NOTICES
Implementation of Act 11 of 2012
[45 Pa.B. 6772]
[Saturday, November 21, 2015]Public Meeting held
November 5, 2015Commissioners Present: Gladys M. Brown, Chairperson; John F. Coleman, Jr., Vice Chairperson; Pamela A. Witmer; Robert F. Powelson; Andrew G. Place
Implementation of Act 11 of 2012; M-2012-2293611
Tentative
Supplemental Implementation OrderBy the Commission:
On February 14, 2012, Governor Corbett signed into law Act 11 of 2012 (Act 11), which, inter alia, amended Chapter 13 of the Pennsylvania Public Utility (Code) by incorporating a new Subchapter B, Sections 1350 through 1360 of the Code, which deals with distribution (and collection) systems and allows specified utility types designated therein to petition the Commission to implement an additional rate mechanism, known as a distribution system improvement charge (DSIC) to recover the costs related to the repair, replacement or improvement of eligible distribution property. See 66 Pa.C.S. §§ 1350—1360.
By Order entered August 2, 2012, the Commission issued a Final Implementation Order in the proceeding in Implementation of Act 11 of 2012, Docket Number M-2012-2293611 (August 2nd Final Implementation Order), which established the procedures and guidelines necessary for those utilities seeking to implement a DSIC mechanism. Since the passage of Act 11 and the issuance of the August 2nd Final Implementation Order, the Commission has granted the petitions to implement a DSIC mechanism for ten jurisdictional utilities. However, various discrete issues regarding the implementation of the DSIC surcharge mechanism that were not fully addressed in our August 2nd Final Implementation Order have arisen. Accordingly, via this tentative order, the Commission solicits comments so as to take further steps to adopt procedures regarding additional implementation issues that have developed over time.
Background
On February 14, 2012, Governor Corbett signed into law Act 11 of 2012 (Act 11), which, inter alia, amended Chapter 13 of the Pennsylvania Public Utility (Code) so as to allow water and wastewater utilities, electric distribution companies (EDCs), and natural gas distribution companies (NGDCs) or a city natural gas distribution operation to implement a DSIC surcharge mechanism which would allow them to offset the additional depreciation and to recover the prudent capital costs associated with certain non-revenue producing, non-expense reducing capital expenditures related to the repair, replacement or improvement of eligible distribution property.
On May 11, 2012, the Commission in Implementation of Act 11 of 2012 entered a Tentative Implementation Order (May 11th Tentative Implementation Order) at Docket Number M-2012-2293611, soliciting comments on proposed procedures and guidelines necessary to implement Act 11, including a DSIC process for investor-owned energy utilities, city natural gas distribution operations, and wastewater utilities and to facilitate a transition from the Section 1307(g) water DSIC procedures to Act 11 DSIC procedures. After reviewing the comments filed in response to the May 11th Tentative Implementation Order, the Commission issued the August 2nd Final Implementation Order at the above-referenced docket, which established the procedures and guidelines necessary to implement Act 11 and included a Model Tariff for DSIC filings.
Subsequently, to date, the Commission has approved petitions to implement a DSIC surcharge mechanism for ten jurisdictional utilities, consisting of one EDC, six NGDCs, one city natural gas distribution operation, and two wastewater companies.1 However, since those utilities have initiated their DSIC mechanisms, various implementation issues that were not specifically addressed in our August 2nd Final Implementation Order have arisen. Per this Order, the Commission is soliciting comments on the manner it should resolve these additional implementation issues.
Discussion
Act 11 amended Chapter 13 of the Code in order to reduce regulatory lag by providing ratemaking flexibility for utilities seeking timely recovery of prudently incurred costs related to the repair or replacement of distribution infrastructure between rate cases and before new base rates have become effective. Specifically, Act 11 incorporated new statutory provisions in Chapter 13, based on the existing DSIC that has been used for over 15 years in the water utility industry2 , to accelerate the pace of water pipeline replacement and improvements. Under Act 11, the DSIC mechanism is also now available to EDCs, NGDCs, wastewater utilities, and city natural gas operations and will allow those utilities to recover the reasonable and prudently incurred costs related to the acceleration of the repair, improvement and replacement of utility infrastructure on a timelier basis, subject to reconciliation, audit and other consumer protections.3
The DSIC mechanism allows a utility to add to customer rates the recovery of the fixed costs (i.e., depreciation cost and pretax return for all utilities except city natural gas distribution operations) for (1) any eligible plant associated with a repair, replacement or improvement that was not previously reflected in the utility's rates and rate base and (2) has been placed into service as a repair, replacement or improvement during the three-month period ending one month (i.e., quarterly with a one month lag) prior to the effective date of the DSIC mechanism. See 66 Pa.C.S. § 1357(a)(1)(ii). Thereafter, in order to continue to recover the fixed costs of eligible property that is placed into service and associated with an acceleration of its repair, replacement or improvement program through its DSIC mechanism, the utility must provide quarterly DSIC updates that reflect the eligible property that has been placed in service during the three-month period ending one month prior to the effective date of the DSIC update. See 66 Pa.C.S. § 1357(a)(2). Accordingly, the utility is permitted to recover on an ongoing basis (i.e., every three months) the fixed costs of eligible property placed into service that is associated with a repair, replacement or improvement.
