BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Date of Issuance August 24, 2012 Decision 12-08-046 August 23, 2012 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Pacific Gas and Electric Company to Revise its Electric Marginal Costs, Revenue Allocation, and Rate Design, including Real Time Pricing, to Revise its Customer Energy Statements, and to Seek Recovery of Incremental Expenditures. (U39M) Application 10-03-014 (Filed March 22, 2010) ORDER MODIFYING DECISION 11-12-053 AND DENYING REHEARING OF THE DECISION AS MODIFIED I. BACKGROUND Western Manufactured Housing Communities Association ( WMA ) has applied for rehearing of Decision (D.) 11-12-053 ( Decision ). The Decision calculates the electrical master-meter discount that PG&E provides to certain mobile home park owners pursuant to Public Utilities Code section 739.5, subdivision (a) ( section 739.5(a) ). 1 The discount reduces the cost of electricity purchased by mobile home park owners at a master-meter and then distributed to mobile home park tenants via a proprietary submetering system. Section 739.5(a) requires mobile home park owners to charge their tenants the same rate the serving utility charges for comparable service. The spread between the discounted master-meter rate and the serving utility s retail rates provides mobile home park owners with a source of revenue to offset the costs they incur to provide submetered service to their tenants. However, section 739.5(a) provides that the discount shall not exceed the serving utility s cost of providing comparable service 1 All section references are to the Public Utilities Code unless otherwise indicated. 26022900 1

to mobile home park tenants. The discount is referred to in D.11-12-053 by its formal tariff title, the Schedule ET discount. Section 739.5(a) determines how the Commission will calculate the mastermeter discount. The maximum discount allowed by section 739.5(a) is the average cost that the [utility] corporation would have incurred in providing comparable services directly to the users of the service [i.e., mobile home park tenants]. That amount is commonly referred to as the cap. Currently, the master-meter discount is set at this maximum permitted level because the available information is not sufficient to allow the other permitted discount calculation to be made. (Investigation to Re-Examine Submetering Discount [D.04-11-033] at pp. 8-9.) 2 The current methodology for determining the average cost that the [utility] corporation would have incurred in providing comparable services is set out in prior decisions, including Investigation to Re-Examine Submetering Discount [D.04-11-033], supra. That methodology involves determining the value of a number of inputs that are used to calculate the serving utility s avoided costs. Once the correct amounts of the inputs are determined, we calculate the dollar amount of the costs the utility avoids by not providing comparable services to mobile home park tenants. That amount is established as the master-meter discount, and is subtracted from the otherwise applicable electricity rate that mobile home park owners would have paid. In D.11-12-053, we set rates for each of PG&E s many non-residential customer classes, and resolved a small number of residential ratemaking issues, including setting master-meter rates. The total amount of revenue that PG&E needs to recover from its residential and non-residential customers (the revenue requirement ) had been established in a different proceeding, and could not be changed here. For the most part, rates for the various non-residential customer classes were agreed to by parties representing the utility, the various non-residential customer classes, and consumer 2 The Commission s official version of decisions issued after 2000 is available on the internet at <http://docs.cpuc.c.gov/cyberdocs/libraries/webpub/common/decsearchdsp.asp.> Page referances to decisions use the official version available on the internet, with parallel Lexis citations when available. D.04-11-033 is available at <http://docs.cpuc.ca.gov/word_pdf/final_decision/96270.pdf>. 26022900 2

groups. However, the mobile home park master-meter rate discount was disputed, and was established by the Commission following a ratesetting hearing. In the course of the ratesetting proceedings, parties exchanged numerical data among themselves via data requests (a form of discovery used in Commission rate cases). Parties worked with expert economists to develop proposed calculations showing the level at which they believed the master-meter discount should be established. In this case, PG&E made a calculation showing how it proposed to set the level for the mastermeter discount that TURN, a consumer group, came to support after discussions with PG&E produced certain revisions. WMA did not support PG&E s calculation, and presented its own proposed calculation of the master-meter discount. To determine what the correct discount should be, we received written testimony describing the methods parties used to make their calculations, and further received written rebuttal testimony where the parties evaluated each others proposals. We then held two days of formal evidentiary hearings, where the parties witnesses were subject to cross-examination regarding their proposed calculations. After the hearings, parties submitted opening and reply briefs providing arguments and analysis of the evidentiary record. (D.11-12-053 at p. 5.) Ultimately, the parties agreed on seven of the inputs that would be used to calculate the master-meter discount, but disputed what inputs should be used in six other instances. To determine what inputs should be used in the disputed cases, we reviewed the record, and presented our analysis of the evidence in the Decision at pages 43-53. Overall, the Decision finds that WMA s proposals on the six disputed inputs were not supported by the record and would result in an inaccurate calculation of the master-meter discount. For example, the Decision explains that WMA s proposal to add replacement costs to the discount would produce double-counting. Specifically, TURN and PG&E s discount proposal had already included trenching costs associated with replacements, and also included a real economic carrying cost or RECC Factor that encompassed other replacement costs. (D.11-12-053 at p. 44.) 26022900 3

