NOTICES
Implementation of Act 11 of 2012
[46 Pa.B. 6402]
[Saturday, October 8, 2016]Public Meeting held
September 15, 2016Commissioners Present: Gladys M. Brown, Chairperson; Andrew G. Place, Vice Chairperson; John F. Coleman, Jr.; Robert F. Powelson; David W. Sweet
Implementation of Act 11 of 2012; M-2012-2293611
Supplemental Implementation Order By the Commission:
On February 14, 2012, Governor Corbett signed into law Act 11 of 2012 (Act 11), which, inter alia, amended Chapter 13 of the Pennsylvania Public Utility (Code) by incorporating a new Subchapter B, Sections 1350 through 1360 of the Code, which deals with distribution (and collection) systems and allows certain utilities to petition the Commission to implement an additional rate mechanism, known as a distribution system improvement charge (DSIC) to recover the costs related to the repair, replacement or improvement of eligible distribution property. See 66 Pa.C.S. §§ 1350—1360.
By a Tentative Supplemental Order entered November 5, 2015, in the proceeding in Implementation of Act 11 of 2012, Docket Number M-2012-2293611 (''November 5th Tentative Supplemental Implementation Order'' or ''TSIO''), the Commission acknowledged that various discrete issues regarding the implementation of the DSIC surcharge mechanism that were not fully addressed in previous DSIC-related orders had arisen. Accordingly, via TSIO, the Commission solicited comments so as to take further steps to adopt procedures regarding additional implementation issues that have developed over time.
Background
On February 14, 2012, Governor Corbett signed into law Act 11 of 2012 (Act 11), which, inter alia, amended Chapter 13 of the Pennsylvania Public Utility (Code) so as to allow water and wastewater utilities, electric distribution companies (EDCs), and natural gas distribution companies (NGDCs) or a city natural gas distribution operation to implement a DSIC surcharge mechanism which would allow them to offset the additional depreciation and to recover the prudent capital costs associated with certain non-revenue producing, non-expense reducing capital expenditures related to the repair, replacement or improvement of eligible distribution property.
Specifically, Act 11 was passed in order to reduce the historical regulatory lag of recovering the costs related to capital infrastructure expenditures by providing ratemaking flexibility for utilities seeking timely recovery of prudently incurred costs related to the repair or replacement of distribution infrastructure between rate cases and before new base rates have become effective. In particular, Act 11 incorporated new statutory provisions in Chapter 13, based on the existing DSIC that has been used for over 15 years in the water utility industry,1 to accelerate the pace of water pipeline replacement and improvements. Under Act 11, the DSIC mechanism is also now available to EDCs, NGDCs, wastewater utilities, and city natural gas operations and will allow those utilities to recover the reasonable and prudently incurred costs related to the acceleration of the repair, improvement and replacement of utility infrastructure on a timelier basis, subject to reconciliation, audit and other consumer protections.2
On May 11, 2012, the Commission in Implementation of Act 11 of 2012 entered a Tentative Implementation Order (May 11th Tentative Implementation Order) at Docket Number M-2012-2293611, soliciting comments on proposed procedures and guidelines necessary to implement Act 11, including a DSIC process for investor-owned energy utilities, city natural gas distribution operations, and wastewater utilities and to facilitate a transition from the Section 1307(g) water DSIC procedures to Act 11 DSIC procedures. After reviewing the comments filed in response to the May 11th Tentative Implementation Order, the Commission issued the August 2nd Final Implementation Order at the above-referenced docket, which established the procedures and guidelines necessary to implement Act 11 and included a Model Tariff for DSIC filings.
Subsequently, to date, the Commission has approved sixteen petitions to implement a DSIC surcharge mechanism under the Act 11 legislation. Petitions were filed and approved for six EDCs, seven NGDCs, one city natural gas distribution operation, and two wastewater companies.3 However, since those utilities have initiated their DSIC mechanisms, various implementation issues that were not specifically addressed in our August 2nd Final Implementation Order have arisen.
Hence, the Commission issued its November 5th Tentative Supplemental Implementation Order, in order to solicit comments on the manner it should resolve additional implementation issues regarding the DSIC mechanisms that had arose upon the Commission approving various DSIC Orders of eligible jurisdictional utilities.4 The Office of Consumer Advocate (OCA), the Office of Small Business Advocate (OSBA), the Energy Association of Pennsylvania (EAP), Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company and West Penn Power (collectively referred to as ''the FE Companies'' or ''FE''), PP&L Electric Utilities Corporation (PPL), Pennsylvania American Water Company (PAWC), Aqua Pennsylvania, Inc. (Aqua), York Water Company (York Water) filed comments to the TSIO. The Commission has reviewed the filed comments and also held in person meetings with various stakeholders to fully discuss all of the issues. Per this Order, the Commission is addressing and resolving the additional DSIC-related implementation issues.
Discussion
The DSIC mechanism allows a utility to add to customer rates the recovery of the fixed costs (i.e., depreciation and pretax return) for (1) any eligible plant associated with a repair, replacement or improvement that was not previously reflected in the utility's rates and rate base and (2) has been placed into service as a repair, replacement or improvement during the three-month period ending one month (i.e., quarterly with a one month lag) prior to the effective date of the DSIC mechanism. See 66 Pa.C.S. § 1357(a)(1)(ii). Thereafter, in order to continue to recover the fixed costs of eligible property that is placed into service and associated with an acceleration of its repair, replacement or improvement program through its DSIC mechanism, the utility must provide quarterly DSIC updates that reflect the eligible property that has been placed in service during the three-month period ending one month prior to the effective date of the DSIC update. See 66 Pa.C.S. § 1357(a)(2). Accordingly, the utility is permitted to recover on an ongoing basis (i.e., every three months) the fixed costs of eligible property placed into service that is associated with a repair, replacement or improvement.
Section 1358(d) of the Code provides that the Commission may establish procedures to adjust the DSIC rate, when applicable, by order or regulation. See generally 66 Pa.C.S. § 1358(d)(2). As more fully explained below, the Commission sought comments and is addressing the following additional issue areas regarding the implementation, operation and computation of the DSIC:
• requiring quarterly financial reports for all utilities that use the DSIC mechanism;
• filing and computation issues for when the DSIC is reset to zero;
• treatment of over/under collections, or E-factor, after the DSIC is reset to zero;
• computation issues for determining the DSIC rate cap; and
• requirement to file an LTIIP by water utilities that use the DSIC.
A. Uniform Financial Earnings Reports Requirement
1. Quarterly Financial Earnings Reports
In the TSIO, the Commission proposed that all jurisdictional utilities that have implemented a DSIC mechanism, including those utilities that are not required to file earnings reports under 52 Pa. Code § 71.3, should begin to file quarterly earnings reports with the Commission regardless of the amount of their overall operating revenues.
