GENERAL RATE CASE

1
GENERAL RATE CASE

• SAM REID
• MARK FROST
• KENTUCKY PUBLIC SERVICE COMMISSION

2
TYPES OF RATEAPPLICATIONS

• 807 KAR 5076. Alternative rate adjustment
  procedure for small utilities (ARF)
• 807 KAR 5001, Section 10. General Rate Case.

3
TYPES OF GENERALRATE CASES

• Historical
• Allows adjustments for for known and measurable
  changes
• Test Period the 12 consecutive calendar months

4
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.

5
REVIEW PROCESS

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

6
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

7
REVIEW PROCESS (Cont.)

• 8. Commission Reaches Decision Issues Final
  Order
• 9. Rehearing is Granted or Denied
• 10. Order on Rehearing Issued

8
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

9
FIELD REVIEW

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

10
FIELD REVIEW (Cont.)

• Invoices
• Test Period
• Six Months Prior
• From the test period to current date.
• Monthly customer usage records for the test
  period.

11
BILLING INFORMATIONFORMAT
Customer name Account number 12 months of usage Total
12
Billing Analysis

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

13
Data Quality

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

14
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

15
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.

16
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

17
ALLOCATION OF COMMON COSTS

• Shared Costs are Allocated - Eliminates cross
  subsidization.
• Cost Allocation System.
• No System - a basis for logical estimates must be
  determined.

18
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.

19
METHODS FOR DETERMINING A REVENUE REQUIREMENT

• Rate of Return
• Debt Service Coverage (DSC)
• Operating Ratio

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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.

21
DEPRECIATION EXPENSE

• General Rule
• Bond Ordinance
• Commission
• Exception Private Utilities - CIAC
• Straight-Line Depreciation Method
• Depreciation schedules available for review

22
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

23
Cost of Service Study

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

24
MAINTAIN RECORDS

• Use the appropriate system of accounts.
• Records should be
• Logical
• Well organized
• Well documented