Section 1358(d) of the Code provides that the Commission may establish procedures to adjust the DSIC rate, when applicable, by order or regulation. See generally 66 Pa.C.S. § 1358(d)(2). Hence, the Commission is seeking comments from interested parties in order to address issues concerning implementation of the DSIC rate that were not fully addressed in the August 2nd Final Implementation Order.
As more fully explained herein, the Commission seeks comments in the following issue areas regarding the implementation, operation and computation of the DSIC:
• requiring quarterly financial reports for all utilities that use the DSIC mechanism;
• filing and computation issues for when the DSIC is reset to zero;
• treatment of over/under collections, or E-factor, after the DSIC is reset to zero;
• computation issues for determining the DSIC rate cap; and
• requirement to file an LTIIP by water utilities that use the DSIC.
A. Uniform Financial Earnings Reports Requirement
The Commission established financial reporting requirements designed to improve its ability to monitor the financial performance and earnings of certain jurisdictional public utilities.4 See generally 52 Pa. Code § 71.1 et seq. Act 11 directs that the Commission also use these financial earning reports to monitor the rates of return for companies that have implemented a DSIC mechanism to determine if the utility has experienced earnings above its allowed rate of return or ''overearnings.'' See 66 Pa.C.S. § 1358(b)(3). The Commission compares the filed return on equity (ROE)5 figure from schedule D-2 of the financial earnings report to the allowable equity return rate for the computation of the DSIC rate to determine if the utility can continue to recover under its DSIC mechanism the fixed costs of the eligible property that is reflected in its next quarterly DSIC update or if its DSIC rate must be adjusted. See generally 66 Pa.C.S. § 1358(b)(3). Pursuant to the statutory directive in Act 11, the DSIC rate is to be reset to zero, if, in any quarter, the data reflected in the utility's most recent quarterly financial earnings report show that the utility will earn a ROR that would exceed the allowable ROR used to calculate its fixed costs under the DSIC mechanism. See 66 Pa.C.S. § 1358(b)(3).
The Commission notes that there is a lag period between the filing dates of the quarterly earnings report and the filing dates of the quarterly DSIC updates. The Commission regulations at 52 Pa. Code § 71.3 set forth different filing report requirements for certain fixed utilities based upon overall revenues. See 52 Pa. Code § 71.3. Currently, some utilities file their financial earnings report on a quarterly basis and some file it on an annual basis. Id. Certain jurisdictional fixed utilities are required to file quarterly reports for the 12-month period ending on March 31st, June 30th, September 30th and December 31st of each year. The first three 12-month period quarterly financial earnings reports for the year, the March 31st, June 30th, September 30th reports, are due to be filed within sixty (60) days of the end of the 12-month reporting period while the fourth quarter 12-month period quarterly financial earnings report, the December 30th report, is due within ninety (90) days of the quarter ending December 31st of each year. However, the Act 11 quarterly DSIC updates are to be filed no later than April 1st, July 1st, October 1st and January 1st of each year. Thus, if the data reflected in the utility's most recent quarterly financial earnings report show that it has experienced an overearnings for that quarter, presumably its DSIC rate will be reset to zero until the following quarter or three months reflected in that next quarterly DSIC update.