Comments
No party filed objections to this proposal.
Resolution
66 Pa.C.S. § 1358 directs the Commission to use financial earning reports to monitor the rates of return for companies that have implemented a DSIC mechanism to determine if the utility has experienced earnings above its allowed rate of return or ''overearnings.'' See 66 Pa.C.S. § 1358(b)(3). In practice, the Commission compares the filed return on equity (ROE)5 figure from schedule D-2 of the financial earnings report to the allowable equity return rate for the computation of the DSIC rate to determine if the utility can continue to recover under its DSIC mechanism the fixed costs of the eligible property that is reflected in its next quarterly DSIC update or if its DSIC rate must be adjusted. See generally 66 Pa.C.S. § 1358(b)(3). Pursuant to the statutory directive in Act 11, the DSIC rate is then reset to zero if, in any quarter, the data reflected in the utility's most recent quarterly financial earnings report show that the utility will earn an overall rate of return that would exceed the allowable rate of return used to calculate its fixed costs under the DSIC mechanism. See 66 Pa.C.S. § 1358(b)(3).
The Commission regulations at 52 Pa. Code § 71.3 set forth different filing report requirements for certain fixed utilities based upon overall revenues. See 52 Pa. Code § 71.3. Currently, some utilities file twelve-month financial earnings reports on a quarterly basis and some file one twelve-month financial earnings report on an annual basis. See 52 Pa. Code § 71.3(a)(b). Id. The Commission notes that the jurisdictional utilities that are required to file only an annual financial report for the previous 12-month calendar year in accordance with 52 Pa. Code § 71.3(b) do not submit their respective annual financial report to the Commission until March 31st of the following year, within ninety days after the end of the 12-month period ending December 31st. As a result, if that utility has experienced any overearnings for some portion of the preceding year, under the current financial earnings reporting regimen, these utilities will continue to recover the fixed costs of eligible property under their DSIC mechanisms throughout the year. The same scenario could also apply to utilities that have annual intrastate gross revenues in excess of $1M but that are not even required to file earnings reports with the Commission.
Consequently, certain utilities with DSIC mechanisms would continue to reap the benefit of their DSIC mechanism even though they may have experienced overearnings. As Section 1358(b)(3) of the Code directs, a utility's DSIC rate should be reset to zero at the time they begin to experience an overearning; thus, permitting a utility to continue to reap the benefit of its DSIC mechanism even though it has experienced overearnings is contrary to the consumer protection embedded within the Act 11 statute and also unfair to consumers and those utilities that are required to file quarterly financial earnings reports. Accordingly, the Commission directs that all jurisdictional utilities that have implemented a DSIC mechanism, including those utilities that are not required to file earnings reports under 52 Pa. Code § 71.3 because their annual revenues do not exceed $1 million, begin to file quarterly earnings reports with the Commission. This new quarterly filing earnings report requirement for all jurisdictional utilities having a DSIC mechanism will commence with the March 31, 2017 quarterly filing going forward.
2. Exemption from Filing an Earnings Report During the Pendency of a Base Rate Case
In the TSIO, the Commission requested comment on eliminating the exemption under 52 Pa. Code § 71.4(c), which exempts a utility from filing a quarterly financial earnings report when the utility has a pending general rate increase (base rate case) under 66 Pa.C.S. § 1308(d) or 1310 (relating to voluntary changes in rates; rates fixed on complaint; investigation of costs of production; and temporary rates) for companies with an active and positive DSIC rate.
Comments
The EAP, the First Energy Companies, Aqua and PAWC stated they are opposed to eliminating the 71.4(c) exemption. The OCA and the OSBA both support the elimination of the quarterly earnings report exemption under 52 Pa. Code § 71.4.
Resolution
We acknowledge the commentators' observations that utilities provide detailed information on future earnings in base rate cases as evidence to verify that the utility is under-earning and to support the request for a general rate increase and requiring them to file quarterly ''high-level'' earnings reports during the pendency of a rate case is redundant, unnecessary and burdensome. Thus, we agree with the EAP, the First Energy Companies' and PAWC's comments regarding the quarterly earnings report exemption under 52 Pa. Code § 71.4(c). The Commission declines to eliminate this exemption and thus, utilities with an active and positive DSIC rate do not have to file quarterly earnings reports during the pendency of a base rate case.
B. Customer Protections—DSIC Rate Reset to Zero
In the TSIO, the Commission proposed procedures on the manner in which a utility should reset its DSIC rate to zero when it meets the circumstances set forth in 66 Pa.C.S. § 1358(b)(1)—(3). Specifically, the DSIC rate is required to be reset to zero on the effective date of new base rates that provide for the prospective recovery of the annual fixed costs of eligible property that were previously recovered under the utility's DSIC mechanism. 66 Pa.C.S. § 1358(b)(1). Additionally, if a utility's quarterly financial earnings report reflects an overearning for that particular quarter, the utility is required to reset its DSIC rate to zero. 66 Pa.C.S. § 1358(b)(3).
1. DSIC Rate Reset to Zero
a. DSIC Rate Reset to Zero Upon Effective Date of New Base Rates
In the TSIO, the Commission proposed that utilities requesting a general rate increase under Section 1308(d) of the Code incorporate a reference to the DSIC rate being reset to zero within the tariff supplement initiating the general rate increase request.
Comments
EAP agreed that the tariff supplement to initiate a Section 1308(d) general rate increase should also state that the DSIC will be reset to zero upon the effective date of the new rates. EAP Comments at 4. PPL supports this proposal and recommends that it be adopted. PPL Comments at 5. Additionally, the First Energy Companies stated that they did not oppose the Commission's proposition of providing advance notice in the tariff supplement as to when its DSIC rate will be reset to zero. FE Comments at 4. Both Aqua and York Water state that they agree that a utility should incorporate a reference to resetting its DSIC rate to zero in the tariff supplement requesting an increase in base rates under Section 1308(d) of the Code. Aqua Comments at 6; York Water Comments at 2.
Resolution
The Commission notes that no party opposed this proposal. Further, the Commission determines that incorporating a reference that the DSIC rate will be reset to zero within the tariff supplement requesting a general rate increase provides sufficient advance notice of the DSIC reset upon the effective date of new base rates. Generally, when a utility requests a general rate increase under Section 1308(d) of the Code, the Commission suspends the filed tariff supplement by operation of law and sends it to the Office of Administrative Law Judge (OALJ) for hearings and investigation on the lawfulness of the rate. Thereafter, upon the conclusion of the base rate case proceeding before the OALJ, the utility is directed via an order to file a compliance tariff supplement pursuant to Section 1308(a) to effectuate the proposed rate increase. Accordingly, the Commission directs that as a part of a Section 1308(a)-compliance tariff, utilities should incorporate a reference to the DSIC rate being reset to zero simultaneously with the effective date of the new base rates.
