2. Discussion

Today's decision refocuses attention upon the status of the distribution of electricity and natural gas through master-meter/submeter systems at mobilehome parks and manufactured housing communities located within the franchise areas of electric and/or natural gas corporations, the Commission-regulated entities commonly referred to as public utilities. (For ease of reference, we generally refer to these entities by the simple terms "utility" or "utilities" without further modification and we refer to the singular or plural of the terms "mobilehome park" and "manufactured housing community" collectively as MHP or MHPs.) All parties to this petition docket support the opening of a rulemaking to determine what options may exist for reducing or resolving problems identified, including what action the Commission should take.

We opened this petition docket in response to a petition for rulemaking filed by Western Manufactured Housing Community Association (WMA) pursuant to Public Utilities Code § 1708.5. That statute authorizes "interested persons to petition the commission to adopt, amend, or repeal a regulation."1 As discussed further below, today's decision grants the petition in part but on the Commission's own motion expands the scope of requested review after consideration of the filed responses and replies, as well as the parties' discussion at an all-day workshop.

Many residents of MHPs built in California before 1997 do not receive electricity and/or natural gas directly from the utility holding the franchise to provide distribution-level service. Instead, the utility serves a master-meter customer (typically, the MHP owner or operator) who then distributes the electricity, natural gas, or both to individual coaches or homes at the MHP through a privately-owned submeter system.2

Pursuant to § 739.5, a utility bills the master-meter owner/operator at a discounted rate to adjust for the average costs that the utility avoids.3 The Commission has explained that "[t]he discount is intended to reimburse the MHP owner for the reasonable average cost of providing submeter service, and is not to exceed the average cost that the utility would have incurred in providing comparable services to the tenant directly, which is avoided when the MHP is submetered."4

Over the years, the Commission has been asked to interpret § 739.5's implications for various aspects of the master-meter/submeter relationship. The Commission has opined on the purpose of the master-meter discount (i.e., to cover operation, maintenance, and replacement of the submeter system) and the particular costs included and excluded.5 Further, the Commission has determined that § 739.5 establishes the master-meter discount as the sole source of cost recovery for all submeter costs factored into calculation of the discount.6 In other words, if in a given year a master-meter owner/operator incurs higher submeter costs than the corresponding utility's average cost, the excess may not be recovered from MHP tenants in rents or surcharges. However, a master-meter owner/operator who spends less on the submeter system than the utility's average cost retains the differential received via the master-meter discount. In theory, an excess or an underage in any given year should result in a balance over time.

For more than a decade, state policy has disfavored the continuation of master-meter/submeter systems. Section 2791(c) requires the direct-metering of electric and/or natural gas service in MHPs constructed after January 1, 1997 within electric or natural gas corporation franchise areas. That statute is part of Chapter 6.5, entitled Transfer of Facilities in Master-Metered Mobilehome Parks and Manufactured Housing Communities to Gas or Electric Corporation Ownership, which added §§ 2791-2799.7 Pursuant to § 2791(a), transfer is a voluntary process, however-not a mandatory one. The bulk of Chapter 6.5 establishes the fundamental capabilities an existing submeter system must possess to be acceptable for transfer to a utility and provides a roadmap for the transfer process. We summarize the major provisions below.

To be transferable, § 2794 requires an MHP submeter system to meet three general criteria and permits the second of the three to be modified or waived by the parties; the statute does not require the system to meet all of the utility's standards.

Sections 2792 and 2793 address the transfer process and articulate three milestones; each of them requires or contemplates some response within 90 days.

MHP master-meter/submeter systems are private distribution systems interconnected with the larger electricity grid and with natural gas transmission facilities. Because the utilities do not own or maintain MHP submeter systems, they do not have the same maintenance or safety responsibilities as for their own distribution systems. Maintenance and primary safety responsibility for MHP submeter systems lies with MHP owners/operators.

Governmental oversight and enforcement authority at MHP submeter systems is more highly structured for natural gas than for electricity. Generally, as part of its broad authority over health and safety issues that arise in the housing context, the California Department of Housing and Community Development (HCD) may perform inspections of MHP electric or natural gas submeter systems when it inspects the MHPs where those systems exist. In some instances, HCD has delegated MHP inspection authority to the cities or counties where the MHPs are located.

However, specific requirements delegated by the United States Department of Transportation (DOT) apply to natural gas. Sections 4351-4361, entitled Enforcement of Federal Pipeline Safety Standards for Mobilehome Park Owners, establish the framework that governs safety at all MHPs with natural gas submeter systems.8 At the majority of such MHPs, an electric or gas corporation provides service to the MHP master-meter, but in a few instances, a municipal utility provides that service (examples include the cities of Coalinga and Long Beach).

