Kentucky Public Service Commission Overview
Kentucky Public Service Commission (PSC) is responsible for regulating non-recurring charges, purchased water adjustments, and ensuring utilities adhere to tariff regulations. The PSC provides forms and guidelines for cost justifications and filings, along with information on utility regulations. The commission emphasizes the importance of tariff compliance and reviews applications from utilities for rate adjustments. Contact information for PSC representatives is provided for assistance and inquiries.
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The comments made by the presenters represent the presenter s opinions only; these comments and opinions do not necessarily represent those of the Kentucky Public Service Commission
KENTUCKY PUBLIC SERVICE COMMISSION Sam Reid Jr. SamH.Reid@ky.gov Ariel Miller Ariel.Miller@ky.gov 502-564-3940
REVIEW NON-RECURRING CHARGES Tap Fee Returned Check Charge Meter Test Charge Service Call Field Collection Charge Reconnection Charge NRC S REVENUE NEUTRAL
Non-Recurring Charges 807 KAR 5:011 Section 10. Non-Recurring Charges. 807 KAR 5:006 Section 9. Special Charges Cost Justification forms are available on PSC website
FORMS http://www.psc.ky.gov/ Utility Information Utility Information Utility Forms NRC Cost Justification Water specific Forms Average meter connection Cost Justification
PUBLIC SERVICE COMMISSION If it is not in your tariff you can not do it, if it is in your tariff you must do it -Brent Kirtley
Purchased Water Adjustments (PWA) When a utility s wholesale supplier increases the rate charged to the utility, the utility can apply for a purchased water adjustment to increase the rates the utility charges its customers. KRS 278.012 and KRS 278.015 807 KAR 5:068 for Water Districts and Associations 807 KAR 5:067 for Privately- owned
PWA FILING REQUIREMENTS Name of all wholesale suppliers and the base (current) rate and changed rate of each. A copy of the supplier s notice of the changed rate showing the effective date of the increase. A schedule listing the current and proposed rates must be attached with the application.
PWA FILING REQUIREMENTS Completed form and supporting information. A copy of the resolution or other document of the utility s governing body authorizing the proposed rates. ( Board meeting minutes)
PURCHASED WATER ADJUSTMENT FOR WATER DISTRICTS AND ASSOCIATIONS (807 KAR 5:068) ____Any Name Water District_ ___________ (Name of Utility) ______September 15, 2004 ____________ (Date) ______211 Water Way _________________ (Address) ______Frankfort Ky.____________________ (City, State) ______270-555-1234___________________ (Telephone Number) 1.a. Name of all wholesale suppliers and the base (current) rate and changed rate of each. In the event the water purchased is billed by the supplier on a rate that is not a flat rate schedule, the entire rate shedule must be shown. Attach additional sheets if necessary. Supplier(s) Base Rate Changed Rate ____City of Frankfort ________ $1.50/1,000 $1.67 / 1,000 ______________________________ __________ __________ ______________________________ __________ __________
1.b. A copy of the supplier's notice of the changed rate showing the effective date of the increase is attached as Exhibit __A___. Twelve-month period upon which the purchased water adjustment is based. (This twelve-month period must end within 90 days of this filing). 2. From____September 2003________through___ August 2004________ (month and year) (month and year) 3. Statement of water purchases. Where water is purchased from more than one supplier, purchases from each supplier must be shown separately. If water is purchased through a decling block rate schedule, purchases for each month must be shown. Attach an additional sheet if necessary. Supplier(s) Gallons Purchased during 12 month period _____ _____________ ___ _ _________ _____ City of Frankfort ___________ _____12,000,000 __________ ______________________________ ____________________________ TOTAL PURCHASES ______12,000,000____________ 4. Total sales for the 12 month period__10,000,000___________.
5. Increased water cost__$2,040_______. The increased water cost is the cost difference between purchases at base (current rate) and purchases at new rate. 6. Purchased water adjustment factor__.20 / 1,000______. The purchased water adjustment factor is obtained by dividing the increased cost of water by the total gallons sold. Note: The purchased water adjustment factor is added to each thousand gallons sold. If the minimum usage is 2,000 gallons then the purchased water adjustment factor would be added to the minimum bill twice. Revised tariff sheets must be attached showing the rate to be charged by the utility and the effective date of the increased rates. 7. Proposed effective date___November 1,2004_____________. ___________________________ (Signature of Utility Officer) __________________________ (Title)
Purchased Water Adjustment Public Notice Post a copy of the notice at place of business no later than date of application.
Purchased Water Adjustment Public Notice The water district shall notify its customers of any increase in rates resulting from a supplier increase not later than the rendering of the first bill at the increased rate. Including notice with customers bill Mailing the written notice to each customer. Publishing notice one time in newspaper Affidavit shall be filed within 30 days of date of final order.