On the contrary, certain jurisdictional utilities are required only to file an annual financial report for the previous 12-month calendar year in accordance with 52 Pa. Code § 71.3(b). These utilities do not have to submit this annual financial report to the Commission until March 31st of the following year, within ninety days after the end of the 12-month period ending December 31st. As a result, if that utility has experienced any overearnings for some portion of the preceding year, under the current financial earnings reporting regimen, these utilities will continue to recover the fixed costs of eligible property under their DSIC mechanisms throughout the year. Nevertheless, in actuality, their DSIC rate should have been reset to zero, pursuant to Section 1358(b)(3) of the Code, at the time they begin to experience an overearning. Consequently, these utilities continue to reap the benefit of their DSIC mechanism even though they may have experienced overearnings for a significant portion of the year, which is unfair to consumers and those utilities that are required to file quarterly financial earnings reports.
Accordingly, the Commission proposes that all jurisdictional utilities that have implemented a DSIC mechanism, including those utilities that are not required to file earnings reports under 52 Pa. Code § 71.3 because their annual revenues do not exceed $1 million, should be directed to file quarterly earnings reports with the Commission. The Commission also seeks comment on whether or not the quarterly earnings report exemption under 71.4(c) during the pendency of a base rate case for companies with a positive DSIC charge should be eliminated. This puts all utilities with a DSIC mechanism on the same footing in determining whether the utility can appropriately recover through their DSIC the fixed costs of all the eligible plant placed in service that has not previously been reflected in the rate base.
B. Customer Protections—DSIC Rate Reset to Zero
Act 11 includes directives regarding various consumer protection provisions. These consumer protections are set forth in Section 1358 of the Code, 66 Pa.C.S. § 1358. One of the more vital consumer protections involving the implementation of the DSIC mechanism is resetting the DSIC rate to zero. Under certain circumstances, Act 11 requires that a DSIC rate reset to zero. See generally 66 Pa.C.S. § 1358(b)(1)—(3). Specifically, the DSIC rate is reset to zero on the effective date of new base rates that provide for the prospective recovery of the fixed annual costs previously recovered under the utility's DSIC mechanism. 66 Pa.C.S. § 1358(b)(1). Additionally, for investor-owned utilities, a ''reset'' of the DSIC rate is also required if, in any quarter, data filed with the Commission in the utility's most recent quarterly or annual earnings financial report shows that the utility will earn a ROR that would exceed the allowable ROR used to calculate its fixed costs under the DSIC.6 66 Pa.C.S. § 1358(b)(3). Accordingly, the Commission is seeking comment on the rules and procedures it should establish when a utility is required to reset its DSIC rate to zero.
1. Proposed Tariff Supplement to Reset DSIC Rate to Zero
As mentioned above, the DSIC rate is required to be reset to zero on the effective date of new base rates that provide for the prospective recovery of the annual fixed costs of eligible property that were previously recovered under the utility's DSIC mechanism. 66 Pa.C.S. § 1358(b)(1). Additionally, if a utility's quarterly financial earnings report reflects an overearning for that particular quarter, the utility is required to reset its DSIC rate to zero. 66 Pa.C.S. § 1358(b)(3). Hence, the Commission tentatively proposes that a utility should be required to file a tariff supplement pursuant to Section 1308(a) of the Code resetting its DSIC rate to zero if the following occur: (1) upon the effective date of the new base rates and (2) if an overearning is indicated in the utility's most recent quarterly financial earnings report.
The Commission proposes that the utility should incorporate a reference to resetting its DSIC rate to zero within the tariff supplement requesting a general rate increase under Section 1308(d) of the Code, 66 Pa.C.S. § 1308(d). This obviates the need for the utility having to file subsequently a separate second tariff supplement under Section 1308(a) of the Code resetting the DSIC rate to zero upon the effective date of the new base rates. The Commission seeks comment on this tentative proposal.
However, the timing of the tariff supplement to reset the DSIC rate to zero when a utility experiences overearnings is somewhat problematic. As mentioned above, the Commission has tentatively concluded that all utilities with a DSIC mechanism should begin to file their financial earnings report on a quarterly basis—March 31st, June 30th, September 30th and December 31st. However, the Commission notes it has directed the utilities with a DSIC mechanism to schedule the effective dates of their proposed DSIC updates, and the corresponding period for eligible plant additions that will be reflected in each update, to align quarterly with the months of April, July, October, and January. Consequently, as mentioned above, there is a lag time, between the utility addressing the overearnings indicated in the quarterly financial earnings report and resetting the DSIC rate to zero in the next Act 11 quarterly DSIC updates filed thereafter. It may be likely that the utility does not already have an indication or knowledge that it has experienced overearnings at the time it files its quarterly financial earnings report. With this in mind, the Commission proposes that utilities should file their tariff supplement reflecting a zero DSIC rate simultaneously with the filing of their next quarterly DSIC update, effective upon ten-day's notice.