After the Decision issued, WMA filed a timely application for rehearing ( Rehearing Application ). That rehearing application asserts that we committed legal error when we resolved three of the contested issues. For the most part, WMA s allegations assert that legal and equitable principles required us to adopt WMA s position on costs instead of using information that D.11-12-053 found to be an accurate representation of PG&E s avoided costs. In addition, the rehearing application alleges procedural errors. TURN and PG&E filed a joint response opposing WMA s rehearing application ( Joint Response ). WMA also moved to submit additional material after the receipt of the Joint Response, even though that document was the last pleading allowed by Rule 16.1, subdivision (d) of our Rules of Practice and Procedure. 3 In addition, WMA filed a petition for modification that discusses many of the issues raised in the rehearing application. 4 II. DISCUSSION We have reviewed the claims presented in the application for rehearing and have determined that they do not demonstrate error. We will modify D.11-12-053 to make certain matters clear, and deny rehearing of the Decision, as modified. The reasons supporting this approach are described in detail below. A. Use of Record-Based Cost Information to Calculate the Discount The rehearing application alleges that we committed legal error when we analyzed the record and made findings about what cost information should be used to 3 The Commission s Rules of Practice and Procedure ( Rules ) are codified in Title 20 of the California Code of Regulations. The section numbers in the California Code of Regulation correspond to the numbers of each Commission Rule. Rule 16.1 is found at Title 20 Cal. Code Regs., 16.1. 4 Today s decision does not dispose of the petition for modification. The Commission intends to dispose of this petition in a subsequent decision. However, because the petition for modification and the rehearing application cover many of the same topics, it is important to note the differences between these pleadings. The Commission can respond to the rehearing application by exercising its authority under section 1736 which is sometimes broader than the authority granted under section 1708, which would be used to respond to the petition to modify. Further, only those issues raised in the body of WMA s rehearing application can be relied upon in any petition for review in the appropriate court. (Pub. Util. Code, 1731, subd. (b)(1), 1732.) 26022900 4

calculate the master-meter discount. Specifically, the Decision found that new connection costs for multifamily residences were an accurate proxy for PG&E s cost of providing comparable service at mobile home parks. The rehearing application claims that we were legally required to use a different measure, the average per-customer cost for the entire residential class... (Rehearing Application at p. 5.) The rehearing application also claims we were legally required to use 2009 cost information to calculate the master-meter discount. The Decision found that the record showed the 2009 cost data to be unreliable for purposes of calculating the master-meter discount. WMA further claims that we were legally required to escalate the marginal cost inputs used to calculate the master-meter discount by applying a ratemaking tool called the EPMC [Equal Percentage of Marginal Cost] scalar. The rehearing application claims that this scalar must be applied for policy reasons and to maintain consistency with past decisions. In the Decision, we reviewed the record and made findings about what cost information, in our view, was best suited to be used to calculate the master-meter discount. As we will discuss in detail below, the Decision selects inputs for the mastermeter discount calculation that properly reflect PG&E s avoided costs, as required by section 739.5(a). As an initial matter, however, we also note that selecting the proper inputs for the master-meter discount calculation is an exercise of our judgment as to the facts. When it exercises its ratemaking authority, this Commission may choose its own criteria or method at arriving at its decision, even if irregular, provided unreasonableness is not clearly established. (Pacific Tel. & Tel. Co. v. Public Utilities Com. (1965) 62 Cal.2d 624, 647.) We are bound to base our decision on the evidence, and to ensure that they are properly explained, but we do not believe we are legally required to adopt any one party s view of the evidence. (E.g., Greyhound Lines v. Public Utilities Com. (1967) 65 Cal.2d 811, 813.) Instead, we are charged with a responsibility to review the record, and to set forth in our decisions findings that reflect our expert judgment about what the evidence shows. Therefore, claims that re-state one party s opinion that the evidence it submitted is superior to other information in the record do not demonstrate that a ratesetting decision is in error. 26022900 5

1. The Decision Properly Finds that PG&E s Cost to Provide A Comparable Connection to Mobile Home Park Tenants is Similar to PG&E s Cost of Connecting to Multifamily Residences One of the inputs the Decision used to calculate PG&E s cost of providing comparable services to mobile home park tenants was PG&E s cost of connecting mobile home park tenants to its distribution system. The Decision used PG&E s cost of providing service at multifamily dwellings for this input because it was the most reasonable estimate of the connection costs that the utility avoids by not directly serving [mobile home park] submetered tenants. (D.11-12-053, at p. 53.) We further determined that PG&E s cost of providing service to a single family unit was not comparable to its cost of providing service at a mobile home park, finding that single family units have a higher cost of service than do both multifamily and [mobile home park] units. (D.11-12-053 at p. 82 (Finding of Fact 32).) The Decision sets forth the evidence it relied upon when making these findings. For example, we summarized evidence showing that service lengths from the distribution line to the residential unit are the primary driver of costs of serving residential customers. D.11-12-053 determined that the typical service length for mobile home parks was 10-11 feet, and compared that measurement to the weighted average service length for multifamily service (about 10 feet) and single family service (about 55 feet). The Decision also found that the average service length for the residential class as a whole was roughly 45 feet. (D.11-12-053 at p. 52.) That connection length was based on the composition of PG&E s residential class as a whole: 85% single family and 15% multifamily. D.11-12-053 also analyzed WMA s claim that the average cost of connections for residential customer class as a whole should have been used the calculate the master-meter discount. The Decision found that the costs of serving mobile home park tenants were specifically not comparable to the costs of serving single family housing or PG&E s average residential cost, which assumed 85% of residences would be single family housing. (D.11-12-053 at p. 51.) MWA s approach was therefore rejected 26022900 6

