| (a) Purpose and application. This section establishes
alternative ratemaking methodologies for utilities that provide water
or sewer service. The commission may prescribe modified rate filing
packages for these alternative ratemaking methodologies.
(b) Multi-step rates. Multi-step rates allow a utility
to implement one or more rates over time without filing multiple rate
applications. Multi-step rates must be established in accordance with
this subsection.
(1) Multi-step rates must be established in a comprehensive
rate proceeding under Texas Water Code (TWC) §§13.187, 13.1871,
13.18715, or 13.1872.
(2) The commission may establish multi-step rates on
its own motion or at the request of a utility or any other interested
party.
(3) Rates established in a comprehensive rate case
under TWC §§13.187, 13.1871, 13.18715, or 13.1872 will replace
any multi-step rates already in effect or previously approved by the
commission to go into effect for that utility.
(4) Multi-step rates may be established when a utility
transitions from use of flat rates for unmetered service to use of
volumetric rates for metered service.
(A) Multi-step rates for a utility's transition to
metered service must not be effective before the date that meters
are installed and in operation for all of the utility's connections.
(B) If the utility is seeking multi-step rates to transition
to the use of volumetric rates for metered service, the utility must
state in its notice of intent to change rates that it is seeking permission
to use multi-step rates to transition to metered service with volumetric
usage rates.
(C) The utility must provide notice to its customers
at least 30 days before the utility begins charging its volumetric
usage rate for metered service and at least 30 days before implementation
of each step of its commission-approved multi-step rate.
(5) Multi-step rates may be established when a utility
transitions from multiple rate schedules for different systems or
service areas to consolidated rate schedules for regional or system-wide
rates.
(A) Different rates and a different timeline may be
established for each step in the multi-step rates of each system or
service area that is transitioning to a consolidated rate schedule
provided that the final step for each system or service area is the
same consolidated rate.
(B) If the utility is seeking multi-step rates to transition
to consolidated rate schedules, the utility must state in its notice
of intent to change rates that it is seeking permission to use multi-step
rates to transition from multiple rate schedules for different systems
or service areas to consolidated rate schedules for regional or system-wide
rates.
(C) The utility must provide notice to its customers
at least 30 days before implementation of each step of its commission-approved
multi-step rate.
(6) Multi-step rates may be established to moderate
the effects of a rate increase on customers or if other good cause
exists.
(A) Different rates and a different timeline may be
established for each step in the multi-step rates for each of a utility's
systems or service areas provided that the final step for each system
or service area is the same final rate.
(B) If the utility is seeking multi-step rates under
this paragraph, the utility must state in its notice of intent to
change rates that it is seeking permission to use multi-step rates.
(C) The utility must provide notice to its customers
at least 30 days before implementation of each step of its commission-approved
multi-step rate.
(7) The notice requirements in paragraphs (4) - (6)
of this subsection do not replace the standard statement of intent
notice requirements under TWC §§13.187, 13.1871, 13.18715.
or 13.1872.
(8) The commission may place conditions on the implementation
of a multi-step rate or on any step of a multi-step rate. For the
purpose of ensuring just and reasonable rates, the commission may
terminate a multi-step rate in a rate proceeding before completion
of all steps of the multi-step rate.
(c) Cash needs method. The commission may approve use
of the cash needs method to establish a utility's revenue requirement
in a comprehensive rate proceeding for a Class C or Class D utility
under TWC §13.18715 or §13.1872 if use of the method is
necessary for the utility to provide continuous and adequate service
or other good cause exists to support the use of the cash needs method.
Under the cash needs method, the allowable components of cost of service
are operating expenses, debt service costs, and an additional margin
consisting of either an operating margin or an incremental revenue
amount.
(1) Operating expenses. Only those operating expenses
that are reasonable and necessary to provide service may be recovered,
and these amounts must be based on the utility's test year expenses,
adjusted for known and measurable changes.
(2) Debt-service costs. Debt service costs include
principal and interest payments on the utility's debt.
(A) The debt must have reasonable terms and must finance
facilities that will be used and useful in the provision of utility
service.
(B) If required by the commission, Texas Water Development
Board, other state or federal agency, or financial institution, debt-service
costs may include amounts placed in a debt-service reserve account
or an escrow account.
(C) Debt service costs may include owner-financed assets.
Debt-service costs related to these assets must include debt repayments
using a reasonable amortization schedule and must use the prime interest
rate in effect at the time the application is filed.
(3) Additional margin. An additional margin consists
of either an operating margin or an incremental revenue amount. A
utility requesting an additional margin must provide an explanation
for the magnitude of the additional margin it requests.
(A) If a utility requesting an additional margin in
the form of an operating margin has filed its most recent required
annual report and has a net plant (original cost of plant in service
less accumulated depreciation) of less than 25 percent of the original
cost of plant, an operating margin of up to five percent of operating
expenses approved by the commission will be presumed reasonable and
may be included in the utility's revenue requirement.
(B) An additional margin consisting of an incremental
revenue amount is calculated by adding an incremental amount to the
debt service costs described in paragraph (c)(2)(A) of this section
to achieve a reasonable total debt service coverage level above 1.0.
(4) Restrictions. Rates established using the cash
needs method under this subsection may not be subsequently set using
cost of service calculated under §24.41 of this title (related
to Cost of Service) for any comprehensive rate change application
filed within five years after the date of the commission's order establishing
rates using the cash needs method. If, after this five-year period,
the utility has a comprehensive rate change proceeding based on a
cost of service calculated under §24.41 of this title, the utility's
rate base must exclude an amount equal to the principal paid on the
debt service during the time that rates based on the cash needs method
were in effect.
(5) Subsequent acquisition. If a utility with rates
established using the cash needs method is acquired by another utility
while such rates are in effect, the acquiring utility is not subject
to the restriction in paragraph (4) of this subsection on calculating
cost of service. If the acquiring utility files a comprehensive rate
change application based on a cost of service calculated under §24.41
of this title, the acquiring utility must exclude from rate base an
amount equal to the principal paid on the debt service that was related
to the acquired utility during the time that rates based on the cash
needs method were in effect.
(d) New customer classes. A utility may request the
addition of a new customer class or classes as provided by this subsection.
(1) Application. An application for new customer classes
under this section must include:
(A) a cost-of-service and rate design study for each
new proposed customer class;
(B) a definition for each proposed new customer class;
(C) demonstration that the characteristics of each
proposed new customer class are sufficiently different from the characteristics
of all existing and other proposed new customer classes for different
rate treatment;
(D) a request for service from a customer in each proposed
new customer class; and
Cont'd... |
