III. Threshold Issues
1. The Adequacy of MHP Owner Records
A significant threshold issue is the adequacy of MHP owner records. In this proceeding, the parties have agreed that MHP owner records are not sufficient to determine the MHP owner's costs to provide submetered services, or to determine whether the discount adequately reimburses them.4 The record supports, and nothing in the record contradicts, this assertion. Therefore, we adopt this conclusion, which is important in determining how the discount will be established.
2. Setting the Discount at the Cap
The discount is required to be set at the MHP owner's reasonable average cost of providing submetered service. However, the discount may not 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. This is referred to as the cap.
The active parties have agreed that, since the lack of adequate MHP owner records makes it impossible to determine the MHP owners' costs, the discount should be set at the cap.5 We agree that the lack of adequate MHP owner records prohibits determination of the MHP owner's costs. Therefore, setting the discount at the cap is the only means available to ensure that the MHP owner receives an appropriate discount. In addition, since the cap is based on the costs avoided by the utility, the ratepayers and utility stockholders are not adversely affected by doing so. Given the inadequacy of MHP owner records, and the fact that our practice has been to set the discount at the cap, we will continue to do so.
3. Uniform Statewide Discount
None of the active parties recommend that the Commission adopt a uniform statewide discount. The utilities' costs of providing service vary from utility to utility. As a result, rates also vary among utilities. Since the discount is a cost-based rate, it too will vary among utilities. Since § 739.5 requires that the discount not exceed the costs the utility avoids due to the tenant being served by the MHP owner through a submeter, the only way to have a uniform statewide discount that does not exceed avoided utility costs would be to set it based on the costs of the utility with the lowest cost of service. However, this would mean that MHP owners in other utilities' service territories may receive a lower discount than is reasonable. For the above reasons, a uniform statewide discount will not be adopted.
4. Where the Discount Should be Set
A utility's revenue requirement is set in a revenue requirement proceeding. In these proceedings, the Commission determines the utility's costs of providing service, and sets rates based on those costs. Much of this cost information is the same information that is needed to set the discount. If the discount were set in separate proceedings, the cost information would have to be developed separately. Since it is more efficient to set the discount in those proceedings that already address the costs of providing service, and no party has made a different proposal, we will do so. While the active parties agree that the discount should be set in a revenue requirement proceeding, they do not agree on whether or where the discount should be adjusted between such proceedings.
Outside of a revenue requirement proceeding, Pacific Gas and Electric Company (PG&E) proposes that the discount be changed whenever there is a change in residential rates that is significant enough to change the discount due to recalculation of the diversity benefit adjustment.6 Southern California Edison Company (SCE) believes the discount should only be revised in proceedings where the costs on which the discount is based are set. The Sempra Utilities (Sempra) recommend that the discount be changed whenever there is a change in residential rates that is significant enough to change the discount. The Utility Reform Network (TURN) recommends that the discount be changed whenever there is a change in residential rates that is significant enough to change the discount due to recalculation of the diversity benefit adjustment. The Western Manufactured Housing Community Association (WMA) proposes that the discount be revised by advice letter every two years.
Utility rates are based on costs, and are changed more often than just in the cost-based proceedings. Regardless of the method chosen to calculate the discount, the discount is calculated based, at least in part, on data that is used to calculate residential rates. Therefore, the utility should include a proposed revision to the discount in any utility filing proposing a revision to residential rates if the change in the residential rates, or the data upon which the residential rate change is based, is sufficient to change the discount.7
If the parties propose a settlement or stipulation that includes the discount, the settlement or stipulation should specify whether and how the discount is to be adjusted between such proceedings. If the calculation of the discount is not specified in the settlement or stipulation, and it is adopted, the Commission may not have sufficient information to determine whether a change to the discount is warranted between proceedings. In that case, the discount shall not be revised until the next revenue requirement proceeding.
5. Settlements
There is the possibility that the proceeding that sets the discount will be resolved in whole or in part by a settlement or stipulation. However, the adoption of a settlement does not avoid the requirement that § 739.5 be satisfied. In any settlement or stipulation, the burden is on the moving parties to demonstrate that the settlement or stipulation is, among other things, consistent with law. No active party disputes this; however, SCE believes that it would be inefficient to require parties proposing a settlement or stipulation to demonstrate compliance with § 739.5. Instead, it proposes that such a specific demonstration be done only if the settlement or stipulation is opposed. In contrast, TURN recommends that parties proposing a settlement or stipulation be required to specifically demonstrate that the recommended discount complies with § 739.5.
In order for the Commission to adopt a settlement, it must be reasonable in light of the whole record, consistent with law, and in the public interest. In proposing a settlement or stipulation that sets the discount, the moving parties must determine that this is the case. As a result, it should be relatively simple for them to demonstrate that these requirements have been met. Therefore, we will require that any stipulation or settlement that sets the discount must specifically demonstrate that it complies with § 739.5.
4 The costs include, but are not limited to, depreciation, return on investment, operating costs, and maintenance costs. Many of these costs cannot be determined without records of existing plant such as initial installation costs, repairs, replacements and upgrades, condition, maintenance, etc. Merely having records of expenditures for recent years would not be sufficient. 5 The active parties are Pacific Gas and Electric Company, Southern California Edison Company, the Sempra Utilities (San Diego Gas and Electric Company, and Southern California Gas Company), The Utility Reform Network, the Latino Issues Forum, and the Western Manufactured Housing Community Association. 6 The diversity benefit adjustment reduces the discount paid to the MHP owner to account for the fact that while the MHP owner receives a full baseline allowance for each space, some tenants use less than the baseline allowance, and some spaces may be vacant. 7 The intent is not to reopen the discount every time residential rates are changed. Rather, it is to revise the discount only if the changes in the residential rates, or the data on which the residential rate changes were calculated, are sufficient to change the discount. The methodology utilized to calculate the discount would be the methodology adopted in the previous revenue requirement proceeding.