because it overstates the avoided cost from submetering and artificially inflates the [master-meter] discount. (D.11-12-053 at p. 53.) The rehearing application does not challenge these factual determinations. Instead, WMA contends that we must use the average residential class costs proffered by WMA to maintain consistency with past decisions. WMA also asserts that Decision s discount will result in a discriminatory rate. The rehearing application further asserts that this Commission s ratemaking calculations should be controlled by the Building Code and PG&E s tariff rules, which WMA claims treat mobile home parks as single family dwellings. (Rehearing application at pp. 5-8.) These claims of error fail as a preliminary matter because the rehearing application overlooks the evidence showing that average costs based on residential class as a whole do not reflect PG&E s cost of providing comparable service at mobile home parks the benchmark established by section 739.5(a). The rehearing application fails to explain why we would not have authority to avoid using an incorrect cost measure by deviating from what WMA claims to be past precedent. The rehearing application also fails to explain why we are required to apply extraneous regulations or interpret tariff rules in a way that requires the use of demonstrably faulty cost data. (Cf. Pub. Util. Code, 1731, subd. (b), 1732.) As discussed in detail below, the rehearing application is also without merit because WMA misreads or overstates the effect of the materials it relies upon: Investigation to Re-Examine Submetering Discount [D.04-11-033], supra, principles of rate discrimination, regulations promulgated by the Department of Housing and Community Development, and PG&E s tariff rules. None of these materials legally require us to use residential average cost data to calculate the master-meter discount when that data does not reflect PG&E s avoided costs. 26022900 7

a) Past Decisions Do Not Prevent Us From Using Data Reflecting PG&E s True Cost of Providing Comparable Service The rehearing application claims that past decisions have already decided that the master-meter discount should be calculated using the costs to serve residential customers as a whole. (Rehearing Application at p. 5.) WMA asserts that Investigation to Re-Examine Submetering Discount [D.04-11-033], supra, provides authority for its position and quotes from that decision. D.04-11-033 does not support WMA s claims. That decision explicitly held that the key factor in determining how to calculate the master-meter discount is the utility s cost of providing comparable service. D.04-11-033 further holds that the benchmark for determining what costs reflect a utility s cost of providing comparable service are the costs associated with providing service to mobile home park tenants, as opposed to residential ratepayers as a whole. (D.04-11-033 at p. 43 (Conclusion of Law 11).) The language WMA quotes appears at the end of a paragraph appearing at pages 15-16 where the Commission explained that: comparable services refers to services provided to directly served [mobile home park] 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 [mobile home park] customers that is avoided by the utility when a tenant is served through a submeter. The language WMA relies follows this holding and must be read in the context of D.04-11-033 s immediately preceding language. After D.04-11-033 determined that the costs of providing comparable services were to be used, that decision stated that the discount could be calculated using a marginal cost method based on the costs to serve residential customers as a whole if an important condition was met. To be included in a calculation of the master-meter discount, costs associated with the residential class as a whole would have to be shown to be approximately the same as those incurred in directly serving [mobile home park] tenants... (D.04-11-033 at p. 16.) This language does not establish a requirement that the discount must be calculated 26022900 8

based on the costs to serve residential customers as a whole. (Cf. Rehearing Application at p. 5.) Instead, D.04-11-033 chooses not to preclude the use of those costs, as long as the basic requirement that decision established was satisfied: the costs used to calculate the master-meter discount reflected the utility s costs of providing comparable service. The rehearing application s references to D.04-11-033 therefore do not show that we are legally required to use the cost information for the residential class as a whole, despite evidence showing that such cost information does not reflect PG&E s costs of directly serving mobile home park tenants. It is surprising that WMA misreads D.04-11-033, because we further clarified our position when we disposed of an application for rehearing filed by WMA. That rehearing application specifically challenged D.04-11-033 s conclusion that the costs used to calculate the master-meter discount must reflect the utility s cost of providing comparable services at mobile home parks. Much as it does here, WMA claimed that the Commission was legally required to determine the cost of comparable services by referring to the costs for the residential class as a whole. The order denying rehearing explicitly rejected this contention. Modifying D.04-11-033 and Denying Rehearing [D.05-04-031] held: Utilizing the costs of the utility to serve the entire residential class to set the discount for submeter service to [mobile home park] tenants would distort and undermine any reasonable effort to calculate a realistic discount. (Id. at p. 6.) This language establishes that WMA s claims of error are based on a misreading of past decisions. In addition it shows that WMA is improperly seeking to resurrect legal claims that became time-barred in 2005. After its rehearing application was denied in April 2005, WMA was required to seek judicial review in 30 days if it sought to prevent our holdings from becoming final. (Pub. Util. Code, 1756, subd. (a), 1759, subd. (a).) b) Charging Different Types of Customers Different Rates For Service Using Different Facilities Does Not Constitute Unlawful Discrimination The rehearing application further claims that the Decision sets an impermissibly discriminatory rate when it calculates the master-meter discount using 26022900 9

