4. Commission Approval Under § 851

ORA supports Commission approval of the Lease Agreement and the five product orders described in the application.

SCE asserts that there are several benefits in allowing Sprint to lease SCE's dark fiber:

· The leases will not affect SCE's electric utility service.

· Leasing excess capacity will enable fuller use of utility assets in ways that are compatible with the electric utility operations.

· Sprint's use of the facilities will enhance competition in the telecommunications market, expand the state's telecommunications infrastructure, and help attract and maintain businesses in California that want to use advanced services.

· Gross revenues from the leases will be shared by shareholders and ratepayers on a 90%-10% basis, respectively, consistent with the gross revenue sharing mechanism for non-tariffed products and services established in Decision (D.) 99-09-070.

Section 851 of the Public Utilities Code requires Commission authorization before a utility may "sell, lease, assign, mortgage, or otherwise dispose of or encumber" utility property. The Commission has described the purpose of § 851 as follows:

The design of PU Code § 851 is to prevent the impairment of the public service of a utility by the transfer of its property into the hands of agencies incapable of performing an adequate service at reasonable rates or upon terms which will bring the same undesirable results. Transfers and reorganizations often are made which leave the utility so burdened with fixed interest charges and crippled financially that it is totally unable to perform its duty to the public; and to prevent the bringing about of such conditions, the Commission has been given the authority to regulate the transfer and encumbrance of its property by a utility. (D.96-04-045, at 9; 65 CPUC2d 324, 328.)

The Commission reviews applications for transactions submitted pursuant to § 851 to ensure the following:

· That the transaction "will not impair the utility's ability to provide service to the public."

· That "any revenue from the transaction is accounted for properly."

· That the transaction does not have "any anticompetitive effects and does not result in cross-subsidization of nonregulated enterprises." (65 CPUC2d at 329.)

ORA concludes, as do we, that SCE's application to lease currently available capacity of its fiber rings to Sprint meets the review criteria of § 851. First, SCE states that it does not have any plans to use the facilities for its electric utility operations during the terms of the product leases. SCE further assures us that, to the extent the facilities later become necessary for electric utility operations, SCE will either renegotiate use of the fibers with Sprint or will expand existing capacity at no cost to ratepayers.

Second, revenues from the leases will be treated as Other Operating Revenue and will be subject to the gross revenue sharing mechanism adopted in D.99-09-070.

Third, with regard to the potential for cross-subsidization, SCE has affirmed in discussions with ORA that all incremental capital investments for uses other than the electric utility are the responsibility of the shareholders, and SCE has committed to follow the cost tracking and allocation rules for its telecommunications services that the Commission adopted in D.98-12-083. ORA adds, however, that only an audit can verify whether SCE is truly booking its costs and revenues properly, and it recommends that the Commission include review of these transactions in its routine audits of SCE conducted pursuant to Pub. Util. Code §314.5.

Finally, neither SCE, through its telecommunications unit (Edison Carrier Solutions) nor Sprint is a dominant telecommunications carrier in California. Allowing SCE to provide available fiber network to a non-affiliated competitive local exchange carrier like Sprint is therefore not likely to pose an anti-competitive threat. On the contrary, it is consistent with this Commission's goal of promoting competition in the local telecommunications market.