4. Staff Report and Positions of the Parties

The tiered water rate schedule at Sunbird that went into effect in June 2006, that is being complained of in this proceeding, and that was partially suspended on May 6, 2010, by D.10-05-020, provides:19

As noted earlier, Commission staff prepared two reports in this proceeding. On February 17, 2010, assigned ALJ Weatherford requested that the Division of Water and Audits (Division) conduct an inquiry and issue a staff report concerning the issues of the reasonableness of the rates and the adequacy of service at Sunbird. Field interviews of residents and representatives of Sunbird were conducted and data requests and responses completed, resulting in an initial staff report dated May 5, 2010. On February 1, 2011, ALJ Weatherford directed the Division to conduct a further investigation that would cover newly supplied and updated operating expenses for water service (including those expenses shared with, or that overlap with, operating expenses for septic service); address alleged miscalculations in total operating expenses and in an allowance for uncollectibles; and consider and update the impacts of unresolved water quality problems on rates and quality of service.20 On June 10, 2011, the Division distributed its Supplemental Staff Report21 that reflected the further inquiry and superseded the May 2010 report.

The Supplemental Staff Report (Report) finds that the water rates at Sunbird create excess revenues for 2010 and 201122 and that the water service is inadequate due to contamination.23 It proposes a modification of the water rates, based on findings as to segregated expenses and revenue requirements for 2010, 2011, and 2012, and to the application of specified rates of margin (ROM).24 It recommends that POU filtered water, available since March 2011, continue to be made available until a connection to the District, expected some time in 2012, occurs; and, further, that bottled water be available via vending machines at cost.25 It recommends the posting of notices in both English and Spanish concerning the availability of filtered and bottled water. It calls for Sunbird to separately track water and septic expenses, and separately bill water services. Finally, it recommends that Sunbird establish memorandum and balancing accounts to deal, among other things, with any undercollections or overcollections, as well as any revenues foregone under the suspension of Tiers 3 and 4 resulting from D.10-05-020.26

Defendants offer a general criticism that the Report

totally ignores the central, overriding issue...which is the need and justification for Sunbird to maintain a tiered billing system that encourages efficient water use practices and discourages wasteful practices and the use of unauthorized washing machines.28

The Defendants fault the Report for an alleged lack of analysis of the residents' conduct concerning "excessive water use and unauthorized washing machines."29 They cite the requirement of Sunbird's waste discharge permit that limits the discharge to 250 gallons per day per mobile home space, the maximum capacity provided in the Uniform Plumbing Code.30 Defendants assert that the 250 gallon per day per space limit was "one of the factors used in designing Sunbird's current rate structure," that efforts by Sunbird "to control the excessive discharge of waste water by educating the residents and issuing notices promoting proper practices were unsuccessful," and that Sunbird maintains a laundry facility for its residents "at below market rates."31

Complainants counter that the Commission has not recognized water conservation or the protection of a septic system as appropriate bases for setting water rates for analogous small water utilities.32 Rather, a profit-margin methodology governs, they argue.33

Defendants argue that Complainants have the burden of proving that Sunbird's rates are unreasonable,34 and that Complainants have not met that burden.

Defendants contest the Report's statement that no formal rate design preceded the advent of the current tiered rate structure. They argue that the 2006 four-tiered design evolved from the earlier 2002 three-tier design which was

designed to provide an affordable rate for consumption within the [250 gallon per day per space] discharge limit, a second tier to provide a 10 % cushion over the discharge limit, and a third tier based upon 50% of the cost to pump the excessive effluent from the septic system.35

Complainants contend that Defendants' explanation of how the 2002 rates were set is not matched by an explanation of the methodology used to set the 2006 rate structure, currently in effect (subject to the constraints of D.10-05-020).36

Defendants contend that the Report failed to deal with "the fact that after implementation of the tiered rate system in 2006, the water usage dropped each year, which demonstrates the tiered system is having the desired effect."37 The Commission's 2008 decision in Duque v. Haynes, D.08-01-002, is cited as authority for the Defendants' position that the rate differentials between Sunbird's tiers are reasonable.38

Defendants also take issue with the Report's contention that Sunbird's monthly billings have been for water, exclusive of septic, services, citing examples of billings that used the phrase "water/septic" for the service rendered.39 Their position is that, whether called "water" or "water/septic," the charges reflect the combined costs of providing water and septic service, and that septic costs have been "a factor in designing rates at Sunbird since at least 2002."40 Complainants counter that the Hernandez' rental agreement refers only to electricity and water as the utilities for which residents are to be billed, and add that Cal. Civ. Code Sec. 798.41 prohibits unilateral changes in rental billing.41

