Current through Register Vol. 39, No. 6, September 16, 2024
(a) Purpose. - This
rule provides the procedures for the approval and administration of the Water
and Sewer Investment Plan mechanism authorized under
G.S.
62-133.1B.
(b) Definitions. - As used in this rule, the
following definitions shall apply:
(1)
"Performance-based metrics" shall mean standards to measure utility operations
and management, including the management of capital investment projects,
intended to benefit customers by ensuring the provision of safe, reliable, and
cost-effective service by the utility. Metrics may also be standards that are
intended to drive utility performance or support Commission policy goals
provided that they benefit customers by ensuring the provision of safe,
reliable, and cost-effective service. In establishing performance-based
metrics, the Commission may consider, at a minimum, operational compliance,
customer service, service reliability, and workplace health and safety.
Performance-based metrics shall be clearly defined, measurable, and easily
verified by stakeholders. The Commission may approve penalties or incentives
based on the results of approved metrics. Some metrics may be tracking metrics
with or without targets or benchmarks to measure utility achievement.
(2) "Test Year" or "Base Year" shall mean the
12-month period consistent with the term "Operating Experience" as defined in
sub-section (b)(8) of Rule R1-17.
(3) "Rate Year" shall mean each of the three
12-month periods as approved in a Water and Sewer Investment Plan.
(3a) "Unplanned Emergency Capital
Investments" shall mean capital investments used and useful during a Plan term
to address risk of noncompliance with primary drinking water or effluent
standards, or to mitigate cyber or physical security risks.
(4) "Utility" shall mean a water, sewer, or
water and sewer public utility.
(5)
"Water and Sewer Investment Plan" or "Plan" shall mean a plan under which the
Commission sets base rates and revenue requirements through the banding of
authorized returns, and authorizes annual rate changes for a three-year period
based on reasonably known and measurable capital investments and anticipated
reasonable and prudent expenses approved under the plan without the need for a
base rate proceeding during the plan period.
(6) "Capital Investment Project" shall mean
discrete, stand-alone capital investments or sub-project-level capital
activities that have identical attributes for both of the following:
a. A detailed description, including the
reason for and scope of, each proposed capital investment project;
and
b. The asset account per the
National Association of Regulatory Utility Commissioners (NARUC) Uniform System
of Accounts and the annual depreciation rate for each proposed capital
investment project.
(c) Filing Requirements. - A request for a
Water and Sewer Investment Plan must be consistent with Rule R1-17 unless
otherwise noted in this Section. A utility's application for a Water and Sewer
Investment Plan must include the following:
(1) Identification of the Test Year and three
Rate Year periods. The first Rate Year shall begin no later than the first day
of the month which includes the end of the statutory suspension period under
G.S.
62-134.
(2) A three-year capital investment plan by
rate division that includes the following:
a.
The estimated costs for all proposed capital investment projects expected to be
placed in service in the period starting on the date immediately following the
end date specified by the Commission for the update of utility plant in service
and continuing through the conclusion of the Plan for which the utility seeks
cost recovery through the Plan mechanism.
b. A detailed description, including the
reason for and scope of, each proposed capital investment project.
c. The estimated in-service date of each
proposed capital investment project and the related estimated retirements, if
applicable.
d. The asset account
per the National Association of Regulatory Utility Commissioners (NARUC)
Uniform System of Accounts and the annual depreciation rate for each proposed
capital investment project.
(3) Calculations of rate base, as included
for Rate Year revenue requirements, by rate division, with exhibits setting
forth the specific method utilized for the calculations.
(4) All proposed expenses expected to be
incurred during each Rate Year by rate division including the following:
a. Any forecasts, including all calculations
and assumptions, of changes in each expense account.
b. Justification for any variation from
expense levels proposed in the utility's rate case application.
(5) To the extent an inflation
factor is used to forecast costs included in Rate Year revenue requirements,
identification of the GDP index and the inflation rate used in such
forecasts.
(6) Proposed revenue
requirements, pro forma revenues, and base rates for each Rate Year by rate
division, including supporting calculations and exhibits.
(7) Proposed Schedule of Rates by rate
division for each Rate Year.
(8) A
calculation of the proposed percent increase for each Rate Year, if
applicable.
(9) A proposed banding
range for the utility's requested rate of return on equity.
(10) At least one proposed performance-based
metric in each of the following categories:
a.
Operational compliance.
b. Customer
service.
c. Service
reliability.
d. Workplace health
and safety.
(d) Establishment of Annual Revenue
Requirement. - The Commission shall establish the annual revenue requirement
for each Rate Year of a Water and Sewer Investment Plan. The annual revenue
requirement for each Rate Year may include reasonably known and measurable
capital investments and anticipated reasonable and prudent expenses, provided
the Commission finds the Plan results in rates that are just and reasonable and
are in the public interest, and meets the other criteria of
G.S.
62-133.1B.
(e) Banding of Authorized Rate of Return on
Equity. - The Commission will authorize a rate of return on equity for each
Rate Year revenue requirement calculation consistent with the evidence in the
record and will set high and low bands for earned rates of return on equity
consistent with
G.S.
