AN ACT CONCERNING WATER COMPANY INFRASTRUCTURE PROJECTS

PA 07-139—sHB 7178

Energy and Technology Committee

Government Administration and Elections Committee

Environment Committee

AN ACT CONCERNING WATER COMPANY INFRASTRUCTURE PROJECTS

SUMMARY: This act authorizes the Department of Public Utility Control (DPUC) to allow a water company to use a rate adjustment (e. g. , a surcharge) in the period between rate cases in order to recover the depreciation, property taxes, and related return for certain company capital projects that have been completed. The act specifies how DPUC must establish a surcharge mechanism and how it would work.

EFFECTIVE DATE: Upon passage

DPUC ESTABLISHMENT OF THE SURCHARGE MECHANISM

Under the act, a water company may only use the adjustment to the extent allowed by DPUC based on the company's infrastructure assessment report, as approved by DPUC, and semi-annual filings by the company that reflect plant additions consistent with the report.

The act requires DPUC, by 90 days after the act's passage (after June 19, 2007), to begin a generic proceeding to determine what must be included in an assessment report. The act requires the report to identify the company's water system infrastructure needs and its criteria for determining which are priority projects. The proceeding must also specify the contents of an annual reconciliation report, described below. DPUC can hold a hearing to solicit input on the contents of these reports and on the criteria for determining project priority. It must issue its decision within 180 days after the deadline for interested parties to submit their recommendations.

ELIGIBLE PROJECTS

To be eligible for the adjustment mechanism, a capital project (1) must not have been previously included in the water company's rate base in its most recent rate case and (2) must be intended to improve or protect the quality and reliability of service. Eligible projects can include:

1. the renewal or replacement of existing infrastructure, such as mains and valves, that have reached the end of their useful life, are worn out, are deteriorated, are or will be contributing to unacceptable levels of unaccounted-for water, or are harmful to water quality or reliability of service if not replaced;

2. main cleaning and relining projects;

3. relocation of facilities as a result of government actions, when the capital costs are not otherwise eligible for reimbursement; and

4. purchasing leak detection equipment or installing production meters or pressure reducing valves.

APPLICATION FOR THE ADJUSTMENT

A water company seeking to use the adjustment mechanism must file the assessment report with DPUC. The report must identify the water system's infrastructure needs and the company's criteria for determining priorities among eligible infrastructure projects. In reviewing the report, DPUC must address the criteria specified in its proceeding. DPUC's approval criteria must include (1) the facilities' age, material, or condition; (2) the extent and frequency of main breaks or interruption of service; (3) adequacy of pressure; (4) head loss; (5) availability of fire flows; and (6) the projects' potential impact on system integrity and reliability.

DPUC APPROVAL OF ASSESSMENT REPORT

DPUC must approve an assessment report if the company demonstrates through generally accepted engineering practices that (1) the projects are eligible under the act; (2) they will benefit customers by improving water quality, system integrity, or service reliability; (3) they meet the criteria established for determining project priority; and (4) there is sufficient investment in infrastructure. DPUC may hold a hearing to solicit input on the infrastructure assessment report so long as it issues a decision within 180 days after the report is filed. If DPUC does not act on the report within this time, it is considered to be approved.

The act states that DPUC, in conjunction with the Office of Consumer Counsel, must conduct the proceeding pursuant to an existing law (CGS § 16-18a) that deals with the retention of consultants by these agencies. It is unclear how this law applies to this act.

IMPOSITION OF THE SURCHARGE

Upon DPUC approval of the assessment report, the company can impose a rate surcharge. No proposed surcharge or credit can become effective until DPUC has approved it in an administrative proceeding. DPUC must complete a hearing within 30 days after the filing of the application or within the timeframe established in the initial generic proceeding. DPUC may receive and consider comments of interested persons and the public at the proceeding, which shall not be considered a contested case. DPUC's approval or denial is not considered a DPUC order, authorization, or decision and therefore cannot be appealed to the courts. The adjustment must be calculated as a percentage, based on (1) the original cost of completed projects multiplied by the applicable rate of return, plus associated depreciation and property tax expenses related to the projects and (2) any reconciliation adjustment calculated as a percentage of the retail water revenues approved in the company's most recent rate filing versus the projected revenues for the regulated activities of the company. The first part of the approach is similar to how DPUC sets rates in a rate case.

Water companies can impose the surcharge for eligible projects on customers' bills at intervals of no less than six months, starting on January 1^st, April 1^st, July 1^st, and October 1^st each year.

If DPUC has not approved or denied an application as the act requires, the proposed surcharges or credits become effective at the company's option, pending DPUC's finding with respect to the charges. In such cases, the company must refund its customers any amounts collected from them in excess of the surcharges approved by DPUC in its finding.

The amount of the adjustment applied between general rate case filings cannot exceed 7. 5% of the company's annual revenues and 5% of revenues for any 12-month period. The amount of the adjustment must be reset to zero once new base rates are approved in a rate case or if the company exceeds its allowed rate of return by more than one percentage point for any calendar year. Water companies must notify customers through a bill insert or other direct communication when the adjustment is first applied after which it must appear as a separate item on the customers' bills.

RECONCILIATION REPORT

The act requires affected water companies to submit to DPUC, by each February 28, an annual reconciliation report through December 31 for any surcharge applied to customers' rates in the previous calendar year. The report must identify those parts of projects that have been completed. It must demonstrate that the adjustment was limited to eligible projects that were in service and used and useful as of the end of the calendar year. In addition, the report must indicate whether there have been any significant changes in the amount of infrastructure spending, the priorities for determining eligible projects, or the criteria established in the assessment report. The report must compare the revenues actually collected to the allowed amount of the surcharge.

If upon the completion of the report, DPUC determines that the company over-collected or under-collected the adjustment, the difference between the revenue and costs for eligible projects will be recovered or refunded, as appropriate, as a reconciliation adjustment over a one-year period beginning on April 1. The company must provide a refund to customers, with interest, for any over-collection, but the company is not eligible for interest for any under-collection.

OLR Tracking: KM: JM: PF: TS