In 1967, in response to local government interest in enhancing the aesthetics of their communities, the California Public Utilities Commission (CPUC) established electric tariff Rule 20. The Rule contains three separate programs that provide for undergrounding existing overhead utility lines. The rules established by the CPUC for electric utility companies are collectively known as Electric Rule 20. These include Rules 20A, 20B, and 20C. Each category of Electric Rule 20 addresses different funding mechanisms and qualifications for undergrounding existing overhead utility lines.
Electric Rule 20 Undergrounding Funding Options
A. Rule 20A: Municipal Projects
Rule 20A is the primary program for municipalities to underground utilities in built-up urban areas. Under Rule 20A, funding for undergrounding projects is primarily from ratepayer electric bills, so the projects must provide a benefit to the public at large.
To qualify, the governing body of the City must, among other things, determine, after consultation with Pacific Gas and Electric Company (PG&E), and after holding a Public Hearing on the subject, that undergrounding is in the public interest for one or more of the following reasons:
- The street or road right-of-way adjoins or passes through a civic area or public recreation area or an area of unusual scenic interest to the general public. There is a high probability that the Del Mar parking area leading up to Carmel Beach, and the Mission Trail Nature Preserve would satisfy this requirement, although other areas, such as Forest Theatre, Sunset Center, City Hall, Scenic Drive, and/or Forest Hill Park may also qualify.
- The street or road right-of-way is extensively used by the general public and carries a heavy volume of pedestrian or vehicular traffic. There is a high probability that portions of Ocean Avenue and the central commercial district would satisfy this requirement.
- The street or road right-of-way is considered an arterial street or major collector as defined in the Governor’s Office of Planning and Research General Plan Guidelines. City streets that meet this requirement include Ocean Avenue, Carpenter Street, Junipero Street, Rio Road, San Antonio Avenue, San Carlos Street, and Santa Lucia Avenue.
- Wheelchair access is limited or impeded in a manner that is not compliant with the Americans with Disabilities act. There is a high probability that streets within the City satisfy this requirement, but would have to be analyzed on a case-by-case bases.
- The project eliminates an unusually heavy concentration of overhead electric facilities. There is a low probability that such a qualifying area exists in the City of Carmel (City).
It should be emphasized that Rule 20A was established to improve aesthetics at these qualifying locations. The overall Rule 20A Program has not been successful as a majority of projects were only executed in large metropolitan areas, projects took years - and oftentimes decades - to implement, and numerous agencies, including the City (until now), did not benefit from the Program.
In recent years, and in large part based on devastating wildfires in California allegedly caused by electrical wires, the Rule 20A Program has been subject to significant criticism by communities requesting undergrounding for wildfire prevention. Further, credits have been rapidly reallocated from agencies without prior notice, including from the City, and without recourse. Over the past two years, the CPUC has been revising, and is now phasing out the entire Program, which will expire in 2033. This report will touch on some of these key issues as it relates to the City’s Rule 20A funding and proposed undergrounding project.
B. Rules 20B and 20C
Under Rule 20B, projects are typically installed in conjunction with a subdivision development, and the costs are borne by the project developer. The developer pays for the installation cost of the underground system, less a credit for an equivalent overhead system. Rule 20B would not apply to a built-out community such as Carmel-by-the-Sea.
Under Rule 20C, projects are usually small and involve just one or more property owners. The costs are almost entirely borne by the applicants. Undergrounding within the provisions of Rule 20C occurs when neither Rule 20A nor Rule 20B applies. Under Rule 20C, the applicants pay the entire cost of the electric undergrounding. There are such potential undergrounding projects being planned in the City, notably along San Antonio Avenue, between Second and Fourth Avenues, that may qualify under Rule 20C.
City of Carmel Rule 20A Funding
The City has limited Rule 20A community allocation credits to undertake any major utility undergrounding project. Municipalities historically accrued credits annually and received an annual notification each March. It is important to note work credits are not monies, but are credits as described in the Electric Rule 20 tariff. One work credit is equivalent to one dollar. As the name implies, the credit discounts the cost of a Rule 20A undergrounding project. In other words, credits can be applied to pay the full or partial cost of a qualifying undergrounding project.
