House File 2581 - Introduced HOUSE FILE 2581 BY COMMITTEE ON COMMERCE (SUCCESSOR TO HF 2032) A BILL FOR An Act establishing procedures for system enhancement of 1 infrastructure, including for development of ratemaking 2 principles permitted for recovery costs of certain 3 investments in infrastructure by water and wastewater 4 utilities. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5582HV (3) 91 sb/js

H.F. 2581 Section 1. NEW SECTION . 476.59 System enhancement 1 infrastructure. 2 1. It is the intent of the general assembly to authorize 3 alternative ratemaking mechanisms to develop and sustain 4 adequate water and wastewater treatment facilities within the 5 state to ensure resilient water supply and sanitation services 6 for Iowa consumers and provide economic benefits to the state. 7 The commission shall not be bound by traditional ratemaking 8 principles or traditional cost recovery mechanisms with respect 9 to system enhancement infrastructure. 10 2. For purposes of this section: 11 a. “Blanket-type work project order” means an agreement 12 between an eligible utility and a supplier to deliver goods or 13 services at a set price on a recurring basis over a specified 14 time period. 15 b. “Eligible utility” means an investor-owned public 16 utility providing water or wastewater service subject to rate 17 regulation by the commission pursuant to section 476.1. 18 c. “Plan” means a multiyear plan to implement system 19 enhancement improvements. 20 d. “Requirement” means any decision or regulation imposed on 21 an eligible utility by a local government unit, a state, or the 22 federal government in connection with any of the following: 23 (1) The federal Water Pollution Control Act, 33 U.S.C. §1251 24 et seq. 25 (2) The federal Safe Drinking Water Act, 42 U.S.C. §300f et 26 seq. 27 (3) Any other law, order, or regulation administered by 28 the United States environmental protection agency, the United 29 States army corps of engineers, the United States department of 30 transportation, the Iowa department of transportation, or the 31 Iowa department of natural resources. 32 (4) Regulations imposed by a local government unit. 33 e. “System enhancement charge” means a charge assessed by an 34 eligible utility to recover system enhancement costs. 35 -1- LSB 5582HV (3) 91 sb/js 1/ 8

H.F. 2581 f. (1) “System enhancement costs” means the following 1 costs associated with any of the following system enhancement 2 improvements: 3 (a) Depreciation expenses, including any such expenses 4 incurred prior to the approval of a plan containing the 5 applicable system enhancement improvement. 6 (b) Operation and maintenance expenses. 7 (c) Restoration costs incurred to restore property to its 8 preconstruction condition other than those already capitalized 9 and included in depreciation expenses. 10 (d) Property taxes to be paid by the utility based upon the 11 first assessment date following placement in service. 12 (2) “System enhancement costs” does not include fines 13 or penalties assessed against or imposed on a utility for 14 violating laws, regulations, or consent decrees. 15 g. (1) “System enhancement improvement” means a water 16 or wastewater utility plant project that does any of the 17 following: 18 (a) Installs new utility infrastructure required by 19 federal, state, or local requirements pertaining to resilience, 20 health, safety, or environmental protection. 21 (b) Relocates utility infrastructure necessary to 22 accommodate public improvement projects required by federal, 23 state, or local jurisdictions to the extent the relocation 24 costs are not otherwise reimbursed through the public 25 improvement project. 26 (2) “System enhancement improvement” does not include a 27 water or wastewater utility plant included in the eligible 28 utility’s rate base in its most recent general rate case. 29 3. a. Before an eligible utility may seek recovery of 30 its service enhancement costs through a system enhancement 31 charge under this section, it must first obtain approval 32 from the commission of a plan including the proposed service 33 enhancement improvement. The eligible utility must file with 34 the commission an application and supporting evidence for the 35 -2- LSB 5582HV (3) 91 sb/js 2/ 8

