(a) Purpose. This section establishes the requirements
for a system improvement charge to ensure timely recovery of infrastructure
investment.
(b) Definitions. In this section, the following words
and terms have the following meanings unless the context indicates
otherwise.
(1) Eligible plant -- Plant properly recorded in the
National Association of Regulatory Utility Commissioners System of
Accounts, accounts 304 through 339 for water utility service or accounts
354 through 389 for sewer utility service.
(2) System improvement charge -- A charge for recovery
of the portion of the cost of a utility's eligible plant that is not
already included in the utility's rates.
(c) System improvement charge.
(1) A utility must have only one system improvement
charge in effect for water and one system improvement charge in effect
for sewer for each of its rate schedules at any time.
(2) A utility may apply to establish or amend one or
more system improvement charges in accordance with the requirements
of this section. A utility must not adjust its rates under this section
more than once each calendar year. A utility that is applying to establish
or amend multiple system improvement charges in a calendar year must
do so in a single application.
(3) A utility may not apply to establish or amend a
system improvement charge while it has a comprehensive rate proceeding
under TWC §§13.187, 13.1871, 13.18715, or 13.1872 pending
before the commission.
(4) If a utility with a pending application to establish
or amend a system improvement charge files an application to change
rates under TWC §§13.187, 13.1871, 13.18715, or 13.1872,
or the commission initiates a rate change review under TWC §13.186,
the utility will be deemed to have withdrawn its application to establish
or amend a system improvement charge and the presiding officer must
dismiss the application.
(5) The filing of applications as allowed by this section
is limited to a specific quarter of the calendar year, and is based
on the last two digits of a utility's certificate of convenience and
necessity (CCN) number as outlined below, unless good cause is shown
for filing in a different quarter. For a utility holding multiple
CCNs, the utility may file an application in any quarter for which
any of its CCN numbers is eligible.
(A) Quarter 1 (January-March): CCNs ending in 00 through
27;
(B) Quarter 2 (April-June): CCNs ending in 28 through
54;
(C) Quarter 3 (July-September): CCNs ending in 55 through
81; and
(D) Quarter 4 (October-December): CCNs ending in 82
through 99.
(d) Application for a system improvement charge. An
application to establish or amend a system improvement charge must
include the following:
(1) a description of the eligible plant for which cost
recovery is sought through the system improvement charge, including
the project or projects included in the request and an explanation
of how each project has improved or will improve service;
(2) a calculation of the system improvement charge
in accordance with subsection (f) of this section and all supporting
calculations and assumptions for each component of the system improvement
charge;
(3) information that sufficiently supports the eligible
cost, such as invoices, receipts, and direct testimony, and that sufficiently
addresses the exclusion of costs for plant provided by explicit customer
agreements or funded by customer contributions in aid of construction;
(4) a copy of the utility's most recent annual report
filed with the commission, which must be the annual report most recently
due for filing; and
(5) an affidavit confirming that the application meets
the requirements of this section.
(e) Calculation of the system improvement charge. The
revenue requirement for the system improvement charge must be calculated
using the following formula: SIC RR = (Reconcilable Cost * ROR) +
Federal Income Taxes + Depreciation + ad valorem taxes + other revenue
related taxes.
(1) SIC = the system improvement charge.
(2) SIC RR = system improvement charge revenue requirement.
(3) Reconcilable Cost = the original costs of eligible
plant installed after the later of the ending date of the 2019 reporting
period reflected in the utility's annual report filed under §24.19
(relating to Water and Sewer Utilities Annual Report) or the end of
the test year used in the utility's most recent base-rate proceeding,
less:
(A) accumulated depreciation; and
(B) any costs for plant provided by explicit customer
agreements or funded by customer contributions in aid of construction.
(4) Accumulated depreciation = depreciation accumulated
for eligible plant after the date the eligible plant was placed in
service.
(5) ROR = after-tax overall rate of return as defined
in paragraph (10) of this subsection.
(6) Federal Income Taxes = current annual federal income
tax, as related to eligible costs.
(7) Depreciation = current annual depreciation expense
for the eligible plant.
(8) Ad Valorem Taxes = current annual amount of taxes
based on the assessed value of the eligible cost.
(9) Other Revenue Related Taxes = current annual amount
of any additional taxes resulting from the utility's increased revenues
related to the SIC.
(10) The after-tax overall rate of return is one of
the following:
(A) if the final order approving the utility's overall
rate of return (i.e., the company's weighted-average cost of capital)
was filed less than three years before the date that the utility files
an application for a SIC, the after-tax rate overall of return is
the one approved by the commission in the utility's last base-rate
case; or
(B) if the final order approving the utility's overall
rate of return (i.e., the company's weighted-average cost of capital)
was filed three years or more before the date that the utility files
an application for a SIC, the after-tax overall rate of return is
the average of the commission's approved rates of return for water
and sewer utilities in settled and fully litigated cases over the
three years immediately preceding the filing of the SIC.
(11) The SIC must be calculated based on annualized
meter equivalents, derived using the most recent month's total customer
meter equivalents multiplied by 12. The base SIC must be calculated
as the SIC RR divided by annual meter equivalents. The SIC for each
meter size must be calculated as the base SIC multiplied by the multiplier
for that meter size.
Attached Graphic
(f) Notice. By the first business day after it files
its application, the utility must send notice of its SIC application
to all affected ratepayers by first class mail, e-mail (if the customer
has agreed to receive communications electronically), bill insert,
or hand delivery. The utility must include in the notice the docket
number for the utility's SIC proceeding, the intervention deadline,
and a brief explanation of how an affected ratepayer can intervene
in the SIC proceeding and how intervention differs from protesting
a rate increase. The intervention deadline is 25 days from the date
service of notice is complete.
(g) Commission processing of application. Upon the
filing of an application to establish a SIC, the presiding officer
must set a procedural schedule that will enable the commission to
issue a final order within 120 days after the application is determined
to be sufficient if no hearing is requested.
(1) For good cause or by agreement of the parties,
the presiding officer may set a schedule that will not enable issuance
of a final order within 120 days after the application is determined
to be sufficient. The deadlines established by the presiding officer
will be extended as provided in this subsection.
(2) After an application is determined to be sufficient,
the applicant must respond to requests for information within 10 days.
An applicant's failure to timely respond to requests for information
constitutes good cause for extending the deadline for final action
one day for each day that a response exceeds 10 days.
(3) A request by an intervenor for hearing must be
filed within 25 days after the application is determined to be sufficient.
A request for hearing must state with specificity the issues to be
addressed.
(4) Unless an intervenor requests a hearing, commission
staff must submit a recommendation on the application or request a
hearing not later than 45 days after the application is determined
to be sufficient unless commission staff requests additional time,
not to exceed another 15 days unless good cause exists for a later
date. If commission staff is granted additional time, the deadline
for final action is extended day for day for each day of additional
time.
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