4. Overview - The Major Issues
The facts and the applicable legal arguments presented to the Commission in this proceeding focus on three basic situations: charges for water service at submetered MHPs; charges for water service - and particularly, the method for allocating charges -- at multi-unit apartments which are not submetered; and charges for sewer service. In each of these scenarios, the owner/operator of the MHP or multi-unit apartment is the customer of the water or sewer provider and the tenant (the end use residential consumer) is not.
The California Department of Housing and Community Development web site indicates that there are 5, 640 MHPs in California ( www.hcd.ca.gov). CMRAA provided a somewhat lower estimate in this proceeding (5,000 MHPs) and indicated that this lower figure represents close to 400,000 spaces. We have no useful approximation of the percentage of MHPs (or total spaces) located within the service territories of CPUC-regulated water and sewer utilities. Data on multi-unit apartments tend to be the product of estimates but at least one estimate suggests as many as 15 million Californians reside in them.4 We have been unable to independently verify estimates of the number of such apartments or the number of tenants they house.
4.1. MHP Issues
The history at De Anza Santa Cruz Mobile Home Park (De Anza), a 200 site MHP subject to local rent control, illustrates the major controversy surrounding MHPs. (See, Application of MHC for a Certificate of Public Convenience and Necessity [Application of MHC], Decision (D.) 98-12-077 (1998) xx Cal. PUC 2d xx.) De Anza, owned by MHC since 1994, receives water and sewer services from municipal systems owned and operated by the City of Santa Cruz5. Prior to 1993, water and sewer costs at De Anza were rolled into the monthly rent charge. Application of MHC relates that in 1993, new owners (not MHC) installed submeters for each site and in conformance with Civ. Code § 798.41, a part of the Mobilehome Residency Law, removed utility charges from rent and began billing separately for utility services, including water and sewer.6
The owners allocated sewer charges among spaces on a "pass through" basis (i.e. a pro rata allocation of the actual charges billed by the City). The resulting water bill per space included volumetric charges at the municipal water system's baseline rate of $0.65 per hundred cubic feet (Ccf), a $7.80 "readiness to serve" charge, and a 7% tax. These were the same charges at the same rates the municipal water system imposed on any residential customer located outside the MHP who received water directly from the municipal water system. De Anza paid a higher total volumetric charge than the tenants were billed (since $1.55 per Ccf, rather than the baseline rate, applied above 400 Ccf), but De Anza's paid a single "readiness to serve" charge of $217.50. Thus, the total submeter receipts exceeded, by about $1,500 per month, the amount the municipal water system billed De Anza.
The rent control board hearing officer agreed with the tenants that Civ. Code § 798.41 does not permit the levy, on a per space basis, of a "readiness to serve" charge and "tax" and that these amounts constituted a windfall de facto rent increase. The only allowable water charges, the hearing officer concluded, were actual submetered usage, plus a pro rata share of the "readiness to serve" charge, and tax, that De Anza actually paid. Ultimately, the Sixth District Court of Appeal, in an unpublished opinion, revised the refund calculation to ensure recovery of all of De Anza's volumetric charges but otherwise agreed with the hearing officer.7
Meanwhile, MHC filed an application at the CPUC in which it expressly stated its intention to dedicate both its submeter water system and its sewer system to public service, acquire public utility status and then levy the water rates authorized by the CPUC. After evidentiary hearings, the Commission granted a Certificate of Public Convenience and Necessity (CPCN) to MHC, albeit with some stated reluctance. The Commission concluded that the financial and management resources available to MHC placed it in a different league than other, troubled Class D water utilities.8 Nonetheless, Commission and legislative policy of recent years has encouraged consolidation of very small water and sewer utilities with larger, more stable entities -- not the creation of additional small utilities - and the Commission expressed concern that other MHP owners might follow MHC's example. 9 (Application of MHC, supra, D.98-12-077 at p.31.) Though the Commission's CPCN proceeding is closed, De Anza's history is still being written. GSMOL reports that the City of Santa Cruz has refused to grant De Anza permission to resell municipal water and sewer services under the tariffed rates approved by the Commission in Application of MHC and that the dispute between the two is pending in the federal courts.
4.2. Issues at Multi-Unit Apartments
From the standpoint of the apartment lobby, increases in water costs, coupled with the absence of any conservation incentive when consumption is not metered, necessitate removing water costs from rent and separately allocating water costs among rental units. By comparison to MHPs, few multi-unit apartments are submetered and water charges (like sewer charges) typically have been subsumed in rent. The apartment lobby argues that it would be a costly proposition to install separate, direct meters or submeters at existing multi-unit apartments using the metering technologies currently required by law. The apartment lobby also argues that unmetered water usage promotes waste and that a proxy for metered consumption is necessary to promote conservation and cover increased water costs. Typically, landlords use apartment square footage or number of tenants per unit as proxies for usage and impose a separate water charge on that basis. These proxies are generally known as "RUBS", or Ratio Utility Billing Systems. Apartment tenants complain the proxies are flawed and assert that owners are looking for additional profit centers and in some cases, for a way to circumvent the rent increase limitations imposed by local rent control ordinances.
4 See "Landlords, Tenants Spar In Big Water-Fee Fight," Wall Street Journal, July 28, 1999, p. CA-1. 5 As we discuss more fully below, we question whether a MHP served by a municipal water authority is subject to § 2705.5. In all other regards, however, the rate dispute at DeAnza typifies the tensions at all MHPs subject to local rent control ordinances. Since DeAnza is familiar to the Commission and to the parties, it provides a useful example. 6 Civ. Code § 798.41 provides that management of rent-controlled MHPs may separately bill tenants for "utility service fees and charges assessed by the utility for services provided to or for spaces in the park," including water and sewer services. The separately billed utility charges are not to be considered rent under local rent control laws if management first removes the utility charges from rent as prescribed. The approved methodology requires 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. (Civ. Code § 798.41(a), emphasis added.)