H.F. 2581 plan. The commission shall dismiss an application to approve 1 a plan if the commission has not issued a final order in a 2 general rate case proceeding under section 476.6 involving the 3 eligible utility for the same type of utility service within 4 the past five years. 5 b. Evidence supporting an application to approve a plan 6 shall include all of the following: 7 (1) Projected annual capital expenditures identified 8 by major categories of expenditures of service enhancement 9 improvements included in the plan. 10 (2) Estimated operation and maintenance costs resulting 11 from the service enhancement improvements. 12 (3) A description of the age, condition, or other similar 13 and reasonably available information about the existing 14 infrastructure, if applicable. 15 (4) The applicable requirements, including any consent 16 decrees and conditions, including but not limited to completion 17 deadlines related to the requirements. 18 (5) A narrative describing how the service enhancement 19 improvement enables compliance with the requirements. 20 (6) Alternative plans for compliance considered by the 21 eligible utility. 22 (7) An engineering evaluation and report identifying the 23 system enhancement improvements included in the plan, with 24 descriptions of project objectives, detailed cost estimates, 25 and the estimated in-service dates for each system enhancement 26 improvement. 27 (8) Any blanket-type work order and its associated costs 28 proposed to implement the improvement. 29 (9) Proposed rate schedules establishing a system 30 enhancement charge. 31 (10) The estimated rate impact of the proposed system 32 enhancement charge. 33 c. An application for approval of a plan shall be a 34 contested case. The commission shall issue its final order 35 -3- LSB 5582HV (3) 91 sb/js 3/ 8

H.F. 2581 on the application not more than ten months after the filing 1 of the petition. When reviewing the plan and corresponding 2 system enhancement charge, the commission shall make reasonable 3 efforts to ensure the utility is in compliance with the 4 requirements as supported by evidence in the application and 5 the proceeding. The commission may consider the following 6 criteria: 7 (1) Consists of projects that are service enhancement 8 improvements, except any removed pursuant to paragraph “d” . 9 (2) Includes cost estimates that enable a reasonable 10 assessment of the costs of the plan. 11 (3) Will result in rates that are just and reasonable. 12 d. The commission shall not disapprove the plan on the basis 13 that one or more service enhancement improvements within the 14 plan do not satisfy paragraph “e” . The commission may approve 15 the plan subject to the removal of the service enhancement 16 improvements found not to satisfy paragraph “e” . 17 e. An eligible utility that operates both a water and 18 wastewater utility shall establish separate plans for water and 19 wastewater enhancement plans and such plans may be presented to 20 the commission through different petitions. 21 4. a. An eligible utility with one or more plans 22 approved under subsection 3 shall file with the commission an 23 application annually setting forth rate schedules establishing 24 a system enhancement charge, which may thereafter be 25 automatically adjusted and include a reconciliation of revenues 26 collected under previous system enhancement charges. A revenue 27 reconciliation filing will be filed on an annual basis no later 28 than ninety days following the expiration of the charge. The 29 commission shall review the filing to ensure compliance with 30 previously approved filings. 31 b. The system enhancement charge shall do all of the 32 following: 33 (1) Be calculated as a monthly fixed charge based upon meter 34 size. 35 -4- LSB 5582HV (3) 91 sb/js 4/ 8

H.F. 2581 (2) Not include recovery of any system enhancement costs 1 recovered by the eligible utility through contributions in aid 2 of construction. 3 (3) Recover system enhancement costs incurred prior to the 4 date of the petition and not previously recovered through a 5 system enhancement charge. 6 (4) Reflect system enhancement costs for system enhancement 7 improvements placed in service prior to the date the 8 application is filed. 9 c. The application filed to implement the system enhancement 10 charge shall include all of the following: 11 (1) A breakdown of costs for each service enhancement 12 improvement that clearly identifies the status of completion of 13 such project. 14 (2) The actual costs incurred, the projected construction 15 timeline for projects with a construction period of more than 16 twelve months, and the in-service or estimated in-service 17 dates or aggregate information capturing service enhancement 18 improvements constructed pursuant to blanket-type work project 19 orders and the actual annual costs of the replacement programs 20 performed pursuant to blanket-type work project orders. 21 d. The commission shall not authorize an adjustment to the 22 system enhancement charge to incorporate system enhancement 23 costs incurred since the date of prior petition filed under 24 this subsection if the commission has not issued a final order 25 in a general rate case proceeding under section 476.6 involving 26 the eligible utility within the past five years. 27 5. Publication of notice of an eligible utility’s petitions 28 under section 476.6, subsection 2, is required. 29 6. An eligible utility’s system enhancement charge approved 30 under this section shall reset to zero upon approval of 31 new basic rates and charges for the eligible utility by the 32 commission in a general rate case. 33 7. The commission shall adopt rules pursuant to chapter 17A 34 to establish procedures to implement this chapter. 35 -5- LSB 5582HV (3) 91 sb/js 5/ 8

