III. Discussion

A. Section 851

Under Pub. Util. Code § 851, no public utility may transfer property that is necessary or useful in the performance of its duties without first having secured the Commission's authorization.²¹ To obtain such authorization, the applicant must demonstrate that it is in the public interest to allow the transaction. PPS claims it will only lease "excess [fiber] capacity" to third parties:

[PPS] has installed and reserved sufficient fiber optic cable and related access rights to satisfy its ongoing public utility needs. . . . The balance of the fiber optic telecommunications system is now excess to [PPS'] operational requirements. In addition, because the negotiation of rights of way for the pipeline also is complete, [PPS] no longer requires capacity in the fiber optic telecommunications system with which to negotiate with governmental entities.²²

Based on these representations, we find that the leases do not involve property necessary or useful to PPS. Moreover, it is in the public interest to allow joint use of public utility facilities to limit the environmental and economic impact of constructing duplicate facilities.²³

Moreover, PPS does not operate under a traditional cost-of-service or rate of return regulatory framework. Pursuant to authority granted in D.96-04-056, the rates for PPS' Pacific System are established pursuant to market conditions, and PPS has a market-based tariff for the system. According to PPS, "[t]he granting of an indefeasible right to use portions of its fiber optic telecommunications system will not affect the rates charged to [PPS'] customers."²⁴

Based on the PPS' lack of need for the leased fiber capacity, the Commission's interest in avoiding redundant infrastructure where feasible, and the lack of ratepayer impact, we find the leases are in the public interest and grant them pursuant to Pub. Util. Code § 851.

B. Applicability of CEQA to PPS' Plans

We find that CEQA applies to PPS' application. PPS makes three basic arguments to the contrary, all of which we reject, wholly or in part. First, it claims that its application pursuant to Section 851 did not trigger additional environmental review of the fiber optic system. Second, it claims it was enough that it kept the Commission informed that it would be installing fiber optic facilities pursuant to the preexisting USFS EIS/SEIR. Third, it claims there is a historical division of authority between the USFS and the Commission in overseeing construction affecting federal land, and that it reasonably believed that the USFS took the lead for construction on federal lands.

We find that PPS proceeded at its own risk in engaging in construction without securing approval from the Commission for its activities. It was not up to PPS to decide which environmental laws applied to its activities. PPS' actions violated Pub. Util. Code § 702, which requires every public utility to comply with the orders, decisions and rules of the Commission,²⁵ and Commission Rule 17.1, which sets forth the requirements for preparation and submission of environmental impact reports. We also find a violation of Commission Rule 1, which prohibits those who transact business with the Commission from misleading the Commission or its staff by an artifice or false statement of fact or law. PPS' failure to notify us the work would occur in part off federal land, and its representation to the contrary; its failure to explain at the outset that the application would involve construction; and its failure to inform the ALJ until July 2000 that the work was already complete all justify this finding.

Before discussing penalties for such violations pursuant to Pub. Util. Code § 2107, we address, and reject, PPS' arguments that it fully complied with the law.

1. Applicability of CEQA to Section 851 Application

PPS claims that the project already received full CEQA review as part of an earlier SEIR the Commission prepared for the installation of the Pacific Pipeline itself. The additional approval PPS now needs under Section 851 does not, PPS contends, trigger a new environmental review.²⁶ PPS contends "the project" for Commission approval was the pipeline itself, which included "the fiber optic system appurtenant to that pipeline."²⁷ "In the [original] certification process, it was widely know that PPS intended to make the fiber optic system available for use by third parties thereby reasonably raising the expectation that PPS would, at a future date, seek the Commission's separate approval to allow such third-party use."²⁸

We disagree that it was up to PPS to determine whether the original pipeline approval encompassed the new construction. Under CEQA, project changes require Commission assessment of whether a subsequent or supplemental EIR is required, and do not allow a party unilaterally to determine that CEQA does not apply.²⁹

PPS conceded that the leases for which it seeks Pub. Util. Code § 851 approval involved new construction, and were not mere paper transactions. The ALJ's January 26, 2000 Information Ruling asked PPS to describe any "trenching or construction activities [that would occur] incident to the grant [of third party rights to use PPS' pipeline for installing fiber optic facilities]." PPS responded by describing need for installation of "sixty additional pullboxes . . . along the existing, disturbed right of way."³⁰ Thus, by its own admission, the construction of the pullboxes was "incident to the grant" of third party rights - the rights PPS seeks Commission approval to grant to Qwest and others pursuant to Pub. Util. Code § 851.