multifamily costs as an input. WMA relies on section 453, subdivision (c) ( section 453(c) ), which provides (emphasis added): No public utility shall establish or maintain any unreasonable difference as to rates, charges, service, facilities, or in any other respect either as between localities or as between classes of service. This statutory language makes clear that rate discrimination only becomes unlawful when both: (1) rates for similar services are different, and (2) that difference is unreasonable i.e., it does not reflect legitimate ratemaking concerns. Thus, as TURN and PG&E point out, this Commission has consistently rejected claims asserting that differences between rates, in and of themselves, show undue discrimination. (TURN and PG&E Response at p. 6, citing Order Denying Rehearing of D.05-01-031 [D.05-10-046] (2005) at p. 6, 2005 Cal. PUC LEXIS 486 at pp. *10-*11.) This longstanding principle was articulated in Cal. Portland Cement Co. v. Southern Pacific Co. [D.32280] (1939) 42 C.R.C. 92, 117, which held: it cannot be presumed that a mere difference in rates creates unlawful prejudice and preference... (Cal. Portland Cement Co., supra.) This rule is also part of case law. Lack of uniformity in the rate charged is not necessarily unlawful discrimination, and is not prima facie unreasonable. (Durant v. Beverly Hills (1940) 39 Cal.App.2d 133, 138.) Further, this agency normally considers whether a difference in rates is unreasonable, and therefore discriminatory, as a question[] of fact to be determined by the Commission in the exercise of its administrative function... (Cal. Portland Cement Co. v. Southern Pacific Co. [D.32280], supra, at p. 117.) We make the factual determination about whether a difference in rates is unreasonable in the light of all relevant circumstances and conditions. (Transportation Rates On Cement [D.35367] (1942) 44 C.R.C. 174, 188.) In order to establish the fact of unlawful discrimination it must be shown that attending circumstances and conditions are substantially similar. (Cal. Portland Cement Co. v. Southern Pacific Co. [D.32280], supra, at p. 117; accord Hansen v. City of San Buenaventura (1986) 42 Cal.3d 1172, 1180; Cal. Portland Cement Co. v. Public Utilities Com. (1957) 49 Cal.2d 171.) 26022900 10

The rehearing application makes no attempt to show that the elements of rate discrimination, set forth in our past decisions, are present here. (E.g., Wannenmacher v. Del Oro Water Company, Inc. [D.93-06-012] (1996) 50 Cal.P.U.C.2d 310, pp. 313-314, fn. 5 (summarizing cases).) The Decision, by way of contrast, fully explains why it was reasonable to use multifamily costs to calculate the master-meter discount. After reviewing the evidence, the Decision holds that this measure most reasonably reflected PG&E s cost of providing comparable service to mobile home parks. Further, using multifamily costs applies the methodology section 739.5(a) requires basing the master-meter discount on PG&E s cost of providing comparable services[.] Because the decision to use multifamily costs is based on the record, complies with statutory law, and is justified by the relevant circumstances, the master-meter rates we established would not be unduly discriminatory, even if those rates differed from similar rates. (Cf. Transportation Rates On Cement, supra, 44 C.R.C. at p. 188.) More importantly, however, WMA s discrimination claim fails because the master-meter discount does not differ from other similar or comparable rates. The rehearing application does not identify any actual rate that it believes is improperly different from the master-meter discount. Instead, WMA s claim of discrimination compares one particular element of the rate design we used to calculate ordinary residential rates paid by ordinary residential customers with an element of the rate design we used to calculate the bulk master-meter rate paid by mobile home park owners. According to WMA, because we used PG&E s residential average costs to set ordinary residential rates, discrimination will occur unless we use the same residential average costs to calculate master-meter rates even though the method of calculating these two rates is different and different customers will pay these different rates. WMA believes the design for these two rates must be identical because both rates apply to electricity PG&E delivers at mobile home parks in some mobile home parks PG&E delivers electricity to the owner at a master-meter and at other mobile home parks PG&E delivers electricity directly to tenants at their individual meters. Therefore WMA claims error on the grounds that the Decision applies the costs equivalent to multifamily to one set of 26022900 11

