VII. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding.

Findings of Fact

1. SBC did not prepare its own cost forecasts for the San Diego undergrounding project but rather relied on the historical ratio of its and SDG&E's undergrounding costs, 23%, and SDG&E's costs forecasts as the basis for its application.

2. The Commission has adopted a long-standing, detailed, and comprehensive program for undergrounding utility lines. Extraordinary and unique events support the deviations from that program set forth in this decision and Resolution E-3788.

3. SBC provided scant cost justification for its proposed surcharge, and key elements of the proposal are the recording of actual costs and balancing account recovery to ensure SBC full recovery of all recorded costs.

4. SBC proposed virtually no oversight on its cost records.

5. The historic undergrounding cost ratio between SBC and SDG&E provides a reasonable standard against which to initially assess the validity of SBC's costs. To the extent SBC's costs exceed 23% of SDG&E's, enhanced oversight is required.

6. SBC provided no analysis of the number of lines or customers that might be exempt from the proposed surcharge pursuant to contractual terms.

7. Long-standing Commission precedent exempts Lifeline service from public policy surcharges.

8. Competitive local carriers calculate and collect numerous public policy surcharges.

9. The Commission's typical rate design for public policy surcharges is a percentage of intrastate revenue; due to the short-term nature of the surcharge adopted in today's decision, the convenience of a fixed fee surcharge outweighs the administrative burdens of the typical surcharge rate design.

10. The Commission's Uniform Regulatory Framework Decision gives SBC pricing freedom for all services, except basic residential service, which is scheduled for January 1, 2009.

Conclusions of Law

1. SBC bears the burden of proving that its proposed surcharge is justified.

2. SBC did not justify its proposal to exclude from the surcharge customers that take service pursuant to Local Wholesale Complete, Individual Case Basis, Express, and Government contracts. The City of San Diego Surcharge for Underground Conversion Costs (Surcharge) should modified to apply to all City customers, excluding Lifeline service.

3. So long as SBC's costs do not exceed 23% of SDG&E's costs for particular areas, SBC should be required to submit a semi-annual report to the Telecommunications Division Director showing the status of the project, items recorded in the balancing account, and Surcharge calculations. Supporting detail should also be available as required. SBC's semi-annual reports should be filed contemporaneously with SDG&E's similar reports to the Energy Division. Each report shall show the fractional relationship between SBC's and SDG&E's costs. The Surcharge shall be recalculated annually via advice letter filing, with supporting workpapers. SBC's final Surcharge calculation advice letter shall be filed and served no later than 90 days prior to the date SBC obtains full pricing freedom.

4. If SBC's San Diego undergrounding costs exceed 23% of SDG&E's costs in a particular semi-annual report, the Director of the Telecommunications Division shall investigate the cause. Unless the amount by which the 23% has been exceeded is: 1) immaterial or 2) readily explained by easily verified facts, the Director of the Telecommunications Division shall conduct an audit of SBC's balancing account either using Commission staff or outside vendors. The audit will be funded by SBC, with the total costs of the audit not to exceed 1% of total costs proposed to be recorded in the balancing account that year. Until the cost allocation issues have been resolved, no changes will be made in the Surcharge amount.

5. Due to the limited duration of the Surcharge, SBC has justified its proposed flat fee rate design as a deviation from our typical surcharge rate design.

6. SBC has not justified its proposal to subject Lifeline service to the City of San Diego Surcharge for Underground Conversion Costs. SBC's proposal should be modified to exclude Lifeline service.

7. Competitive local exchange carriers that provide local service in San Diego using SBC's facilities shall pay to SBC the Surcharge amount for each line served, and the competitive local exchange carriers may, in their sole discretion, assess and collect the Surcharge from their end user customers. Lines served pursuant to the Lifeline program shall be excluded from the line count subject to the Surcharge, and the competitive local exchange carriers shall work cooperatively with SBC to implement a reasonable methodology for tabulating the number of lines to be excluded. SBC shall provide the competitive local exchange carriers no less than 30 days' notice of the Surcharge amount.

8. The Uniform Regulatory Framework Decision, D.06-08-030, renders the authorization to impose the Surcharge unnecessary after SBC obtains full pricing freedom, currently scheduled for January 1, 2009.

9. As modified, SBC's proposed City of San Diego Surcharge for Underground Conversion Costs should be adopted. This authorization should expire on the date SBC obtains full pricing freedom.

10. SBC should provide written notice its customers of the termination of the surcharge authorized in today's decision, and should identify and explain any replacement funding mechanism.

11. This decision should be effective immediately.

O R D E R

IT IS ORDERED that:

1. The application of Pacific Bell Telephone Company, known as SBC California (SBC) when this application was filed but now known as AT&T California, Inc., for a balancing account for costs associated with undergrounding aerial telephone facilities in San Diego pursuant to the City of San Diego Underground Utilities Procedural Ordinance and the San Diego Surcharge for Underground Conversion Costs (Surcharge) for the assessment of those costs to San Diego customers, is granted subject to the limitations set forth herein.

2. All local telephone service provided over SBC lines in San Diego shall be subject to the Surcharge, including SBC customers that take service pursuant to Local Wholesale Complete, Individual Case Basis, Express, and Government contracts. Local telephone customers that receive service from competitive local exchange carriers over SBC lines are also subject to the Surcharge. Lifeline customers of any provider are exempt from the Surcharge.

3. Competitive local exchange carriers that provide local service in San Diego using SBC's facilities shall pay to SBC the Surcharge for each line served, and the competitive local exchange carriers may, in their sole discretion, assess and collect the Surcharge from their end user customers. Lines served by a competitive local exchange carrier pursuant to the Lifeline program shall be excluded from the line count subject to the Surcharge, and the competitive local exchange carriers shall work cooperatively with SBC to implement a reasonable methodology for tabulating the number of lines to be excluded. SBC shall provide the competitive local exchange carriers no less than 30 days' notice of the Surcharge amount.

4. SBC shall submit a semi-annual report to the Director of the Telecommunications Division showing the status of the undergrounding project, items recorded in the balancing account, and Surcharge calculations. Supporting detail must also be provided as required. SBC's semi-annual reports should be filed contemporaneously with San Diego Gas & Electric Company's (SDG&E) similar reports to the Energy Division. Each SBC report shall show the fractional relationship between SBC's and SDG&E's costs for the lines included in the report. SBC's final Surcharge calculation advice letter shall be filed and served no later than 90 days prior to SBC obtaining full pricing freedom, currently scheduled for January 1, 2009.

5. The Surcharge shall be assessed as a fixed amount per line and separately stated on each customer bill. The Surcharge shall be recalculated annually via advice letter filing, with supporting workpapers, and shall be timed to coincide with one of the semi-annual report filings.

6. If SBC's San Diego undergrounding costs exceed 23% of SDG&E's costs in a particular semi-annual report, the Executive Director shall investigate the cause. Unless the amount by which the 23% has been exceeded is: 1) immaterial or 2) readily explained by easily verified facts, the Executive Director shall conduct an audit of SBC's balancing account either using Commission staff or outside vendors. The audit will be funded by SBC, with the total costs of the audit not to exceed 1% of total costs proposed to be recorded in the balancing account that year. Until the undergrounding cost allocation issues have been resolved, no changes will be made in the surcharge.

7. The Surcharge and balancing account authorization granted in today's decision shall expire on the date SBC obtains full pricing freedom, currently scheduled for January 1, 2009.

8. SBC shall provide written notice its customers of the termination of the surcharge authorized in today's decision, and shall identify and explain any replacement funding mechanism.

This order is effective today.

Dated December 14, 2006, at San Francisco, California.

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