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

Summary

In the OIR, we raised the possibility of exempting BPL transactions from the requirements of Public Utilities Code section 851, pursuant to our authority under section 853(b).⁴¹ (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 section 851.

A. Party Positions

PG&E supports exempting BPL transactions from section 851 review, arguing that such review is not necessary to protect the public interest, and calling section 851 review an "unnecessary regulatory hurdle." (PG&E Opening Comments, p. 14.) SDG&E concurs, arguing that requiring a section 851 application "necessarily would result in delay and uncertainty." (SDG&E Opening Comments, p. 20.) Current and Ambient also support exempting BPL transactions from section 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 Commissions 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 section 851 as being unnecessary, illegal, and inconsistent with the Commission's expressly stated standards for granting section 853(b) exemptions. (TURN Opening Comments, pp. 18-26.)

CCTA also opposes providing an exemption from section 851 solely for BPL projects, arguing that it is discriminatory and inconsistent with federal law and policy by favoring one technology over another, and also that it is simply unnecessary, as compliance with section 851 will not hinder BPL deployment. (CCTA Opening Comments, pp. 2-8.)

Other parties opposing an exemption from the requirements of section 851 include CISPA, Disability Rights Advocates, Greenlining, UCAN, and San Francisco.

SCE, while not opposing an exemption from section 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 section 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, section 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.

TURN is generally correct that this Commission has in the past only granted exemptions from section 851 pursuant to section 853(b) in extraordinary circumstances. (TURN Opening Comments, p. 19.) That practice was the result of a policy determination by the Commission. The text of section 853(b) contains no such limitation. The current policy of the Commission is to reduce the level of scrutiny for transactions such as those at issue in this proceeding, and neither section 851 nor section 853(b) precludes such a policy. In fact, the existence and language of section 853(b) is consistent with a hands-off policy when the Commission determines that such a policy is in the public interest.⁴²

Here, we have determined 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. TURN may also be correct that historically the most lengthy section 851 proceedings are ones which involved contested revenue allocation issues, and we can remove such issues from consideration by adopting revenue allocation rules in this decision. (TURN Opening Comments, p. 22.)⁴³ Nevertheless, because individual section 851 proceedings are necessarily fact-specific, we have no way of predicting in advance the issues that may be raised in a particular section 851 proceeding, and accordingly we have no way to predict how lengthy each section 851 proceeding may be.⁴⁴ We prefer to eliminate such regulatory uncertainty.

CCTA's claim that the Commission would be improperly discriminating in favor of BPL by allowing BPL an exemption from section 851 is not well founded. The competing technologies are not identical, nor are they provided in identical manners or by identically-situated entities. For example, Comcast did not need to file a section 851 application at this Commission to provide broadband service over cable, nor did Verizon Wireless need to file a section 851 application to provide wireless broadband service.⁴⁵ Accordingly, the mere fact of BPL being granted an exemption from section 851 is not discriminatory. In fact, given the head starts of other technologies such as DSL and cable, reducing potential regulatory barriers to the deployment of BPL will actually do more to level the playing field than to tip it.

Despite the vigor with which the parties debated the merits of section 851 versus section 853(b), the record is relatively sparse on how the Commission should best use section 853(b). Contrary to the tenor of some opponents of the use of a section 853(b) exemption from section 851, the mere use of section 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 section 851 the Commission may prescribe terms and conditions and establish rules or impose requirements on that exemption.

Some parties have expressed concern that use of section 853(b) would effectively result in a circumvention of the requirements of the California Environmental Quality Act (CEQA). In other words, since the Commission would not be reviewing individual transactions, we would also not be considering the environmental impact of those transactions. This Commission acknowledges its legal duty to perform CEQA review, and we are not seeking to avoid preparing CEQA-required environmental documents for BPL transactions. Rather, we believe that the transactions under consideration will not trigger preparation of an environmental document because they will have no significant environmental impact.

To ensure that this is true, we will limit the characteristics of the transactions that are eligible for a section 853(b) exemption from section 851. No BPL transaction entered into as a result of our application of section 853(b) can result in trenching, excavation, boring or drilling, or other digging. BPL equipment may only be installed in or on existing utility structures, and all BPL-related construction and installation must be performed consistently with any and all applicable existing environmental mitigation measures, particularly those measures applicable to the utility infrastructure on which it is constructed or installed.⁴⁶

In addition, all discussion in the OIR and pleadings related to leases or other agreements for use of utility-owned infrastructure. Accordingly, no sale of utility assets is permitted under the section 853(b) exemption. Should any utility wish to sell utility assets for BPL purposes, approval for such sales must be sought via a section 851 application.⁴⁷

Because of the unknown nature and prospects of BPL, and the paucity of the record on this issue, we simply do not know what leases or other contracts for use of utility facilities for BPL purposes will look like, although we expect the utilities to use good business judgment and enter into contracts that are reasonable in their terms and duration. We do find that enough is unknown about the potential costs and benefits of BPL that the leases discussed in the context of this section 851 exception shall not be longer than twenty years in duration. Furthermore, any lease related to BPL that extends beyond the year 2031, regardless of lease length shall require additional express exemption of the 851 requirements. In doing so, this Commission hopes a long term lease beyond the initial deployment of BPL will be done consistent with this Commission's obligations under section 851.

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.) There are, 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.⁴⁸ A contested advice letter resulting in a Commission Resolution raises a number of the same concerns raised by an application under section 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, pursuant to the previous paragraphs. We do, however, believe it is important for all interested parties to have notice of the existence of such a contract and its terms. Accordingly, we will require utilities to post on their website, in an easily located place, 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 the terms of the lease or other contract. The utilities shall notify the Commission's Energy and Telecommunications Divisions of such a contract, and shall provide a link to its location on the web site. The same information, or a link to the utility's web site, shall be available on the Commission's web site under both telecommunications and energy. To provide active, as well as passive, notice, we will create a service list in this proceeding for electronic service of notices of posting of contracts, containing links to the appropriate utility web site.

Should any such lease or other contract not be disclosed, or otherwise be inconsistent with this decision, a complaint may be filed with this Commission, or the Commission may open an Order Instituting Investigation 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 section 851.

⁴¹ Public Utilities 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.

⁴² For example, the Commission's General Order 69-C creates an exemption from section 851 for revocable licenses of utility property that meet certain conditions, and does not require the existence of extraordinary circumstances.

⁴³ California Environmental Qualtiy Act (CEQA) review can also extend the time necessary to process an application. Because of the lack of environmental impacts of the BPL transactions we are approving here, CEQA review is not an issue.

⁴⁴ For example, due process considerations may require evidentiary hearings in some cases.

⁴⁵ It took SBC a more complex Commission process to obtain its authorization to offer DSL.

⁴⁶ These limitations are consistent with the record in this proceeding. 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.)

⁴⁷ 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.

⁴⁸ 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.