ALTERNATIVE RATE FILING (ARF) 807 KAR 5:076 Requirement-In its immediate past calendar year of operation, Applicant had $5,000,000 or less in gross annual revenues. http://psc.ky.gov/Home/UtilForms
Billing Analysis for ABC Water District Test Period January 1, 2015 to December 31, 2015 USAGETABLE FIRST NEXT NEXT OVER USAGE BILLS GALLONS 2,000 3,000 5,000 10,000 TOTAL FIRST 2,000 11,740 10,730,975 10,730,975 10,730,975 NEXT 3,000 15,582 52,429,577 31,164,000 21,265,577 52,429,577 NEXT 5,000 8,372 56,484,203 16,744,000 25,116,000 14,624,203 56,484,203 OVER 10,000 2,767 90,612,971 5,534,000 8,301,000 13,835,000 62,942,971 90,612,971 TOTAL 38,461210,257,727 64,172,975 54,682,577 28,459,203 62,942,971 210,257,727
Billing Analysis for ABC Water District REVENUE BY RATE INCREMENT BILLS GALLONS RATE REVENUE FIRST 2,000 38,461 64,172,975 $14.42 $554,607.62 NEXT 3,000 54,682,577 4.70 257,008.11 NEXT 5,000 28,459,203 4.06 115,544.36 All Over 10,000 62,942,971 3.42 215,264.96 TOTAL 38,461 210,257,727 $1,142,425.06
MONTH PURCHASED 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 144,000 SOLD 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000 JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER TOTAL
2012 ANNUAL REPORT MAXIMUM GALLONS PUMPED IN ANY ONE DAY X MINIMUM GALLONS PUMPED IN ANY ONE DAY X GALLONS DATE 1,761,400 7/14/2012 756,800 2/17/2012 32,414,200 August PEAK MONTH GALLONS SOLD X 1,761,400 7/14/2012 PEAK DAY GALLONS SOLD X 2013 ANNUAL REPORT GALLONS DATE MAXIMUM GALLONS PUMPED IN ANY ONE DAY X MINIMUM GALLONS PUMPED IN ANY ONE DAY X 1,761,400 7/14/2013 756,800 2/17/2013 32,414,200 August PEAK MONTH GALLONS SOLD X 1,761,400 7/14/2013 PEAK DAY GALLONS SOLD X
Unaccounted For Water Loss Commission Orders for Rate cases, purchased water adjustments, CPCNs and water financing cases will all include language on UAF water losses when in excess of 15% A utility s inability or continued inaction to reduce UAF water losses will lead to greater PSC attention
807 KAR 5:066 Section 6(3) Unaccounted-for water loss. Except for purchased water rate adjustments for water districts and water associations, and rate adjustments pursuant to KRS 278.023(4), for rate making purposes a utility's unaccounted-for water loss shall not exceed fifteen (15) percent of total water produced and purchased, excluding water used by a utility in its own operations.
Section 6. (3) Contd. Upon application by a utility in a rate case filing or by separate filing, or upon motion by the commission, an alternative level of reasonable unaccounted-for water loss may be established by the commission. A utility proposing an alternative level shall have the burden of demonstrating that the alternative level is more reasonable than the level prescribed in this section.
FREQUENCY OF ARF APPLICATIONS NO LIMITATIONS. Review system rates annually. Better to have frequent small increases than a large increase after many years of no increase.
Authorized Debt, KRS 278.300 No utility shall issue any securities or evidences of indebtedness until it has been authorized so to do by order of the commission. This section does not apply to notes issued by a utility, for proper purposes and not in violation of law, that are payable at periods of not more than two years from the date thereof, or to like notes, payable at a period of not more than two years from date thereof, that are issued to pay or refund in whole or in part any such notes, or to renewals of such notes from time to time, not exceeding in the aggregate six years from the date of the issue of the original notes so renewed or refunded.
Authorized Debt, KRS 278.300 (continued) KRS 278.990(1). Any officer, agent, or employee of a utility, as defined in KRS 278.010, and any other person who willfully violates any of the provisions of this chapter or any regulation promulgated pursuant to this chapter, or fails to obey any order of the commission from which all rights of appeal have been exhausted, or who procures, aids, or abets a violation by any utility, shall be subject to either a civil penalty to be assessed by the commission not to exceed two thousand five hundred dollars ($2,500) for each offense or a criminal penalty of imprisonment for not more than six (6) months, or both.
Commissioner Compensation KRS 74.020 (6) Each Commissioner shall receive an annual salary of not more than $3,600, which shall be paid out of the water district fund, except that beginning January 1, 1999, each commissioner who completes during an educational year a minimum of six (6) instructional hours of water district management training approved by the Public Service Commission may receive an annual salary of not more than $6,000 to be paid out of the water district fund.
Commissioner Compensation KRS 74.020 (continued) (6) In the case of single-county districts, which shall be deemed to include districts described in paragraph (c) of subsection (1) of this section, the salary shall be fixed by the county judges/executive with the approval of the fiscal court; in multicounty districts, it shall be fixed by the agreement between the county judges/executive with the approval of their fiscal courts.