Reallocation of Credits
When a Rule 20A project requires additional work credits, credits from communities that are considered “inactive” can be reallocated to those communities who has a project with insufficient work credits to proceed into construction. This process is referred to as reallocation. Section A.1.c of the Electric Rule 20 Tariff states:
“When amounts are not expended or carried over for the community to which they are initially allocated, they shall be assigned when additional participation on a project is warranted or be reallocated to communities with active undergrounding programs.”
In March 2021, for the first time in the City’s Rule 20A work credit program, PG&E notified the City that they reallocated $5,407 of the City’s credits to an under-funded, but active, undergrounding construction project for the City of Live Oak. The reallocation actually occurred seven months earlier, in August 2020. When staff inquired, we were informed that until the City has an “active” undergrounding project, the City’s Rule 20A credits are subject to further reallocations.
In October 2021, with staff’s recommendation, the City Council added the Underground Utilities Rule 20A Project to the Council’s Strategic Priorities list. Next, staff began researching the development of a district in accordance with the Rule 20A requirements, which, as noted below, have recently been significantly changed by the CPUC. Progress by staff was limited until the City's Project Manager came on board in February 2023.
In the March 2022 PG&E allocation notice, the City still had $986,646 in credits. However, in the March 2023 notice, we were notified that another $175,796 of the City’s credits had been reallocated to 14 other cities, mostly in the Bay area. The reallocations had already occurred in October 2022 and January 2023.
In recent preparation of this staff report, we reached out to PG&E’s Rule 20A liaison to find out if further reallocations had occurred since the last notification, and indeed it had. Another $143,211 was reallocated to eight other cities and counties across PG&E’s service territory in May and June 2023, again without prior notification to the City. As of today, the City’s Rule 20A allocation balance is down to $667,639 work credits.
Over the past year, PG&E’s liaison made it clear that the CPUC was changing the entire Rule 20 Program, that no further work credits are being allocated, and that credits may even expire in the year 2033. It appears that as the uncertainty of the changing rules was underway, PG&E unilaterally reallocated City credits, along with credits of numerous other inactive cities.
Recent Changes to Rule 20A Undergrounding Funding
California Public Utilities Commission Decision 21-06-013 discontinued authorization of new Rule 20A work credits for allocation after December 31, 2022. Additionally, municipalities are not permitted to borrow future work credits beyond 2022 work credit allocations. Unauthorized work credit trading is not permitted, except for intra-county donations of work credits from a county government to cities within the county or from a city to its county government, and pooling of work credits amongst two or more adjoining municipalities for a project with community benefit for the adjoining municipalities.
The CPUC has also temporarily halted the reallocation of credits by PG&E. The CPUC issued “Phase 2 Decision Revising Electric Rule 20 and Establishing Local and Tribal Government Consultation Requirements,” dated June 13, 2023, and included as Attachment 2. As a result, utility companies such as PG&E must file a Tier 2 advice letter to the CPUC to make a consolidated proposal for reallocations of Rule 20A credits within 18 months of the effective date of that decision. PG&E intends to file a Tier 2 advice letter to the CPUC in December 2024. In the interim PG&E cannot reallocate any community’s current work credits until such advice letter is submitted to the CPUC, thus temporarily freezing the current standing for communities such as Carmel-by-the-Sea. Thus, the City’s total work credit balance will remain at $667,639.
In Attachment 2, the CPUC provided the following key conclusions which may be applicable to the City’s project:
- “The Commission should define Underserved Community as any city…that has not completed a Rule 20A project since 2004.
- It is reasonable to discontinue the Rule 20A program.
- Any Rule 20A work credit that has not been allocated to a community with an Active Rule 20A Project within two years of the effective date of this decision should be deemed expired.
- Any Rule 20A work credit that has not been deducted from a community’s work credit balance by December 31, 2033 should be deemed expired.
- Utilities should give communities the option to contribute financially to a Rule 20A project that has insufficient work credits for completion. Utilities should prioritize reallocation of work credits from inactive communities to Active Rule 20A Projects with insufficient work credits….
- It is reasonable to not increase the number of Rule 20A work credits available for reallocation or otherwise increase ratepayer funding available for Rule 20A projects."