MHPs while applying costs based on the residential average for providing service to another set of MHPs [it] violates section 453(c). (Rehearing Application at p. 9.) The claim that discrimination will result unless identical rate design techniques are used to calculate the rate for any electricity that is delivered to a mobile home park without regard to what type of customer is buying that electricity or what facilities are used does not withstand analysis. The rehearing application provides no reason why all electricity delivered to any mobile home park must be priced the same way, regardless of the facilities in place at different mobile home parks (direct service to tenants by PG&E or bulk delivery to the park owner at a master-meter) or the type customer who buys the electricity (individual tenants purchasing at residential rates versus park owners purchasing in bulk). WMA also fails to acknowledge that the rate calculation for one set of MHPs is required by statute to rely on PG&E s cost of providing comparable services, while ordinary rates charged to individual residential customers (including tenants in mobile home parks without master-meters) are set in proceedings that respond to policy considerations that apply to the residential customer class as a whole. (Cf., Pub. Util. Code, 739.5(a).) c) The Cost of Serving Mobile Home Parks is Not Determined by Building Codes or WMA s Incorrect Reading of PG&E s Tariffs The rehearing application asserts the Decision is in error because the California Building Standards Code and the initial definitions in PG&E s electric tariffs are legal authority that requires us to use single family costs when calculating the mastermeter discount. (Rehearing application at pp. 7-8, quoting Cal. Code Regs., tit. 24, 102A.1.) WMA alleges that the building code and PG&E s tariffs include mobile home parks in a category other than multifamily for their own purposes. WMA fails to explain, however, why the materials it cites are germane. The rehearing application gives no reason to support its assumption that building standards promulgated by the California Department of Housing and Community Development control this Commission when it exercises its ratemaking authority. When 26022900 12

the Decision determines that PG&E s cost of providing a connection at a mobile home park is comparable to PG&E s cost of providing a connection at a multifamily dwelling, it is not trying to reclassify all mobile home parks in California for the purpose of determining what building standards apply. Instead, we are exercising our regulatory expertise to determining the best cost input to use in a rate calculation made pursuant to section 739.5(a), by considering evidence describing the physical characteristics of mobile home parks in PG&E s service territory. Similarly, WMA misses the point of the Decision s analysis when it claims that a finding about PG&E s costs of serving multifamily residences improperly assume[s] that mobilehomes are included in the [tariff] definition of multifamily. (Cf., Rehearing Application at p. 8.) The Decision does not make any determinations about the classification of mobilehomes under PG&E s tariff rules. Instead, for the purpose of calculating a rate discount, the Decision makes a finding about PG&E s actual cost, as a factual matter, for providing comparable service directly to mobile home park tenants. (Pub. Util. Code, 739.5(a).) When the rehearing application claims that the different categories of residence defined in PG&E s tariffs are more determinative of PG&E s costs than evidence showing what those costs in fact amount to, it elevates form over substance. Moreover, PG&E s tariffs do not create mutually exclusive categories of single and multifamily residences into which every residence must be placed. As the Decision explains, there is no Tariff Rule 1 definition for single family residences. The language WMA relies upon the Tariff Rule 1 definitions of Mobilehome Park and Multifamily Accommodation also do not establish mutually exclusive categories of residences. (PG&E Electric Rule 1, Sheet 13.) In practice, PG&E s tariffs use the term mobilehome to identify one of several types of facility (along with apartments and retail stores) that could either be served by a master-meter or individual metering, and not as way to distinguish those residences from single family homes. (PG&E Electric Rule 1, Sheets 11, 12.) The lack of exclusivity in the tariff rule definitions is shown by review of the language defining Multifamily Accommodation. That definition encompasses 26022900 13

mobile home parks. Multifamily Accommodation includes, in addition to apartment buildings, any other group of residential units located on a single premises... (PG&E Electric Rule 1, Sheet 13.) As the decision points out, mobile home parks all within that definition because a master-metered mobile home park is a single premise, and a mobile home park is clearly a residential unit. (D.11-12-053 at p. 51; PG&E Electric Rule 1, Sheets 11, 12, 25.) As a result, WMA s claim that Tariff Rule 1 treats mobilehome parks wholly apart and distinct from multi-family residences misreads PG&E s tariff. WMA goes on to allege that, as a practical matter, PG&E classified 35 individual mobilehomes as single family when it installed new service at those residences in 2009. However, WMA s witness McCann also testified: Most likely these were individual houses, not a large collection of houses within a community... (Exhibit 117 at p. 20.) WMA provides no other support for its claim that PG&E as a general matter distinguishes between mobile home parks and multifamily residences. (Rehearing Application at pp. 6, fn. 5, 8.) The record, on the other hand, shows that the general utility practice in California is to place mobile home parks in the multifamily category. (Transcript at p. 1263; see also, citations to evidence in PG&E Reply Brief, October 7, 2011 at p. 8.) 2. Use of Anomalous 2009 Cost Data vs. Data Collected for the 2003 Rate Case In its prepared testimony, PG&E submitted a calculation of the mastermeter discount based on multifamily cost information taken from its 2003 rate case, after escalating those costs to reflect 2011 conditions. (Exhibit 105 at p. 1-22.) TURN also submitted a calculations discount based on data from the 2003 rate case, but used a different methodology to obtain 2011 cost numbers. (Exhibit 105 at p. 14.) WMA, however, asserted that we should not use the 2003 multifamily data to calculate the master-meter discount. According to WMA, we should have used cost information taken from 2009 data provided by PG&E at the outset of this proceeding. In addition to coming from different years, the data the parties used differed because the 2003 data showed what costs were attributable to multifamily residences. TURN and PG&E were therefore able to submit proposed calculations that were based on 26022900 14