62-133.1B(g). In setting an
authorized rate of return on equity for banding of authorized returns pursuant
to this Section, the Commission may consider any decreased or increased risk to
a utility that may result from having an approved Plan. A utility with an
approved Plan may not apply for a general rate increase pursuant to
G.S.
62-133 or
G.S.
62-133.1 to be effective before the end of
the Plan unless the utility's earned rate of return on equity falls below the
low-end range of the band established by the Commission.
(f) Modification. - The Commission may, for
good cause shown and after an opportunity for hearing, modify or terminate an
existing Water and Sewer Investment Plan for circumstances unforeseen at the
time the Plan was established if the Commission determines it is in the public
interest. Should a Plan modification be authorized that adjusts previously
approved tariff rates, the Commission shall prescribe the form of Notice to
Customers.
(g) Annual Review. - The
Plan shall be subject to the following:
(1)
Within 45 days after the end of each Rate Year, each utility shall file a
report, containing the following information for the preceding Rate Year:
a. A report of refunds or credits disbursed
to customers by month and reconciliation of EMF activity by month during the
Rate Year by rate division and rate type, if applicable.
b. An analysis, including results, of the
performance-based metrics established by the Commission, and the calculation of
any applicable incentives or penalties.
c. A statement that the utility's earnings
during the subject Rate Year of the Plan fell within, exceeded the high-end, or
fell below the low-end of the band of authorized rate of returns established by
the Commission.
d. A statement of
rate base based on North Carolina ratemaking depicting a 13-month average
balance for the completed Rate Year.
e. A calculation of earned rate of return on
equity based on a 13-month average of the actual cost of debt applicable to the
utility for the completed Rate Year, and the authorized ratios of capital
components approved in the utility's last general rate case
proceeding.
f. A schedule of the
estimated capital investment projects to be placed in-service during the
remaining Rate Years of the Plan, including: total in-service costs, in-service
date, applicable rate division, NARUC asset account, and annual depreciation
rate.
(2) The Public
Staff shall review the utility's report and shall file a report detailing its
findings and recommendations no later than four months after the end of each
Rate Year of the Plan. The utility may respond to the Public Staff's report
within 15 days after such filing.
(3) When determining the utility's earned
rate of return on equity, the Commission may consider pro forma adjustments to
the utility's per books capital expenditures, expenses, and revenues. For the
purpose of determining whether the rate of return on equity for any Rate Year
falls outside of the high and low bands, the earned return on equity shall be
calculated based on the capital structure established in the utility's last
general rate case, and on a 13-month average of the actual cost of debt.
a. If the utility's earned rate of return on
equity exceeds the high-end range of the band established by the Commission,
the excess earnings shall be refunded to customers as provided in subsection
(i) of this rule.
b. If the
utility's earned rate of return on equity falls below the low-end range of the
band established by the Commission, the utility may apply for a general rate
increase pursuant to
G.S.
62-133 or
G.S.
62-133.1.
(4) The Commission shall issue an order
addressing its findings and making effective any reconciliation or adjustment
to the Plan it deems appropriate. Any reconciliation or adjustment ordered by
the Commission, including any credit to customers of excess earnings above the
high end of the banding of authorized rates of returns on equity established by
the Commission, shall remain effective for a 12-month period. Any refund or
credit shall be included on customer bills as a separate line item and will not
be included in the calculation of earnings performed for annual audit and
reconciliation filings.
(h) Experience Modification Factor. - The
experience modification factor (EMF) shall be established when applicable to
reconcile the difference between the credit ordered by the Commission pursuant
to subsection (i) of this section and the actual credit amount applied to
customer bills. If the effective date of Rate Year One is before the date of
the Commission's Order approving the Plan, the Commission may establish an EMF
to account for a delay between the implementation of Rate Year One tariff rates
and the effective date of Rate Year One. The EMF shall remain in effect for the
12-month period unless the true up is included in the excess earnings credit
calculation.
(i) Credit for Excess
Earnings. - If the Annual Review determines that the utility earned higher than
the authorized high band rate of return on equity for a Rate Year, the
Commission will authorize a credit to applicable utility customers.
(1) The credit shall be included on customer
bills as a separate line item and will not be included in the calculation of
earnings performed for Annual Review filings.
(2) The credit shall be expressed as a
percentage carried to two decimal places and shall be applied to the total
utility bill of each customer under the utility's applicable service rates and
charges.
(3) Pursuant to
G.S.
62-130(e), any amount to be
credited to a utility's customers shall include an amount of interest at such
rate as the Commission determines to be just and reasonable, not to exceed the
maximum statutory rate.
(4) The
credit percentage shall be computed by dividing the Total Service Revenues for
the following 12 months for which the credit will be in effect by the amount to
be credited to customers, inclusive of interest. The credit will be effective
no later than the first day of the second month following the Commission order
authorizing the credit.
(5) In its
order authorizing a credit for excess earnings, the Commission shall include a
form of Notice to Customers to be issued with customer bills in the first
billing cycle the credit is effective.
