GENERAL RATE CASEGENERAL RATE CASE

SAM REID &

MARK FROSTKENTUCKY PUBLIC SERVICE COMMISSION

TYPES OF RATEAPPLICATIONSTYPES OF RATEAPPLICATIONS

• 807 KAR 5:076. Alternative rate adjustment procedure for small utilities (ARF)

• 807 KAR 5:001, Section 10. General Rate Case.

TYPES OF GENERALRATE CASES

TYPES OF GENERALRATE CASES

• Historical

– Allows adjustments for for known and measurable changes

– Test Period: the 12 consecutive calendar months

SUSPENSION PERIODSUSPENSION PERIOD

• ARF - Goal 90 Days

• General Rate Case - Historical:– Rates suspended for 5 months from the

effective date of the rates.

– Commission decision (Order) issued within 10 months.

REVIEW PROCESS REVIEW PROCESS

1. Application is Filed

3. Staff is Assigned to Case & Reviews Application

4. Staff Schedules Field Review

REVIEW PROCESS (Cont.)REVIEW PROCESS (Cont.)

4. Confirmation Letter mailed

5. Staff Conducts Field Review

6. Staff Prepares & Issues Report

7. If Requested: Informal Conference and/or Hearing is Scheduled

REVIEW PROCESS (Cont.)REVIEW PROCESS (Cont.)

8. Commission Reaches Decision & Issues Final Order

9. Rehearing is Granted or Denied

10. Order on Rehearing Issued

ASSISTANCE PROCESSASSISTANCE PROCESS

1. Request for Rate Case Assistance is filed with:

Beth O'Donnell

Executive Director

Public Service Commission

P.O. Box 615

Frankfort, KY 40602

FIELD REVIEW FIELD REVIEW

•General Ledger, Cash Receipts, and Cash Disbursements Journals.

•Copies of the Accountant's workpapers and year-end adjusting journal entries.

FIELD REVIEW (Cont.)FIELD REVIEW (Cont.)

•Invoices:– Test Period– Six Months Prior– From the test period to current date.

•Monthly customer usage records for the test period.

BILLING INFORMATIONFORMAT

BILLING INFORMATIONFORMAT

Customer name

Account

number

12 months of usage

Total

Account

Name Number Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

John Doe 11010 84900 73600 86100 99700 99300 94800 124300 86000 93100 107300 94000 104900 1159010

John Doe 11020 82400 61900 68100 76200 70700 59400 68700 59800 56100 70700 59700 60600 805320

John Doe 11030 39200 23900 56500 28900 21300 40800 60400 35600 33600 33300 30900 19800 435230

John Doe 11040 62900 37100 35800 48900 52600 58600 96400 68600 36700 44200 36500 51400 640740

John Doe 11050 18500 26200 18900 27700 22200 20600 25000 22400 22900 28100 22600 21900 288050

Billing AnalysisBilling Analysis

Summarization of customer

bills-By meter size

-Customer classification

Determines test year revenue

Show customer usage patterns

Data QualityData Quality

•Bill adjustments – Misread meters– Leak adjustments

•Usage should be adjusted as well as dollar amounts in billing information

•Remove Inactive accounts

Declining BlockDeclining Block

First 2,000 gallons $15.00 Min. Bill

Next 3,000 gallons 4.00 per 1,000 gallons

Next 5,000 gallons 3.50 per 1,000 gallons

Over 10,000 gallons 3.25 per 1,000 gallons

FIELD REVIEW (Cont.)FIELD REVIEW (Cont.)

•Supporting Documentation for pro forma adjustments.

•Schedule of employees– job duties;– length of employment;– test-period salary;– date of pay increases and current

salary.

REVIEW OF TEST YEAR OPERATIONS

REVIEW OF TEST YEAR OPERATIONS

• Reconcile Books to Test Year Amounts

• Review:– Disbursements Journal– Adjusting Journal Entries– Proper Accrual Accounting– Invoices for Test Year Expenses

ALLOCATION OF COMMON COSTS

ALLOCATION OF COMMON COSTS

• Shared Costs are Allocated - Eliminates cross subsidization.

• Cost Allocation System.

• No System - a basis for logical estimates must be determined.

ADJUSTMENTS TO TEST Period

ADJUSTMENTS TO TEST Period

• Adjusts Test period numbers to reflect 12 months of normal, on-going operations.

• Adjustments MUST be BOTH known and measurable.

• Adjustments must be adequately documented.

METHODS FOR DETERMINING A REVENUE

REQUIREMENT

METHODS FOR DETERMINING A REVENUE

REQUIREMENT

Rate of Return

Debt Service Coverage (DSC)

Operating Ratio

REVENUE REQUIREMENTREVENUE REQUIREMENT

Level of revenue required for a utility:

–to properly operate and maintain its system;

–meet its financial obligations;

–basis for determining the annual revenue to collected from rates.

DEPRECIATION EXPENSEDEPRECIATION EXPENSE

• General Rule: – Bond Ordinance– Commission

• Exception: Private Utilities - CIAC• Straight-Line Depreciation Method

• Depreciation schedules available for review

Cost of Service StudyCost of Service Study

ALLOCATION of costs of providing water service to various types of customers

RECOVERS those costs through a rate structure that is fair, just and reasonable

Cost of Service StudyCost of Service Study

-Limits interclass and intraclass rate

subsidies

-Tracks costs and provides accurate

price signals

-Enhances revenue stability

MAINTAIN RECORDSMAINTAIN RECORDS

• Use the appropriate system of accounts.

• Records should be:–Logical

–Well organized

–Well documented