Active Versus Inactive Projects
The CPUC further defined the definition of an “active” community in CPUC Resolution E-4971 as follows,
“1. Formally adopts an undergrounding district ordinance which expires at completion of work within the district boundaries; or
2. Has started or completed construction of an undergrounding conversion project within the last 8 years, defined as 2011 or later; or
3. Has received Rule 20A allocations from the utility for only 5 years or fewer due to recent incorporation.”
Currently, the City does not meet this definition of “active” and is considered “inactive.” Of the three options to become “active” as described above, only Option 1 applies. Thus, it is prudent for the City to select an undergrounding conversion project and adopt a Resolution establishing an underground utility district so that the City will be “active.” Once the City is active, the remaining credits will be locked in.
Selecting an Overhead to Underground Conversion Project
The first step to become an active community is to select a suitable undergrounding project. There were a number of possible undergrounding projects within the City, some discussed many years ago, that were considered. Public Works narrowed down these various options to the following two projects that appeared to be very strong candidates for Rule 20A funding and of a size that would be somewhat compatible with the available credits. These two options were previously introduced to Council, informally, and noted in prior Friday Letters.
The smallest qualifying project for Rule 20A must be a minimum 600 feet long. PG&E’s cost per foot guideline is approximately $500,000 for a 600-foot long project, or $833 per foot.
Options #1 and #2 are shown in Attachment 3. This attachment includes a preliminary Underground Utility District boundary map, an aerial photograph outlining the overhead utilities and poles to be relocated underground, and representative photographs of the poles and wires at these locations.
Option #1 is located in the Del Mar parking lot from the intersection of Ocean/San Antonio Avenues, west along the southern edge of the North Dunes Habitat Restoration Site, and approximately 800 feet to the end of the parking lot at the foot of the entrance onto Carmel Beach. At the time of construction, seven (7) property owners, most adjacent to the south edge of the parking lot, would need to convert to underground facilities. Ten power poles and associated overhead wires would ultimately be removed. A very rough initial cost estimate prepared by staff, in today’s dollars, is $700,000.
Option #2 is located within the Mission Trails Nature Preserve from the entrance gate at Eleventh Avenue, along the west side of the Willow Trail, extending south for approximately 1,100 feet. At the time of construction, eight (8) property owners on Ridgewood Road would need to convert to underground facilities. Nine power poles and associated overhead wires would ultimately be removed. A very rough initial cost estimate in today’s dollars, is $900,000.
Public Works submitted both options to PG&E for preliminary review. PG&E subsequently notified the City that both project options qualify as meeting the tariff criteria for a Rule 20A project.
Staff believes that both Options are viable, although staff suggests that Council select a project option following Public Hearing testimony.
- Option #1 provides a greater advantage from a visual aesthetics perspective for a greater numbers of citizens and visitors to Carmel Beach and the North Dunes site. This aesthetic upgrade is fundamental to the genesis of the Rule 20A Program.
- Option #2 would also improve aesthetics, but for fewer pedestrians walking along the Willow Trail. However, Option #2 would have more benefit than Option #1 in reducing the potential risk of a fire because these overhead lines are in the heavily-wooded Mission Trail Nature Preserve. Roughly two years ago, when PG&E announced their major initiative to underground wires at PG&E's expense to prevent wildfires following the fires in the Town of Paradise, the City requested PG&E to underground this same segment of overhead wires along the Willow Trail as per Option #2. Councilmember Ferlito was instrumental in that request. Unfortunately, a year later, PG&E notified the City that undergrounding this site at their expense was denied, and in fact, no known lines were undergrounded in Monterey County to that point in time.
There are numerous factors that can significantly influence the cost of an undergrounding project, from location, number of utilities involved, other utilities existing below ground, environmental considerations, topography, and market cost of labor and materials at the time of future construction. As a result, it becomes extremely hard to develop an early budget estimates for any such project. Further, as the design commences by the utilities, there may be additional, or less, power poles that will be removed compared to the above estimates. Similarly, additional, or less, Property owners may be required to convert to underground connections once the design is developed.
