5. Allocation of Trenching Costs
Knollwood in its comments on remand proposes no allocation of the costs of trenching shared by water, electricity and gas infrastructure. The park continues to argue that the Commission lacks jurisdiction to deal with trenching costs because the Commission regulates neither the mobilehome park nor the district water utility that serves the park. Those arguments miss the mark. While the Commission does not regulate the park, the Legislature in § 739.5 requires the Commission to regulate the rates charged by the park for submetered gas or electric service. By the same token, the argument that rates charged by the park for water service cannot be challenged before this Commission would have validity only if the evidence showed that the trenching at issue was exclusively dedicated to the water system. As noted, the Rent Review Commission found that the trenching served water, electricity and gas service, and Knollwood's own evidence makes clear that these utilities shared the trenching in common.
Knollwood argues that, even if the Commission has jurisdiction, the line extension rules of Southern California Edison Company and Southern California Gas Company (SoCalGas) not only permit Knollwood to recover all of the trenching costs in rents but also would have authorized an additional $35,000 in capital recovery costs through rent increases. According to Knollwood, this assertion is based on the park's calculation of costs for components of the utility systems that exceed the line extension allowances and thus are eligible for recovery through rents. The Commission in its rehearing order in D.03-08-077 found this argument unpersuasive and did not agree that line extension rules insulate a park owner from its obligation under § 739.5 for "maintenance and repair of its submeter facilities" in exchange for the submetering discount it receives from the gas and electric utilities
As Knollwood acknowledges in its motion to consolidate (discussed below) the theory that line extension rules "cap" a park owner's responsibility for costs of utility repair and maintenance is being addressed in OII/OIR,
R.03-03-017/I.03-03-018. Whatever ruling emerges in that proceeding will be prospective in nature. The utility repair and maintenance costs incurred by Knollwood in 1998 and 1999 were then and are now subject to the principles of Hillsboro Properties, supra, and Rainbow Disposal Co., supra, which preclude the owners of submetered mobilehome parks from passing through to residents as rent increases costs related to the repair and maintenance of their submetered gas and electric utility systems.
The Commission has directed that the trenching costs here be allocated among water, gas and electricity. At hearing, complainants' witness Richard Riddell, an engineer who worked for 40 years for SoCalGas, testified that utilities that shared a trench generally negotiated an arrangement for sharing costs, and frequently split the costs between themselves on an equal basis. An equal sharing in this case would require that two-thirds of the trenching costs, or $74,296.67,5 be removed from the rent increase on grounds that the park owner already receives compensation via the submetering discount for maintenance and repair of the submetered gas and electric systems.
Complainants point out, however, that Knollwood's own expert witness in a supplemental declaration recommends an allocation based on the imputed value of each utility, as reflected in the total costs of installation. (The expert goes on to argue that an allocation based on imputed value triggers the "caps" in the line extension rules, an argument that we have found unpersuasive.) The witness noted that costs per utility submitted to the Rent Review Commission and made part of this docket, show this breakdown: water, $58,786 or 14.5% of total costs excluding trenching; gas, $62,186 or 15.3% of total costs excluding trenching; and electricity, $285,285 or 70.2% of total costs excluding trenching. Under this method of allocation, 14.5% of the trenching costs would be attributed to water, the rates of which are not regulated by this Commission, and 85.5% of the trenching costs would be attributed to gas and electricity, the rates of which are regulated by this Commission under § 749.5. The amount to be removed from the rent increase would be $17,064 for gas and $78,281 for electricity, for a total of $95,345.
The record supports an allocation that attributes the largest share of trenching costs to electricity. The electricity work was by far the most costly part of the renovations. Supplemental testimony submitted by the chief executive officer of Knollwood's parent company states that the 3-foot depth of the trenching was necessitated by the electrical lines, which were placed at the bottom of the trench. Compacted sand was placed over the electrical lines, and gas and water lines were placed at the 2-foot level, 12 inches apart. This arrangement was made so that pressure checks on the water and gas lines would be parallel and at the same depth. Since the trenches were dug at a 3-foot depth (instead of a 2-foot depth) to accommodate electrical lines, it seems clear that electrical needs drove much of the cost of trenching.
Accordingly, our order today requires that the $250,572 rent increase authorized by the Yucaipa Commission be reduced by $95,345, an amount that represents trenching costs for gas and electric facilities that may not be recovered through rents pursuant to Pub. Util. Code § 739.5. Knollwood is directed to reduce its rent increase (now at $17.40 per month for 20 years) to reflect a revised total of $155,227 for those occupants of mobilehome spaces that were subject to the increase. The revised rent increase is to be calculated in the same manner as was the increase previously in effect (i.e., pro rata portion of the total approved capital expense incurred, less $95,345). Knollwood is directed to refund overpayments of the revised rent increase to all current and former residents who have been paying the $17.40 increase since 1999.6
While normally interest would apply to refunds of this nature (see Hillsboro, D.01-08-040), we do not in our order require that Knollwood pay interest on the rent refunds. Our examination of the record persuades us that complainants, through no fault of their own, elected to postpone their filing before this Commission and found it necessary to request numerous postponements in resolving this case. It would be inequitable to require Knollwood to pay interest for lengthy periods of delay for which it was not responsible.
5 The record shows that total cost of Knollwood's work on electric, gas and water lines in 1998 and 1999 was $517,732. Of this amount, the Yucaipa Commission authorized $250,572 as costs that could be passed on to residents in a rent increase. The $250,572 included $111,475 for costs of trenching. Two-thirds of the $111,475 trenching cost is $74,296.67. 6 Hillsboro Properties expressly states that the Commission does not overstep its jurisdiction by invalidating rent increases approved by local rent control boards, but only to the extent that such rent increases include unauthorized utility costs. (See Hillsboro Properties, supra, 108 Cal. App. 4th at 259-60.) Just as in Hillsboro Properties, this decision does not impose any requirements upon the Yucaipa Rent Review Commission, but instead is directed solely at Knollwood. (Id.)