While we determine here that a new EIR was not required, PPS' unilateral decision in this regard usurped the Commission's authority to make the determination about the adequacy of the original USFS environmental review. We were required to assess the applicability of CEQA to PPS' application. Where "[only] minor additions or changes would be necessary to make the previous EIR adequately apply to the project in the changed situation . . . responsible public agency may choose to prepare a `supplement' to an EIR rather than a subsequent EIR . . . ."<sup>31</sup> Moreover, "in lieu of either a subsequent or supplemental EIR, the responsible agency may prepare an `addendum' to an EIR if none of the conditions requiring the preparation of a subsequent or supplemental EIR have occurred . . . ."³² In all cases, it is the "responsible agency," and not the project proponent, that makes these decisions.

2. Role of PPS in Keeping Commission Informed of Its Plans

PPS also contends that since it kept the Commission informed that it would perform the new construction without CEQA approval, it should not be faulted for having done so. While this may be true, it is beside the point. If the Commission was required to determine the applicability of CEQA, the only place it could do so officially was in a Commission decision or other formal issuance. However, PPS did not wait for a decision to issue; it simply proceeded on its own with construction.

Moreover, it should have been clear to PPS that the assigned ALJ was concerned about the environmental impact of the construction. The ALJ issued a ruling, to which PPS responded no less than four times, aimed at determining the environmental impact of the project. Surely PPS perceived there was concern about whether the new construction would harm the environment or it would not have submitted such extensive environmental materials. Nor was this the type of routine construction PPS makes it out to be³³; its submissions in response to the ALJ's Information Ruling show extensive new examination of the environmental impact of the Project.

PPS proceeded at its own risk in performing construction without knowing whether the Commission would defer to the USFS, especially on private land.

3. Relevance of USFS Involvement

PPS contends that it was entitled to assume the USFS would be solely in charge of overseeing the new constructing because of the "historical division of authority between the Forest Service and the Commission."³⁴ Regardless of how we may have proceeded prior to PPS' new construction, we have an obligation to apply CEQA to all California "projects" planned by utilities we regulate regardless of who owns the land.³⁵ Thus, the fact that the USFS conducted environmental review of an earlier aspect of the project does not preclude us from conducting our own separate review. Our jurisdiction over such projects stems from our regulatory authority over the applicant, not the land. It is true that a party must obtain federal approval pursuant to NEPA if a project requires a federal permit or will occur on federal land. However, federal NEPA review and state CEQA review are parallel processes.³⁶

By the same token, we do not believe it is our responsibility under CEQA to conduct a full review that completely duplicates one conducted by the agency whose land is principally affected by the project. This is what occurred here: because virtually all of the project area is on USFS land, USFS conducted a thorough NEPA review of PPS' project. The Forest Service imposed stringent mitigation requirements on PPS' work both on and off USFS lands. We understand that PPS complied with those conditions. Had we completed our own, duplicative review, we would have reached the same result and imposed the same conditions. Thus, under the specific circumstances presented here, we find it unnecessary to duplicate the USFS' efforts by conducting an entirely separate environmental analysis.

This conclusion is reinforced by the fact that the Commission performed CEQA review and prepared an EIR at the time PPS first installed the Pacific System Pipeline in 1996. At that time, PPS installed the fiber optic cable and conduit it now plans to lease to third parties. All that the Commission would be doing for this project would be determining whether to perform a subsequent EIR or a Supplement or Addenda to the EIR for the installation of the pullboxes and handholes in the Angeles National Forest. Given the high standards set forth in Public Resources Code § 21166 and CEQA Guideline § 15162 that must be satisfied for preparation of a subsequent or supplemental EIR, combined with the stringent mitigation measures imposed by the USFS, the need for an additional CEQA document does not appear to be triggered here.

However, it was not up to PPS to choose which agency should conduct the necessary environmental analysis. Rather, it should have sought Commission authorization and CEQA review. PPS violated the law and our rules by not seeking Commission authorization to complete the work and should pay a penalty for this violation.

We find adequate the conditions the USFS imposed on PPS, and retroactively adopt those conditions both for purposes of the work in the National Forest and on the two parcels of private land. Therefore, we grant the Application subject to all USFS conditions, whether set forth in the USFS permit or elsewhere. The conditions of which we are aware are contained in Appendix A to this decision.