Another key issue when selecting an Undergrounding Utility Conversion Project is the impact to Property Owners in the Underground District. Depending on the Project Option #1 and/or #2 selected by Council, seven or eight Property Owners would be required to convert their facilities on their private properties and entirely at their expense. Each Property Owner would need to design the conversion for each home or business from their overhead utility connections to be received via new, underground services. This process would include obtaining permits and approvals from PG&E, other utilities, and the City, installing new utility service panels, trenching across their properties, and installing conduits up to the City's right-of-way to accommodate underground electric power, cable television, telephone, and other communications services. As a result, on-site landscaping, fences, driveways, or other improvements may also need to be restored after the installations are made. Finally, the overhead wires to the private homes or businesses would be removed. The Building Department estimates that such a conversion could cost roughly $20,000 to $30,000, although each property's situation would be different and could be costlier.
In addition to the public notice for the Public Hearing on this matter and flyers sent to property owners within 300 feet of both underground district options, the City Administrator, Public Works Director, and Project Manager will be meeting with as many directly impacted Property owners as possible to briefly explain the proposed undergrounding conversion project and gage their potential interest, or opposition, to the project. This feedback is not yet known at the time of this report, but will be included in staff's presentation on the project at the Public Hearing.
As noted above, an “Active” status will lock in the City’s current allocation of credits ($667,639). If, at a later date, the City decides to revise either of the Project options, or considers a different location altogether, it can do so without any repercussion as it would not jeopardize the Active status. However, significantly revising the selected project at a later date could result in further project delays, especially after design is commenced by the utilities.
Initiating an Underground Utility District
Per Carmel Municipal Code (CMC) Chapter 13.28, Underground Utilities, the City may establish an undergrounding district after holding a Public Hearing and adopting a Resolution. CMC Chapter 13.28 is included as Attachment 4. All property owners within the proposed underground district boundaries have been notified of this Public Hearing.
Once the City Council selects a preferred project option (or both project options), Public Works would formally initiate the project by submitting the Underground Utility District map showing the District boundaries, and project application materials to PG&E, telephone, and cable companies affected by the proposed project.
The Resolution in Attachment 1 is in a format provided by PG&E. The proposed Resolution states, among other matters:
1. That the public interest requires that all existing overhead communication and electric distribution facilities in such District be removed and placed underground;
2. That each property served from overhead facilities shall have installed, in accordance with PG&E's rules for underground service, electrical facility changes on the premises necessary to receive services from the underground facilities of PG&E as soon as it is available; and
3. That once the overhead facilities are converted to underground, PG&E is authorized to discontinue its overhead service and remove all aerial facilities and power poles.
Proposed Council Actions following the Public Hearing
At the November 7, 2023 meeting, Staff will provide a presentation outlining the Rule 20A funding process, describe the two undergrounding project options, and introduce the next steps from project application to PG&E through future construction.
Following Public Hearing testimony, Council will be asked to select Underground Utility Conversion Project Option #1, Option #2, or both. Alternatively, Council could direct staff to consider different options, or provide more information regarding any option for review at a subsequent Council meeting.
If a project option(s) is selected, Council will be requested to adopt Resolution 2023-103 which would formally select the Underground Utility Conversion Project(s) and establish the Carmel Underground Utility District. An immediate benefit to adopting the Resolution is to lock in the remaining Rule 20A credits, even if the selected Underground Utility District is modified in the future.
Resolution 2023-103 includes both underground district maps as an exhibit. If Council selects one of these options, only the selected option map would be included in the final Resolution.
Project Planning and Design
Once PG&E determines that the City’s Rule 20A Application is complete, their project team can initiate project planning. This is a multi-step process that includes developing an underground design, project plans, cost estimates, coordinating designs and schedules with the other utilities, and with the City. Project design also involves coordination with multiple utilities, regulatory agencies, and affected Property Owners. The preliminary design will confirm that the underground district boundary shown in Attachment 3 is adequate for removal of the overhead facilities and is of adequate size and configuration to accommodate the new, underground facilities. Otherwise, the district boundaries may need to be adjusted by the City at that time.
Issues that could slow the planning and design phases include: obtaining environmental clearances and regulatory permits, securing easements if required, space constraints in the public right-of-way, tree impacts, parking lot or trail access restrictions, future funding arrangements with the City, and/or legal challenges.
The City should utilize all available work credits to pay for this project. However, if the City elects to move forward with a Rule 20A Project without having sufficient work credits to cover the full cost of the project, as is currently anticipated, a community fund would have to be pre-arranged to cover the work credit shortfall. Since the cost of the underground conversion will not be known until a design is established, it is premature to lock in an amount or funding source for the anticipated shortfall at this time.