In those [rare] instances where a utility files for a non-general rate increase, which is a rate increase that is less than three percent of total gross intrastate revenue, and it is not subjected to the suspension and investigation process, the Commission directs the utility to incorporate a reference to resetting the DSIC rate within the 1308(a) tariff supplement reflecting the non-general rate increase. This obviates the need to file a subsequent Section 1308(a) tariff supplement to reset the DSIC rate to zero upon the effective date of the non-general base rates.
b. Stay-Out Period After Effective Date of New Base Rates
When a utility with a DSIC mechanism files for a general rate increase under Section 1308(d) of the Code, 66 Pa.C.S. § 1308(d), and new base rates become effective, the utility is required to reset its DSIC rate to zero as of the effective date of the new base rates. 66 Pa.C.S. § 1358(b)(1). After resetting the DSIC rate to zero following the effective date of new base rates, only the fixed costs of new eligible property set forth in the quarterly DSIC update that was not previously reflected in base rates or recovered in the utility's rates (i.e., previously recovered under the DSIC mechanism) may be recovered through the DSIC mechanism. 66 Pa.C.S. § 1358(b)(2). Thus, in order for a utility to begin to recover again the fixed costs of eligible property placed in service that is associated with a repair, replacement or improvement after the DSIC rate has been reset to zero because of new base rates, it must submit a quarterly DSIC update that reflects only eligible property that meets the above criteria (has not been previously reflected in the utility's rates or rate base). See generally 66 Pa.C.S. §§ 1357(a)(2), 1357(d)(3) and 1358(b)(2). The Commission refers to this as a ''stay-out'' period because the utility cannot utilize its DSIC mechanism until the costs associated with new eligible property and incorporated within the DSIC quarterly update reflects costs that have not been accounted for or recovered in the utility's rates or rate base.
The Commission sought comment on what should be the criterion to determine whether the prospective recovery amount has been surpassed which would trigger the elapsing of the stay-out period. The Commission proposed that in each base rate case, the actual rate filing as well as the final order must specify the total aggregate dollar amount associated with the prospective eligible property placed in service for the forecast year.
Comments
The OSBA agrees with the Commission's proposal but requests clarification on whether the aggregate dollar amount refers to gross plant or net plant totals. OSBA Comments at 3. The OSBA states that the Commission should clarify that it is referring to net plant, rather than gross plant, and notes that any settlement of a base rate case will need to specify that amount. Id. The OCA proffered two clarifications: (1) only the fixed costs of new, additional investment will be eligible for recovery in a positive DSIC rate and (2) the final order establishing new base rates should specify the total aggregate dollar amount that is associated with the DSIC-eligible property that is used to set rates. OCA Comments at 7.
The OCA explains that both of these clarifications recognize that the base rate used to determine revenue requirement can be a contested issue in the rate case that is resolved through settlement or litigation. OCA Comments at 8. The OCA states that if the Commission adopts its clarification, it will support the Commission's proposal for resuming a positive DSIC rate after a base rate case, because, in OCA's view, these proposals will help the parties and Commission to monitor and ensure that costs recovered in base rates are not also recovered in the DSIC rate. Id. The OCA states that these proposal are consistent with the base rate case settlements where the Commission has approved terms specifying that the DSIC ''stay-out'' would continue until eligible property account balances exceed the levels agreed upon for purposes of the settlement. Id. Lastly, the OCA also supports the Commission's proposal that utilities continue to file DSIC quarterly updates, even during the entirety of the stay-out period. Id.
The FE Companies state that they are not opposed to the Commission's proposal that the total dollar amount of eligible property placed in service as determined in the rate case final order should be the criterion to determine when the stay-out provision after a base rate case has elapsed. FE Companies at 5. However, the FE Companies state opposition to the requirement that utilities should continue to file quarterly DSIC updates reflecting the eligible property placed into service that was associated with a repair replacement or improvement during the stay-out period even though they are unable to recover. Id. The EAP states no opposition to the Commission's proposal adopting the level of DSIC eligible property as the criterion for determining the length of the stay-out period. EAP Comments at 6. Nevertheless, EAP notes that none of its member companies seeks to ''double-recover'' costs and, therefore, does not see a need for a utility to continue to provide DSIC quarterly update information during the stay-out period. Id.
Additionally, Aqua states that it disagrees with the Commission's recommendation that utilities should continue to file quarterly DSIC updates during the stay-out period. Aqua Comments at 7. Aqua states that the continuous filing of DSIC quarterly update is not necessary to monitor or verify when the criterion was reached to determine if the stay-out period has been surpassed. Id. Aqua proposes that when a utility company has come to the end of its FPFTY and files its first quarterly DSIC update, the utility company should include a statement acknowledging the satisfaction of the stipulation criterion for reinstating the DSIC rate. Id.
York Water states that the amounts identified in rates should be the total amounts projected to be spent in DSIC-eligible accounts rather than specifically identifying replacement versus new infrastructure in those accounts. York Comments at 2. Additionally, York Water states that it disagrees with this proposal and suggests various options that it asserts accomplish the same goal. York Water Comments at 2.
Resolution
The Commission believes that the length of the ''stay-out'' period should be able to be determined based upon whether the applicable total aggregate costs, or gross plant, associated with the DSIC-eligible property that is used to set base rates has been exceeded. The base rates established in a general rate case are designed to recover all prudent costs for capital, labor, materials, and input services used in the production function. The calculation of rates is developed on the device of a ''test year,'' which is a 12-month period that is to be representative of operating conditions when the rates being established will be in effect. The test year can consist of a future test year or a fully projected future test year (FPFTY) as its baseline for setting new base rates. See 66 Pa.C.S. § 315. As such, a utility requesting to establish new base rates pursuant to a filing under Section 1308(d) of the Code, is seeking to recover the costs of all DSIC-eligible plant in service, plus the DSIC-eligible plant that is projected to be in service either within 9 to 21 months depending on if the utility has used a future test year or a FPFTY to calculate its rates. In other words, if a utility has used a future test year or a FPFTY as the basis for the projection of the costs of all the DSIC-eligible plant that it will place in service, the new base rates should provide for the prospective recovery of the annual costs of all the DSIC-eligible property placed into service and that was previously being recovered under the utility's DISC mechanism.
