V. Should the Commission Adopt a Uniform Statewide
Method to Calculate the Discount?

PG&E takes no position on whether there should be a uniform statewide method of calculating the discount. Its current discount is based on the sampling method, and it wishes to continue to be allowed to use it. SCE believes there should not be a uniform statewide method of calculating the discount, and wishes to be allowed to use a marginal cost method. Sempra believes there should be a uniform statewide method of calculating the discount, and it should be a marginal cost method. TURN recommends that the sampling method should be adopted as the uniform statewide method of calculating the discount. WMA recommends that a marginal cost method be adopted as the uniform statewide method of calculating the discount.⁸ LIF took no position on this issue.

There are two general methods for calculating the discount. One method is the sampling method. Under this method, the utility estimates the costs of the facilities that are necessary to directly serve tenants of a MHP from a survey of a sample of the directly-metered MHPs it serves. The facilities-related costs are then calculated, and other costs are added in order to determine the discount. The other method is the marginal cost method where the discount is calculated based on residential marginal costs.⁹

No party proposed a specific formula for calculating the discount. The record is not sufficient to allow adoption of a specific formula even if we were inclined to do so. The sampling method, to be valid, would require the use of a survey of a statistically valid random sample of the utility's directly-served MHPs. To the extent that any of the plant or non-plant related costs rely on data not limited to the sample, such as operations and maintenance costs, the resulting discount will be an approximation.¹⁰ The marginal cost method relies on residential marginal costs, rather than marginal costs associated only with MHPs. Therefore, it too is an approximation. Arguably, the sampling method, if based on a survey of a statistically valid random sample of directly-served MHPs, would more closely approximate the costs on which the discount should be based. However, it is likely to be more costly than the marginal cost method because of the costs of performing the survey.

SCE asserts that the results of the two methods are very similar in practice because in either method 40-48% of the costs on which the discount is based are operations and maintenance costs that are estimated by the utilities on a basis that is not limited to MHPs. In addition, much of the equipment used to provide service, such as the final line transformer, service drop and meter, is the same for directly-metered MHP and residential service. SCE also asserts, and PG&E and Sempra agree, that the difference in the discounts calculated by the two methods is well within the uncertainty of the sampling method.

Section 739.5(a) requires the Commission to set the discount at a level that covers the "reasonable average costs to master-meter customers" of providing submetered service. The intent is that the discount be set based on the average costs of the MHP owner to provide submetered service. Although the term "average costs" is not defined, it is reasonable to assume that it means that a single discount rate is to be set for the utility based on an average of the costs incurred by the MHP owners it serves, rather than a separate discount for each MHP owner based on each individual MHP owner's costs. However, as discussed above, the discount will be set at the cap because such a calculation cannot be performed.

Section 739.5 (a) requires that the discount "not exceed the average cost that the corporation would have incurred in providing comparable services directly to the users of the service." This cap is required to be set at the average cost that the utility would have incurred in providing comparable services directly to the users of the service. Section 739.5 applies to a limited set of residential users: tenants of submeter MHPs, in this case.¹¹ It does not apply to the general body of ratepayers. It is reasonable to assume that "comparable services" refers to services provided to directly served MHP customers of the utility, as opposed to residential ratepayers as a whole. As a result, the discount must be determined based on the average cost the utility incurs in directly serving MHP customers that is avoided by the utility when the tenant is served through a submeter. The sampling method, if based on a statistically valid random sample, would satisfy § 739.5(a). However, § 739.5(a) does not specify how the discount is to be calculated. Therefore, the discount could be calculated using a marginal cost method based on the costs to serve residential customers as a whole, if it is determined that those costs are approximately the same as those incurred in directly serving MHP tenants.

Nothing in the record suggests that the facilities used to directly serve MHP customers are materially different from those used to serve other residential customers. Utility residential customers range from being close together in large cities to widely-separated in rural areas. In contrast, MHP tenants tend to be located close together within the MHP. It is reasonable to expect that a proportion of any difference in the utility distribution facilities used to directly serve MHP tenants and residential customers as a whole is related, at least in part, to the difference in the length of the distribution cables and conduits for electricity, and distribution mains for gas. This, in turn, would likely affect costs related to those facilities, and possibly the cost of reading meters, among other things. There may also be other reasons why the costs would be different, and the costs to serve residential customers as a whole could be different from the costs to directly serve MHP tenants. However, the question is whether this theoretical difference is significant. As discussed above, SCE, PG&E and Sempra state that a discount calculated using a marginal cost method would be within the range of uncertainty of a discount calculated using a sampling method. No party disputes this assertion.¹² As a result, we see no reason not to allow the use of a marginal cost method for calculating the discount. Regardless of whether the sampling method or a marginal cost method is used, the cost to be estimated remains the average cost that the utility would have incurred in providing comparable services to the MHP tenant directly, which is avoided when the MHP is submetered, as identified in Attachments A and B to D.04-04-043. Costs other than those specified in D.04-04-043 may not be included.

As previously noted, the record is not sufficient to adopt a specific formula for calculating the discount. In addition, the record demonstrates that there are at least two general methods to calculate the discount that comply with § 739.5. Therefore, we will allow the discount to be calculated using a sampling method based on a statistically valid random sample, or using a marginal cost method. We note that there are disagreements among the parties as to the specifics of particular marginal cost methods. We also note that rate design and allocation methodologies vary over time, and are not uniform across utilities. As a result, we do not specify a particular marginal cost method herein. In addition, it is possible that a particular marginal cost methodology based on the costs to serve residential customers as a whole, may not yield a result that is approximately the same as the costs incurred in directly serving MHP tenants. Therefore, the specifics of any sampling or marginal cost method to be used to calculate the discount should be addressed in the revenue requirement proceeding where the discount is set. Consideration of the specifics of a marginal cost method may include consideration of whether a particular marginal cost methodology based on the costs to serve residential customers as a whole, will yield a result that is approximately the same as the costs incurred in directly serving MHP tenants.