4. Additional Conditions

Moreover, since we regulate Qwest, and the construction is for the benefit of Qwest, we also impose, retroactively; conditions previously imposed on Qwest for Qwest-related PPS work. In D.97-09-011, we issued Qwest a certificate of public convenience and necessity (CPCN) and a Negative Declaration for Qwest's project to install fiber optic cable-the same project that PPS' construction will facilitate. In an investigation issued earlier this year, we stated that,

The Commission has received information that Qwest allegedly has not complied with Decision 97-09-011, the certificate of public convenience and necessity granted by the decision and the Negative Declaration issued for Qwest's project to install fiber optic cable. Qwest has allegedly undertaken design and construction for the placement of underground fiber optic telecommunications facilities, and proceeded with the construction or installation phase, without initiating and completing a review of the impact of the project on Native American cultural resource areas.³⁷

The Commission's Energy Division issued a "stop work" order on December 16, 1999, directing Qwest to halt construction on its fiber optic network pending further notice. Ultimately, the Energy Division allowed Qwest to proceed with construction, subject to certain conditions designed to ensure CEQA compliance. Those conditions are set forth in the document appended hereto as Appendix B, and shall be binding on Qwest or its agents with regard to any work on its fiber optic lines, including those located within the Pacific System pipeline. We incorporate those conditions into the permission we grant here.

C. Consideration of Penalties

PPS' actions violated Pub. Util. Code 702, which requires every public utility to comply with the orders, decisions and rules of the Commission; Commission Rule 17.1, which sets forth the requirements for preparation and submission of environmental impact reports; and Commission Rule 1, which governs the representations and statements parties make to the Commission. We therefore proceed to a determination of the proper penalty for this violation.

Under Pub. Util. Code § 2107, the statutory range of Commission penalties is from $500 to $20,000 for each offense. Each day of violation is considered a separate violation.³⁸ We have set forth criteria for considering penalties in an unrelated context, in D. 98-12-075, and we find those criteria illustrative here. Those criteria, and our assessment of PPS' conduct in light of them, follow.

1. Physical Harm

According to D.98-12-075, the most severe violations are those that cause physical harm to people or property, with violations that threaten such harm closely following. PPS' actions in engaging in construction without CEQA review threatened, but did not actually cause, environmental harm to sensitive wilderness areas in and around the Angeles National Forest. PPS asserts that this fact ends the inquiry.³⁹ While there is no evidence of any actual harm to the Forest or surrounding areas of which we are aware, this criterion nonetheless recognizes the need for penalties even where actions threaten, but do not cause, harm. By the same token, PPS correctly notes that the work was done under the supervision of the USFS. Had PPS proceeded without oversight by any agency charged with enforcing environmental laws, this would have been a different case. On balance, we find that this factor warrants a decrease in the amount of the penalty due to the involvement of the USFS.

2. Economic Harm

According to D.98-12-075, the severity of a violation increases with (1) the level of costs imposed upon the victims of the violation, and (2) the unlawful benefits gained by the Applicant. Generally, the greater of these two amounts will be used in setting the fine. The fact that economic harm may be hard to quantify does not diminish the severity of the offense or the need for sanctions.

There is no evidence of costs imposed on victims of the violation, but we find that PPS gained benefits by completing its Project far in advance of when it would have had it awaited Commission review. PPS jumped the line ahead of other applicants who complied with CEQA's requirements. Thus, this factor militates in favor of an increase in the penalty.

3. Harm to the Regulatory Process

A high level of severity will be accorded to violations of statutory or Commission directives, including violations of reporting or compliance requirements. This is clearly a case in which PPS failed to afford the Commission the opportunity, in advance, to carry out its obligations under CEQA. We find such action to violate Commission Rule 17.1, and to warrant an increase in penalties.

4. The Number and Scope of the Violations

Under D.98-12-075, a single violation is less severe than multiple offenses. A widespread violation that affects a large number of consumers is a more severe offense than one that is limited in scope. PPS asserts that "any such violation in this case would be a single, isolated event."⁴⁰ We disagree, and find each day of unauthorized work to be a separate violation.⁴¹ PPS represents that it engaged in the unauthorized construction "in April and May 2000."⁴² PPS did not receive its USFS permit "until April 7, 2000."⁴³ Thus, the evidence demonstrates that the unauthorized construction could have taken place for 53 days at the most (April 8, 2000 - May 31, 2000). Because of the mitigating facts we describe in this decision, we will reduce this number to 30 days.

5. The Applicant's Actions to Prevent a Violation

The next D.98-12-075 criterion provides that applicants are expected to take reasonable steps to ensure compliance with applicable laws and regulations. The Applicant's past record of compliance may be considered in assessing any penalty. While PPS asserts that it "made good faith efforts to comply with the law,"⁴⁴ it did not even attempt to comply with CEQA, despite the ALJ's clear concern with the environmental impact of the project. Thus, we find this factor increases the amount of the penalty.

6. The Applicant's Actions to Detect a Violation

According to D.98-12-075, applicants are expected diligently to monitor their activities. Deliberate, as opposed to inadvertent wrongdoing, will be considered an aggravating factor. The level and extent of management's involvement in, or tolerance of, the offense will be considered in determining the amount of any penalty. In this case, PPS knowingly proceeded without CEQA authorization. While it appears PPS believed it did not need to wait for CEQA review, this unilateral decision was risky and improper. We find that this factor warrants an increase in the penalty.

