III. DISCUSSION

In their rehearing application, applicants challenge D.04-05-056 on the following grounds: 1) the Decision incorrectly finds that the rules issued by the Commission in D.04-04-043 are prospective in nature; and 2) the Decision erred in that there was no showing that the trenching was related solely to submetered system enhancements. While at first glance these issues seem separate and distinct from one another, the two arguments are interrelated. Essentially, applicants claim that a recent Commission decision (D.04-04-043) issued in Phase I of OII 03-03-017/OIR 03-03-018, which was decided after D.03-08-077 (the rehearing decision requiring allocation of trenching costs), but before D.04-05-056 (the decision that is the subject of applicants' current rehearing application) must be applied retroactively. The result of this retroactive application of D.04-04-043, according to applicants, is that allocation of trenching costs, as required by D.03-08-077, is no longer permissible due to the nature of the particular trenching costs at issue in this proceeding.

In issuing D.04-04-043 on April 26, 2004, we approved a joint recommendation between several gas and electric utilities, WMA and The Utility Reform Network as to the Phase I issues in OII 03-03-017/OIR 03-03-018 ("OII/OIR"). Phase I of the OII/OIR was designed to identify the categories of costs the electric and gas utilities incur when directly serving mobilehome park ("MHP") tenants that are avoided by the utilities when the MHP is served through a distribution system owned by the MHP owner. These costs are referred to as "avoided costs" because, in the case of submetered MHPs, the costs are incurred by the MHP owner, not by the relevant utilities. MHP owners are compensated for these avoided costs through the submetering discount provided in Section 739.5(a), and as a result may not seek compensation for these costs from MHP tenants in the form of rent increases. Utility-related costs that are incurred by submetered MHP owners but are not compensated via the submetering discount may be separately charged to MHP tenants if not otherwise prohibited. In D.04-04-043, we determined that trenching costs related to maintenance and repair of the submetered gas and electric systems constitute avoided costs,² whereas trenching costs associated with underground service reinforcements and expansion of submetered distribution and services do not constitute avoided costs. (See Attachments A & B to D.04-04-043.)

Applicants argue that D.04-04-043 should be applied retroactively to the trenching costs incurred by Knollwood in 1998-99. (Rehearing App., p. 2.) Applicants clearly expect that a retroactive application of D.04-04-043 would require the Commission to grant rehearing of D.04-05-056 to reverse the trenching allocation because the trenching costs at issue, in applicants' view, are not avoided costs according to D.04-04-043.

The problem with the theory articulated by applicants is that nothing in D.04-04-043 either explicitly or implicitly indicates that it was intended to apply retroactively to costs incurred by a MHP owner several years before the issuance of D.04-04-043. Indeed, because Commission decisions generally apply on a prospective basis, any contemplated retroactive application of a proposed Commission decision would have been made explicit and would have been the subject of comments and briefing by the parties. This did not occur with D.04-04-043. Applicants suggest that the parties "operated under the basic presupposition" that D.04-04-043 was merely a statement of existing Commission policy, and that therefore it should apply to costs incurred before the issuance of D.04-04-043. (Rehearing App., p. 2.) Whatever "presuppositions" the parties may have been operating under are entirely immaterial. The fact remains that nothing in D.04-04-043 indicates that it was intended to apply retroactively, and if the parties believed that D.04-04-043 was unclear on this point, they could have filed an application for rehearing, or petition to modify, D.04-04-043. In the alternative, the parties could have presented the Commission with a joint recommendation in Phase I of the OII/OIR that specifically stated that the resulting decision was intended to apply retroactively. They did not do so.

The retroactive application of D.04-04-043 proposed by applicants would have far-reaching implications for numerous Commission proceedings involving utility-related MHP costs incurred prior to the issuance of D.04-04-043. For example, in D.04-06-007, issued on June 10, 2004, the Commission officially closed proceeding C.00-01-017, which involved utility-related MHP costs incurred prior to the issuance of D.04-04-043. According to applicants' logic, the parties to C.00-01-017 could have insisted upon a reallocation of these utility-related MHP costs based on a retroactive application of D.04-04-043. This was not the intended effect or application of D.04-04-043.

Finally, applicants argue that the trenching costs were improperly allocated in D.04-05-056. According to applicants, the trenching costs at issue related solely to gas and electric system "improvements" and did not include any trenching costs for repair and maintenance of the submetered gas and electric systems. (Rehearing App., p. 3.) Applicants cite to several instances in which the Commission, in this proceeding, has referred to the trenching costs as being related to "improvements," and assert that such "improvements" are not avoided costs, are not included in the submetering discount contained in Section 739.5, and as such are properly passed through to tenants as rent increases. This argument misses the mark because it assumes that D.04-04-043 will be applied retroactively. However, as discussed above, retroactive application of D.04-04-043 was neither expressed nor intended by the Commission. Prior to the issuance of D.04-04-043, existing Commission precedent clearly established that owners of submetered MHPs may not pass through to tenants as rent increases costs related to improvements (including repair and maintenance) to submetered gas and electric utility systems. (See, e.g., Hillsboro Properties v. Public Utilities Commission (2003) 108 Cal.App.4^th 246, 256-259; Rainbow Disposal Co. v. Escondido Mobilehome Rent Review Bd. (1998) 64 Cal.App.4^th 1159, 1168-1169.) As such, applicants' argument that trenching costs were improperly allocated in D.04-05-056 lacks merit.