June 3, 2002 

Energy Division – IMC Branch Public Utilities Commission

505 Van Ness Ave.   4^th Floor

San Francisco, CA  94102

RE:       Protest to SDG&E Advice Letter 1407/1313-G  Increase to SDG&E Franchise Fee Differentials

Dear Energy Division.

1. It results in ratepayer cross subsidies for telecommunications corporations in violation of D. 89-05-002;
2. It does not properly ensure that the monies will be spent for the purposes described; and
3. It is inconsistent with Commission policy established in D. 01-12-009.
4. SDG&E’s filing is imcomplete and does not comport with D. 8905-002 guidelines. 

UCAN urges the Commission to reject the Advice Letter filing and to require SDG&E to file an application with the Commission that addresses the issues raised by UCAN and any other protesting party.    In the alternative,  the Commission should reject the Advice Letter and instruct the City of San Diego to implement a local utility users’ tax instead of using a franchise fee artifice. 

Commission Jurisdiction over Franchise Fee Levels 

            The Commission has established limited jurisdiction over the franchise fee levels charged by municipalities.    In D. 89-05-063  the Commission determined that municipalities had sought to circumvent property tax restrictions by imposing taxes that had a direct bearing upon utility ratepayer customers.   (32 PUC2d 60,69)    Importantly, while the Commission does not assert pre-emptive power over a municipalities right to negotiate franchise fees with a utility, it has preserved the jurisdiction to control the extent to which those fees are passed on to customers is reasonable, just and non-discriminatory.    (PU Code Section 451)    It is this concern that prompted the Commission to require utilities to file advice letters where a local governmental entity imposes or increases a local tax which “rises to a total level significantly exceeding the average level of the total of those imposed by the other local government entities within the local service area”.  (32 CPUC2d 70) 

            UCAN asserts that the specific franchise fee increase sought by this advice letter violates PU Code Section 451 for the reasons that will be discussed below.   As the Commission notes in D. 89-05-063,  franchise fees fall into the category of city charges that creates subsidies and inequities.  (32 CPUC2d 70).[1] 

          The franchise fee increase to cover costs “exclusively for expenses directly related to electric undergrounding” is misleading, as it also includes costs incurred by telecommunications companies.   Shortly after the City of San Diego conditionally approved the Electric Franchise Amendment,  the City entered into an agreement with Cox Cable and Time Warner Cable  (See Attachment “A”).    This agreement obligated the City to “pay for some costs associated with the proposed increase to the Undergrounding Utility Conversion Program”.   

           This agreement between the City and the telecommunications companies falls afoul of the exact abuse about which the Commission was concerned about.   In D. 89-05-063,  the Commission articulated fears of cross-subsidies and the right of ratepayers to know about costs passed on to them via utility bills.   The March 13, 2002 City Managers’ report details how fees to be secured from electric ratepayers will be used to defray costs to convert cable wires to underground,  thus confirming the Commission’s concerns.   The City of San Diego must invalidate these Cable agreements in order to secure a franchise fee agreement approval from the Commission.

The Stated Purpose of the Franchise Fees is Not Accurate 

            The advice letter states that the increased franchise fees will largely be applied to increased undergrounding costs.   UCAN has reviewed the Electric Franchise Amendment submitted as an attachment to the advice letter.   There is no showing by SDG&E how the monies collected as “franchise fees” and given to the City will be exclusively dedicated to the purpose of undergrounding projects.  

           Another glaring omission from the SDG&E filing is a showing that the monies spent for “undergrounding costs” will, in fact, be for undergrounding.   There is no independent auditing process in place to ensure that the costs alleged by SDG&E will be for underground conversion and that they are limited to San Diego City residents.   Nor has the City made a showing that it has allocated sufficient staff time and resources to properly supervise and audit the expenditure of over $30 million annually in accelerated underground conversion projects.    As the advice letter is currently constituted, the Commission cannot be assured that monies spent by SDG&E ostensibly for electric undergrounding in the San Diego City area will be so spent. 

Conflicts with Rate Impact Commission Ruling in D. 09-12-009 

            In a decision issued late last year,  the Commission rejected proposals to increase ratepayer dollars allocated to undergrounding.   In that Decision, the Commission wrote: 

Currently, the state is facing an energy crisis, with ratepayers seeing increased electric and gas bills.  The Commission, therefore, is interested in ways to improve the existing system without increasing the cost to ratepayers.  Although the actions contemplated in this decision would not increase the current funding amounts, it is likely they will increase the costs and rates; but only within the limits of the existing funding level.  (D. 01-12-009, p. 20)            

          The rate crisis for San Diego is more severe than any other utility in the state.  According to SDG&E’s own determination,  SDG&E residential customers are now paying the highest electric rates of the three investor-owned utilities in the state of California.   (See Attachment “B”)    The franchise fee agreement with the City would expose City of San Diego electric customers to the highest rates in the state --- by a notable amount.     Yet, the record is bereft of any investigation made by the City and no disclosure by SDG&E to the City of the impact that the franchise fee has on the electric rates paid by customers.   The Commission must compel SDG&E to make a showing that the City of San Diego has considered the relative rate impacts of the proposed franchise fee and made an informed judgment to drive the bundled rate of electricity to levels in excess of any state or, for that matter, national electric utility.            

             Additionally, the City’s imposition of franchise fees is a blatant circumvention of the Commission ruling declining an increase in 20A undergrounding expenditures.    In December 2001,  the Commission clearly rejected requests for increased undergrounding expenditures.  In addition to rate impacts, it cited concerns about the cost-effectiveness and data collection.  It initiated a Phase 2 in the proceeding to study these, and other, matters further. 

            Rather than comply with the process set out by the Commission, the City of San Diego decided to use franchise fees to substitute for the current Rule 20A funding.  It effectively triples the ratepayer funds to be applied to undergrounding.   The Commission should not accept this circumvention of its process.   Until many of the issues relating to undergrounding are resolved, the Commission is imbued with the jurisdiction to prohibit a City from passing on unduly higher undergrounding costs to SDG&E ratepayers.  

Filing Does Not Comport With D. 89-05-063 Guidelines 

            SDG&E is obligated by Commission rules to “demonstrate such significant difference” in franchise fees sought for approval.  It must also set forth the basis asserted for the surcharge.   And the utility is encouraged to identify administrative costs incurred by the utility by the surcharge.   (32 CPUC2d 70)    SDG&E’s advice letter filing does not comport with this rule.

            First, while it identifies that the surcharge to San Diego Gas & Electric customers in the City of San Diego will be 5.78%, it does not compare that rate to the rates charged by other municipalities served other than mentioning a “2% average franchise fee”.     This “average” is not accurate, nor is it sufficiently specific for the Commission to determine a ‘significant difference’.    SDG&E maintains a list of franchise fees paid for each municipality in San Diego.   It failed include this updated list in the Advice Letter filing.

            The Commission rules also require SDG&E to state the basis for the surcharge.  SDG&E claims that 3.53% (the bulk of the increase) is to be used for undergrounding projects to be used exclusively for expenses directly related to electric undergrounding.  As discussed above, the City Council Policy on Underground Conversion of Utility Lines does not ensure this use.

Respectfully submitted, 

Michael Shames

On behalf of UCAN 

Cc:      J. Royer

            H. Gatchalian

            J. Frank (SDG&E)