Regarding the allocation of water and septic revenue and expenses, Defendants believe it "logical to apportion the combined revenue and the combined expenses...based upon the ratio of direct water expense to direct septic expense."42 This is in contrast to the stance taken in the Report, which apportions all revenue, but only 13.6 percent of the combined expenses, to water. Defendants argue that the Report's approach "is not logical because once all of the revenue is allocated to water, certain combined expenses [e.g., meter reading, calculation of charges, billing, collection and accounting] then become total water expenses."43 Since "tenants are only billed for water and not septic," Complainants respond, the Report properly apportioned all of the water revenues to the water account.44

The Report's position that regulatory expenses should not be included in setting rates but, if included, should be recovered over five years via advice letter, is countered by Defendants who state that such expenses were recognized in a data request and that the expected connection to the District will soon make inapplicable the existing rate system.45 Defendants urge that some proportion of management expenses should be allowed, though not tracked by time sheets, and that attorneys fees and costs related to this proceeding also should be allowed.46 Complainants invoke the Commissions' SP-U-26 Manual in which the elimination or spreading out of nonrecurring expenses is encouraged.47 Complainants contend that Defendants' claims of water-related management48 and testing expenses49 are unfounded.

Defendants state that the Report's reduction of water testing expense is based on a false assumption that the testing of the point-of-use filtered water is no longer required. Issue is taken also with entries in and exclusions from the Report's Table 3 (Summary of Expenses for Water Services). Regulatory expenses, management expense, and depreciation do not appear on Table 3, but should appear according to the Defendants. They state that they could have provided depreciation schedules for water-related improvements (well, submersible pump, and several storage tanks), for example, if they had been properly instructed to do so. They offer a contractor's estimate of replacement value ($200,000) to suggest the magnitude of depreciation that they believe should be recognized.50 Complainants respond that the replacement value estimate lacks supporting evidence and that the Commission's SP-U-4-SM specifies a much longer than 20 year service life for most of the assets making up the infrastructure.51

Complainants find Defendants' criticism that septic expenses were not used in the Report's calculations to be inconsistent with Defendants' position that the Commission lacks jurisdiction over Sunbird's septic service.52 As to the applicability of the Duque case, Complainants contend that the ratio of Tier 1 to Tier 3 rates at Sunbird discloses a 2,941.2 percent differential, not the 781.3 percent that the Defendants represent (based reportedly on a typographical error in figures presented in the initial staff report of May 3, 2010).53 They further argue that Duque is distinguishable because there, unlike what the Report reveals here, the mobile home park's water revenues were below its revenue requirement.54

Defendants fault the Report for an alleged lack of analysis of the residents' conduct concerning "excessive water use and unauthorized washing machines"55 and for not acknowledging particular arsenic test results that revealed compliance with maximum contamination limits.56

They assert that the Report neglected to note Sunbird's policy of meeting the residents' need for after-hours access to the point-of-use filtered water.57 Further, they find the Report's recommendation that a bottled water vending machine be installed to be senseless in light of what they contend has been an absence of demand for Sunbird-provided bottled water.58 Complainants question whether residents have been adequately informed of the after-hours access to POU filtered water and suggest that absence of demand for bottled water might be explained by a lack both of awareness on the part of residents and of assurance that Sunbird staff is available to sell bottled water outside the after-hours time frame when POU filtered water is accessible.59

In response to the Report's position that Sunbird's water should not be used for drinking and cooking, Defendants point out that the text of the notice to users required by the California Department of Public Health and the Riverside County Department of Environmental Health reads, in part: "You do not need to use an alternative water supply (e.g. bottled water)."60

Unlike the Defendants, Complainants agree with the Report's statement that the water provided by Sunbird does not meet drinking water standards. The Report was referring to the water distributed to each resident's space, not to the POU filtered water made available at the Sunbird office, and the former water fails to satisfy the requirements of the state and county health agencies, say the Complainants.61

Complainants and Defendants entered into an agreement, stated to be effective as of January 5, 2010, and attached here as Appendix A, that is offered as a settlement of the water quality issues. On August 26, 2011 they moved jointly the adoption of the agreement as a partial settlement in the proceeding.62 We grant that motion below.

19 May 12, 2006 Memorandum from Hawkeye Asset Management to All Residents of Sunbird Mobilehome Park at 1, attached to Answer of Defendants.