The Commission determines that if a utility has surpassed the prospective recovery amount associated with all of the DSIC-eligible plant placed in service and which was previously reflected in the utility's base rates or projected to be in service as a result of using a future test year or FPFTY, it is then eligible to begin to recover again the fixed costs associated with any new repair, replacement or improvement of DSIC-eligible property reflected in that quarterly DSIC update. The Commission directs that the total aggregate costs that are associated with the DSIC-eligible property projected to be in service and used to set the base rates for the utility should be specified in the final order issued in the proceeding to establish the utility's new rates, whether the final order results from a litigated proceeding or ''black-box'' settlement. The Commission recognizes the importance of including this criterion in the final order establishing the new base rates. The Commission notes the OSBA's request for clarification on this issue and states that we are referring to gross plant, rather than net plant, and notes that any settlement of a base rate case should specify that amount correlating to gross plant. Accordingly, the utility should specify the total aggregate cost, that is, the gross plant cost before any depreciation or amortization, that is associated with the eligible property (i.e., new or additional investment) that is to be placed in service, as this is a portion of the baseline for setting the new base rates.
The primary purpose of a DSIC update is to reflect the additional eligible property that has been placed in service during the prior quarter and for which the utility is seeking cost recovery for under its DSIC mechanism. Thus, as set forth in the Code, in order to continue to recover the fixed costs of eligible property that is placed into service and associated with a repair, replacement or improvement through its DSIC mechanism, the utility must provide quarterly DSIC updates that reflect the eligible property that has been placed in service during the three-month period ending one month prior to the effective date of the DSIC update. See 66 Pa.C.S. §§ 1357(a)(2) and 1357(c)(3). As noted above, the Commission, utilities and interested parties will use the DSIC quarterly updates to determine whether the prospective recovery amount in the final order setting the utility's rates has been surpassed so as to indicate when the stay-out period has elapsed and the utility may again continue to recover the fixed costs of eligible property reflected in the quarterly DSIC update. Hence, quarterly DSIC updates are integral to the utility identifying the relevant eligible property and the proper calculation of the fixed costs associated with that eligible property. See 66 Pa.C.S. § 1357(d)(2). In order to accurately track the criterion, the Commission directs that utilities should continue to file quarterly DSIC updates reflecting the eligible property placed into service that was associated with a repair, replacement or improvement during the stay-out period even though they are unable to recover such costs. The Commission believes that the continuous filing of DSIC updates will help it to monitor and verify when the criterion has been met that indicates when the stay-out period has elapsed and the utility may again continue to recover the fixed costs of eligible property so as not to allow for the double-recovery of the fixed costs of eligible property under its DSIC mechanism.
c. Resetting DSIC Rate to Zero Due to Overearnings
In the TSIO, the Commission noted that there is a lag period between the filing dates of the quarterly earnings report and the filing dates of the quarterly DSIC updates. Certain jurisdictional fixed utilities are required to file quarterly reports for the 12-month period ending on March 31st, June 30th, September 30th and December 31st of each year. The first three 12-month period quarterly financial earnings reports for the year, the March 31st, June 30th, September 30th reports, are due to be filed within sixty (60) days of the end of the 12-month reporting period while the fourth quarter 12-month period quarterly financial earnings report, the December 31st report, is due within ninety (90) days of the quarter ending December 31st of each year.
However, quarterly DSIC updates become effective on April 1st, July 1st, October 1st and January 1st of each year. Thus, if the data reflected in the utility's most recent quarterly financial earnings report show that it has experienced an overearnings for that quarter, presumably its DSIC rate will be reset to zero until the following quarter or three months reflected in that next quarterly DSIC update. 66 Pa.C.S. § 1358(b)(3). Accordingly, in the TSIO, the Commission proposed that because of this lag time between the utility addressing the overearnings indicated in its quarterly financial earnings report and resetting its DSIC rate to zero, utilities should file a tariff supplement reflecting a zero DSIC rate simultaneously with the filing of their next quarterly DSIC update, effective upon ten-day's notice, if the utility is overearning.
Comments
PPL expressed support for this proposal and recommended that the Commission adopt it. PPL Comments at 5. York Water states that it concurs that the tariff supplement to reset the DSIC rate to zero because of overearnings should be filed simultaneously with the next quarterly DSIC update. York Water Comments at 2. The OCA also summarily agreed with the Commission's proposal on this issue. However, to deal with the lag time between the quarterly DSIC updates and the filing of the financial earnings report, the OCA recommended that the tariff supplement to reset the DSIC rate become effective on one day's notice or, in the alternative, recommended that the Commission change the deadline for filing the annual financial report for the twelve months ending December 31 to 60 or 75 days.
Resolution
As mentioned above, the Commission has directed that all utilities with a DSIC mechanism should begin to file their 12-month financial earnings reports on a quarterly basis—March 31st, June 30th, September 30th and December 31st. However, the Commission notes it has also directed the utilities with a DSIC mechanism to schedule the effective dates of their proposed DSIC updates, and the corresponding period for eligible plant additions that will be reflected in each update, to align quarterly with the months of April, July, October, and January (April 1st, July 1st, October 1st and January 1st). Consequently, there is a lag time between the utility addressing the overearnings indicated in the quarterly financial earnings report and resetting its DSIC rate to zero. Historically, it seems utilities have not reset the DSIC rate to zero to address the overearnings until the following Act 11 quarterly DSIC update was filed. This seems plausible as it may be likely that the utility does not already have an indication or knowledge that it has experienced overearnings until the time it files its quarterly financial earnings report.
However, to be consistent with the consumer protection goals of Section 1358(b)(2) of the Code, the utility should immediately address the overearnings and reset its DSIC rate to zero as this is a protection to ensure that consumers are not charged a DSIC when the utility is overearning. Consequently, we are modifying the initial proposal that was in the TSIO on this issue. To effectuate fully this valid consumer protection provision, the Commission directs utilities that determine they are overearning to file a tariff supplement reflecting a zero DSIC rate effective upon one-day's notice immediately after filing or simultaneously with the filing of the quarterly financial earnings report indicating that the utility is overearning, instead of waiting until the utility files the next quarterly DSIC update resetting the rate to zero in order to address the overearnings. Thus, in order to facilitate this reset to zero, the Commission directs that utilities with a DSIC mechanism incorporate an interim tariff rate adjustment clause in the earnings report section of their respective DSIC tariffs. See Model Tariff as Appendix A.
d. Cumulative Nature of DSIC Mechanism after Resetting DSIC Rate to Zero Due to Overearnings
As indicated above, for investor-owned utilities, a reset of the DSIC rate to zero is required if, in any quarter, data filed with the Commission in the utility's most recent annual or quarterly earnings report show that the utility will earn a ROR that would exceed the allowable ROR used to calculate its fixed costs under the DSIC. See 66 Pa.C.S. § 1358(b)(3). The Commission acknowledges that an ongoing, uninterrupted DSIC mechanism appears to be cumulative in its effect. Thus, the utility is continually able to recover the fixed costs of all eligible property less depreciation that it has placed into service that is associated with a repair, replacement or improvement that is reflected in its quarterly DSIC update and that has not previously been reflected in the utility's rate base pursuant to a base rate proceeding. See generally 66 Pa.C.S. § 1357(d)(2). However, the Commission had questions regarding whether the cumulative nature of the DSIC mechanism is affected when a utility's overearnings lasts more than two or more successive quarters and then ceases. The Commission sought comments on whether the utility may recover the current fixed costs associated with its cumulative investment in eligible property less depreciation in a future quarter in which the utility is no longer in an overearning status? The Commission also sought comment on whether it should require the utility to file a tariff supplement under Section 1308 of the Code to address successive overearnings in order for the utility to continue to use its DSIC mechanism to recover the fixed costs of the eligible property it has placed in service.
