OLR Bill Analysis

sSB 807 (File 108, as amended by Senate “A”)*

AN ACT CONCERNING WATER INFRASTRUCTURE AND CONSERVATION, MUNICIPAL REPORTING REQUIREMENTS AND UNPAID UTILITY ACCOUNTS AT MULTI-FAMILY DWELLINGS.

SUMMARY:

This bill establishes additional conservation-related principles that the Public Utilities Regulatory Authority (PURA) and municipal legislative bodies must consider when setting water company rates. It also requires (1) PURA and the Water Planning Council to identify and recommend conservation programs and (2) PURA to implement, under certain circumstances, a revenue adjustment mechanism to let water companies meet their allowed revenues regardless of their customers' water usage.

The bill also:

1. increases the maximum water infrastructure and conservation adjustment (WICA) from 7.5% to 10%;

2. expands the list of WICA eligible projects to include efficiency equipment, among other things;

3. allows a water company voluntarily acquiring an economically non-viable water company to receive a reasonable acquisition premium as part of a PURA approved rate surcharge;

4. exempts municipal water utilities from an annual reporting requirement to PURA; and

5. ends a requirement that the Office of Policy and Management prepare an annual report on the Water Planning Council's goals and recommendations.

In addition, the bill allows all utility companies to pursue post-judgment procedures against the owner of a building in receivership.

*Senate Amendment “A” (1) broadens the range of programs that PURA can consider in a proceeding to identify water conservation programs and (2) defines the actual and approved revenues to be used in determining a water company's revenue adjustment mechanism.

EFFECTIVE DATE: Upon passage

1, 4 — CONSERVATION-BASED RATE MAKING PRINCIPLES

The bill requires PURA to authorize water company rates that promote comprehensive supply-side and demand-side water conservation. It must also consider (1) state energy policies, (2) the capital intensive nature of supporting water systems that minimize water loss, and (3) the competition for capital to invest in water systems.

The bill requires PURA, and municipal legislative bodies setting water rates and charges for municipal water utilities, to consider:

1. demand projections that recognize conservation's effects,

2. implementing metering and measures to provide timely price signals to consumers,

3. multi-year rate plans,

4. measures to reduce system water losses, and

5. alternative rate designs that promote conservation.

To the extent that they might conflict, it is unclear what priority these new principles have in relation to the existing law's general rate making principles for PURA (CGS 16-19e).

2 — CONSERVATION PROGRAMS

The bill requires PURA to open a proceeding to identify any water and energy conservation programs, including measures approved in the water supply plans required by law, for which a water company could recover expenses in a general rate case if it (1) implements the programs and (2) shows, through publicly available information, that the program's expenses were reasonable and prudent.

The bill requires the Water Planning Council and Energy Conservation Management Board to submit a joint report that identifies and recommends conservation programs to PURA by January 1, 2014. The recommendations can include renewable energy use, meters and technology to promote timely price signals, and consumer programs such as monthly billing, water audits, and leak detection programs. PURA can consider the report in its proceeding to identify water company conservation programs or incorporate it into the Conservation and Load Management Plan it must develop by law.

3 — REVENUE ADJUSTMENT MECHANISM

The bill creates a revenue adjustment mechanism to allow a water company to make up the difference between its allowed annual revenue and actual annual revenue. Allowed annual revenue includes revenue approved by PURA in the company's:

1. last general rate case;

2. WICA; and

3. customer growth from a (a) PURA approved merger, (b) PURA ordered acquisition of another water company, or (c) voluntary acquisition of an economically non-viable water company.

Actual annual revenue includes the revenues received or accrued for water sales, including sales for resale and approved miscellaneous charges, from these PURA approved revenue sources.

The adjustment can be implemented through a rate modification (i.e., increasing present rates to make up the difference), a rate surcharge (i.e., an additional charge to make up the difference), or a balance sheet deferral that can be recovered in the company's next general rate case (i.e., raising future rates to make up the difference). (Existing law (CGS 16-19kk) requires PURA to implement rate making procedures that (1) encourage conservation and (2) modify or eliminate any direct relationship between a utility company's sales volume and earnings, including the adoption of a sales adjustment clause.)

