BACKGROUND

In this Resolution the Commission interprets for this case how the utilities are tocarry out its tariff rules, it coordinates responsibilities, and it approves a sequence of events needed to complete the Gualala undergrounding project without delay. Where possible the Commission defers to community preferences, as expressed by Mendocino County in this case, which is the recipient of the utility underground conversion funds. The Resolution does not intend to direct utilities to take action that is not in their best interests or those of ratepayers. In general, details of project implementation that are normally negotiated by the parties are not covered in the scope of this Resolution.

Section 320 requires undergrounding along designated Scenic Highways

Public Utilities Code Section 320 (PU Code Section 320) was enacted in 1971, Chapter 1697, and reads in part as follows:

To implement Section 320 the Commission conducted Case 9364 and issued Decision (D) 80864 which states that:

The Decision also states

Tariff Rules 20 of PG&E and 32 of AT&T govern undergrounding conversion programs

The current undergrounding program was instituted by the Commission in 1967 and consists of two parts. The first part, under Tariff Rules 15 and 16, requires new subdivisions to provide underground service for all new connections. The utilities, both electric and telephone, then bear the costs of cables, switches, and transformers, as they would with overhead service, and developers bear other costs. Parties can seek an exemption from these rules by petitioning the Commission.

The second part of the program governs both 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. PG&E's Tariff, Rule 20, and AT&T's Rule 32 are the vehicles for the implementation of the underground conversion programs1.

Rule 20 sets three levels, A, B, and C, of ratepayer funding for the projects as shown by the gross estimates of TABLE 1.2

In summary, under Rule 20C, any electric customer may convert to undergrounding as long as it reimburses the utility for all costs, less the estimated net salvage value and depreciation of the replaced overhead facilities. The customer must make a non-refundable advance to the utility equal to the cost of the underground facilities, less the estimated net salvage value and depreciation of the replaced overhead facilities.

Rule 20B provides limited ratepayer funding for the cost of an equivalent overhead system, and any work on overhead facilities, but the balance of the costs, including cables, conduits, transformers, and structures, must be paid by the customer requesting undergrounding. Rule 20B projects must 1) be agreed to by all property owners served by the overhead lines; 2) include both sides of the street; and 3) extend for a minimum of 600 feet or one block. Additionally, the lines must be along public streets and roads or other locations mutually agreed upon.

Under Rule 20A, however, utility ratepayers bear most of the cost of undergrounding conversions. Rule 20A funds are available only when undergrounding is "in the public interest" for one or more of the following reasons:

a. Such undergrounding will avoid or eliminate an unusual heavy concentration of overhead electric facilities;

b. The street or road or right-of-way is extensively used by the general public and carries a heavy volume of pedestrian or vehicular traffic ;

c. The street or road or right-of-way adjoins or passes through a civic area or public recreation area or an area of unusual scenic interest to the general public; and

d. The street or road or right-of-way is considered an arterial street or major collector as defined in the Governor's Office of Planning and Research General Plan Guidelines.3

The determination of "general public interest" under these criteria is made by the local government, after holding public hearings, in consultation with the utilities.

    TABLE 1

AT&T incentives to pursue undergrounding projects differ from PG&E's

For underground conversion projects as for any other capital project PG&E and AT&T must first advance the funds. The utilities budget the activity and then arrange the capital and debt to pay for project labor and materials.

PG&E, when the project is complete, adds the total project cost to its ratebase. Periodically rates are re-set to allow PG&E to earn a return of and on investments like this, a positive incentive.

For AT&T however, incentives if anything are the reverse, because the Commission has eliminated traditional cost of service regulation and went further to eliminate all retail price regulation except basic residential services 4 for AT&T and other major incumbent local exchange carriers (ILECs). Instead, to oversimplify, funds for undergrounding compete with other projects and with shareholder returns. Expenditures must be clearly required and justified by Rule 32.

Under these conditions the Commission must assist the utility's management to prioritize projects by interpreting their need and timing. In this case due to the desires of the County and the community of Gualala, and the amount of time elapsed since the project was first authorized in August 2000, the Commission directs AT&T and PG&E to take all action within their control as soon as possible to prioritize planning, design and construction, and completion of Phases 1 and 2, and of Phase 3 unless the County chooses to delay Phase 2 in order to start Phase 3 at the same time.

History

Gualala is an unincorporated community about 100 miles north of San Francisco extending for about a mile along coast Highway 1 in Mendocino County, a state designated Scenic Highway. While AT&T often builds communication lines below PG&E's on the same pole, in Gualala there are for the most part two separate poles lines along Highway 1, one owned by PG&E and the other by AT&T. Gualala intends to convert all its power and communication facilities along Highway 1 from overhead to underground, largely with utility funding under provisions of Rules 20 and 32.

Utility allocations to fund undergrounding projects are made to Mendocino County in this case and not to the community of Gualala.