7. The Applicant's Actions to Disclose and Rectify a Violation

Applicants are expected promptly to bring a violation to the Commission's attention. What constitutes "prompt" will depend on circumstances. Steps taken by an Applicant promptly and cooperatively to report and correct violations may be considered in assessing any penalty. As we note in the Background section of this decision, during July 2000, counsel for PPS informed the assigned ALJ for the first time that the work was already completed. PPS had completed the work in April and May 2000. We find that this was prompt disclosure. Moreover, the fact that PPS made the disclosure puts PPS' conduct in a more favorable light than it would be in had the Commission discovered on its own that PPS had completed the construction.

On the other side of the equation, PPS failed prominently to disclose the necessary construction in its initial application, that some of the work was not on USFS land, or the involvement of Qwest, which had been the subject of its own environment-related stop work order, in the Project. These factors were material to the merits of the application and should have been disclosed.

On balance, the mitigating and exacerbating facts related to this factor cancel one another out and warrant no change in the penalty.

8. Need for Deterrence

Fines should be set at a level that deters future violations. Effective deterrence requires that the Commission recognize the financial resources of the Applicant in setting a fine. We note that PPS is authorized to transport an annual average of 130,000 barrels of crude oil per day on the Pacific System - the pipeline at issue in this case. For the twelve months ended December 31, 1999, PPS LLC reported it generated total operating revenues of $ 43,255,000, with a net loss of $ 953,000.⁴⁵ From May-October 1999, according to Exhibit H to PPS' application, PPS' net income was $3,342,000. We set the penalty with this financial information in mind.

Under Pub. Util. Code § 2107, each violation carries a potential fine in the range of $500-$20,000 per violation. In the case of a "continuing violation," each day of violation is a separate offense;⁴⁶ PPS concedes that its construction occurred "during April and May 2000." Each day of unauthorized construction appropriately is the subject of a separate fine. We believe a fine of $5,000 for each day of PPS' unauthorized construction is appropriate. As noted in Section III (C) (4), we find 30 separate days of violation, although the evidence establishes this number could go as high as 53 days of violation. This calculation results in a fine of $150,000.

9. Constitutional Limitations on Excessive Fines

Under D.98-12-075, the Commission will adjust the size of fines to achieve the objective of deterrence, without becoming excessive, based on each Applicant's financial resources. We have set the penalty with this principle in mind.

10. The Degree of Wrongdoing

In setting penalties, the Commission reviews facts that tend to mitigate the degree of wrongdoing as well as facts that exacerbate the wrongdoing. In this case the facts that mitigate and exacerbate the wrongdoing are the following:

Mitigating Facts:

· Lack of actual environmental harm;

· Active involvement of USFS in monitoring work;

· PPS' apparent belief that CEQA did not apply; and

· PPS' prompt disclosure that work had been performed.

Exacerbating Facts:

· Benefits PPS gained from early construction without CEQA review;

· Harm to the regulatory process by PPS' unilateral decision that CEQA did not apply to its application;

· PPS' lack of effort to prevent violation and comply with CEQA;

· PPS' failure to identify that some work was off USFS land until late in the process; affirmative misstatement that work was all on USFS land; and

· PPS' failure to disclose in its application that Project involved construction or Qwest.

11. The Public Interest

Under D.98-12-075, in all cases, the harm will be evaluated from the perspective of the public interest. In our view, it is in the public interest for applicants planning construction with potential environmental impact to wait for a Commission determination of the need for CEQA review, rather than making unilateral decisions about the inapplicability of the statute. CEQA benefits the public at large by ensuring proper environmental view prior to construction of projects with potential impacts on surrounding areas. Thus, it is in the public interest for us to penalize PPS to deter such future unilateral action.

12. The Role of Precedent

The Commission will consider (1) previous decisions that involve reasonably comparable factual circumstances, and (2) any substantial differences in outcome. PPS states it is unaware of "any instance in which a utility has been fined by the Commission in similar circumstances."⁴⁷ We are likewise unaware of any such case. PPS also cites two cases in which we did not impose fines, but neither of the cited cases has similar facts to this one.⁴⁸ Thus, precedent has no bearing on this case.

³⁷ Investigation into the Operations And Practices Of Qwest Communications Corporation, et al. Concerning Compliance With Statutes, Commission Decisions, and Other Requirements Applicable to the Utility's Installation of Facilities in California for Providing Telecommunications Service, Investigation (I.) 00-03-001 (filed March 2, 2000).