Section 4352(a) charges the Commission with inspection and enforcement "to ensure compliance with the federal pipeline standards by mobilehome park operators." The Utility Safety and Reliability Branch, located within the Commission's Consumer Protection and Safety Division (CPSD), carries out the actual inspection and initial enforcement activities and, pursuant to § 4353(g), is empowered to issue citations, as necessary. Below we summarize the major elements of the Commission's responsibility and the MHPs' obligations under the statutory framework of §§ 4351-4361.

Section 4353(a) requires the Commission to perform an initial inspection that consists of review of the adequacy of the MHP's operations and maintenance plan, the annual report on the distribution system that the MHP must provide to the Commission pursuant to § 4354, and the MHP's records of leak surveys and repairs, corrosion control, and cathodic protection. Pursuant to § 4353(a)(4), a physical inspection must be performed "[i]f deemed appropriate from the review of the records." If a system demonstrates compliance, § 4353(b) requires its subsequent inspection at five year intervals thereafter, though annual inspections may be resumed if problems occur. If a system is non-compliant, § 4353(c) requires annual inspections to continue. However, if the problem is serious, such as a gas leak or other significant safety hazard, then the Commission must notify DOT, appropriate law enforcement, the utility that serves the master-meter, and the MHP operator (per § 4356(a)) and the Commission must direct the MHP operator to take immediate corrective action (per § 4356(b)). Section 4353(d) authorizes frequent inspections until the problem is corrected.

The operator of a MHP natural gas submeter system must maintain the following documents, pursuant to § 4354.5: "a map, drawing, or diagram" of the distribution system that shows the location of its main and service lines, master-meter, and key valves"; copies of all annual reports; and copies of all leak surveys as well as records of repairs, corrosion control, and cathodic protection.

The focus of today's decision is those submetered MHPs in California where an electric and/or natural gas corporation provides service to a master-meter. As yet, this docket lacks a sufficiently reliable quantification of these MHPs (whether the submeter system is electric, natural gas, or a combined system)-or of the individual spaces these MHPs submeter systems serve.

No single database exists. As discussed above, both the Commission and HCD conduct inspections within their respective spheres of authority and maintain databases based on those inspections (CPSD's data include MHPs served by municipal utilities). Likewise, the utilities maintain records of master-meter accounts, but a given MHP may have more than one master-meter account and may be served by more than one utility, if it submeters both electricity and natural gas. Further, a MHP that was developed over a period of time may have more than one service arrangement, including multiple submeter systems as well as an area with direct utility service. Neither WMA, which represents MHP owners, nor Golden State Manufactured Home Owners League, Inc. (GSMOL), which represents MHP tenants, has records that provide a complete picture of the status quo.

While no one can dispute that MHP submeter systems are aging, information on the age of the MHPs is largely anecdotal, as well. Inspections provide some information but are imperfect, since very often little is visible--MHP natural gas systems typically run underground and some or all of electrical systems may also. Moreover, at some MHPs, particularly those where ownership has changed over time, the original construction records may no longer be available.

Given the statutory prohibition on new MHP submeter systems beginning in 1997, we know that the majority of existing systems are at least 14 years old. According to various parties to this petition docket, most MHP submeter systems were built a decade or more before that and now are 30 to 40 years old, with perhaps a few as much as 70 years old. WMA states that many MHP submeter systems have been fully depreciated, are reaching the end of useful life, and consequently may have little salvage value.

Petitioner, WMA, represents perhaps 40% of MHP owners in California (the record does not reflect what percentage of them own MHPs served by CPUC-jurisdictional utilities). WMA filed the initiating petition on August 20, 2010. The following additional parties filed timely responses on September 20, 2010: jointly, San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas); Southern California Edison Company (SCE); and The Utility Reform Network (TURN). The assigned Administrative Law Judge (ALJ) granted GSMOL's leave to file a response out of time, on October 27, 2010. GSMOL, a non-profit mutual benefit corporation for MHP residents, has some 30,000 members. WMA filed a timely reply on September 30, 2010, as did Pacific Gas and Electric Company (PG&E).

The ALJ held a prehearing conference (PHC) on October 27, 2010, which all parties attended: GSMOL, PG&E, SCE, SDG&E/SoCalGas, TURN, and WMA. With the concurrence of all parties, an informal workshop was set for November 18, 2010, and the ALJ asked the parties to work together to develop a joint list of issues that a rulemaking might consider and to distribute it to the service list by email no later than November 15. In response, the parties produced a five-page matrix which Commissioner Ryan and the ALJ reviewed prior to preparing the workshop agenda and to forwarding it to the service list by email at noon on November 17, 2010. Both the matrix and agenda were filed in this docket by ALJ ruling on November 23, 2010, together with a list of "needed information" that PG&E had distributed at the PHC but which was omitted, inadvertently, from the PHC transcript.

