Establishing procedures for system enhancement of infrastructure, including for development of ratemaking principles permitted for recovery costs of certain investments in infrastructure by water and wastewater utilities

The bill defines terms, including “system enhancement costs” and “system enhancement improvement”. System enhancement costs include depreciation expenses, operation and maintenance expenses, restoration costs, property taxes, and pretax return, but exclude fines and penalties. System enhancement improvements include a water or wastewater utility plant project that replaces or extends the useful life of existing infrastructure; installs new infrastructure necessary to support resiliency, health, safety, or environmental protection; constructs infrastructure necessary to comply with federal or state requirements; or relocates utility infrastructure necessary to accommodate public improvement projects when the relocation costs are not reimbursed. Utility plants included in an eligible utility’s most recent rate base are excluded from the definition. The bill requires an eligible utility to obtain commission approval of a plan before seeking recovery of system enhancement costs through a system enhancement charge. The bill requires the commission to dismiss an application for a plan if the utility has not received a final order in a general rate case for the same type of utility service within the previous five years. The bill requires an application for approval of a plan to include projected annual capital expenditures, estimated operation and maintenance costs, a description of the age or condition of infrastructure to be replaced or have its useful life extended, applicable legal or regulatory requirements and any consent decrees, a description of how proposed improvements enable compliance, alternative compliance options considered, an engineering evaluation and report identifying system enhancement improvements along with cost estimates and estimated in-service dates, proposed rate schedules for the system enhancement charge, and the estimated rate impact of the charge. The bill requires the application to be a contested case, and the commission must issue a final order within six months of filing. The bill requires the commission to approve the plan if the commission determines that the plan consists of system enhancement improvements, includes cost estimates that allow reasonable assessment, and will result in rates that are just and reasonable. The bill restricts the commission from disapproving a plan on the basis of one or more service enhancements, but allows the commission to approve plans subject to removal of the service enhancement improvements that do not satisfy the criteria. The bill allows a utility providing both water and wastewater service to submit separate plans for each service. Following approval of a plan, the bill permits an eligible utility to file an annual application to establish or adjust a system enhancement charge. The charge must be calculated as a fixed monthly charge based on meter size, shall not include recovery of costs recovered through contributions in aid of construction, must recover system enhancement costs incurred prior to filing that have not been previously recovered, must reflect costs for system enhancement improvements placed in service before the filing date, and must include the pretax return associated with improvements with a projected construction period exceeding months. The bill requires the annual application to include a breakdown of costs for each improvement with a project’s status of completion, and actual costs incurred. If actual costs exceed projected costs by more than percent, the eligible utility must specifically justify the cost overrun and obtain specific commission approval before the costs may be authorized in the utility’s next general rate case. The bill prohibits the commission from authorizing an adjustment to a system enhancement charge if the utility has not received a final order in a general rate case within the previous five years. The bill authorizes an eligible utility to defer system enhancement costs incurred prior to commission approval of a plan for recovery through a subsequent system enhancement charge, provided the associated improvements are included in an approved plan. The bill further authorizes an eligible utility, when filing a petition to implement or change a system enhancement charge, to update information from the plan and to include project additions, replacements, or deferrals that otherwise qualify as system enhancement improvements and that the utility reasonably expects to occur while the plan is effective. The bill exempts petitions under the bill from the publication of notice requirements. The bill requires a system enhancement charge to reset to zero upon approval of new basic rates and charges for the eligible utility in a general rate case in which the system enhancement improvements are included in the utility’s rate base.