversion projects so that third parties can competitively bid on projects with no compromise of quality, safety, or reliability;

· whether incentive mechanisms are a better way to manage costs and encourage timely completion of projects;

· investigate whether there should be a "breakpoint" in allowing new overhead pole and line installation or whether the current exemption process is working;

· explore the value of charging for undergrounding via a line item on utility bills; and

· the creation of a fair, equitable, and competitively neutral recovery mechanism for telecommunications carriers and cable companies to recover their undergrounding costs.

· whether adjustments in the Rule 20A allocation formula is appropriate.

· are there reforms to the undergrounding program that are more properly within the legislative domain.