2. DSIC Rate Reset to Zero Upon Effective Date of New Base Rates
In order to continue to recover the fixed costs of eligible property that is placed into service and associated with a repair, replacement or improvement through its DSIC mechanism, the utility must provide quarterly DSIC updates that reflect the eligible property that has been placed in service during the three-month period ending one month prior to the effective date of the DSIC update. See 66 Pa.C.S. §§ 1357(a)(2) and 1357(c)(3). Hence, quarterly DSIC updates are integral to the utility identifying the relevant eligible property and the proper calculation of the fixed costs associated with that eligible property. See 66 Pa.C.S. § 1357(d)(2).
When a utility with a DSIC mechanism files for a general rate increase under Section 1308(d) of the Code, 66 Pa.C.S. § 1308(d), and new base rates become effective, the utility is required to reset its DSIC rate to zero as of the effective date of the new base rates. 66 Pa.C.S. § 1358(b)(1). After resetting the DSIC rate to zero following the effective date of new base rates, only the fixed costs of new eligible property that was not previously reflected in base rates or recovered in the utility's rates (i.e., previously recovered under the DSIC mechanism) may be reflected in a subsequent quarterly DSIC update. 66 Pa.C.S. § 1358(b)(2).
Thus, in order for a utility to begin to recover again the fixed costs of eligible property placed in service that is associated with a repair, replacement or improvement after the DSIC rate has been reset to zero because of new base rates, it must submit a quarterly DSIC update that reflects only eligible property that meets the above criteria (has not been previously reflected in the utility's rates or rate base). See generally 66 Pa.C.S. §§ 1357(a)(2); 1357(d)(3) and 1358(b)(2). The Commission refers to this as a ''stay-out'' period because the utility cannot utilize its DSIC mechanism until new eligible property that has not been accounted for in the utility's rates or rate base is present. The Commission believes that the length of this ''stay-out'' period should be able to be determined from the order issued in the proceeding to establish the utility's new base rates.
The base rates established in a Section 1308(d) general rate case are designed to recover all prudent costs for capital, labor, materials, and input services used in the production function. The calculation of rates is developed on the device of a ''test year,'' which is a 12-month period that is to be representative of operating conditions when the rates being established will be in effect. Generally, most utilities filing for rate increases in excess of $1,000,000 use a future test year for ratemaking purposes. A future test year employs the utility's normal budget process to project operating results for a future 12-month period.
However, the Commission also now allows utilities to utilize a fully projected future test year (FPFTY) as its baseline for setting new base rates. See 66 Pa.C.S. § 315. As such, a utility requesting to establish new base rates pursuant to a filing under Section 1308(d) of the Code, is seeking to recover the costs of all eligible plant in service, plus the plant that is projected to be in service either within 12 to 24 months depending on if the utility has used a future test year or a FPFTY to calculate its rates. Presumably, if a utility has used a future test year or a FPFTY as a the basis for the projection of the costs of all the eligible plant that it will place in service, the new base rates should provide for the prospective recovery of the annual costs of all the eligible property placed into service and that was previously being recovered under the utility's DISC mechanism.
At this juncture, the Commission proposes that if a utility has surpassed the prospective recovery amount associated with the eligible plant placed in service and which was previously reflected in the utility's base rates as a result of using a future test year or FPFTY, it is then eligible to begin to recover again the fixed costs associated with any new repair, replacement or improvement of eligible property reflected in a quarterly DSIC update.7
Nevertheless, the Commission seeks comment on what is the criterion to determine whether the prospective recovery amount has been surpassed, which would indicate when the stay-out period has elapsed and the utility may again continue to recover the fixed costs of eligible property reflected in the quarterly DSIC update. The Commission proposes that this criterion should be based upon the total aggregate dollar amount associated with the prospective eligible property placed in service as determined and set forth in the final order establishing the new base rates. The utility should specify the total aggregate amount that is associated with the prospective nature of the eligible property that is to be placed in service, as this is a portion of the baseline for setting the new base rates.