Comments
York Water states that it agrees with the Commission's proposal that the DSIC recovery for quarters subsequent to the period of overearnings may include the cumulative cost impact of DSIC-eligible costs since the last rate case. York Water Comments at 3. The EAP opposes the Commission's suggestion regarding the decision of when and why to file a rate case generally rests with the utility. EAP Comments at 6. EAP notes that the Code already provides a means for the Commission to initiate a proceeding if it believes a utility is consistently overearning. Id. The FE Companies support the Commission's proposal that the utility should be permitted to recover current fixed costs of all eligible property after an overearning period ceases. FE Companies Comments at 6. The FE Companies also state that tariff supplements to address successive overearnings should be permitted but not required. FE Companies Comments at 7.
The OCA states that it recognizes that the entirety of the fixed costs of DSIC-eligible property that was placed into service does not disappear during the time the utility is not permitted to charge a positive DSIC due to overearning. OCA Comments at 9. Thus, it does not oppose the Commission's proposal to allow depreciated recovery of cumulative investment if only the net depreciated book value of the prior plant is recovered in the DSIC once the overearnings cease. Id. The OCA states that various factors would have to be thoroughly considered before directing a utility to file for a rate adjustment pursuant to Section 1308(a) of the Code. Id. The OSBA supports the proposal that when a DSIC rate is reset to zero after an overearning quarter, but subsequently goes back into effect after due to under earnings, the new DSIC rate will include a return of and on the investment made during the period it was reset to zero, but it will not include the unrecovered costs incurred during that period. OSBA Comments at 3. However, the OSBA also states that any previous inadvertent DSIC recovery should be credited to ratepayers. Id.
Resolution
It is commonly accepted that during the successive overearnings period, a utility with a DSIC mechanism is prohibited from recovering the current fixed costs of the eligible property that it has placed into service during the overearnings period. As well, a utility cannot recover the costs of any DSIC-eligible plant it had placed into service prior to the time that the successive overearnings period began to occur. The DSIC is no longer positive but has been reset to zero. However, since the DSIC mechanism is cumulative in nature even if overearnings persist for two or more successive quarters going forward, the Commission determines that after a period (i.e., a quarter) of overearning or even after multiple periods of overearning, the utility can recover the cumulative fixed costs, less depreciation, for all of the DSIC-eligible property it had placed in service since the last base rate case in the next quarterly DSIC update filed after overearnings. Thus, the quarterly DSIC update that is filed immediately after the overearnings period would include the new eligible property that had been placed in service during the three month period ending one month prior to the effective date of the DSIC plus the total depreciated cost of any DSIC-eligible plant that was placed in service but was not previously reflected in the utility rates or projected to be in service and used to set the base rates for the utility.
The Commission determines that a utility should be able to recover the cumulative investment costs of all eligible property less depreciation after a successive overearnings period ceases, including the cumulative net depreciated book value fixed cost of DSIC-eligible plant that was placed into service but was not previously reflected in the utility's or projected to be in service and used to set the base rates for the utility. Thus, the Commission determines that the utility may recover the fixed costs associated with its cumulative investment in eligible property less depreciation in the future quarter in which the utility is no longer in an overearning status. However, there would be no recovery through the 1307(e) reconciliation process of the otherwise DSIC eligible costs that were incurred during the period the utility experienced overearnings.
Finally, there appears to be an underlying issue with regard to the fact that a utility is experiencing successive quarters of overearnings. If a utility is experiencing an overearning over a successive and consecutive period of time, this suggests that the utility's existing rates are allowing the utility to recover its costs and expenses and are more than sufficient to provide a fair return to investors and the utility. In the TSIO, the Commission expressed a concern regarding a utility experiencing multiple and successive overearnings as it relates to the viability of its DSIC mechanism. Nevertheless, the Commission acknowledges that the impact of the utility's overearning is minimized by the consumer protection statutory provision that requires the DSIC rate to be reset to zero. Essentially, prohibiting the utility from charging customers a DSIC rate and from recovering the fixed costs of the eligible property it has placed in service during the overearnings period. Moreover, the Commission takes note of the EAP's statement that the Code already provides a means for the Commission to initiate a proceeding if it believes a utility is consistently overearning. We agree with this. Therefore, there is no need for us to direct in this instant Order that a utility with a DSIC mechanism that is experiencing multiple and successive overearnings must initiate a rate adjustment via a Section 1308(a) filing in order to address its overearning situation.
2. Residual E-Factor Portion of the DSIC Rate Upon a Reset of the DSIC Rate
A DSIC rate is reset to zero when one of the following occurs: (1) upon the effective date of new base rates that provide for the prospective recovery of the fixed cost of eligible property that has been placed in service or (2) when the utility experiences overearnings in a particular quarter. When the DSIC rate is reset to zero the utility cannot continue to recover under its DSIC mechanism the fixed costs of any eligible property that has been placed in service. However, there is a residual E-factor amounts that reflect an over collection or under collection upon a reconciliation of projected sales and projected revenue from the prior three-month DSIC period. In the TSIO, the Commission sought comment on whether a utility should have the ability to recover or refund the ongoing E-Factor and/or the residual E-factor amounts when the DSIC rate is reset to zero.
Comments
EAP agrees that the utility tariff should clearly provide that the recovery/refund of any over/under collections will continue even if the DSIC rate has been reset to zero either because the utility is overearning or new base rates have been established. EAP Comments at 7. The FE Companies state that they do not oppose filing tariff supplements to resolve residual over or under collections. FE Comments at 7. Also the FE Companies suggests that the Commission propose specific tariff language for such revisions, and provide an additional period for review and comment. Id. York Water states that it agrees with the Commission that utilities should be able to continue to collect or refund the residual over/under collection or E-factor amount. York Water Comments at 4.
