IV. Positions of the Parties

A. SBC

SBC did not prepare a detailed cost forecast based on its own costs but instead relied on the historical relationship of its undergrounding costs to SDG&E's costs.² SBC's costs have historically been about 23% of SDG&E's, so SBC applied the 23% factor to SDG&E's cost forecast for 2007 through 2023 to obtain the annual forecasted cost for SBC.

SBC proposed a flat fee rate design for its surcharge to recover the cost of the San Diego undergrounding project. SBC calculated the fixed amount surcharge per customer line by dividing the total annual forecasted cost by the average number of access lines in service in San Diego, 657,000 lines. (This amount includes all lines served by SBC and other local exchange carriers.) The result is the annual amount which must be recovered from each access line. The monthly surcharge per line is determined by dividing the annual total by 12, which SBC calculated to be $0.77 for 2007 and $1.51 for 2008. The remaining years showed a forecasted surcharge of about $0.90 per month per line.

SBC proposed to apply this surcharge to all customer access lines it serves directly, as well as all lines SBC provides to competitive local exchange carriers for resale to San Diego end users.

SBC did not exempt from the surcharge low-income customers eligible for discounted local exchange service in the Lifeline program. SBC stated it had no information on the number of low-income program participants taking service from the competitive local exchange carriers, and thus no practical way to reflect any such customer exemptions in calculating the surcharge. Because it could not exempt competitive local exchange carriers' low-income customers, SBC did not propose to exempt its low-income customers from the surcharge.

The City supported SBC's proposal.

B. UCAN

UCAN contended that SBC's proposal was anti-consumer and anti-competitive. UCAN stated that SBC's fixed monthly fee proposal was regressive because it would disproportionately impact low- and fixed-income customers, who often have few competitive choices. In contrast, the benefits of undergrounding will accrue disproportionately to homeowners, as property values rise due to improved appearance. UCAN further contended that SBC would be able to cross-subsidize its competitive service offerings by recovering the cost of network enhancements through the undergrounding surcharge on regulated services.

C. Telscape

Telscape opposed SBC's proposal to assess the undergrounding surcharge on Lifeline customers. Telscape explained that SBC's surcharge would amount to a 20% increase in Lifeline rates for local residential service, with no offsetting benefits. Telscape recommended that Lifeline customers be exempt from the surcharge and that the City should make up the shortfall in undergrounding costs.

Telscape also asked that the Commission modify SBC's surcharge by excluding costs where SBC is installing additional capacity, apportion costs to the unused capacity, allocate costs based on use of the system, require pro-rating of the surcharge for partial months, and allow for chargeback of any uncollectible surcharge revenues.

D. XO Communications Services, Inc.

XO also opposed SBC's application and argued that "the Commission's jurisdiction and authority are being eroded and undermined by the City's attempt to force [SBC] to act as its collection agent to recover the costs of the undergrounding program."

Specifically, XO contended that the Commission has set up a statewide program for undergrounding, balancing the costs and benefits. Granting SBC's requested surcharge would encourage other cities to by-pass the Commission's program, adopt similar ordinances, and expect the Commission to order surcharges to recover the costs. Furthermore, XO continued, Commission-approved Lifeline rates will be increased by approximately 30% due to the undergrounding surcharge, in derogation of the Commission's determination of the appropriate rate for low-income customers. XO concluded that SBC's proposal was also anticompetitive because certain of SBC's customers that take service pursuant to contracts, rather than tariffs, will not be assessed the surcharge.

XO also stated that SBC was already recovering the costs of undergrounding through its existing rates, as approved by this Commission in the New Regulatory Framework, and in the setting of prices for unbundled network elements, which are purchased by competitive local carriers, such as XO. The surcharge represents a double-counting of these costs.

Finally, the detailed auditing necessary to ensure that SBC does not improperly charge unrelated costs to the surcharge balancing account is impractical due to expense and oversight needed.

E. Division of Ratepayer Advocates

DRA opposed the surcharge as being inconsistent with the New Regulatory Framework which set SBC's prices to include the cost of undergrounding. DRA also opposed the notion of a fixed or per line surcharge as being unprecedented at this Commission, and advocated that Lifeline program participants be exempt from the surcharge.

If the Commission were to adopt a surcharge, DRA recommended that it be proportionally assessed to all SBC customers based on total purchases from SBC and all its affiliates. DRA's proposed to allocate costs between Commission-jurisdictional services and other services, e.g., based on total billed amounts in San Diego. The surcharge on jurisdictional services would be set to recover a share of total undergrounding costs calculated by the proportion of jurisdictional sales in San Diego to total sales. SBC would have discretion to recover the remaining costs, i.e., the nonjurisdictional fraction, from its nonjurisdictional customers. DRA pointed to the Commission's Reimbursement Fee, which applies a surcharge of 0.11% to all jurisdictional revenue, as an example of the surcharges on which its proposal was modeled.

Finally, DRA objected to SBC's cost forecasts as being "far higher than publicly available data of actual expenditures." DRA supported a "monitoring and audit program equivalent to that applied to SDG&E."

² Aerial telephone and electricity lines are often undergrounded simultaneously so SBC and SDG&E have a long history of joint undergrounding projects.