I doubt this is what your contact is talking about, but this is a neat story: some underground lines are quite powerful: check out
http://www.mit.edu/afs/net.mit.edu/user/tytso/archive/high-power. These should produce easily-measureable magnetic fields; it's not impossible that they produce a 60Hz hum. Nothing paranormal about detecting fields or sounds.
Household lines are another story; they're almost certainly undetectable to humans, but they have the standard "dowsing target" property of being very common and generally well-clued on the surface. There are manholes and access ports, and you're pretty well guaranteed to find underground lines anywhere there aren't overhead ones. I'm neither a plumber nor a psychic, but I bet I could dowse out any number of gas lines, sewers, and storm drains in my neighborhood.
The "experiment" you described illustrates exactly the problem with the bent-welding-rods business: you said "the rods swing when I pass over the trench", and you think that the swinging is caused by the thing buried in the trench. The rods really did swing, I have no doubt. But they swung (and this has been demonstrated a thousand times) when you *thought they ought to swing*. Brain thinks about passing over trench; brain thinks about buried sewer line; brain thinks about rod swinging; brain makes hand muscles tense up; rod swings. It's called the "ideomotor effect".
Randi has tested dozens of dowsers. Tell them what they're dowsing for ("Can you detect this pipe, right here?") and the rods will swing every time. Tell them to read facial clues ("One of these ten identical trenches contains a pipe; I'll unconsciously bite my lip when you get near it. Can you find it?") and they'll do pretty well, via the "Clever Hans" effect---it doesn't require any intention to cheat or anything, it's just normal brain behavior. Tell them to find a double-blinded target ("One of these ten identical trenches contains a pipe; neither of us knows which one. You make your guess, then we'll both check the answer.") and the rod's behavior is indistinguishable from random guessing.
Have you ever had the divining rods *disagree* with what you expected? "The DPW says there's a pipe here, but I'm not getting a signal on the rods. Hey, the rods were right!" (All eight types of agreement/disagreement are important: signal/expect-pipe/find-pipe, signal/expect-pipe/don't-find-pipe, and so on through no-signal/don't-expect-pipe/don't-find-pipe.)