| (-b-) Any reasonable sampling method that is shown
to be unbiased may be used in performing the lead-lag study.
(-c-) The check clear date, or the invoice due date,
whichever is later, will be used in calculating the lead-lag days
used in the study. In those cases where multiple due dates and payment
terms are offered by vendors, the invoice due date is the date corresponding
to the terms accepted by the utility.
(-d-) All funds received by the utility except electronic
transfers will be considered available for use no later than the business
day following the receipt of the funds in any repository of the utility,
e.g., lockbox, post office box, branch office. All funds received
by electronic transfer will be considered available the day of receipt.
(-e-) The balance of cash and working funds included
in the working cash allowance calculation will consist of the average
daily bank balance of all non-interest bearing demand deposits and
working cash funds.
(-f-) The lead on federal income tax expense must be
calculated by measurement of the interval between the mid-point of
the annual service period and the actual payment date of the utility.
(-g-) If the cash working capital calculation results
in a negative amount, the negative amount must be included in rate
base.
(V) If cash working capital is required to be determined
by the use of a lead-lag study under subclause (IV) of this clause
and either the utility does not file a lead-lag study or the utility's
lead-lag study is determined to be unreliable, in the absence of persuasive
evidence that suggests a different amount of cash working capital,
zero will be presumed to be the reasonable level of cash working capital.
(VI) A lead lag study completed within five years of
the application for a rate or tariff change is adequate for determining
cash working capital unless sufficient persuasive evidence suggests
that the study is no longer valid.
(VII) Operations and maintenance expense does not include
depreciation, other taxes, or federal income taxes, for purposes of
subclauses (I), (II), (III) and (V) of this clause.
(3) Deduction of certain items from rate base. In the
consideration of applications filed under TWC §13.187 or §13.1871,
the commission will deduct certain items from rate base, including
but not limited to the following:
(A) accumulated reserve for deferred federal income
taxes;
(B) unamortized investment tax credit to the extent
allowed by the Internal Revenue Code;
(C) contingency and property insurance reserves;
(D) contributions in aid of construction; and
(E) other sources of cost-free capital, as determined
by the commission.
(4) Construction work in progress (CWIP). The inclusion
of CWIP is an exceptional form of relief. Under ordinary circumstances,
the rate base consists only of those items that are used and useful
in providing service to the public. Under exceptional circumstances,
the commission may include CWIP in rate base to the extent that the
utility has proven that:
(A) the inclusion is necessary to the financial integrity
of the utility; and
(B) major projects under construction have been efficiently
and prudently planned and managed.
(5) Requirements for post-test year adjustments.
(A) A post-test year adjustment to test year data for
known and measurable rate base additions may be considered only if:
(i) the addition represents a plant which would appropriately
be recorded for investor-owned utilities in National Association of
Regulatory Utility Commissioners (NARUC) account 101 or 102;
(ii) the addition comprises at least 10% of the utility's
requested rate base, exclusive of post-test year adjustments and CWIP;
(iii) the addition is in service before the rate year
begins; and
(iv) the attendant impacts on all aspects of a utility's
operations, including but not limited to, revenue, expenses and invested
capital, can with reasonable certainty be identified, quantified and
matched. Attendant impacts are those that reasonably result as a consequence
of the post-test year adjustment being proposed.
(B) Each post-test year plant adjustment described
by subparagraph (A) of this paragraph will be included in rate base
at the reasonable test year-end CWIP balance, if the addition is constructed
by the utility, or the reasonable price, if the addition represents
a purchase, subject to original cost requirements, as specified in
TWC §13.185.
(C) Post-test year adjustments to historical test year
data for known and measurable rate base decreases will be allowed
only if:
(i) the decrease represents:
(I) plant which was appropriately recorded in NARUC
account 101 or 102;
(II) plant held for future use;
(III) CWIP, not including mirror CWIP; or
(IV) an attendant impact of another post-test year
adjustment.
(ii) the decrease represents a plant that has been
removed from service, sold, or removed from the utility's books prior
to the rate year; and
(iii) the attendant impacts on all aspects of a utility's
operations, including but not limited to, revenue, expenses and invested
capital, can with reasonable certainty be identified, quantified and
matched. Attendant impacts are those that reasonably result as a consequence
of the post-test year adjustment being proposed.
(d) Recovery of positive acquisition adjustments.
(1) When a utility acquires plant, property, or equipment
for which commission approval is required under §24.239 of this
title, relating to Sale, Transfer, Merger, Consolidation, Acquisition,
Lease or Rental, a positive acquisition adjustment will be allowed
to the extent that the acquiring utility proves that:
(A) the property is used and useful in providing retail
water or sewer service at the time of the acquisition or as a result
of the acquisition;
(B) reasonable, prudent, and timely investments will
be made, if required, to bring the system into compliance with all
applicable rules and regulations;
(C) as a result of the transaction:
(i) the customers of the system being acquired will
receive higher quality or more reliable retail water or sewer service
or that the acquisition was necessary so that customers of the acquiring
utility's other systems could receive higher quality or more reliable
retail water or sewer service;
(ii) regionalization of retail public utilities, meaning
a pooling of financial, managerial, or technical resources that achieve
economies of scale or efficiencies of service, was achieved; or
(iii) the acquiring utility will become financially
stable and technically sound as a result of the acquisition, or the
system being acquired that is not financially stable and technically
sound will become a part of a financially stable and technically sound
utility;
(D) any and all transactions between the buyer and
the seller entered into as a part or condition of the acquisition
are fully disclosed to the commission and were conducted at arm's
length;
(E) the actual purchase price is reasonable in consideration
of the condition of the plant, property, and equipment being acquired;
the impact on customer rates if the acquisition adjustment is granted;
the benefits to the customers; and the amount of contributions in
aid of construction in the system being acquired; and
(F) the rates charged by the acquiring utility to its
pre-acquisition customers will not increase unreasonably because of
the acquisition.
(2) The owner of the acquired retail public utility
and the final acquiring utility must not be affiliated. In a multi-stage
transaction in which a purchase of voting stock or acquisition of
controlling interest transaction under §24.243 of this title,
relating to Purchase of Voting Stock or Acquisition of Controlling
Interest in a Utility, is followed by a transfer of assets in what
is essentially a single sales transaction, a positive acquisition
adjustment is allowed only where the multi-stage transaction was fully
disclosed to the commission in the application for approval of the
initial stock or change of controlling interest transaction.
(3) The amount of the acquisition adjustment approved
by the regulatory authority must be amortized using a straight-line
method over a period equal to the weighted average remaining useful
life of the acquired plant, property, and equipment, at an interest
rate equal to the rate of return determined under subsection (c) of
this section. The acquisition adjustment may be treated as a surcharge
and may be recovered using non-system-wide rates.
(4) The authorization for and the amount of an acquisition
adjustment will be determined only as a part of a rate change application.
Cont'd... |
