IX. Public Utilities Code Sections 851 and 853(b)

In the OIR, we raised the possibility of exempting BPL transactions from the requirements of Pub. Util. Code § 851, pursuant to our authority under § 853(b).37 (OIR, pp. 5-6.) Some parties applauded this approach, while others criticized it. We now confirm that we are adopting a policy of exempting certain BPL transactions from § 851.

A. Party Positions

PG&E supports exempting BPL transactions from § 851 review. It argues that such review is not necessary to protect the public interest and calls § 851 review an "unnecessary regulatory hurdle." (PG&E Opening Comments, p. 14.) SDG&E concurs: It argues that requiring a § 851 application "necessarily would result in delay and uncertainty." (SDG&E Opening Comments, p. 20.)

Current and Ambient also support exempting BPL transactions from § 851. As Current puts it, "Sec. 851 proceedings can be contentious and time consuming. Such regulatory uncertainty would substantially hinder the development of BPL and would stand in stark contrast to the Commission's efforts to promote competition in communications by providing regulatory certainty through appropriate use of Sec. 853 exemptions." (Current Opening Comments, pp. 23-24.)

TURN, on the other hand, vigorously opposes the proposed exemption from § 851. It contends that an exemption is unnecessary, illegal, and inconsistent with the Commission's expressly stated standards for granting § 853(b) exemptions. (TURN Opening Comments, pp. 18-26.)

CCTA opposes providing an exemption from § 851 solely for BPL projects too. It argues that such an exemption would be discriminatory and inconsistent with federal law and policy, because the exemption would favor one technology over another. CCTA adds that an exemption is simply unnecessary, as compliance with § 851 will not hinder BPL deployment. (CCTA Opening Comments, pp. 2-8.)

Other parties opposing an exemption from the requirements of § 851 include CISPA, DRA, Greenlining, UCAN, and San Francisco.

SCE, while not opposing an exemption from § 851 for BPL, recommends that the Commission "consider a uniform approach to § 851 requirements for all communications providers regardless of the technology on which service is based." (SCE Opening Brief, p. 6.)

B. Discussion

Public Utilities Code § 851 exists to protect the quality of utility service provided to ratepayers and to protect ratepayers' investment in utility assets. While it serves an important purpose, § 851 application proceedings can sometimes be both contentious and time consuming, and a full review of every transaction is not always necessary to protect the public interest. Here a lengthy section 851 proceeding would simply be inconsistent with our stated policy goal of not impeding the rapid deployment of BPL technology.

Although previously the Commission has expressed concerns that the granting of § 853(b) exemptions runs the risk that "would create an exception that swallowed the rule,"38 the plain language of § 853(b) does not limit its application to extraordinary circumstances. Section 853(b) provides that "the commission may from time to time by order or rule, and subject to those terms and conditions as may be prescribed therein, exempt any public utility or class of public utility from this article if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest."

Moreover a review of the specific use of § 853(b) to exempt transactions from § 851 shows that the Commission has employed a variety of policies and standards when applying §853(b). Indeed, the Commission has granted a number of exemptions without any finding of extraordinary circumstances.

Often exemptions arise in circumstances that would be difficult to deem "extraordinary" under almost any standard. For example, in D.05-07-039, the Commission granted SDG&E an exemption from § 851 for any contract negotiated with solar photovoltaic or small wind project as long as (i) the contract is the result of an open solicitation, (ii) the agreement meets a least-cost best-fit test, (iii) the contract does not involve an affiliate of SDG&E, and iv) the bidder has access to SDG&E property. In the decision, the Commission lists several reasons for granting the exemption. First, the Commission contends that a section 851 review could "delay implementation." Second, the Commission maintains that the involvement of SDG&E property is "small." Third, the Commission observes that the property would be used "to generate electricity for the utility's customers."

Similarly, in D.05-06-016, the Commission granted PG&E and SCE a § 853(b) exemption from a § 851 review of the transfer of emission reductions to the California Air Resources Board or local air districts. In reaching this result, the Commission simply noted that it has given exemptions in the past where review served no public interest. It further stated that "because PG&E and Edison will be obtaining the emission reduction from customers solely as a result of the conversion program and the assignment of these reduction will bring about permanent air quality improvements without having any impact on the ability of the two utilities to serve their customers, an exemption from the requirements of § 851, pursuant to § 853(b), is appropriate."39 This decision does not even consider whether these circumstances are "extraordinary."