multifamily costs. (E.g., Exhibit 105 at p. 3-16, line 9.) WMA on the other hand, submitted calculations based on PG&E s average costs for the residential class as a whole. (See Exhibit 105 at p. 1-22.) In its brief, WMA asserted that the 2009 cost information did not provide separate data for single and multifamily costs. (WMA Opening Brief at p. 10, fn. 25.) WMA asserted that its calculations of the master-meter discount should be given credibility because it used current data that PG&E had submitted in this proceeding, although its experts did not independently vouch for the data. 5 Specifically, WMA advocated for its use of the 2009 data by noting that it was relevant to other aspects of this proceeding, claiming that its use was consistent with all of the other rate classes... WMA also asserted that the 2009 cost information was data on which WMA was entitled to rely because it had been presented by PG&E. (WMA Opening Brief at p. 10.) The Decision notes, however, that WMA did not challenge the accuracy of PG&E s proposed escalation factors for the 2003 data. (D.11-12-053 at p. 40.) PG&E disputed the assertion that the 2009 data should be used to calculate the master-meter discount. PG&E submitted evidence showing the 2009 data did not reflect its typical costs for making electrical connections at residences the specific purpose this data would be used for here. According to PG&E, in 2009 residential construction was effectively halted, resulting in a catastrophic 25%-30% unemployment rate among construction workers. This evidence showed that data from 2009 had unique characteristics that related to costs. PG&E s witness also testified that the number of utility connections that were made in the Central Valley in 2009 was one-tenth, approximately, of what was typically being connected[.] (Transcript at pp. 1116-1117.) That evidence allows an inference that the 2009 data sample may not have been large enough to be reliable in this instance. 5 WMA witness McCann stated in cross-examination that, the answer is they made their filing about what the marginal customer costs were and what the source of the data is. I went with that. I did not make a separate judgment... (Transcript at p. 1239.) 26022900 15

PG&E buttressed its claim that the 2009 data was anomalous by calculating the master-meter discount using that data, with adjustments to keep its other calculation approaches constant (e.g., continuing to use a multifamily approach). That calculation produced a negative discount of sixteen cents meaning mobile home park owners would have to pay extra to receive electricity at a master-meter instead of receiving a discounted rate. (Exhibit 107 at p. 1-4.) This counter-intuitive result additionally suggests that the 2009 data had unusual characteristics. These and other claims about the 2009 data were presented in the prepared testimony of the parties, and subject to cross-examination at the evidentiary hearing. We considered the evidence on this issue and concluded that the 2009 data was anomalous. The Decision holds: the 2009 data from PG&E s 2011 GRC marginal cost work papers are not representative of normal construction costs because such costs were incurred during one of the worst economic downturns since the 1930 s depression era. (D.11-12-053 at pp. 49-50.) The Decision also considers and rejects WMA s claim that we were required to use the 2009 data simply because it was more recent, or for the sake of consistency. The rehearing application claims that these holdings are in error. According to WMA, we relied on the 2003 data for the sole and limited purpose of setting the master [meter] discount, and for no other purpose. (Rehearing Application at p. 9 (original emphasis).) WMA appears to allege that we are legally required to use the same data in all aspects of this proceeding, despite the wide and varied nature of the many issues that we addressed. (Cf. D.11-12-053 at pp. i-iii (table of contents).) This claim misunderstands our role as a ratesetting agency. To set the master-meter discount, we must find what costs most accurately reflect PG&E s cost of providing comparable services, as required by section 739.5(a). We make this determination in light of the evidence in the record of this proceeding. (Pub. Util. Code, 1757, subd. (a).) The law does not require us to ignore record evidence about the suitability of cost information on the asserted ground of consistency. 26022900 16

In addition, the claim that we used the 2003 data solely for the purpose of setting the master-meter discount for mobile home park owners is factually inaccurate. The Decision also adopts a master-meter rate to be paid by landlords in residential apartment buildings. To set that rate we adopted a settlement between the parties that used escalated 2003 cost data. WMA did not object when we set apartment master-meter rates using 2003 data, even though, as a party, it was made aware of the settlement and given a chance to object. (D.11-12-053 at p. 34.) We have also relied on the 2003 data in past proceedings, notably our 2007 proceeding to set master-meter discounts, although the 2009 data was not available at that time. WMA s claims also exaggerate the weight we gave to the 2009 data when we relied on it to resolve other issues in this proceeding. The rehearing application alleges that we used different data presumably 2009 data to set rates for all other customers without specifying why the situations differed. (Rehearing Application at p. 8.) Yet as TURN and PG&E point out, the revenue allocation that was adopted for non-residential customers in this proceeding was the result of settlements in which the parties did not choose to endorse PG&E s 2009 marginal cost information and further deviated from the 2009 data in order to reach workable compromises. (Rehearing Response at p. 13.) We also explained the difference between the tasks we undertook when we set the master-meter discount and when we address the other issues presented in this proceeding. (Cf. Rehearing Application at p. 8 (Heading B).) D.11-12-053 s structure, headings, and table of contents clearly establish that the main portion of Decision addressed non-residential rates, separately considering remaining residential rate design issues in Section 3.4. We also made it clear that we had a different role to play in the portions of the Decision that adopted settlements and the portion that resolved WMA s contested claims. When we adopted the settlements on the allocation of revenue to the various nonresidential customer classes, we were engaged in the task of allocating each different class of PG&E s customers with the responsibility to pay a percentage of PG&E s 26022900 17