Additionally, the Commission proposes that utilities should continue to file quarterly DSIC updates reflecting the eligible property placed into service that was associated with a repair, replacement or improvement during the stay-out period even though they are unable to recover such costs. The primary purpose of a DSIC update is to reflect the additional eligible property that has been placed in service during the prior quarter and for which the utility is seeking cost recovery for under its DSIC mechanism. The Commission believes that the continuous filing of DSIC updates will help it to monitor and verify when the criterion has been met that indicates when the stay-out period has elapsed and the utility may again continue to recover the fixed costs of eligible property so as not to allow for the double-recovery of the fixed costs of eligible property under its DSIC mechanism.
3. Resetting DSIC Rate to Zero Due to Overearnings
As indicated above, for investor-owned utilities, a reset of the DSIC rate to zero is required if, in any quarter, data filed with the Commission in the utility's most recent annual or quarterly earnings report show that the utility will earn a ROR that would exceed the allowable ROR used to calculate its fixed costs under the DSIC. See 66 Pa.C.S. § 1358(b)(3).
The Commission acknowledges that an ongoing, uninterrupted DSIC mechanism appears to be cumulative in its effect. The Commission notes that the primary purpose of the quarterly DSIC update is to reflect the additional eligible property that the utility has placed in service during the prior three-month period ending one month prior to the effective date of each DSIC update. See 66 Pa.C.S. § 1357(a)(2). Thus, the utility is continually able to recover the fixed costs of all eligible property less depreciation that it has placed into service that is associated with a repair, replacement or improvement that is reflected in its quarterly DSIC update and that has not previously been reflected in the utility's rate base pursuant to a base rate proceeding.8
When a utility's financial earnings report indicates an overearning for a particular 12-month period, Act 11 requires that the utility's approved DSIC rate be reset to zero. See 66 Pa.C.S. § 1358(b)(3). However, the entirety of the fixed costs of the eligible property that was placed into service does not disappear. Rather, the DSIC rate is reset to zero or more specifically, presumed or deemed to be zero; thus, effectively prohibiting the utility from recovering its fixed costs for any eligible property under its DSIC mechanism during the overearnings period.
If the overearning period lasts only one quarter and then ceases, there appears to be no issue regarding the cumulative nature of the DSIC mechanism. The utility can again begin to recover the fixed costs for its cumulative eligible property less depreciation in the next quarterly DSIC update, which would include the new eligible property that has been placed in service during the three month period ending one month prior to the effective date of the DSIC update.
However, an issue seems to arise as to how the cumulative nature of the DSIC mechanism is impacted if overearnings persist for two or more successive quarters going forward. The Commission proposes that during the successive overearnings period, a utility with a DSIC mechanism is prohibited from recovering the current fixed costs of the eligible property that it had placed into service prior to the time that the successive overearnings period began to occur.
Nonetheless, how far back may the utility be able to go to recover the current fixed costs for eligible plant placed in service once the successive overearnings period ceases? If there has been two or more successive quarters of overearnings and then the overearnings cease to occur, may the utility recover the current fixed costs associated with its cumulative investment in eligible property less depreciation in the future quarter in which the utility is no longer in an overearning status?
The Commission proposes that the utility should be permitted to recover the current fixed costs of all eligible property after a successive overearnings period ceases. DSIC recovery for quarters subsequent to the period of overearnings may include the cumulative cost impact of DSIC eligible costs since the last base rate case. However, there would be no recovery through the 1307(e) reconciliation process of the otherwise DSIC eligible costs that were incurred during the period the utility experienced overearnings.
Finally, there appears to be an underlying issue with regard to the fact that a utility is experiencing successive quarters of overearnings and continuing to utilize its DSIC mechanism. If a utility is experiencing an overearning over a successive and consecutive period of time, this suggests that the utility's existing rates are allowing the utility to recover its costs and expenses and are more than sufficient to provide a fair return to investors and the utility. Therefore, the Commission seeks comment on whether it should require the utility to file a tariff supplement under Section 1308 of the Code to address its overearnings so that the utility can continue to use its DSIC to recover the fixed costs of the eligible property it has placed in service.
