1. TRWA/TWCA Water Law Seminar Waves of Change January 11–12, 2017
Rate Case & Rate Appeals Before the PUC: Regulatory & Litigation Developments
TRWA/TWCA Water Law Seminar
Waves of Change
January 11–12, 2017

2. 2016 Texas Water Law Institute
11/4/2016
Transfer to PUC
nd Legislature, the Sunset Advisory Commission:
“the state could benefit from transferring regulatory functions related to water and wastewater utilities to PUC.”
PUC Update

3. Transfer to PUC 2013 - 83rd Legislature:
the Sunset Advisory Commission reaffirmed the recommendation that water and wastewater utility ratemaking functions be transferred to PUC. 
Subcommittees of the Senate Natural Resources Committee and Business and Commerce Committee held hearings that established support for ending the one-size-fits-all treatment for IOU rate setting.

4. Proponents Stated Benefits*
Ensure fairness by:
“Modernizing” the rate setting process;
Giving Office of Public Utility Counsel standing to intervene and represent residential and small commercial consumers in water rate cases;
ending the current practice of allowing the utilities to charge proposed rates while the case proceeds through the hearing process;
*Per House Research Organization

5. Proponents Stated Benefits*
establishing three classes of IOUs and provide time lines to guide the ratemaking process;
giving utilities more certainty on the time line for obtaining a final rate determination; and
giving the smallest IOUs a mechanism to keep up with rising costs without going through a costly rate proceeding.
*Per House Research Organization

6. Proponents Stated Benefits*
Compare what is spent now on a case that can drag on indefinitely to a case that may require more paperwork but would be resolved in 150 days (Class A) and 185 days. NOW 265 days (Class B)
The intent … can certainly not be to raise costs.
If … bill resulted in higher costs for rate cases, those issues could be addressed in the future with the addition of streamlined mechanisms for all utility classes.
*Per House Research Organization

7. Opposition Stated Concerns*
Would not result in cost savings, better governance, or relief to ratepayers.
Would complicate regulating water and sewage service in Texas.
*Per House Research Organization

8. Opposition Stated Concerns*
PUC rate application filing requirements are more extensive than at the TCEQ and would require a greater expenditure at the outset because the PUC requires expert written testimony submitted with the application.
*Per House Research Organization

9. Opposition Stated Concerns*
While the PUC offers a shorter timeframe for a final rate determination, the PUC discovery rules allow for unlimited levels of discovery, the costs of which would be significant.
*Per House Research Organization

10. Rate cases & appeals

11. Water/Sewer Rate Proceedings
Rates
Original Applications
Retail Appeals
Wholesale Appeals

12. Rate Appeals Retail Water Code §13.043 (a) & (b)
Cities (a), Districts (b), etc.
De Novo Proceedings
Several Active Proceedings
Generally dealing with same issues as original applications

13. Rate Appeals Wholesale Water Code §13.043(f) Public Interest Test
Petition Of The Cities Of Garland, Mesquite, Plano And Richardons Appealing The Decision By North Texas Municipal Water District Affecting Wholesale Water Rates, filed 12/14/16 (Docket 46662)
Appeal Of M.E.N. Water Supply Corporation, Angus Water Supply Corporation, Chatfield Water Supply Corporation, Corbet Water Supply Corporation, And The City Of Kerens For Review Of A Decision By The City Of Corsicana To Set Wholesale Water Rates, filed 12/9/14 (Docket 43931)
Currently Abated

14. Rate Appeals Wholesale Water Code §13.044
Specific circumstances
No Public Interest Test
Petition Of Shady Hollow Municipal Utility District From The Ratemaking Actions Of The City Of Austin And Request For Interim Rates In Travis County, filed 10/28/16 (Docket 46483)
Petition Of The North Austin Municipal Utility District No. 1, Northtown Municipal Utility District, Travis County Water Control And Improvement District No. 10, And Wells Branch Municipal Utility District From The Ratemaking Actions Of The City Of Austin And Request For Interim Rates In Williamson And Travis Counties, filed 4/12/13 (Docket 42857)
On Appeal

15. Rate Issues at PUC Rate Applications Abatement of Rate
Confidentiality of Documents
Unlimited Discovery
Justification of Expenses
Rate Base
Rate of Return
Rate Case Expenses

16. Water and Sewer Rate Cases
Abatement of Rates
Standard Practice to Abate Implementation of Rates
Interim Rates Available if Staff and Other Parties Agree

17. Confidential Filings All documents filed with PUC on interchange
All accessible to public
Unless designated as confidential
Standard Protective Order issued
Addresses Public Information Act requirements
Judges raising questions about need for confidential filings
Confusion of “confidential” under PIA vs “privileged” for private companies under TRE