previously-established revenue requirement. 6 That task only involved determining the relative differences between each customer classes costs, by considering whether the allocation agreed to by the parties was reasonable. We were not involved in a process of establishing, as a matter of fact, what the absolute value of each customer classes costs was. We explicitly noted this difference in D.11-12-053 at page 50. After review of this discussion, however, we note that the Decision does not address the fact that multifamily costs were not separately stated in the 2009 data, and that PG&E s attempt to calculate the master-meter discount using the 2009 data and a multifamily approach yielded a negative discount. The fact that the 2009 data could not be relied upon to make the calculations we determined should be performed has some persuasive value and we wish to ensure that D.11-12-053 is clear on this point and makes appropriate findings. As set forth in the ordering paragraphs below, we will make limited modifications to achieve that goal. The rehearing application makes a series of additional claims regarding the 2009 data that we do not find persuasive. On page 9, WMA asserts that we found 2009 data on PG&E s connection costs to be sufficiently reliable in Phase 1 of this proceeding. Our Phase 1 decision, Residential Rate Design [D.11-05-047], 2011 Cal.P.U.C. LEXIS 301, revised PG&E s tiered rate structure, in part as a response to legislation granting us this flexibility. The rehearing application does not support its claim that our decision, which runs over 90 pages, is relevant with any direct citations. (Cf. Cal. Code Regs., tit 20, 16.1, subd. (c).) Review of that decision s Findings of Fact reveals no findings relying on the 2009 data. (D.11-05-047 at pp. 78-83.) WMA also supports its claims about D.11-05-047 s holdings and the asserted reliability of the 2009 data with a citation to its own witness testimony. (Rehearing application at p. 9, fn. 7.) WMA s witness asserted that the 2009 data should be deemed reliable because it originated from PG&E, but the cited testimony did not state any independent reasons why that data was preferable or discuss or interpret 6 The table on page 3 of D.11-12-053 shows how the contribution by each of different customer classes to PG&E s revenue requirement changed in relation to the other customers. 26022900 18

D.11-05-047 s findings. (See discussion accompanying footnote 5, above.) We see no reason why such testimony should compel us, as a matter of law, to rely on the 2009 data. WMA also quotes from an advocacy pleading filed by an industry group six months after D.11-05-047 was adopted. WMA asserts that this group s position substantiates WMA s claims of error. It is unclear why WMA believes that language advocating for the interests of one party creates a legal obligation requiring this Commission to use the 2009 data or supports the claim that D.11-05-047 found the 2009 data to be reliable for the purpose of establishing the master-meter discount. WMA is also incorrect when it asserts that because the 2003 data was not contested in past proceedings, it was error to rely on it here. WMA cites no legal authority to support its claim that we may only rely on data that has previously been contested when we render a decision. TURN and PG&E further point out that WMA's claim fails to show that the 2009 data would be superior. Those parties note that the 2009 data also was similarly uncontested, because the main elements of this proceeding were settled. Moreover, the claim that the 2003 data would be more persuasive if it had been contested goes only to the weight that data should be given when we evaluate the evidence. When the Decision is clearly supported by record, and fully explained, such claims do not demonstrate error. The rehearing application also overlooks the fact that the question of whether 2009 or 2003 data should be used to calculate the master-meter discount was fully litigated in this proceeding. In the evidentiary proceedings, WMA had an opportunity to propound discovery on PG&E, to file its own testimony, to rebut other parties testimony, to participate in two days of transcribed evidentiary hearings, and to file briefs on its issues. 7 (E.g., Cal. Code Regs., tit. 20, 10.1, 13.1, 13.8, &13.11.) Given the wide range of opportunities WMA had to make its case, we are not persuaded 7 WMA asserts that it was unable to obtain sufficient information through discovery, but provides no citations or other material to support that claim. PG&E outlined the efforts it made to provide WMA with complete information in its testimony in Exhibit 107 at pages 1-12 and 1-13. This record indicates that WMA s claim is incorrect. WMA also does not appear to have taken any procedural steps to obtain the information it claims was unavailable, for example by filing a Rule 11.3 motion to compel discovery. 26022900 19

