Current through Register Vol. 49, No. 6, March 15, 2024
PURPOSE: This rule is intended to prevent regulated
utilities from subsidizing their non-regulated operations. In order to
accomplish this objective, the rule sets forth financial standards, evidentiary
standards and record keeping requirements applicable to any Missouri Public
Service Commission (commission) regulated steam heating corporation whenever
such corporation participates in transactions with any affiliated entity
(except with regard to H VAC services as defined in section
386.754, RSMo Supp.
1998, by the General Assembly of Missouri). The rule and its effective
enforcement will provide the public the assurance that their rates are not
adversely impacted by the utilities' nonregulated activities.
(1) Definitions.
(A) Affiliated entity means any person,
including an individual, corporation, service company, corporate subsidiary,
firm, partnership, incorporated or unincorporated association, political
subdivision including a public utility district, city, town, county or a
combination of political subdivisions which, directly or indirectly, through
one (1) or more intermediaries, controls, is controlled by, or is under common
control with the regulated heating company.
(B) Affiliate transaction means any
transaction for the provision, purchase or sale of any information, asset,
product or service, or portion of any product or service, between a regulated
heating company and an affiliated entity, and shall include all transactions
carried out between any unregulated business operation of a regulated heating
company and the regulated business operations of a heating company. An
affiliate transaction for the purposes of this rule excludes heating,
ventilating and air conditioning (HVAC) services as defined in section
386.754, RSMo by the
General Assembly of Missouri.
(C)
Control (including the terms "controlling," "controlled by," and "common
control") means the possession, directly or indirectly, of the power to direct,
or to cause the direction of the management or policies of an entity, whether
such power is exercised through one (1) or more intermediary entities, or
alone, or in conjunction with, or pursuant to an agreement with, one (1) or
more other entities, whether such power is exercised through a majority or
minority ownership or voting of securities, common directors, officers or
stockholders, voting trusts, holding trusts, affiliated entities, contract or
any other direct or indirect means. The commission shall presume that the
beneficial ownership of ten percent (10%) or more of voting securities or
partnership interest of an entity constitutes control for purposes of this
rule. This provision, however, shall not be construed to prohibit a regulated
heating company from rebutting the presumption that its ownership interest in
an entity confers control.
(D)
Corporate support means joint corporate oversight, governance, support systems
and personnel, involving payroll, shareholder services, financial reporting,
human resources, employee records, pension management, legal services, and
research and development activities.
(E) Derivatives means a financial instrument,
traded on or off an exchange, the price of which is directly dependent upon
(i.e., derived from) the value of one or more underlying securities, equity
indices, debt instruments, commodities, other derivative instruments or any
agreed-upon pricing index or arrangement (e.g., the movement over time of the
Consumer Price Index or freight rates). Derivatives involve the trading of
rights or obligations based on the underlying product, but do not directly
transfer property. They are used to hedge risk or to exchange a floating rate
of return for a fixed rate of return.
(F) Fully distributed cost (FDC) means a
methodology that examines all costs of an enterprise in relation to all the
goods and services that are produced. FDC requires recognition of all costs
incurred directly or indirectly used to produce a good or service. Costs are
assigned either through a direct or allocated approach. Costs that cannot be
directly assigned or indirectly allocated (e.g., general and administrative)
must also be included in the FDC calculation through a general
allocation.
(G) Information means
any data obtained by a heating company that is not obtainable by nonaffiliated
entities or can only be obtained at a competitively prohibitive cost in either
time or resources.
(H) Preferential
service means information or treatment or actions by the regulated heating
company which places the affiliated entity at an unfair advantage over its
competitors.
(I) Regulated heating
company means every heating company as defined in section
386.020, RSMo,
subject to commission regulation pursuant to Chapter 393, RSMo.
(J) Unfair advantage means an advantage that
cannot be obtained by nonaffiliated entities or can only be obtained at a
competitively prohibitive cost in either time or resources.
(K) Variance means an exemption granted by
the commission from any applicable standard required pursuant to this
rule.
(2) Standards.
(A) A regulated heating company shall not
provide a financial advantage to an affiliated entity. For the purposes of this
rule, a regulated heating company shall be deemed to provide a financial
advantage to an affiliated entity if-
1. It
compensates an affiliated entity for goods or services above the lesser of-
A. The fair market price; or
B. The fully distributed cost to the
regulated heating company to provide the goods or services for itself;
and
2. It transfers
information, assets, goods or services of any kind to an affiliated entity
below the greater of-
A. The fair market
price; or
B. The fully distributed
cost to the regulated heating company.