In D.04-03-020, the Commission granted an exemption from § 851 review to the assignment of accounts receivable by Lodi Gas Storage to securitize a short term line of credit. There the Commission observed that the authority granted to it by § 853(b) permitted such an exemption. It further stated that statutes urged the Commission to create competition for gas storage, and the Commission had adopted a "let the market decide" policy for gas storage as a further justification of an exemption.40 Once again, the Commission did not discuss whether these are "extraordinary" circumstances.

In D.02-10-008, the Commission, pursuant to §853(b), exempted PG&E's sales of electric meters to customers. The Commission simply found that "it would be unduly cumbersome and uneconomic to require individual filings by utilities for each individual meter sale. Such a requirement would not serve the public interest."41 The decision did not consider whether these circumstances were "extraordinary."

Given this brief review of past Commission decisions, it is clear that TURN is incorrect when it asserts that this Commission has in the past only granted exemptions from § 851 pursuant to § 853(b) in extraordinary circumstances. (TURN Opening Comments, p. 19.) Instead these decisions show that the Commission has granted exemptions in a number of matters where the circumstances are quite ordinary.

In other situations, even when the Commission could have reached a finding of an "extraordinary circumstances," the Commission did not do so. For example, in D.05-10-013, the Commission granted a § 853(b) exemption from § 851 in order to eliminate the review of a proposed agreement that would allow encroachment on specified easements. Although this exemption was granted during an anticipated energy shortage and the exemption could have readily passed an "extraordinary circumstances" standard, the Commission simply invoked the language of § 853(b) and found that a § 851 approval was "not necessary in the public interest." In addition to citing § 853(b), the Commission relied on D.01-06-006, which permitted SDG&E to lease space at substations during the energy crisis, once again without finding that "extraordinary circumstances" were present.

Moreover, even when one examines the specific cases in which the Commission cited "extraordinary circumstances" as warranting a § 853(b) exemption, it is clear that the Commission's notion of "extraordinary" is highly elastic. In D.02-01-055, the Commission exempted the sale of six of PG&E's electric distribution facilities to customers made twelve years earlier, citing PG&E's mistake in failing to seek approval as creating an "exceptional circumstance." The Commission found that the Commission's implicit approval of the sale (in a prior decision ordering the sale), PG&E's error, and the passage of time created "extraordinary circumstances."42 Similarly, in D.04-07-021, the Commission granted PG&E another exemption for 255 similar transactions that likewise had failed to secure approval. After granting an exemption for the entire period preceding the decision, the decision then granted § 851 approval on a going forward basis for all the transactions.

The review of these decisions makes it clear that a § 853(b) exemption may be granted whenever the Commission makes a policy determination that application of § 851 is not necessary in the public interest. As made evident by the plain wording of § 853(b), the Commission need not establish that "extraordinary circumstances" are at issue.

An exemption in this matter supports a number of important Commission policies, including the following: (i) speedy implementation of BPL systems without lengthy § 851 regulatory proceedings; (ii) providing additional access to new broadband systems to California citizens; and (iii) encouragement of investment in a nascent technology that promises to have both telecommunications and electric grid public benefits. These Commission policies are consistent with goals set forth by the State legislature.

Granting an exemption in this matter is reinforces our policy of encouraging public access to advanced telecommunications services. This Commission policy is stated in § 882(a) of the Public Utilities Codes. The provision states that the Commission shall ensure that "advanced telecommunications services are made available as ubiquitously and economically as possible."43 It also declares that we should aspire "to provide all citizens and businesses with access to the widest possible array of advanced communications services."44

In addition, granting exemption to BPL transactions from review under § 851 will further this Commission's long-standing goal to promote competition in the broadband market. Public Utilities Code § 709 states that California's policy for telecommunications is "to remove the barriers to open and competitive markets and promote fair product and price competition in a way that encourages greater efficiency, lower prices, and more consumer choice."45

BPL has the potential to allow the entry of a significant competitor into the broadband market. Requiring electric utilities to undergo lengthy § 851 review would be to create a barrier to entry and thwart the development of a competitive marketplace. Review under § 851 would create a regulatory mechanism where incumbent carriers could seek to delay entry by BPL providers and hence retard the growth of competition in the broadband market. With this delay comes greater uncertainty that will further deter entry. Exemption under § 853(b) of the application of § 851 to these BPL-related transactions is clearly consistent with this policy enunciated by the legislature to reduce barriers to open and competitive markets. Moreover such an exemption is consistent with the precedents established in D.02-10-008 (which exempted PG&E meter sales from review), D.05-07-039 (which exempted photovoltaic and small scale wind contracts from review), D.05-06-016 (which exempted the transfer of emission rights from review), and D.04-03-020 (which exempted the securitization of receivables by Lodi Storage from review).