by WMA s assertion that it unfairly had to stand alone litigating issues... (Rehearing Application at p. 10.) In a contested rate proceeding, it is not error to expect each party to be responsible for advancing the positions it supports. It is also not clear why WMA believes that the other parties disinterest in contesting PG&E s data shows that the data should not be used. The fact that no party has chosen to contest the validity of this data since 2003 could just as easily support a finding that the 2003 data is generally agreed to be reliable. The rehearing application s concluding argument about the 2009 data claims that the Decision is in error because WMA presented evidence to rebut PG&E s witnesses analysis the effect of the 2009 economic downturn on the 2009 data. The rehearing application, however, provides no support for its claim that the Commission is legally required to give this evidence greater weight than the evidence provided by PG&E. WMA simply appears to believe that is position is superior and therefore must be adopted. Such a claim does not establish legal error. In addition, analysis of the record shows that other evidence contradicts WMA s testimony or suggests that little weight should be given to it. WMA s witness testified about power plant construction costs, but it was shown that those costs are not relevant to the question at issue here PG&E s cost to make residential connections at mobile home parks. Additional material in the record shows that mobile home connection costs are influenced by the overall residential construction market because PG&E is not solely responsible for making those connections. Customers seeking new connections may design those connections themselves and may elect to use competitive bidding for the installation of the portion PG&E would otherwise install. Although WMA s witness attempted to rebut this evidence by stating his opinion that PG&E s position would contradict everything that s in the labor literature right now[,] he also testified, on cross-examination: I haven t seen a study one way or another. (Transcript at p. 1245.) Given this contradictory testimony, the rehearing application fails to explain why this Commission is legally obligated to reach the same conclusions that WMA does about the evidence in the record. 26022900 20

3. Neither The Record in This Proceeding Nor The Commission s Past Decisions Support WMA s Proposal to Scale Up PG&E s Costs In Order to Increase the Master-Meter Discount The Decision did not adopt WMA s proposal to use a ratemaking technique called the EMPC scalar to escalate (i.e., increase) the cost figures used to calculate the master-meter discount. As discussed above, all parties in this proceeding proposed that the master-meter discount should be calculated using marginal cost information originally developed by PG&E, disagreeing only on the year from which this marginal cost data should come. WMA, however, also contended that PG&E s marginal cost numbers should be marked up by applying the EMPC scalar so that the master-meter discount was calculated using average costs. WMA supported this claim by introducing into the record a statement by its witness, economist Richard McCann, giving his opinion that the master-meter cost inputs used by the Commission should be PG&E s marginal customer cost estimates scaled to average costs per customer. (Exhibit 115 at p. 7.) WMA s witness explained that the proposal to increase the marginal costs used to calculate the master-meter discount would achieve a policy goal: it would ensure that mobile home park owners received adequate revenues even though section 739.5 capped the discount at PG&E s avoided costs without any regard to the costs for [mobile home park] owners. (Exhibit 115 at p. 14 (original emphasis).) Dr. McCann s testimony notes that mobile home park owners may not charge tenants any more for electricity than PG&E would, and explains that because both the amount mobile home park owners pay for electricity and the amount they may charge their tenants are fixed, the master-meter discount is the only source of revenue for a master-meter mobile home community owner to cover the costs of serving submetered tenants... (Exhibit 115 at p. 13 (original emphasis).) The witness testimony explains that the proposal to escalate the marginal cost numbers used to calculate the master-meter discount was designed [t]o address this issue... (Exhibit 115 at p. 14.) WMA also asserted that past Commission decisions supported this approach, referring to proceedings that occurred in the late 1990s. (Exhibit 115 at pp. 7-8.) 26022900 21

TURN submitted rebuttal testimony contesting Dr. McCann s opinions. TURN s witness testified that the term average cost is used in different ways in different ratemaking contexts, implying that it was important to calculate the mastermeter discount using the correct type of cost input. TURN s witness specifically noted that section 739.5 refers to two different types of average cost: (1) mobile home park owners reasonable average cost of providing submeter service, which is the minimum level at which the master-meter discount can be set, and (2) the average costs that [PG&E] would have incurred in providing comparable services, which is the cap or the maximum level at which the master-meter discount can be set. (Exhibit 113 at p. 9.) TURN s testimony points out that the master-meter discount is currently set at the cap, and therefore the costs the Commission should be considering are the costs PG&E avoids by not providing direct service at mobile home parks. (This amount is often referred to as PG&E s avoided cost. ) TURN s witness also listed the costs included in PG&E s EMPC scalar with specificity. TURN s testimony describes these costs as relating to public purpose programs and electricity pricing programs. TURN s testimony compiles several of WMA s statements admitting that it does not provide such services to mobile home park tenants. (Exhibit 113 at pp. 10-11.) Therefore, TURN s evidence shows that mobile home park owners should not receive credit [i.e., an increase in the master-meter discount] for any of these costs. (Exhibit 113 at p. 10.) A witness for PG&E similarly testified that marginal costs are scaled to account for a whole host of costs that are totally unrelated to the costs that PG&E would incur if it provided direct service to mobile home park tenants. (Exhibit 125 at p. 1-26, lines 4-8.) The Decision describes this record and formally finds that using the EPMC scalar to increase the costs used to calculate the master-meter discount would artificially inflate the discount by overstating utility avoided costs... (D.11-12-053 at p. 81 (Finding of Fact 29).) We explained Finding of Fact 29 in the discussion section, where we referred to evidence that the EPMC scalar would include in the master-meter discount 26022900 22