(j) Reporting Requirements. - The utility
shall make filings addressing each three-month period within the Plan period.
The first filing shall be made no later than 45 days after the first
three-month period, and subsequent reports shall be made every three months
thereafter. Each filing shall contain the following:
(1) An earnings report consisting of the
following:
a. A balance sheet and income
statement for the three months and twelve months to date for the
utility.
b. A statement of the per
books net operating income for the three months and twelve months to date for
each rate division of the utility based on North Carolina ratemaking.
c. A statement of rate base at the end of the
three months for each rate division of the utility based on North Carolina
ratemaking.
d. The number of
customers, gallons sold, and service revenue for the three months for each rate
division by rate type (meter size, flat rate, etc.).
(2) A status report which includes by rate
division the following information for each capital investment project:
a. The costs incurred during the three
months.
b. The cumulative amount
incurred.
c. The original and
revised estimated total cost for each project.
d. The in-service date estimated in the
Plan.
e. The actual date placed in
service or, if not yet placed in service the current estimated placed
in-service date.
f. A schedule of
all changes to the capital investment projects approved in the Plan for the
remainder of the Plan period, including the information outlined in subsections
(c)(2)(b)-(d) of this Rule for any capital investment project not approved in
the original Plan.
(3)
The number of utility customers disconnected for nonpayment for the three-month
period and cumulative rate-year to date.
(k) Continuation of Rates. - If the utility
does not have a new general rate case effective at the end of Rate Year Three,
the rates in effect at the end of Rate Year Three shall remain in effect, and
the utility shall continue to file the reports required under subsection (j) of
this rule, until further order of the Commission.
(l) Petition for Addition of Unplanned
Emergency Capital Investments - Once a Water and Sewer Investment Plan is
approved, the utility may file a petition with the Commission for consideration
of the addition of certain Unplanned Emergency Capital Investments to be
effective no less than 60 days before the beginning of Rate Year 2 or Rate Year
3. Prior to the effective date of the change in rates for Rate Year 2 or Rate
Year 3, the Public Staff shall schedule the request for Commission
consideration at the regularly scheduled staff conference and recommend that
the Commission issue an order approving, modifying and approving, or rejecting
the addition of the Unplanned Emergency Capital Investments to the Plan. A
utility's petition must include the following:
(1) A detailed description including the
reason for and scope of each capital investment project.
(2) The estimated in-service date of each
capital investment project.
(3) The
asset account per the National Association of Regulatory Utility Commissioners
(NARUC) Uniform System of Accounts and the annual depreciation rate for each
proposed capital investment project.
(4) Calculations of rate base, as included
for Rate Year revenue requirements, by affected rate division, with exhibits
setting forth the specific method utilized for the calculations.
(5) Proposed revenue requirements, pro forma
revenues, and base rates for each affected Rate Year by rate division,
including supporting calculations and exhibits.
(6) Proposed Schedule of Rates by affected
rate division for each Rate Year.
(7) A calculation of the proposed percent
increase for each Rate Year, if applicable.
(m) Customer Notice. - The notice to
customers of the utility's general rate increase application shall include the
proposed WSIP and the estimated impact of the charges under the mechanism on
the utility's monthly service rates. The notice may be modified if the utility
files a Plan only its water or sewer system to reflect that change. The notice
shall include the following:
Water and Sewer Investment Plan
This filing also includes a request for approval of a Water
and Sewer Investment Plan (WSIP) pursuant to
G.S.
62-133.1B and Commission Rule R1-17A. This
rate-making mechanism will allow the Company to recover the reasonably known
and measurable capital investments and anticipated reasonable and prudent
expenses approved under the WSIP. In support of this request, the Company has
filed a three-year plan with its application which lists proposed water and
sewer capital investment projects, anticipated water and sewer expenses, and
the proposed rates to be effective in each year of the WSIP. By law, any rate
adjustment allowed under an approved WSIP shall not, on an annual basis for
years two and three of the WSIP, exceed five percent of the utility's North
Carolina retail jurisdictional gross revenues for the preceding plan year. The
Commission may, however, consider the addition of certain unplanned emergency
capital investments even if such expenditures would cause the cap to be
exceeded.
In this WSIP, the Company has requested that the Commission
allow it to recover water service revenues of $____________ in year one,
$____________ in year two, and $____________ in year three. If the WSIP is
approved without modifications, the average monthly water bill for a typical
residential customer (based upon monthly water usage of _____ gallons) would be
$____________ in year one, $____________ in year two, and $____________ in year
three.
In this WSIP, the Company has requested that the Commission
allow it to recover sewer service revenues of $____________ in year one,
$____________in year two, and $____________ in year three. If the WSIP is
approved without modifications, the average monthly sewer bill for a typical
residential customer (based upon monthly water usage of _____ gallons) would be
$____________ in year one, $____________ in year two, and $____________ in year
three.
The Commission may eliminate or modify any WSIP approved in
this case if it determines that elimination or modification is in the public
interest.
NCUC Docket No. W-100,
Sub 63, 1/07/2022; NCUC Docket No. W-100, Sub 63,
6/30/2022