20 Ruling of February 1, 2011 at 4, para. 3.

21 The full title is the "Supplemental Staff Report on the Sunbird Mobile Home Park, Thermal, California," and it was filed on June 16, 2011. The full document with exhibits is accessible at: http://docs.cpuc.ca.gov/EFILE/REPORT/137385.htm

22 Report at 11.

23 Id. at 1-7.

24 Id. at 7-13.

25 Id. at 14-15.

26 Id. at 15.

27 The Parties filed both comments (July 1 and 6, 2011) and briefs (August 30 and September 20, 2011) responding to the Supplemental Staff Report and stating their positions on the merits. Those filings can be found at: http://docs.cpuc.ca.gov/published/proceedings/C0911019.htm.

28 July 1, 2011 Defendants' Comments on Supplemental Staff Report, at 1 (unnumbered). Although the filed Comments are not paginated, citations to those comments in this decision bear a page number corresponding to the sequence of pages beginning after the cover page.

29 Ibid. Photographic evidence of the existence of washing machines at some individual spaces is in the record. Exhibit 2 of Defendants Exhib. 202.

30 August 31, 2011 Defendants' Opening Brief, at 1-2, where relevant references are made to documentary evidence of record.

31 Id. at 2-3.

32 July 6, 2011 Complainants' Reply to Defendants' Comments on Supplemental Staff Report at 3.

33 Ibid. Complainants cite Standard Practice Manual U-3-SM.

34 Defendants' Opening Brief at 14, citing Matthews v. Meadows Management Co., D.03-05-079.

35 July 1, 2011 Defendants' Comments on Supplemental Staff Report at 1.

36 July 6, 2011 Complainants' Reply to Defendants' Comments on Supplemental Staff Report at 3-4.

37 Defendants' Comments on Supplemental Staff Report at 2 (unnumbered page).

38 Ibid., where Defendants state:

39 Ibid.

40 Ibid.

41 Complainants' Opening Brief at 25-26.

42 Defendants' Opening Brief at 24.

43 Ibid. Cal. Civ. Code Sec. 798.41 reads in part:

798.41. (a) Where a rental agreement ...does not specifically provide otherwise, the park management may elect to bill a homeowner separately for utility service fees and charges assessed by the utility for services provided to or for spaces in the park. Any separately billed utility fees and charges shall not be deemed to be included in the rent charged for those spaces under the rental agreement, and shall not be deemed to be rent or a rent increase for purposes of any ordinance, rule, regulation, or initiative measure adopted or enforced by any local governmental entity which establishes a maximum amount that a landlord may charge a tenant for rent, provided that at the time of the initial separate billing of any utility fees and charges the rent chargeable under the rental agreement or the base rent chargeable under the terms of a local rent control provision is simultaneously reduced by an amount equal to the fees and charges separately billed. The amount of this reduction shall be equal to the average amount charged to the park management for that utility service for that space during the 12 months immediately preceding notice of the commencement of the separate billing for that utility service.

Utility services to which this section applies are natural gas or liquid propane gas, electricity, water, cable television, garbage or refuse service, and sewer service.

(b) This section does not apply to rental agreements entered into prior to January 1, 1991, until extended or renewed on or after that date.

(c) Nothing in this section shall require rental agreements to provide for separate billing to homeowners of fees and charges specified in subdivision (a).

(d) Those fees and charges specified in subdivision (a) shall be separately stated on any monthly or other periodic billing to the homeowner. If the fee or charge has a limited duration or is amortized for a specified period, the expiration date shall be stated on the initial notice and each subsequent billing to the homeowner while the fee or charge is billed to the homeowner.

44 Complainants' Reply to Defendants' Comments on Supplemental Staff Report at 7.

45 Defendants' Comments on Supplemental Staff Report at 3.

46 Defendants' Opening Brief at 26.

47 Complainants' Opening Brief at 30.

48 Id. at 32-33.

49 Complainants' Reply to Defendants' Comments on Supplemental Staff Report, at 9.

50 Defendants' Comments on Supplemental Staff Report at 3; also, Defendants' Opening Brief at 26-27.

51 Complainants' Opening Brief at 30.

52 Complainants' Reply to Defendants' Comments on Supplemental Staff Report at 5.

53 Ibid.

54 Ibid. at fn. 2.

55 July 1, 2011 Defendants' Comments on Supplemental Staff Report at 1.

56 Ibid.

57 Ibid.

58 Ibid.

59 Complainants' Reply to Defendants' Comments on Supplemental Staff Report at 4.

60 Ibid.

61 Complainants' Reply to Defendants' Comments on Supplemental Staff Report at 6.

62 See http://docs.cpuc.ca.gov/EFILE/MOTION/142666.htm.

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