The OCA states that the point of the Act 11 reset provision is to avoid the utility recovering amounts through the DSIC when its base rates are already causing overearnings. OCA Comments at 11. The OCA states is it consistent with this purpose to reduce the DSIC rate below zero to reflect an over collection and would also avoid the utility carrying the over collection and increasing the interest it has to pay to ratepayers. Id. The OCA further states that when it comes to an under collection, it would not be consistent with the purpose of the reset provision to charge a positive DSIC rate as the utility is overearning, and ratepayers do not need to fund infrastructure investment through the DSIC that includes the under collected amounts. Id. Accordingly, the OCA states that the utility should not be permitted to carry forward and accrue interest on the under collection after the overearnings period. Id. The OSBA supports the proposal that utilities can still collect or credit the residual over/under collection balance when the DSIC rate is reset to zero. The OSBA states that resetting the DSIC rate to zero should essentially mean that the going forward of C-Factor component of the DSIC rate is set to zero. The OSBA further states that prior period over or under collections, for periods when a positive DSIC was in effect, should continue to be passed through to ratepayers.
Resolution
The Commission must determine what happens to any residual over/under collections that would have been recovered by the utility under its DSIC mechanism if the DSIC rate had not been reset to zero. Let us first look at the E-factor which is a component of the DSIC rate calculation.
Currently, the formula for calculation of the DSIC rate that was set forth in the Model Tariff attached to the August 2nd Final Implementation Order and adopted by those utilities that have implemented a Commission-approved DISC mechanism is as follows:
(DSI * PTRR)+Dep+e DSIC = ______
PQR Nevertheless, there are two primary components to the DSIC rate calculation. The first component of the DSIC rate calculation is the C-Factor which is represented in the following manner:
(DSI * PTRR)+Dep ______ PQR and represents the current fixed costs of the eligible property. The second component of the DSIC rate calculation is the E-Factor that reflects an error correction of prior period over or under collections and is reflected in the following manner:
e ____ PQR Thus, these two separate components are added together and makeup the DSIC rate calculation and the Commission now determines the DSIC rate calculation should be as follows:
(DSI * PTRR)+Dep + e
DSIC = ______ ______
PQR PQR
The C-Factor calculation, which is the basic DSIC rate, is determined four times per year while the E-Factor, which reconciles over and under collections, is only determined once per year. Since the fixed costs associated with the repair, replacement or improvement of eligible property will be reflected in the base rates established after the Section 1308(d) base rate proceeding has concluded, the C-Factor truly ''zeros'' out upon the effective date of the new base rates.
The E-factor reflects the residual over or under collection from the prior periods the DSIC was billed to customers. The Commission believes that utilities can still collect or credit the residual over/under collection balance when the DSIC rate is reset to zero. Since the over or under collection relates to the prior recovery of approved costs, it appears reasonable that the utility should be required to refund any overcollection to customers and be entitled to recover any under collections for the prior time period. As to any accrued interest, the utility is being permitted to accrue interest on over collections per the statute, but not for any under collection amount. 66 Pa.C.S. § 1358(e)(3). Once the utility determines the specific amount of the residual over or under collection amount, since it most likely would not have the actual amount until sometime after the DSIC rate has been reset to zero, it should then file a tariff supplement to address that residual amount. Accordingly, utilities with ongoing DSIC mechanisms should file a tariff supplement that revises their DSIC tariffs so that language is incorporated therein that allows the utility to file interim revisions to resolve the residual over/under collection or E-factor amount after the DSIC rate is reset to zero. See Appendix A, Revised Model Tariff.
C. Annual Reconciliation and Quarterly Reconciliation
The Commission notes that Act 11 states that a utility may recover the difference between revenue and costs from the annual reconciliation based on a reconciliation period consisting of the twelve months ending December 31st of each year in the normal manner which is a one-year period beginning April 1st and quarterly thereafter or may be permitted to quarterly reconciliation. See 66 Pa.C.S. § 1358(e)(1)(ii). Therefore, in order to give effect to this statutory provision and permit a utility seeking to recover an under-collection from customers or refund an overcollection amount to customers in a single quarter for the quarterly period commencing April 1st, this option should be clearly delineated in its tariff. See Appendix A, Revised Model Tariff.
D. Computation of the DSIC Rate Cap
Section 1358(a)(1) of the Code, 66 Pa.C.S. § 1358(a)(1) and (2), provides a cap for the DSIC rate. Specifically, the DSIC rate cap may not exceed 5% of amounts billed (wastewater utility) or 5% of distribution rates billed (electric and natural gas utilities); however, upon petition, the Commission may grant a waiver of the 5% limit if necessary to ensure and maintain safe and reliable service. 66 Pa.C.S. § 1358(a)(1). Thus, in order to accommodate the acceleration of much-needed infrastructure improvements certain utilities may request that the Commission waive the 5% rate cap.
Clearly, the Commission has the statutory authority to increase the cap above 5% upon petition. However, the statute does not specify the calculation of the DSIC rate cap and whether utilities may be permitted to exclude the E-factor annual reconciliation component from the computation of the rate DSIC cap. For example, if a utility experiences an under collection E-Factor for the reconciliation period, this under-collection E-Factor will reduce the amount of dollars allowed to be recovered for new DSIC eligible plant during the subsequent DSIC application period of April through March. Under collections result from the utility overstating their projected revenues when calculating the quarterly DSIC updates. This over projection of revenues could result from a mild winter (for gas and electric utilities); or a very wet summer (i.e., less watering) or drought conditions causing water usage restrictions (for water utilities). If a utility experiences an under-collection, which reduces the dollars available for current DSIC cost recovery, the utilities are unable to realize the full benefit of the original intent of the law, which was to accelerate the replacement of DSIC eligible property up to a capped percentage of distribution revenue without having to file a base rate case. Therefore, in the TSIO, the Commission sought comment on whether it is feasible and in the public interest to allow this to occur and whether it has the statutory authority to do such.
Comments
EAP states that it does not believe that the legal issue of whether the Commission possesses the statutory authority to exclude the E-factor component from the DSIC rate cap is ripe for resolution in this Order. EAP Comments at 8. The FE Companies state that they are unaware of a statutory provision that would allow the Commission to exclude the E-factor from the C-factor and still comply with the rate description set forth in Section 1358(e) of the Code, which addresses the E-factor and the C-factor uniformly. FE Companies Comments at 8. The FE Companies conclude that the five percent DSIC cap should apply to the entire rate without exclusion of over or under collection contained in the E-factor. Id. PPL recommends that the E-factor reconciliation component be excluded from the computation of the DSIC rate cap. PPL Comments at 12. PPL states that the E-factor is related to the over/under collection of DSIC eligible costs for the prior recovery period. Id. PPL asserts that the E-factor component from the prior recovery period should be excluded from the DSIC rate cap for the current recovery period because it relates to the time period in which the utility was authorized to charge and collect the designated DSIC rate. Id.
