16 Tex. Admin. Code § 24.75 - Alternative Ratemaking Methodologies
(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
(E) if the utility wants to extend the
18-month deadline to file a comprehensive rate case under paragraph (3) of this
subsection, documentation that the revenues to be recovered from each new
customer class will be less than ten percent of the utility's total annual
revenue.
(2) Rates for
new customer classes.
(A) The rates for each
new customer class must be based on cost-of-service and rate design
studies.
(B) On the effective date
of the rates for each new customer class, common costs assigned to and
recovered from the new customer classes must be removed from the rates of
existing customer classes.
(3) Rate case requirement.
(A) A utility that has received commission
approval for the creation of a new customer class or classes under this
subsection must file a comprehensive rate case by filing a statement of intent
under TWC §§13.187, 13.1871, 13.18715, or 13.1872 not later than 18
months from the date service begins to the new customer class or classes unless
the utility has submitted documentation under subparagraph (1)(E) of this
subsection demonstrating that each new customer class represents less than ten
percent of the utility's total annual revenue required.
(B) If the utility demonstrates to the
commission that each new customer class represents less than ten percent of the
utility's total annual revenue by submitting documentation under subparagraph
(1)(E) of this subsection, a comprehensive rate case is not required until the
earlier of six months following the date on which the revenues of any of the
new the customer classes equals or exceeds ten percent of the utility's total
annual revenue or five years following the date service to the new customer
class or classes begins. The utility must, as an attachment to its annual
report filed under §24.129 (relating to Water and Sewer Utilities Annual
Reports), annually update its demonstration to show that the revenues of each
new customer class remain less than ten percent of the utility's total annual
revenue. A utility must continue to update its demonstration annually until the
commission adopts a final order in a comprehensive rate case for that utility
or the utility is no longer eligible to delay filing a comprehensive rate case
under this paragraph.
(C) If a
utility fails to provide an annual update that shows the annual revenue of each
new customer class remains less than ten percent of the utility's total annual
revenue, the utility must file a comprehensive rate case within the earlier of
six months from the date its annual report was due under §24.129(a) or
five years from the date service to the new customer class or classes
began.
Notes
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