4. Residual E-Factor Portion of the DSIC Rate Upon a Reset of the DSIC Rate
A DSIC rate is reset to zero when one of the following occurs: (1) upon the effective date of new base rates that provide for the prospective recovery of the fixed cost of eligible property that has been placed in service or (2) when the utility experiences overearnings in a particular quarter. When the DSIC rate is reset to zero the utility cannot continue to recover under its DSIC mechanism the fixed costs of any eligible property that has been placed in service. However, should the utility have the ability to recover or refund the ongoing E-Factor and/or the residual E-factor amounts when the DSIC rate is reset to zero? This residual E-factor amount reflects an overcollection or undercollection upon a reconciliation of projected sales and projected revenue from the prior three-month DSIC period. Therefore, the Commission must determine what happens to any residual overcollections/undercollect- ions that would have been recovered by the utility under its DSIC mechanism if the DSIC rate had not been reset to zero. Accordingly, the Commission is focusing on the E-factor component of the DSIC rate calculation.
The formula for calculation of the DSIC rate is as follows:
DSIC = (DSI * PTRR)+Dep+e
PQRThus, there are two primary components to the DSIC rate calculation. The C-Factor is this portion of the DSIC rate calculation:
DSIC = (DSI * PTRR)+Dep
PQRwhich represents the current fixed costs of the eligible property. The E-Factor component of the DSIC rate calculation is for error correction of prior period over or under collections. The C-Factor calculation, which is the basic DSIC rate, is determined four times per year while the E-Factor, which reconciles over and under collections, is only determined once per year. Since the fixed costs associated with the repair, replacement or improvement of eligible property will be reflected in the base rates established after the Section 1308(d) base rate proceeding has concluded, the C-Factor truly ''zeros'' out upon the effective date of the new base rates.
However, there is a residual over or under collection amount reflected in the E-factor that results from the period the DSIC was billed to customers. Once the utility determines the specific amount of the residual over or under collection amount, since it most likely would not have the actual amount until sometime after the DSIC rate has been reset to zero, it should then file a tariff supplement to address that residual amount. Since the over or under collection relates to the prior recovery of approved costs, it appears reasonable that the utility should be required to refund any overcollection to customers and be entitled to recover any undercollections.
Accordingly, the Commission proposes that utilities with ongoing DSIC mechanisms should file a tariff supplement that revises their DSIC tariffs so that language is incorporated therein that allows the utility to file interim revisions to resolve the residual over/under collection or E-factor amount after the DSIC rate is reset to zero. In addition, if a utility seeks to recover an undercollection from customers or refund an overcollection amount to customers in a single quarter for the quarterly period commencing April 1st, this option should be clearly delineated in its tariff.
C. Computation of the DSIC Rate Cap
Section 1358(a)(1) provides that a DSIC may not exceed 5% of amounts billed (wastewater utility) or 5% of distribution rates billed (electric and natural gas utilities); however, upon petition, the Commission may grant a waiver of the 5% limit if necessary to ensure and maintain safe and reliable service. 66 Pa.C.S. § 1358(a)(1). Act 11 makes clear that the DSIC cap for energy utilities is to be applied to distribution revenues only. The Commission stated in the August 2nd Final Implementation Order that the rate cap is a bill limitation that is applied to the distribution rates of each customer, not to aggregated billing revenue. Furthermore, the Commission may grant such a waiver to increase the cap above 5% upon its review and consideration of the requisite petition from a utility. Conversely, Section 1358(a)(2) provides that a DSIC previously granted under Section 1307(g) or subsequently granted under Act 11 to a water utility may not exceed 7.5%.9 See 66 Pa.C.S. § 1358(a)(2).
Nevertheless, the statute does not specify the calculation of the DSIC rate cap. In order to accommodate the acceleration of much-needed infrastructure improvements certain utilities may request that the Commission either waive the 5% cap or exclude the E-factor annual reconciliation component from the computation of the rate cap. Clearly, the Commission has the statutory authority to increase the cap above 5% upon petition. However, it is unclear whether it has the statutory authority to exclude the E-factor component from the DSIC rate cap because it related to the time period in which the utility was authorized to charge and collect the designated DSIC rate. Therefore, the Commission seeks comment on whether it is feasible and in the public interest to allow this to occur and whether it has the statutory authority to do such.
D. Water Utility Long-Term Infrastructure Plans
Section 1360(a) provides that the Commission may accept a prior long-term infrastructure plan filed by a water utility or may require submission of a new LTIIP pursuant to Section 1360(b). Presently, the Commission has not established a due date for water utilities with previously approved DSICs to file long-term infrastructure improvement plans as it considered the substantial progress made in the water industry over the past 15 years in accelerating the rate of main replacements and other infrastructure improvements.
