GENERAL RATE CASE SAM REID & MARK FROST KENTUCKY PUBLIC SERVICE COMMISSION

TYPES OF RATE APPLICATIONS 807 KAR 5:076. Alternative rate adjustment procedure for small utilities (ARF) 807 KAR 5:001, Section 10. General Rate Case.

TYPES OF GENERAL RATE CASES Historical –Allows adjustments for for known and measurable changes –Test Period: the 12 consecutive calendar months

SUSPENSION 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 1.Application is Filed 3.Staff is Assigned to Case & Reviews Application 4.Staff Schedules Field Review

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.) 8.Commission Reaches Decision & Issues Final Order 9.Rehearing is Granted or Denied 10.Order onRehearing Issued

ASSISTANCE 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 General Ledger, Cash Receipts, and Cash Disbursements Journals. Copies of the Accountant's workpapers and year-end adjusting journal entries.

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 INFORMATION FORMAT Customer name Account number 12 months of usage Total

Billing Analysis  Summarization of customer bills  -By meter size  -Customer classification  Determines test year revenue  Show customer usage patterns

Data Quality Bill adjustments –Misread meters –Leak adjustments Usage should be adjusted as well as dollar amounts in billing information Remove Inactive accounts

Declining 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.) 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 Reconcile Books to Test Year Amounts Review: –Disbursements Journal –Adjusting Journal Entries –Proper Accrual Accounting –Invoices for Test Year Expenses

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 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 Rate of Return Debt Service Coverage (DSC) Operating Ratio

REVENUE 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 EXPENSE General Rule: –Bond Ordinance –Commission Exception: Private Utilities - CIAC Straight-Line Depreciation Method Depreciation schedules available for review

Cost 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 Study -Limits interclass and intraclass rate subsidies -Tracks costs and provides accurate price signals -Enhances revenue stability

MAINTAIN RECORDS Use the appropriate system of accounts. Records should be: –Logical –Well organized –Well documented