All parties attended the workshop, together with Commission advisory staff from CPSD and from Energy Division, and a representative from HCD.

WMA filed its petition out of concern that the voluntary transfer process codified by §§ 2791-2799 rarely reaches fruition. Since 1997, only a handful of MHPs have successfully transitioned from master-meter/submeter systems to direct provision of electricity, natural gas, or both from a utility. WMA and the utilities have markedly different perspectives on the reasons for this situation and in very broad terms, each tends to see the participants on the other side of the transfer process as adversaries. From WMA's standpoint, the utilities impede transfers by interpreting statutory requirements for fitness too narrowly such that virtually none of the existing systems meet their standards, regardless of age. From the utilities' view, WMA (and other park owners) fail to make realistic assessments of the condition of existing submeter facilities and the costs of their retrofit or replacement. Contributing to the disharmony are conflicting views about whether, in all cases, the entirety of the master-meter discount actually has been apportioned and used for submeter operation, maintenance, and replacement.

To expedite transfers, WMA's petition seeks four things: establishment of a standard transfer agreement to replace the agreements each utility now uses (WMA attaches a proposed draft agreement to its petition); adoption of specific procedural steps to accompany the standard agreement; adoption of eligibility standards which mirror the Commission decision in a recent complaint case, D.09-02-030,9 and clarification of cost sharing requirements between MHP owners and utility ratepayers for converting existing MHP submeter systems to direct utility service.10 With respect to the latter, in situations where a MHP submeter system has no remaining useful life at the time of transfer, WMA urges the Commission to require that:

[T]he host utility should bear the cost of upgrade or replacement needed to extend the system's life necessary to provide direct service on a going forward basis. An MHP owner would receive no compensation for the transfer of the system, but would also be relieved of making investments for which there is no opportunity for recovery through future revenues. In other words, a transferring MHP owner cannot be fairly required to invest in an extension upgrade or replacement of a system as a condition of transferring that system, and thus make a gift to the future direct service utility. (WMA Petition at 14.)

At the workshop, WMA explained informally that most MHP owners "want to get out of the utility business" but that faced with the need to completely replace an end of life submeter system with either a new submeter system or a direct system built to meet all utility requirements, economics dictate the former.

Other parties contend that the scope proposed by WMA is too narrow. Though they do not oppose a new rulemaking into MHP transfer issues, they believe that the scope should be more comprehensive and most importantly, that any policy determinations must be based on a stronger factual assessment of the status quo than the one presently available to this docket.

At the workshop, the ALJ asked each party to identify its top three objectives for the rulemaking. The list below summarizes those responses but does not attempt to assign an absolute priority to them, given the informal nature of the discussion. More than one party identified the first three issues in the list; the remaining six were each raised once.

1 Unless otherwise noted, all subsequent mentions of a statute or "section" refer to the Public Utilities Code.

2 Master-meter/submeter systems generally provide electricity; natural gas may or may not be available and where it is unavailable, propane may be a substitute.

3 Section 739.5(a) provides, in relevant part:

4 Decision (D.) 04-11-033 (2004), Finding of Fact 5, mod. and rhg. den. by D.05-04-031.

5 See the following threshold decisions:

6 See for example, Home Owners Association of Lamplighter v. The Lamplighter Mobile Home Park (1999) D.99-02-001, 1999 Cal. PUC LEXIS 119; Yucaipa Mobilehome Residents' Association, et al. v. Knollwood Mobilehome Estates, Ltd. (2004) D.04-05-056. The Commission has exclusive jurisdiction to interpret § 739.5 and its exercise of that authority does not improperly usurp local rent control authority. See Hillsboro Properties v. Public Utilities Commission (2003) 108 Cal.App.4th 246.

7 Stats. 1996, ch. 424, Sec. 1 (effective on January 1, 1997), added Chapter 6.5 to Part 2 of Division 1 of the Code.

8 Sections 4351-4361 are found in Chapter 4 of Division 2 of the Code.

9 See Harbor City Estates, LLC v. Southern California Gas Company (2009) D.09-02-030.

10 WMA challenges contentions that the Commission addressed this matter by approving the settlement in D.04-04-043. That decision, WMA argues, "does not address cost recovery in transfers at all" but rather "only lists the costs that are in and out of the discount." (WMA petition at 12.) WMA relies on D.05-04-03, which modified Ordering Paragraph 13 of D.04-11-033 to read:

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