Another policy of the Commission is to reduce the level of scrutiny for routine transactions such as those at issue in this proceeding. This policy is reinforced by the existence and language of § 853(b), which broadly allows the Commission to take a hands-off approach when the Commission determines that such a policy is in the public interest.46

Moreover, even though a plain reading of the statute does not require that transactions meet a standard of "extraordinary" to merit an exemption, this transaction would meet a Commission "extraordinary" standard regardless. The possibility of bringing another broadband communications channel into the homes of Californians would clearly offer an "extraordinary" opportunity, which specific lengthy § 851 reviews would frustrate. In addition, because individual § 851 proceedings are necessarily fact-specific, we have no way of predicting in advance the issues that may be raised in a particular § 851 proceeding, and accordingly we have no way to predict how lengthy each § 851 proceeding may be.47 We prefer to eliminate such regulatory uncertainty and delay and the additional barriers to deploy they create. These considerations, when reviewed in light of our expansive interpretation of "extraordinary" in past Commission decisions, establish that the proposed transaction would pass an "extraordinary" standard.

CCTA's claim that the Commission would improperly discriminate in favor of BPL if it allowed BPL an exemption from §851 is not well founded. Technologies competing with BPL are not identical: They do not provide advanced services in identical manners or by identically-situated entities. For example, Comcast did not need to file a § 851 application at this Commission to provide broadband advanced services over its cable infrastructure, nor did Verizon Wireless need to file a § 851 application to provide wireless broadband service on its licensed radio spectrum. Also, given the head starts of other technologies such as DSL and cable modem service, reducing potential regulatory barriers to the deployment of BPL will actually do more to level the playing field than to tip it.

These considerations lead us to the conclusion that the public interest is best served by the speed of deployment of BPL technologies, rather than by a more rigorous but necessarily lengthy review process of individual BPL-related transactions. Conducting § 851 reviews in this context is not "necessary in the public interest," and it is both reasonable and consistent with the statutory language of § 853(b) to exempt these transactions from § 851 review.

Despite the vigor with which the parties debated the merits of § 851 versus § 853(b), the record is sparse on how the Commission should best use § 853(b). Contrary to the tenor of some opponents of the use of a § 853(b) exemption from § 851, the mere use of § 853(b) does not necessarily mean that utilities are given carte blanche to do as they please. Section 853(b) expressly provides that in granting an exemption from § 851 the Commission may prescribe terms and conditions and establish rules or impose requirements on that exemption.

In this context it is important to address whether, having exempted BPL transactions from Commission review, we should impose conditions to protect the environment. In particular, should we require a review for BPL transactions under the California Environmental Quality Act (CEQA), even though we exercise no discretion in the review of these transactions?

We note that CEQA is a flexible statute, and broad activities associated with California's utility infrastructure already qualify for a categorical exemption from the requirement to conduct a CEQA review. In particular, CEQA Guideline 15301 grants a categorical exemption to a number of "Class 1" activities:

Class 1 consists of the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the time of the lead agency's determination. The types of
"existing facilities" itemized below are not intended to be all-inclusive of the types of projects which might fall within Class 1. The key consideration is whether the project involves negligible or no expansion of an existing use.

The Guidelines proceed to cite examples specific activities that are categorically exempt from CEQA review:

Examples include but are not limited to:

(b) Existing facilities of both investor and publicly-owned utilities used to provide electric power, natural gas, sewerage, or other public utility services;

and

(e) Additions to existing structures provided that the addition will not result in an increase of more than:

Thus CEQA guidelines establish categorical exemptions for the minor alteration of facilities used to provide utility service and minor additions to existing facilities, the exact situation that we will generally have as California deploys broadband over power lines. As a result, if the Commission were to subject these individual transactions to a CEQA review, the result would be nothing more than a paper-pushing exercise in which the Commission would, after a review, inevitably conclude that these activities qualify for a categorical exemption.

Therefore, pursuant to § 853(b), we exempt from § 851 and any further conditions those transactions that can be accomplished by the use or modification of "existing facilities," such as the use of existing electrical underground or overhead lines, or the placement of couplers, load monitoring devices, and equipment on existing poles or in existing buildings. As a result of the use of § 853(b) exemption, this Commission will not be reviewing these individual transactions and therefore the Commission's requirement of a CEQA review is not triggered.