Nonetheless, the Commission proposes that now is the time for water utilities to file LTIIPs with the Commission in order to ensure that all utilities that are eligible to implement a DSIC are following uniform rules and procedures regarding Commission-approved DSIC mechanisms. The Commission tentatively proposes that all jurisdictional water utilities be required to file Act 11 LTIIPs by no later than September 30, 2016. The Commission will establish a staggered schedule for the water utilities to file their LTIIPs so that it will not have to consider each water utilities at the same time. The Commission solicits comments from water utilities regarding this tentative proposal.
Conclusion
The enactment of Act 11 provides utilities with an additional rate mechanism to recover the capitalized costs related to repair, improvement and replacement utility infrastructure. A DSIC can reduce regulatory lag, improve access to capital at lower rates, and accelerate infrastructure improvement and replacement. The purpose of this Supplemental Tentative Implementation Order is to propose additional procedures and guidelines necessary to implement Act 11 and to solicit public comment. Upon review of any comments from stakeholders, the Commission will issue a Supplemental final implementation order to establish final procedures and guidelines; Therefore,
It Is Ordered That:
1. A copy of this Tentative Supplemental Implementation Order shall be published in the Pennsylvania Bulletin and posted on the Commission's website at www.puc.state.pa.us.
2. Any interested party may submit comments regarding this Tentative Implementation Order within thirty (30) days of entry of publication in the Pennsylvania Bulletin.
3. All comments or other filings shall also be submitted to the Commission's Act 11 Resource Account at ra-Act11@pa.gov and provided electronically in Word-compatible format to David Screven, dscreven@pa.gov, in the Commission's Law Bureau, to Erin Laudenslager, elaudensla@pa.gov, in the Commission's Bureau of Technical Services and Lori Burger, lburger@pa.gov in the Commission's Bureau of Audits.
4. A copy of this Tentative Supplemental Implementation Order be served on all jurisdictional water and wastewater companies, electric distribution companies, natural gas distribution companies and Philadelphia Gas Works, and the statutory advocates.
ROSEMARY CHIAVETTA,
Secretary
[Pa.B. Doc. No. 15-2079. Filed for public inspection November 20, 2015, 9:00 a.m.] _______
1 At present, Petitions to implement a DSIC mechanism have been approved by the Commission for the following companies: PPL Electric Utilities (PPL), Columbia Gas of Pennsylvania (Columbia), Peoples Natural Gas Company—Equitable Division (PNGC-Equitable), Peoples Natural Gas Company, LLC (Peoples Gas), People's TWP, UGI—Penn Natural Gas, UGI—Central Penn Gas, Philadelphia Gas Works (PGW), Little Washington Wastewater Company (LWWC) and Pennsylvania American Wastewater Company (PAWC).
2 The separate DSIC provisions in Section 1307(g) providing for a sliding scale of rates for water utilities have been deleted in lieu of the general DSIC provisions established in Act 11.
3 See generally 66 Pa.C.S. § 1350 et seq.
4 On November 30, 2004, however, the Pennsylvania General Assembly signed into law Act 183 concerning alternative telecommunications regulation and broadband deployment. As a result of Act 183, the reporting requirements for the PUC jurisdictional telecommunications companies of Pennsylvania have been streamlined at section 3015(e) of the Public Utility Code. A quarterly earnings report is not listed among those reports now required of PUC jurisdictional telecommunications utilities in Pennsylvania and, therefore, this report does not address telephone company earnings.
5 In particular, the allowable cost of equity for the computation of the DSIC rate shall either be the equity return rate in the utility's most recent fully litigated base rate proceeding or, if that proceeding was over two years ago, the Commission uses the equity return rate used in the quarterly earnings report it prepares which sets forth the achieved return on equity for each company, the last allowed return for that utility, a market return as determined through the analysis of the barometer group data and the most recent returns allowed, per industry, by the Pennsylvania Public Utility Commission and by other regulatory bodies. This report is referred to as the Quarterly Report on the Earnings of Jurisdictional Utilities.
6 For city natural gas distribution operations, the Commission determined that it would monitor its interest levels and cash flows on a quarterly basis to determine whether a reset is required. See August 2nd Final Implementation Order at pp. 42-43.
7 This scenario would not be true only if the utility is experiencing an overearning over the applicable ROE (whichever ROE governs) at that time.
8 See generally 66 Pa.C.S. § 1357(d)(2).
9 If had been demonstrated that an increase over the then-current DSIC cap was necessary and in the public interest for water utilities, who had operated for many years under a 5DSIC cap.
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