Under the bill, any under-recovery, over-recovery, or deferred amounts from the previous year's adjustment must be included when calculating the subsequent annual adjustment or general rate case, whichever occurs first. (The bill does not specify, but presumably PURA would make these annual adjustments as part of the bill's requirement for it to annually authorize approved adjustment mechanisms.) The bill implements the adjustment mechanism through pending general rate cases, at a water company's request, and through general rate cases. Any company receiving the adjustment must file with PURA an annual reconciliation of actual revenues to allowed revenues, and include a report on the company's water demand changes and water conservation measures.

Pending Rate Cases

The bill requires PURA to include a revenue adjustment mechanism for any water company's draft or final general rate case pending when the bill is enacted. After approving the adjustment, PURA must annually authorize it until the company's next general rate case.

Water Company Requests

The bill requires PURA to start a limited reopener proceeding to approve a revenue adjustment mechanism for a requesting water company if the company's actual annual revenues are at least 1% less than its allowed annual revenue. Once the adjustment mechanism is approved, PURA must annually authorize it until (1) six years after the company's last general rate case or (2) the company's next general rate case, whichever comes first.

General Rate Cases

The bill requires PURA to approve a revenue adjustment mechanism at a water company's request during its general rate case. After approving the adjustment, PURA must annually authorize it until the company's next general rate case.

Earnings Sharing Mechanism

The bill also requires PURA to concurrently establish an earnings sharing mechanism that requires a water company's earnings beyond its allowed return on equity to be split between the company's ratepayers and shareholders.

6, 7 — WICA

The law allows a water company to receive a water infrastructure and conservation adjustment to help defray the costs of funding certain infrastructure projects between general rate cases. The bill adds to the list of WICA-eligible projects:

1. energy efficient equipment purchases for water company operations,

2. capital improvements needed to comply with river and stream flow regulations, and

3. reasonable and necessary system improvements required for a PURA approved water system acquisition.

The bill increases the maximum WICA from 7.5% to 10% of the company's annual retail water revenues approved in its last rate case. Under existing law, unchanged by the bill, a company's WICA cannot exceed 5% of the approved annual revenues for any 12-month period.

8 — ACQUISITION PREMIUMS

Existing law allows a water company (private or municipal) to voluntarily acquire another water company (private or municipal) deemed economically non-viable by PURA. Under these circumstances, the acquiring company can ask PURA to approve a rate surcharge to cover the acquisition costs and any improvements needed in the acquired system.

The bill allows this rate surcharge to include an additional reasonable acquisition premium. The premium is calculated by adding an acquisition's costs beyond the depreciated original cost to the rate base and amortizing it as an addition to expenses over a reasonable period of time with corresponding rate base reductions. Under the bill, PURA can allow the premium when a water company shows that a proposed acquisition will benefit customers by (1) enhancing system viability or (2) avoiding capital costs or saving operating costs.

Instead of imposing all or part of a rate surcharge, the bill also allows PURA to let the acquiring water company defer the acquisition costs' collection until the company's next general rate case. The bill allows PURA to award an acquiring water company a premium rate of return at its next general rate case if the company shows that a proposed acquisition will benefit customers by (1) enhancing system viability or (2) avoiding capital costs or saving operating costs.

5 — MUNICIPAL WATER COMPANY REPORTS TO PURA

Current law requires all municipal utility companies to submit annual status reports to PURA. The bill exempts municipal water companies from this requirement. It also exempts them from PURA's authority to (1) prescribe how to keep report-related records and (2) conduct report-related examinations.

9-11 — RESIDENTIAL BUILDING RECEIVERSHIPS

Existing law prohibits a utility from terminating service to a residential building's tenants for nonpayment if it knows that the building's owner, and not the tenants, is responsible for the bills and the tenants cannot receive service in their own names. When a building owner defaults under these circumstances, the law allows a utility to request that the courts appoint a receiver to collect the building's rents and fees to pay the ongoing utility bills. The bill allows a utility to additionally pursue a post-judgment procedure (e.g., a wage execution) against the owner to pay for its past due and ongoing bills. This provision applies to all utility companies, including municipal utilities.

COMMITTEE ACTION

Energy and Technology Committee

Joint Favorable Substitute

Yea

18

Nay

5

(03/07/2013)