PAWC asserts that the Commission has the necessary statutory authority to exclude the E-factor from the DSIC rate cap. PAWC Comments at 7. PAWC advocates for the exclusion of the E-factor from the calculation of the rate cap by stating that it is not actually included in the DSIC mechanism. Id. PAWC further states that the public interest will be served by excluding the E-factor as there is a positive and negative E-factor. Id. York Water asserts that the E-factor should be excluded from the calculation of the rate cap because it applies to previous periods and not to the current period's charges. York Water Comments at 5. York states the E-factor works both ways, as a positive or negative number, it is in the public interest to exclude it. Id. Additionally, York Water states that the E-factor is a separate mechanism reconciled separately showing results of previous DSIC periods. Id.
Aqua states that the Commission has the authority to exclude the E-factor in the calculation of the DSIC cap. Aqua Comments at 8. Aqua asserts that the Commission has been granted latitude in Section 1358(d) of the Code, 66 Pa.C.S. § 1358(d), to prescribe the specific procedures to be followed to approve the DSIC mechanism. Aqua Comments at 9. Aqua also states because the calculation of the DSIC rate cap is not specified in the statutory language, it is within the Commission's authority to determine the details of the calculation. Id.
The OCA states that the Code clearly prohibits exclusion of the E-factor component from the calculation of the DSIC rate cap. OCA Comments at 11. The OCA states that the amount billed to customers is the bottom line amount of the customer's distribution bill (water and gas) and total bill (water and wastewater) as set forth in 66 Pa.C.S. § 1358(a)(1) and (2). Id. The OCA states that the DSIC rate, by definition, is a distribution rate. Thus the OCA concludes that every component of the DSIC rate, including the E-factor component, is a distribution rate. Id. The OSBA states that it is not in the public interest and does not even address the statutory authority question. OSBA Comments at 4. The OSBA explains that excluding the E-factor from the DSIC rate cap would create an incentive for utilities to load forecasts so that they can recover more costs than permissible under the five percent DSIC rate cap. Id. The OSBA states that this would essentially allow utilities to ''game'' their DSIC filings to ensure under collections in order to circumvent the DSIC rate cap. Id. The OSBA further states that the DSIC rate cap is a basic consumer protection embedded in the Code and no waiver of the inclusion of the E-factor, as a component of the overall DISC rate cap, is included within the Code. OSBA Comments at 5.
Resolution
One discrete issue raised in this proceeding is whether the Commission has the authority to exclude the E-factor reconciliation component from the computation of the DSIC cap.6 Clearly, Act 11 gives the Commission authority to waive the cap upon petition of a utility. The question at hand is whether the Commission has the authority to completely exclude the E-factor from the calculation of the DSIC rate cap without a utility first justifying it pursuant to the standards in 66 Pa.C.S. § 1358(a)(1). This section of Act 11 provides that a rate cap can be waived if it will ''. . . ensure and maintain adequate, efficient, safe, reliable, and reasonable service.''
The Office of Consumer Advocate (OCA) submits that ''[e]xclusion of the E-factor from calculation of the rate-cap has the same effect as a direct waiver of the DSIC rate cap—to increase the rates above the statutory 5% or 7.5%.'' (OCA Comments at 12). The FirstEnergy Companies point out that the E-factor and the C-factor are both described together in 66 Pa.C.S. § 1358(e). Further, the FirstEnergy Companies state they are unaware of a statutory provision that would allow the Commission to exclude the E-factor from the C-factor and still comply with Section 1358. (FirstEnergy Companies Comments at 7-8).
The Commission agrees with the comments presented by OCA and the FirstEnergy Companies. Act 11 does not empower the Commission to universally disaggregate the E-factor from the DSIC calculation. Rather, Act 11 only grants the Commission the authority to waive the DSIC rate cap upon petition of an individual utility. The form of this waiver may come in the exclusion of the E-factor, in an increase of the rate cap to a new percentage, or in whatever form that a utility validly claims is necessary to ensure safe and reliable service. Such waivers must be made on a case-by-case basis and substantiated within the context of a utility's petition. Accordingly, the Commission determines that the E-factor is not a severable component and should not be excluded from the calculation of the DSIC rate cap.
E. Water Utility Long-Term Infrastructure Plans
Section 1360(a) provides that the Commission may accept a prior long-term infrastructure plan filed by a water utility or may require submission of a new LTIIP pursuant to Section 1360(b). Presently, the Commission has not established a due date for water utilities with previously approved DSICs to file long-term infrastructure improvement plans as it considered the substantial progress made in the water industry over the past 15 years in accelerating the rate of main replacements and other infrastructure improvements. However, in the TSIO, the Commission tentatively proposed that it was now time for water utilities to file LTIIPs with the Commission in order to ensure that all utilities that are eligible to implement a DSIC are following uniform rules and procedures regarding Commission-approved DSIC mechanisms. The Commission also gave a tentative schedule for all jurisdictional water utilities to file LTIIPs pursuant to Act 11. The Commission sought comments from water utilities regarding its tentative proposal.
Comments
PAWC states that directing water companies to file an LTIIP after more than eighteen years after the passage of the water DSIC legislation is counterintuitive. PAWC Comments at 8. PAWC notes that the water companies have accelerated infrastructure improvement and much-needed repairs for several years without an LTIIP. Id. Thus, PAWC requests that only those water companies that had not already implemented a DSIC mechanism under the prior legislation, now repealed Section 1307(g), should be required to file an LTIIP (in order to implement a DSIC mechanism pursuant to Act 11). Id.
Additionally, Aqua states that the General Assembly specifically exempted water utilities from filing LTIIPs and that it does not believe that an added layer of reporting through the LTIIP is necessary for water companies that have been utilizing a DSIC mechanism for many years simply for the purpose of uniformity. Aqua Comments at 9.
Further, York Water asserts that the LTIIP is a prerequisite for utilities in order to determine that it had an outline or plan to actually do qualified repairs, replacements and improvements before the Commission allowed it to implement a DSIC mechanism. York Water Comments at 5. York Water states that water utilities that already have implemented a DSIC, pre-Act 11 enactment, have already filed the actual qualified projects as they have been undertaken and are already collecting the DSIC, making the LTIIP unnecessary for water utilities. Id.
The OCA states that it supports standardizing the requirements of water utilities with the Act 11 legislation and statutory requirements. The OCA further states that the September 30, 2016 deadline for submittal of an LTIIP set forth in the TSIO should only apply to the six water companies that chose to implement a DSIC mechanism under the 1997 legislation. All other water companies seeking to implement a DSIC mechanism for the first time would have to follow the rule and procedures of Act 11.