In August of 2000 the Mendocino County Board of Supervisors passed the first of three Resolutions creating an undergrounding district in Gualala in order to utilize ratepayer funds under Rules 20 and 32.5 The undergrounding district boundary in Mendocino's first Resolution includes both sides of Highway One for about a half-mile through a developed area of Gualala.

In 2001 PG&E and AT&T accepted the Gualala Rule 20A project. For the next several years into 2004, parties including PG&E, AT&T, Mendocino County and the Gualala Municipal Advisory Committee (GMAC), Caltrans, and Chevron worked to resolve numerous obstacles to progress on the project, including initial work on street and sidewalk issues. Chevron agreed to dispose of soil contaminated by an abandoned gas station, and Caltrans agreed to AT&T's request to trench across Highway 1 instead of Caltrans' more costly initial requirement to bore under the highway. In addition Caltrans verbally committed that it had no plans to increase the width of State Highway 1 through the original downtown developed area adopted by the County's first Resolution in 2000. Widening the highway could obligate utilities to later relocate at their expense any facilities installed in street side franchise areas.

In 2005 the utilities turned their attention to the location of the single joint trench typically shared by all participating utilities in Rule 20/32 conversion projects for efficiency and minimal community disruption.6 For the most part, the existing AT&T pole line runs on the east side of Highway 1 in a franchised area granted by the County and Caltrans along the sreet side of properties.

PG&E's pole line however, runs west of Highway 1 mostly in private yard easements owned by PG&E away from the property frontage on Highway 1. Before developing plans with the County and GMAC and committing to joining AT&T in a joint trench on the east side of the highway PG&E needed Commission permission to give up the existing pole-line easements because they were purchased with ratepayer funds. PG&E's Advice Letter filing to abandon these easements and move to a street side franchise is discussed below.

In 2006 GMAC asked the County to double the length of the project to approximately one mile (5600 feet) along Highway One. The County held public meetings, approved an expansion7, and hired a consultant to survey and define the expansion.

Late in 2006 while developing its Advice Letter for permission to transfer its easements PG&E received from the County an outline of an expanded area of the undergrounding district.8 PG&E attached the County's outline without fully assessing it so that the Commission's permission could also apply to easements in the expanded scope, in order to save the time needed for the Commission to process a second Advice Letter.

Early in 2007 PG&E filed the Advice Letter, 2971-E, and in June 2007 the Commission approved it as filed. The so-called 851 Resolution granted permission under P.U. Code Section 851 to relocate PG&E's existing overhead facilities from the rear lot easement to the street side underground joint trench with AT&T in a franchise area.

In August 2007, following the survey work for its first boundary expansion, the County passed a third Resolution which was its second boundary expansion.9 The County "provided the lead design utility, AT&T, with appropriate drawings, mapped in 2006, showing community-owned facilities, such as sewer, water and storm drains."

In December of 2007 the County and utilities met in Gualala for the first step in implementing the first boundary expansion, which the County had adopted in 2006, which is to physically walk the route.

At the December 2007 Gualala meeting the County also provided the utilities their first view of the second expansion of the district boundary, which the County had adopted in August 2007.

In June 2008 the County wrote to Commission staff requesting it to "reaffirm the expanded undergrounding area, the one-mile along Highway 1 in Gualala, and direct that the project be completed in one stage as soon as practically possible."9

The parties have referred to the three County Resolutions, stages, phases, or sections as green, red, or blue/purple, as shown in APPENDIX 1 - Map of ORIGINAL District Boundaries. In this CPUC Resolution the County Resolution boundaries will generally correspond to Phases 1, 2 or 3 respectively, as shown in APPENDIX 2 - Map of PROPOSED District Boundaries.

1 For the most part, and except as discussed below, AT&T's Rule 32 mirrors PG&E's Rule 20.

2 Like all other electric utility investments, the electric utility does not collect from the ratepayers on undergrounding projects until the project is put into service. Under Rule 20, the Commission authorizes the utility to spend a certain amount of money each year on conversion projects, the utility records the cost of each project in its electric plant account for inclusion in its rate base upon completion of the project. Then, the Commission authorizes the utility to recover the cost from ratepayers until the project cost is fully depreciated.

3 Criterion d. was added to Rule 20 in 2001 but has not yet been added to Rule 32.

4 AT&T, Verizon, SureWest and Frontier's basic residential rates are capped until January 1, 2011.

5 The first Mendocino County Resolution No. 00-145 dated August 2000. Besides AT&T and PG&E, unregulated cable services, which are tenants on the poles,

are a third entity sharing the cost of this undergrounding project.

6 All three entities including cable service share project costs but one of them on each project, often PG&E but AT&T in this case, is the lead utility which secures permits and conducts trenching for example.

7 Second Mendocino County Resolution No. 06-206, dated October 24, 2006.

8 CPUC Resolution E-4100 dated June 21, 2007.

9 Third Mendocino County Resolution No. No. 07-163 dated August 14, 2007.

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