Moreover we note that the Commission already has many environmental protections already in place relating to utility wires and infrastructure. Thus, BPL equipment must be installed in or on existing utility structures consistent with any and all applicable existing environmental mitigation measures, particularly those measures applicable to the utility infrastructure on which it is constructed or installed.48

To complete our discussion of categorical exemptions, we note that grants of these exemptions generally have limits. For example, pursuant to CEQA Guideline 15300.2 and G.O. 131-D parameters for electric utilities, categorical exemptions do not apply when any of the following conditions occur: 1) there is a reasonable possibility that the activity may have a significant effect on an environmental resource of hazardous or critical concern; 2) the cumulative impact of successive projects of the same type in the same place, over time, is significant; or 3) there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.

Since the protection of the environment remains a primary goal of this Commission, we will impose as an § 853(b) condition that the Commission conduct a CEQA review of all those BPL transactions that do not qualify for a categorical exemption. Specifically, we will require that the Commission conduct a CEQA review of those BPL transactions that can result in trenching, excavation, boring or drilling, or other digging. We note that we continue to exempt these transactions from all the other conditions of § 851 pertaining to Commission review of the financial transaction, but we subject these transactions to a CEQA review.

Finally all discussion of BPL transactions in the OIR and pleadings related to leases or other agreements for use of utility-owned infrastructure. No sale of utility assets was discussed. We therefore find no reason to exempt the sale of utility assets related to any BPL transaction from § 851 under this § 853(b) exemption. Should any utility wish to sell utility assets for BPL purposes, approval for such sales must be sought via a § 851 application.49

C. Process

In the OIR, we discussed the use of an advice letter process for approval of utility leases or other financial arrangements with a BPL company. (OIR, p. 10.) We recognize, however, some problems with the use of an advice letter. For example, if an advice letter is protested, that may require the issuance of a Commission Resolution.50 A contested advice letter resulting in a Commission Resolution raises a number of the same concerns raised by an application under § 851, such as triggering potentially lengthy revenue allocation and CEQA issues.

The Commission has no interest in further litigation and review of transactions that are consistent with this decision. Accordingly, we are not going to require the filing of an advice letter for approval of utility/BPL contracts. We do, however, believe it is important for this Commission to have notice of the existence of such a contract. Accordingly we will require utilities to provide the Directors of the Telecommunications Division and Energy Division notice of any lease or other financial arrangement with a BPL company, including the name of that company, the nature of the services to be provided, and date entered. Should any such lease or other contract not be disclosed, or otherwise be inconsistent with this decision, this Commission, may open an OII for violation of this decision. Should any utility object to using this process for a particular transaction, the utility may submit an application to the Commission under Public Utilities Code § 851.

37 Pub. Util. Code § 851 states, in relevant part, that "No public utility...shall sell, lease, assign, mortgage, or otherwise dispose of or encumber the whole or any part of its...line, plant, system, or other property necessary or useful in the performance of its duties to the public...without first having secured from the commission an order authorizing it so to do." Section 853(b) reads: (b) The commission may from time to time by order or rule, and subject to those terms and conditions as may be prescribed therein, exempt any public utility or class of public utility from this article if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest. The commission may establish rules or impose requirements deemed necessary to protect the interest of the customers or subscribers of the public utility or class of public utility exempted under this subdivision. These rules or requirements may include, but are not limited to, notification of a proposed sale or transfer of assets or stock and provision for refunds or credits to customers or subscribers.

38 D.04-08-048, p. 7.

39 D.05-06-016, 2005 Cal. PUC Lexis 223, 50-51 (Cal. PUC 2005).

40 D.04-03-020, 2004 Cal. PUC LEXIS 144, 5-7 (Cal PUC 2004).

41 D.02-10-008, 2002 Cal. PUC LEXIS 636 (Cal. PUC 2002)

42 D.02-01-055, 2002 Cal. PUC LEXIS 7-9 (Cal. PUC 2002)

43 Section 882(a) of the Public Utilities Code.

44 Section 882(b)(1) of the Public Utilities Code.

45 Section 709(g) of the Public Utilities Code

46 For example, the Commission's GO 69-C creates an exemption from § 851 for revocable licenses of utility property that meet certain conditions, and does not require the existence of extraordinary circumstances.

47 For example, due process considerations may require evidentiary hearings in some cases.

48 According to Current, "BPL deployments simply involve placements of equipment on existing utility infrastructure...BPL involves no trenching or other activities which might trigger CEQA." (Current Reply Comments, pp. 11-12.)

49 An exception to this requirement, relating to SDG&E's possible transfer of the benefits of certain shareholder-funded development of BPL to a utility BPL affiliate, is discussed below.

50 Given the number of parties and range of positions in this proceeding, it is quite possible that there may be protests to advice letters seeking approval of utility contracts with BPL providers.

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