Resolution
It is understood that Act 11 was enacted to allow EDCs, NGDCs, wastewater utilities, and city natural gas operations to implement a DSIC mechanism as had been done for water utilities previously. So all of these categories of jurisdictional utility types can now recover the reasonable and prudently incurred costs related to the repair, improvement, and replacement of utility infrastructure pursuant to a Commission-approved DSIC mechanism. The Commission acknowledged that in order to qualify for DSIC recovery, under Act 11, a utility is required to submit a LTIIP for Commission approval. See 66 Pa.C.S. § 1352(a). This statutory provision ensures that the DSIC repairs, improvements, and replacements to eligible property are being made consistent with the schedule set forth in the LTIIP that has carefully examined the utility's current distribution infrastructure, including its elements, age, and performance and that also reflects reasonable and prudent planning of expenditures over the course of many years to replace and improve aging infrastructure in order to maintain the safe, adequate, and reliable service required by law. See 66 Pa.C.S. § 1501.
The Commission's ultimate goal is to ensure that all utilities that have implemented a Commission-approved DSIC mechanism are following uniform rules and procedures. As we previously stated in the TSIO, the Commission believes it is now time for water utilities to begin to comply with many of the requirements of Act 11, including filing an LTIIP with the Commission. Therefore, the Commission directs the water utilities that have implemented a DSIC mechanism under the now repealed 1997 legislation to file an LTIIP pursuant to Act 11 within 180 days of the entry of this Order. The Commission will issue a Secretarial letter setting forth a staggered schedule for those water utilities with active DSICs implemented pursuant to the pre-Act 11 legislation to comply with the above 180-day filing mandate.
As we directed in the August 2nd Final Implementation Order, the long term infrastructure plan should include a review of all distribution plant, including its inventory, age, functionalities, reliability and performance. The LTIIP should also include a general description of the location of the eligible property and a reasonable estimate of the quantity of eligible property to be improved. See 66 Pa.C.S. § 1352(a)(3) and (a)(4). Additionally, the LTIIP should include a schedule for the planned repair and replacement of eligible property. See 66 Pa.C.S. § 1352(a)(2).
The Commission notes that the water utilities have already taken substantial steps to address their aging infrastructure, nevertheless, there is an expectation that the LTIIP should reflect how the DSIC will maintain or augment acceleration of infrastructure replacement and prudent capital investment over the water utility's historic level of capital improvement going forward. Lastly, the Commission is empowered to order a new or revised plan if the utility's proposed LTIIP is not adequate. See 66 Pa.C.S. § 1352(a)(7). All of these LTIIP requirements are now applicable to water companies and we suggest that the water utilities reacquaint themselves with our August 2nd Final Implementation Order which lays out the manner in which the LTIIP will be processed and reviewed by the Commission.
Conclusion
The enactment of Act 11 provides utilities with an additional rate mechanism to recover the capitalized costs related to repair, improvement and replacement utility infrastructure. A DSIC mechanism reduces regulatory lag, improves access to capital at lower rates, and accelerates infrastructure improvement and replacement. The purpose of this Supplemental Implementation Order is to address fully the discrete issues that had arisen regarding the implementation of the DSIC surcharge mechanism at this point in time but were not fully addressed in previous DSIC-related orders and to finalize procedures and guidelines for those various issues. The Commission will review the tariff filings and claims made under this Supplemental DSIC Implementation Order and will, after notice and opportunity to be heard, adjudicate any disputes as they arise. On the other hand, the requirement that water utilities file a LTIIP shall be effective as set forth in the below ordering paragraph; Therefore,
It Is Ordered That:
1. A copy of this Final Supplemental Implementation Order shall be published in the Pennsylvania Bulletin and posted on the Commission's website at www.puc.pa.gov.
2. All jurisdictional utilities with a Commission-approved DSIC mechanism shall file a tariff in compliance with the Model Tariff attached as Appendix A within forty-five (45) days of entry of this Order.
3. All water utilities that have implemented a DSIC mechanism pursuant to the repealed 1307(g) must file a LTIIP within one hundred and eighty (180) days of the entry of this Order in accordance with the schedule set forth in the Commission's subsequently-issued Secretarial letter.
4. A copy of this Final Supplemental Implementation Order be served on all jurisdictional water and wastewater companies, electric distribution companies, natural gas distribution companies and Philadelphia Gas Works, and the statutory advocates.
ROSEMARY CHIAVETTA,
Secretary
Appendix A
[Pa.B. Doc. No. 16-1748. Filed for public inspection October 7, 2016, 9:00 a.m.] _______
1 The separate DSIC provisions in Section 1307(g) providing for a sliding scale of rates for water utilities have been deleted in lieu of the general DSIC provisions established in Act 11.
2 See generally 66 Pa.C.S. § 1350 et seq.
3 At present, Petitions to implement a DSIC mechanism have been approved by the Commission for the following companies: PPL Electric Utilities (PPL), PECO, Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company, West Penn Power, Columbia Gas of Pennsylvania (Columbia), Peoples Natural Gas Company—Equitable Division (PNGC—Equitable), Peoples Natural Gas Company, LLC (Peoples Gas), People's TWP, UGI—Penn Natural Gas, UGI—Central Penn Gas, PECO—Gas, Philadelphia Gas Works (PGW), Little Washington Wastewater Company (LWWC) and Pennsylvania American Wastewater Company (PAWC).
4 We note that certain DSIC issues and related accounting parameters are implicated in the implementation of the newly enacted Section 1329 of the Public Utility Code, 66 Pa.C.S. § 1329, Act 12 of 2016, HB 1326, that involves the acquisition of water and/or wastewater utility systems that are owned by municipalities or municipal authorities. These issues are being addressed in the related Section 1329 implementation proceeding at Docket No. M-2016-2543193. See generally Implementation of Section 1329 of the Public Utility Code, Docket No. M-2016-2543193, Tentative Order entered July 21, 2016.
5 In particular, the allowable cost of equity for the computation of the DSIC rate shall either be the equity return rate in the utility's most recent fully litigated base rate proceeding or, if that proceeding was over two years ago, the Commission uses the equity return rate used in the quarterly earnings report it prepares which sets forth the achieved return on equity for each company, the last allowed return for that utility, a market return as determined through the analysis of the barometer group data and the most recent returns allowed, per industry, by the Pennsylvania Public Utility Commission and by other regulatory bodies. This report is referred to as the Quarterly Report on the Earnings of Jurisdictional Utilities.
6 The E-factor component of the DSIC allows for the correction of prior period DSIC over/under-collections.
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