Current through Reg. 50, No. 13; March 28, 2025
(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utility will be deemed to have withdrawn its application to establish or amend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.
(5) If a hearing on the application is
requested, the application will be referred to the State Office of
Administrative Hearings (SOAH) for an evidentiary hearing. 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 referred to SOAH. For
good cause, the presiding officer may set a procedural schedule that will not
enable the commission to issue a final order within 120 days after the
application is determined to be sufficient.
(h) Scope of proceeding. The issue of whether
eligible costs included in an application for a SIC or an amendment to a SIC
are prudent, reasonable, or necessary, will not be addressed in a proceeding
under this section unless the presiding officer finds that good cause exists to
address these issues.
(i) System
improvement charge reconciliation. Costs recovered through a SIC are subject to
reconciliation in the utility's next comprehensive rate case. Any amounts
recovered through the SIC that are found to have been unreasonable,
unnecessary, or imprudent, plus the corresponding return and taxes, must be
refunded with carrying costs. The utility must pay to its customers carrying
costs on these amounts calculated using the same rate of return that was
applied to the recovered costs in establishing the SIC until the date the rates
approved in the utility's next comprehensive rate case are effective.
Thereafter, carrying costs must be calculated using the utility's rate of
return authorized in the comprehensive rate case.
(j) Rate case expenses. Recovery of rate case
expenses may be requested and must be reviewed in the utility's next
comprehensive base rate case and in accordance with §
24.44 of this chapter (relating to
Rate-case Expenses Pursuant to Texas Water Code §
13.187 and §
13.1871).
(k) Requirement to file a rate case. A
utility must file a comprehensive rate case under TWC §§13.187,
13.1871, 13.18715, or 13.1872 within the following times from the date the
commission files an order approving the SIC.
(1) Four years for a utility that was a Class
A utility at the time of the order.
(2) Six years for a utility that was a Class
B utility at the time of the order.
(3) Eight years for a utility that was a
Class C or Class D utility at the time of the order.