H.F. 2581 EXPLANATION 1 The inclusion of this explanation does not constitute agreement with 2 the explanation’s substance by the members of the general assembly. 3 This bill establishes procedures for system enhancement 4 of infrastructure, including the development of ratemaking 5 principles permitted for the recovery costs of certain 6 investments in infrastructure by water and wastewater 7 utilities. The bill states the intent of the general 8 assembly that these mechanisms be available to support the 9 development and sustainability of adequate and resilient water 10 and wastewater treatment facilities, and provides that the 11 commission is not bound by traditional ratemaking principles 12 when evaluating system enhancement infrastructure. 13 The bill defines terms, including “system enhancement costs” 14 and “system enhancement improvement”. System enhancement 15 costs include depreciation expenses, operation and maintenance 16 expenses, restoration costs, and property taxes, but exclude 17 fines and penalties. System enhancement improvements include 18 a water or wastewater utility plant project that constructs 19 infrastructure necessary to comply with federal, state, 20 or local requirements or relocates utility infrastructure 21 necessary to accommodate required public improvement projects 22 when the relocation costs are not reimbursed. Utility plants 23 included in an eligible utility’s most recent rate base are 24 excluded from the definition. 25 The bill requires an eligible utility to obtain commission 26 approval of a plan before seeking recovery of system 27 enhancement costs through a system enhancement charge. The 28 bill requires the commission to dismiss an application for a 29 plan if the utility has not received a final order in a general 30 rate case for the same type of utility service within the 31 previous five years. 32 The bill requires an application for approval of a plan 33 to include projected annual capital expenditures, estimated 34 operation and maintenance costs, a description of the age or 35 -6- LSB 5582HV (3) 91 sb/js 6/ 8

H.F. 2581 condition of the existing infrastructure, applicable legal or 1 regulatory requirements and any consent decrees, a description 2 of how proposed improvements enable compliance, alternative 3 compliance options considered, an engineering evaluation and 4 report identifying system enhancement improvements along with 5 cost estimates and estimated in-service dates, any blanket-type 6 work order and its associated proposed cost, proposed rate 7 schedules for the system enhancement charge, and the estimated 8 rate impact of the charge. 9 The bill requires the application to be a contested case, 10 and the commission must issue a final order within 10 months 11 of filing. The bill requires the commission, when reviewing 12 the plan and corresponding system enhancement charge, to make 13 reasonable efforts to ensure that the utility is in compliance 14 with the requirements and allows the commission to consider if 15 the plan consists of system enhancement improvements, includes 16 cost estimates that allow reasonable assessment, and will 17 result in rates that are just and reasonable. 18 The bill restricts the commission from disapproving a 19 plan on the basis of one or more service enhancements, but 20 allows the commission to approve plans subject to removal of 21 the service enhancement improvements that do not satisfy the 22 criteria. 23 The bill requires a utility providing both water and 24 wastewater service to submit separate plans for each service. 25 Following approval of a plan, the bill requires an eligible 26 utility to file an annual application to establish or adjust a 27 system enhancement charge. The charge must be calculated as 28 a fixed monthly charge based on meter size, shall not include 29 recovery of costs recovered through contributions in aid of 30 construction, must recover system enhancement costs incurred 31 prior to filing that have not been previously recovered, and 32 must reflect costs for system enhancement improvements placed 33 in service before the filing date. 34 The bill requires the annual application to include a 35 -7- LSB 5582HV (3) 91 sb/js 7/ 8

H.F. 2581 breakdown of costs for each improvement with a project’s status 1 of completion, and actual costs incurred. 2 The bill prohibits the commission from authorizing an 3 adjustment to a system enhancement charge if the utility has 4 not received a final order in a general rate case within the 5 previous five years. 6 The bill requires petitions under the bill to follow 7 publication of notice requirements. The bill requires a system 8 enhancement charge to reset to zero upon approval of new basic 9 rates and charges for the eligible utility in a general rate 10 case in which the system enhancement improvements are included 11 in the utility’s rate base. 12 The bill authorizes the commission to adopt rules 13 establishing procedures to implement the bill. 14 -8- LSB 5582HV (3) 91 sb/js 8/ 8