(B) Except as necessary to provide corporate
support functions, the regulated heating company shall conduct its business in
such a way as not to provide any preferential service, information or treatment
to an affiliated entity over another party at any time.
(C) Specific customer information shall be
made available to affiliated or unaffiliated entities only upon consent of the
customer or as otherwise provided by law or commission rules or orders. General
or aggregated customer information shall be made available to affiliated or
unaffiliated entities upon similar terms and conditions. The regulated heating
company may set reasonable charges for costs incurred in producing customer
information. Customer information includes information provided to the
regulated utility by affiliated or unaffiliated entities.
(D) The regulated heating company shall not
participate in any affiliate transactions which are not in compliance with this
rule except as otherwise provided in section (10) of this rule.
(E) If a customer requests information from
the regulated heating company about goods or services provided by an affiliated
entity, the regulated heating company may provide information about its
affiliate but must inform the customer that regulated services are not tied to
the use of an affiliate provider and that other service providers may be
available. The regulated heating company may provide reference to other service
providers or to commercial listings, but is not required to do so. The
regulated heating company shall include in its annual Cost Allocation Manual
(CAM), the criteria, guidelines, and procedures it will follow to be in
compliance with this rule.
(F)
Marketing materials, information or advertisements by an affiliate entity that
share an exact or similar name, logo or trademark of the regulated utility
shall clearly display or announce that the affiliate entity is not regulated by
the Missouri Public Service Commission.
(3) Evidentiary Standards for Affiliate
Transactions.
(A) When a regulated heating
company purchases information, assets, goods or services from an affiliated
entity, the regulated heating company shall either obtain competitive bids for
such information, assets, goods or services or demonstrate why competitive bids
were neither necessary nor appropriate.
(B) In transactions that involve either the
purchase or receipt of information, assets, goods or services by a regulated
heating company from an affiliated entity, the regulated heating company shall
document both the fair market price of such information, assets, goods and
services and the FDC to the regulated heating company to produce the
information, assets, goods or services for itself.
(C) In transactions that involve the
provision of information, assets, goods or services to affiliated entities, the
regulated heating company must demonstrate that it-
1. Considered all costs incurred to complete
the transaction;
2. Calculated the
costs at times relevant to the transaction;
3. Allocated all joint and common costs
appropriately; and 4. Adequately determined the fair market price of the
information, assets, goods or services.
(D) In transactions involving the purchase of
goods or services by the regulated heating company from an affiliated entity,
the regulated heating company will use a commission-approved CAM which sets
forth cost allocation, market valuation and internal cost methods. This CAM can
use benchmarking practices that can constitute compliance with the market value
requirements of this section if approved by the commission.
(4) Record Keeping Requirements.
(A) A regulated heating company shall
maintain books, accounts and records separate from those of its
affiliates.
(B) Each regulated
heating company shall maintain the following information in a mutually agreed
to electronic format (i.e., agreement between the staff, Office of the Public
Counsel and the regulated heating company) regarding affiliate transactions on
a calendar year basis and shall provide such information to the commission
staff and the Office of the Public Counsel on, or before, March 15th of the
succeeding year:
1. A full and complete list
of all affiliated entities as defined by this rule;
2. A full and complete list of all goods and
services provided to or received from affiliated entities;
3. A full and complete list of all contracts
entered with affiliated entities;
4. A full and complete list of all affiliate
transactions undertaken with affiliated entities without a written contract
together with a brief explanation of why there was no contract;
5. The amount of all affiliate transactions
by affiliated entity and account charged; and
6. The basis used (e.g., fair market price, FDC, etc.)
to record each type of affiliate transaction.
(C) In addition, each regulated heating
company shall maintain the following information regarding affiliate
transactions on a calendar year basis:
1.
Records identifying the basis used (e.g., fair market price, FDC, etc.) to
record all affiliate transactions; and
2. Books of accounts and supporting records
in sufficient detail to permit verification of compliance with this
rule.
(5)
Records of Affiliated Entities.
