4. Valuation of Harbor City's Submetered Gas System
The parties disagree regarding the valuation of the System. Harbor City argues that it should receive benefits of two potential revenue streams: (1) the submeter discount; and (2) the line extension (LE) allowance.45 SoCalGas responds that the revenues gained by SoCalGas from the transfer are more than offset by the increased costs represented by the submeter discount,46 and that the purpose of the LE allowance is not met by the transfer of a submetered system.47 We reject Harbor City's arguments for the reasons set forth below.
The submeter discount is the differential between the master-meter rate paid by the MHP operator to the gas utility for the purchase of gas for its system, and the applicable rate charged by the gas utility to its customers. Pub. Util. Code § 739.5(a) requires that an MHP operator charge its customers/tenants the same rate as the gas utility charges its customers. Section 739.5(a) also says that:
The commission shall require the corporation furnishing service to the master-meter customer to establish uniform rates for master-meter service at a level which will provide a sufficient differential to cover the reasonable average costs to master-meter customers of providing submeter service, except that these costs shall not exceed the average cost that the corporation would have incurred in providing comparable services directly to the users of the service.
Harbor City argues that since an average rate was used, some MHP operators will have costs greater than the average, while other MHP operators will have costs below the average. Harbor City is concerned that SoCalGas will try to "cherry-pick" which systems to accept in transfer, and only accept the lower-cost systems.48 This will also result in the average costs increasing due to stranding the higher cost systems.
Harbor City's concerns are unwarranted. First, as established above, SoCalGas has no discretion in whether to accept a qualifying system. Therefore, SoCalGas cannot "cherry-pick" which systems to accept, since it has no discretion in which systems to accept for transfer.
Second, while it is true that some MHP operators benefit from the submeter discount being an average cost while others will be disadvantaged, that is an artifact of the averaging process and not an intentional windfall that entitles the MHP operator to benefit during the transfer.
Finally and most importantly, the clear purpose of the submeter discount is to compensate the MHP operator for the costs of operation of the submetered system. Once SoCalGas accepts transfer of the System, Harbor City will be relieved of the operations of the System, and therefore should be revenue neutral to the transfer.
The second source of revenues to which Harbor City argues it should be entitled is the LE allowance.49 This is a fee paid by the gas utility to an applicant, usually a residential real estate developer, to ensure recovery of refundable costs of establishing new service. Harbor City argues that since the submetered customers were never eligible to receive the LE allowance, they have been disadvantaged, and hence the appropriate solution is to provide the allowance to the builder, Harbor City.50 SoCalGas argues that the LE allowance is for new customers only.
Fundamentally, although technically the 192 customers of Harbor City will be new to SoCalGas, there will be no difference in gas usage - in essence, one larger customer is being subdivided into 192 smaller customers. There is no reason why an LE allowance would be appropriate in this situation.
Also, there is nothing in §§ 2791-2799 that suggests that the Legislature intended for the transfer to compensate the MHP operator for past expenses, other than by receiving the current value of the system. Hence, we find that the LE allowance is not applicable to existing MHP submetered systems.
SoCalGas contends that the value of the System is zero, because, according to SoCalGas, the System needs to be totally replaced.51 We earlier rejected all of SoCalGas' arguments that the System needs to be totally replaced; consequently, SoCalGas' contention predicated on that need must fail.
When asked what the assessed value of the System would be if a transfer were ordered, SoCalGas' Daniel Meltzer testified that the System would be valued at $132,544.52 This valuation is based upon a proprietary formula that considers a number of factors, which included characteristics such as total footage of mains, total footage of service lines, meter counts, number of spaces in the MHP, the condition of the pipes based upon factors such as age, material, condition, etc., and installation date.53 Since there was no contrary testimony to this valuation beyond that discussed above, the Commission adopts this figure as the value of the System.
In terms of costs of transfer, those are set forth in § 2795, and will be determined by the parties during the transfer, with the recognition that the System is adequate for transfer and need not be replaced or improved by installation of a district regulator station.
45 Exhibit 7, pages 4-9.
46 Exhibit 9, page 4.
47 Exhibit 9, pages 5-6.
48 Exhibit 7, pages 6-7.
49 Exhibit 7, page 7.
50 Id., pages 8-9. Although Harbor City states that the LE allowance was not available to customers, it would be the MHP operator who received the LE allowance. For a more through discussion of the LE allowance, see D.07-07-019, pages 6-9.
51 Exhibit 8, page 9.
52 Exhibit 19, page 6; Hearing Transcript, page 252, line 12 through page 253, line 14.
53 Exhibit 9, page 8.