Employee Compensation and Benefits Recent Commission Actions: .. consistent with recent orders in which the Commission has reduced benefit expenses for utilities that pay 100 percent of an employee's health insurance coverage, Staff reduced Water District A s family health insurance premiums by 33 percent and the single premiums by 21 percent, the national average employee contribution rate, as shown below.
Employee Compensation and Benefits (continued) Recent Commission Actions: The Commission is placing greater emphasis on evaluating employees total compensation packages, including both salary and benefits programs, for market and geographic competitiveness to ensure the development of a fair, just and reasonable rate. It has found in most cases, 100 percent of employer-funded health care does not meet those criteria.
Employee Compensation and Benefits (continued) Bureau of Labor Statistics, Healthcare Benefits, March 2018, Table 2 and 3, private industry workers. https://www.bls.gov/news.release/pdf/ebs2.pdf 21% employee share of premium for single coverage 33% employee share of premium for family coverage
Adjustments for GASB 68 -History Prior to 2015: Pursuant to Governmental Accounting Standards Board Statement No. 27 (GASB 27) - CERS Contributions to be reported as employee retirement expense - Did not require Districts to report a liability on its financial statements for a portions of either CERS s Net Pension Liability or CERS s underfunded post-retirement health care costs
Adjustments for GASB 68 -History After 2015: Governmental Accounting Standards Board Statement No. 68 (GASB 68) Required that beginning in 2015 Districts must report for pensions 1) A charge against Retained Earnings to account for the cumulative effect of switching from GASB 27 to GASB 68 2) A District s proportionate share of the CERS NPL 3) Deferred Inflow of Resources and Deferred Outflow of Resources related to pensions; and 4) Annual pension expense that incorporates the above items
Adjustments for GASB 68 -What does all this mean? For book purposes, it is likely that a number of adjustments will be made by a District s independent Auditor (a Certified Public Accountant) For ratemaking purposes, it is likely that an adjustment will be made to reverse these adjustments during the ratemaking process Example: Water District A To mitigate the impact of GASB 68 on Water District A s Balance Sheet and to smooth the level of annual pension expense that will be reported by Water District A from year to year, Staff finds that Water District A should be allowed to recover an amount of pension expense through rates that is equal to its test-year contributions to CERS
Adjustments for GASB 68 -What does all this mean? (continued) Resulting Adjustment for GASB 68 increased pension expense in the amount of $16,339 in Staff s Report Does not always result in an increase to pension expense
Revenue Requirement Calculation Debt Service Coverage Method Pro Forma Operating Expenses Plus: Average Annual Debt Principal and Interest Payments Debt Coverage Requirement $ 410,000 60,000 12,000 Total Revenue Requirement Less: Other Operating Revenue Non-Operating Revenue Interest Income 482,000 (18,000) (1,000) - Revenue Required from Rates Less: Revenue from Sales at Present Rates 463,000 (375,000) Required Revenue Increase Percentage Increase 88,000 23.47%
Percentage of Principal and Interest Creditors require that utility borrowers assess rates that produce revenues that exceed cash related expenses by a specific margin. Bond resolutions between Rural Development and a Water District generally require that a District s annual net revenues (defined as gross revenues less operating expenses) are equal to not less than 120 percent of the average annual debt service requirements for principal and interest Other lenders may require a Debt Service Coverage ( DSC ) ratio that is different than 120 percent.
Revenue Requirement Calculation Operating Ratio Method Pro Forma Operating Expenses Before Income Taxes Divide by: Operating Ratio $ 410,000 0.88 Subtotal Less: Pro Forma Operating Expenses Before Income Taxes 465,909 (410,000) Net Income Allowable Add: Provision for State and Federal Income Taxes, if Applicable Pro Forma Operating Expenses Before Taxes 55,909 - 410,000 Total Revenue Requirement Less: Other Operating Revenue Non-Operating Revenue Interest Income 465,909 (18,000) (1,000) - Total Revenue Required from Rates for Service Less: Revenue from Sales at Present Rates 446,909 (375,000) Required Revenue Increase Percentage Increase $ 71,909 19.18%
Depreciation Depreciation is the periodic allocation of the cost of a tangible long-lived asset over its estimated useful life. Periodic Allocation: Accounting Instruction 33 of the Uniform Systems of Accounts (USoA) for Water Districts and Water Associations requires the use of straight-line depreciation. Estimated Useful Life: Commission follows NARUC Study.
Depreciation The PSC finds adequate funds to be any amount requested by the District that is equal to or less than annual depreciation expense if the expense is calculated using reasonable depreciable lives (NARUC Study). Neither the Court nor the PSC limits the use of depreciationfunds to asset renewal and replacement. These funds may be used for other costs necessary to deliver potable water. In fact, the PSC has required that depreciation funds be used to pay operation and maintenance expenses in some cases. Note: Lenders require a very small amount of cash reserves be set aside in a specific account designated as Depreciation Fund for as long as the debt remains outstanding. Refer to the flow of funds section of your bond resolutions and loan resolutions for details.