(A) Each
regulated heating company shall ensure that its parent and any other affiliated
entities maintain books and records that include, at a minimum, the following
information regarding affiliate transactions:
1. Documentation of the costs associated with
affiliate transactions that are incurred by the parent or affiliated entity and
charged to the regulated heating company;
2. Documentation of the methods used to
allocate and/or share costs between affiliated entities including other
jurisdictions and/or corporate divisions;
3. Description of costs that are not subject
to allocation to affiliate transactions and documentation supporting the
nonassignment of these costs to affiliate transactions;
4. Descriptions of the types of services that
corporate divisions and/or other centralized functions provided to any
affiliated entity or division accessing the regulated heating company's
contracted services or facilities;
5. Names and job descriptions of the
employees from the regulated heating company that transferred to a nonregulated
affiliated entity;
6. Evaluations
of the effect on the reliability of services provided by the regulated heating
company resulting from the access to regulated contracts and/or facilities by
affiliated entities;
7. Policies
regarding the availability of customer information and the access to services
available to nonregulated affiliated entities desiring use of the regulated
heating company's contracts and facilities; and
8. Descriptions of and supporting
documentation related to any use of derivatives that may be related to the
regulated heating company's operation even though obtained by the parent or
affiliated entity.
(6) Access to Records of Affiliated Entities.
(A) To the extent permitted by applicable law
and pursuant to established commission discovery procedures, a regulated
heating company shall make available the books and records of its parent and
any other affiliated entities when required in the application of this
rule.
(B) The commission shall have
the authority to-
1. Review, inspect and audit
books, accounts and other records kept by a regulated heating company or
affiliated entity for the sole purpose of ensuring compliance with this rule
and making findings available to the commission; and
2. Investigate the operations of a regulated
heating company or affiliated entity and their relationship to each other for
the sole purpose of ensuring compliance with this rule.
(C) This rule does not modify existing legal
standards regarding which party has the burden of proof in commission
proceedings.
(7) Record
Retention.
(A) Records required under this
rule shall be maintained by each regulated heating company for a period of not
less than six (6) years.
(8) Enforcement.
(A) When enforcing these standards, or any
order of the commission regarding these standards, the commission may apply any
remedy available to the commission.
(9) The regulated heating company shall train
and advise its personnel as to the requirements and provisions of this rule as
appropriate to ensure compliance.
(10) Variances.
(A) A variance from the standards in this
rule may be obtained by compliance with paragraph (10)(A)1. or (10)(A)2. The
granting of a variance to one regulated heating company does not constitute a
waiver respecting or otherwise affect the required compliance of any other
regulated heating company to comply with the standards. The scope of a variance
will be determined based on the facts and circumstances found in support of the
application-
1. The regulated heating company
shall request a variance upon written application in accordance with commission
procedures set out in
4 CSR
240-2.060(11); or
2. A regulated heating company may engage in an
affiliate transaction not in compliance with the standards set out in
subsection (2)(A) of this rule, when to its best knowledge and belief,
compliance with the standards would not be in the best interests of its
regulated customers and it complies with the procedures required by
subparagraphs (10)(A)2.A. and (10)(A)2.B. of this rule.
A. All reports and record retention
requirements for each affiliate transaction must be complied with;
and
B. Notice of the noncomplying
affiliate transaction shall be filed with the secretary of the commission and
the Office of the Public Counsel within ten (10) days of the occurrence of the
noncomplying affiliate transaction. The notice shall provide a detailed
explanation of why the affiliate transaction should be exempted from the
requirements of subsection (2)(A), and shall provide a detailed explanation of
how the affiliate transaction was in the best interests of the regulated
customers. Within thirty (30) days of the notice of the noncomplying affiliate
transaction, any party shall have the right to request a hearing regarding the
non-complying affiliate transaction. The commission may grant or deny the
request for hearing at that time. If the commission denies a request for
hearing, the denial shall not in any way prejudice a party's ability to
challenge the affiliate transaction at the time of the annual CAM filing. At
the time of the filing of the regulated heating company's annual CAM filing the
regulated heating company shall provide to the secretary of the commission a
listing of all noncomplying affiliate transactions which occurred between the
period of the last filing and the current filing. Any affiliate transaction
submitted pursuant to this section shall remain interim, subject to
disallowance, pending final commission determination on whether the
noncomplying affiliate transaction resulted in the best interests of the
regulated customers.
(11) Nothing contained in this rule and no
action by the commission under this rule shall be construed to approve or
exempt any activity or arrangement that would violate the antitrust laws of the
state of Missouri or of the United States or to limit the rights of any person
or entity under those laws.
*Original authority: 386.250, RSMo 1939, amended 1963,
1967, 1977, 1980, 1987, 1988, 1991, 1993, 1995, 1996 and 393.140, RSMo 1939,
amended 1949, 1967.