18. Discovery
TWENTY rounds of RFIs from PUC Staff in large utility case (22,000 customers)
Four rounds of RFIs (150+) from PUC Staff in small utility case (250 customers)

19. Expenses Water Code §13.185(d)
Net income is the total revenues of the utility less all reasonable and necessary expenses as determined by the regulatory authority. The regulatory authority shall:
(1) base a utility's expenses on historic test year information adjusted for known and measurable changes, as determined by utility commission rules; …

20. Expenses Invoices, Invoices, Invoices… Justification
They want them; you need them.
Justification
Benchmarking of costs by PUC Staff based upon Staff experience.

21. Determining Rate Base PUC practice to fix rate base if not already set
Water Code §
… the regulatory authority shall fix its overall revenues at a level that will permit the utility a reasonable opportunity to earn a reasonable return on its invested capital used and useful in rendering service to the public
Water Code §
[T]he utility commission may not prescribe any rate that will yield more than a fair return on the invested capital used and useful in rendering service to the public.

22. Determining Rate Base What is sufficient to prove rate base?
TWC §
Utility rates shall be based on the original cost of property used by and useful to the utility in providing service ….

23. Rate of Return Application Formula? Expert Testimony
Only if not contested per PUC Staff
Expert Testimony
Adjustments in Return on Equity
Reasonable Debt Rate
Capital structure (D/E Ratio)

24. Rate Case Expenses Docket 45570 (Monarch) Docket 44809 (Quadvest)
$ Unknown
Severed to Docket 46216
22,000 customers
Docket (Quadvest)
$220,000 (through prefiled case)
~8800 customers
Recommended Reductions of $34,000+
Docket (Corix)
$340,000 (through prefiled case)
~4000 customers
Recommended Approval and Currently Abated
Docket (Consumers Water)
$16,000 (through direct filing)
~2000 customers
Recommended Denial (51% rule)
Docket (Wiedenfeld)
$147,000 est. (through end of case)
~715 customers
Settled.
Docket (Rio Concho)
$105,000 (through end of hearing)
~240 customers

25. Rule changes

26. Chapter 22 Rulemaking Proceedings
New Procedural Rules -16 TAC Chapter 22
Docket No – Adopted
Rulemaking related to Motions to Dismiss
Docket No – Adopted 11/15/16
Chapter 22 Procedural Rules - Phase II - Water and Sewer Utilities

27. Chapter 22 Rulemaking Proceedings
Docket No – Highlights
Still Have to File Hard Copies in Person
Commissioners’ staff Have access to ALL confidential filings
Must include Address with all Pleading signatures
WSC Tariffs must comply with PUC formatting and citation requirements

28. Chapter 22 Rulemaking Proceedings
Docket No – Highlights
Can request service by motion
ALJ Discretion
Mandatory if all parties request
If a party has no access to the internet or , must file statement as part of FIRST pleading

29. Chapter 24 Rulemaking Proceedings
Docket No – Adopted 11/14/16
Rulemaking Proceeding to Amend 16 Tex. Admin. Code § (TAC)
Relating to Water/Sewer Pass Through Clauses and Surcharge Rules
Docket No – Adopted 12/02/16
Rulemaking Project to Amend Chapter 24 for Water/Sewer Rules for Rate Appeals
Implements SB 1148 (2015) regarding information about customers outside city limits

30. Chapter 24 Rulemaking Proceedings
Docket No – Adopted 06/09/16
Rulemaking to Amend Chapters 22 and 24 ‒ Implementation of Senate Bill 1148
Relating to Emergency Orders/Rates and Notice of Applications

31. Chapter 24 Rulemaking Proceedings
Docket No
Project to Simplify Class B Water and Sewer Rate Filing Package Form, Notice and Instructions for 1,200 or Less Connections
No Action yet
Docket No
Minor Amendments to the Class B Water & Sewer Rate Filing Package Form, Instructions & Notice
No Action Yet

32. Chapter 24 Rulemaking Proceedings
Docket No – Adopted 11/14/16
Minor Amendments to the Class C Water & Sewer Rate Filing Package Form, Instructions & Notice

33. 2016 Texas Water Law Institute
11/4/2016
Helpful Websites
Public Utility Commission
PUC Interchange
interchange.puc.texas.gov
Texas Legislature
Texas Water Code, Chapter 13 (Utilities)
PUC Update

34. 2016 Texas Water Law Institute
11/4/2016
QUESTIONS?
John Carlton (512)
PUC Update