Project Construction
Project construction by the utilities involves constructing underground utility vaults and various junction boxes, excavating and placing conduits for underground joint trenches, and pulling utility cables through the joint trench conduits.
As noted above, the Property Owners in the District must also convert their overhead service connections to receive the utility services via underground conduits installed on their private properties at their expense. Once all the underground infrastructure, both in the public right-of-way and on the private properties are in place, the overhead utility wires and power poles can be removed.
Recently, PG&E stated that new Rule 20A projects are still taking up to 10 years to complete from the initial planning application to pole removal. This is not unusual as other local agencies have experienced the same timelines or longer.
Pros and Cons of Utility Undergrounding
While utility undergrounding has a number of benefits, there are some drawbacks that should be considered when establishing an undergrounding project.
Benefits include:
- Aesthetics: Better appearance of neighborhoods with power poles and lines removed from view.
- Reliability: Fewer power outages as underground power lines are not susceptible to high winds or falling trees and branches.
- Safety: Hazards of overhead power lines are eliminated, notably those that could spark fires, which provides improved safety for the community and utility workers.
- Resilience: Better resilience of the utility network to climate change, including impacts of stronger storms and temperature fluctuations.
- Durability: Underground systems have a longer useful life than overhead systems.
Drawbacks include:
- Cost: Installing underground utilities costs on average 10 times more to plan and install than overhead utilities for the same voltage and distance. The cost can range from 4 to 14 times more than overhead facilities.
- Water infiltration: Underground lines must be protected by waterproof conduit as they are susceptible to shortages from groundwater infiltration.
- Ease of Repair: When an outage occurs, locating the damaged area underground s more difficult and may take longer to repair. Replacing underground power lines is also more time-consuming.
- Utility conflicts: There are other utilities underground, including gas, sewer, water, and stormwater drainage systems which limit the available space for undergrounding power and communications lines This will be of particular concern along Carmel’s narrow residential streets for future, larger-scale projects.
- Sidewalk hazards: More utility vaults and pedestals in the sidewalks or trails could potentially lead to falls.
- Flexibility: once a utility is undergrounded, power load changes can only be accommodated when the line is replaced.
Local Underground Projects
As of December 2022, there were 10 active undergrounding projects in Monterey County, with four located on the Monterey Peninsula, three in the Salinas Valley, and three in Monterey County. Of these 10 projects, nine were in the initial “planning phase,” which includes obtaining agreements, determining initial costs, and preparing for engineering, and only one was in construction.
A summary of three representative projects is provided below.
1. Moss Landing, County of Monterey: This is the only active project in Monterey County that has entered the construction phase. This project was initiated in 2001 and entails utility undergrounding in the commercial area. AT&T is the project lead, and the project cost was $6M.
2. Reservation Road, City of Marina: Utility undergrounding is in the planning phase along a portion of Reservation Road. The anticipated cost is $3.1M.
3. Carmel Valley Road, County of Monterey: This undergrounding district was established in 2013 and extends seven miles from Oak Meadow Lane near Garland Ranch State Park to Pilot Road in Carmel Valley Village. The project is also in the planning phase and has an anticipated cost of $19.3M.
Larger Scale or Citywide Underground Considerations
At the Strategic Priority Workshop of August 30, 2023 and as confirmed at the October 3, 2023 meeting, the City Council directed staff to pursue a larger-scale undergrounding project(s) separate from this one-time Rule 20A Project as a separate Strategic Priority.
Applying the same cost factor recently provided by PG&E of $500,000 for every 600 feet for undergrounding, and noting the City has 27 centerline road miles (142,560 lineal feet), a rough estimate, in today’s dollars, of converting the City at large to underground would be $120 million.
Environmental Determination
The City has determined that establishing the Overhead to Underground Utility Conversion Project and the Carmel Underground Utility District are exempt from environmental review pursuant to the California Environmental Quality Act (CEQA) California Public Resources Code Section 21000, et seq., pursuant to Section 15061(b)(3) of the CEQA Guidelines, covering activities with no possibility of having a significant effect on the environment, and that establishing the Overhead to Underground Utility Conversion Project and the Carmel Underground Utility District do not directly or indirectly authorize or approve any actual changes in the physical environment.