HF 2581 (LSB 5582HV (3) 91)

HOUSE FILE 2581

BY  COMMITTEE ON COMMERCE

(SUCCESSOR TO HF 2032)

A BILL FOR

An Act 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.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  476.59  System enhancement infrastructure.
   1.  It is the intent of the general assembly to authorize alternative ratemaking mechanisms to develop and sustain adequate water and wastewater treatment facilities within the state to ensure resilient water supply and sanitation services for Iowa consumers and provide economic benefits to the state. The commission shall not be bound by traditional ratemaking principles or traditional cost recovery mechanisms with respect to system enhancement infrastructure.
   2.  For purposes of this section:
   a.  “Blanket-type work project order” means an agreement between an eligible utility and a supplier to deliver goods or services at a set price on a recurring basis over a specified time period.
   b.  “Eligible utility” means an investor-owned public utility providing water or wastewater service subject to rate regulation by the commission pursuant to section 476.1.
   c.  “Plan” means a multiyear plan to implement system enhancement improvements.
   d.  “Requirement” means any decision or regulation imposed on an eligible utility by a local government unit, a state, or the federal government in connection with any of the following:
   (1)  The federal Water Pollution Control Act, 33 U.S.C. §1251 et seq.
   (2)  The federal Safe Drinking Water Act, 42 U.S.C. §300f et seq.
   (3)  Any other law, order, or regulation administered by the United States environmental protection agency, the United States army corps of engineers, the United States department of transportation, the Iowa department of transportation, or the Iowa department of natural resources.
   (4)  Regulations imposed by a local government unit.
   e.  “System enhancement charge” means a charge assessed by an eligible utility to recover system enhancement costs.
   f.  (1)  “System enhancement costs” means the following costs associated with any of the following system enhancement improvements:
   (a)  Depreciation expenses, including any such expenses incurred prior to the approval of a plan containing the applicable system enhancement improvement.
   (b)  Operation and maintenance expenses.
   (c)  Restoration costs incurred to restore property to its preconstruction condition other than those already capitalized and included in depreciation expenses.
   (d)  Property taxes to be paid by the utility based upon the first assessment date following placement in service.
   (2)  “System enhancement costs” does not include fines or penalties assessed against or imposed on a utility for violating laws, regulations, or consent decrees.
   g.  (1)  “System enhancement improvement” means a water or wastewater utility plant project that does any of the following:
   (a)  Installs new utility infrastructure required by federal, state, or local requirements pertaining to resilience, health, safety, or environmental protection.
   (b)  Relocates utility infrastructure necessary to accommodate public improvement projects required by federal, state, or local jurisdictions to the extent the relocation costs are not otherwise reimbursed through the public improvement project.
   (2)  “System enhancement improvement” does not include a water or wastewater utility plant included in the eligible utility’s rate base in its most recent general rate case.
   3.  a.  Before an eligible utility may seek recovery of its service enhancement costs through a system enhancement charge under this section, it must first obtain approval from the commission of a plan including the proposed service enhancement improvement. The eligible utility must file with the commission an application and supporting evidence for the plan. The commission shall dismiss an application to approve a plan if the commission has not issued a final order in a general rate case proceeding under section 476.6 involving the eligible utility for the same type of utility service within the past five years.
   b.  Evidence supporting an application to approve a plan shall include all of the following:
   (1)  Projected annual capital expenditures identified by major categories of expenditures of service enhancement improvements included in the plan.
   (2)  Estimated operation and maintenance costs resulting from the service enhancement improvements.
   (3)  A description of the age, condition, or other similar and reasonably available information about the existing infrastructure, if applicable.
   (4)  The applicable requirements, including any consent decrees and conditions, including but not limited to completion deadlines related to the requirements.
   (5)  A narrative describing how the service enhancement improvement enables compliance with the requirements.
   (6)  Alternative plans for compliance considered by the eligible utility.
   (7)  An engineering evaluation and report identifying the system enhancement improvements included in the plan, with descriptions of project objectives, detailed cost estimates, and the estimated in-service dates for each system enhancement improvement.
   (8)  Any blanket-type work order and its associated costs proposed to implement the improvement.
   (9)  Proposed rate schedules establishing a system enhancement charge.
   (10)  The estimated rate impact of the proposed system enhancement charge.
   c.  An application for approval of a plan shall be a contested case. The commission shall issue its final order on the application not more than ten months after the filing of the petition. When reviewing the plan and corresponding system enhancement charge, the commission shall make reasonable efforts to ensure the utility is in compliance with the requirements as supported by evidence in the application and the proceeding. The commission may consider the following criteria:
   (1)  Consists of projects that are service enhancement improvements, except any removed pursuant to paragraph “d”.
   (2)  Includes cost estimates that enable a reasonable assessment of the costs of the plan.
   (3)  Will result in rates that are just and reasonable.
   d.  The commission shall not disapprove the plan on the basis that one or more service enhancement improvements within the plan do not satisfy paragraph “e”. The commission may approve the plan subject to the removal of the service enhancement improvements found not to satisfy paragraph “e”.
   e.  An eligible utility that operates both a water and wastewater utility shall establish separate plans for water and wastewater enhancement plans and such plans may be presented to the commission through different petitions.
   4.  a.  An eligible utility with one or more plans approved under subsection 3 shall file with the commission an application annually setting forth rate schedules establishing a system enhancement charge, which may thereafter be automatically adjusted and include a reconciliation of revenues collected under previous system enhancement charges. A revenue reconciliation filing will be filed on an annual basis no later than ninety days following the expiration of the charge. The commission shall review the filing to ensure compliance with previously approved filings.
   b.  The system enhancement charge shall do all of the following:
   (1)  Be calculated as a monthly fixed charge based upon meter size.
   (2)  Not include recovery of any system enhancement costs recovered by the eligible utility through contributions in aid of construction.
   (3)  Recover system enhancement costs incurred prior to the date of the petition and not previously recovered through a system enhancement charge.
   (4)  Reflect system enhancement costs for system enhancement improvements placed in service prior to the date the application is filed.
   c.  The application filed to implement the system enhancement charge shall include all of the following:
   (1)  A breakdown of costs for each service enhancement improvement that clearly identifies the status of completion of such project.
   (2)  The actual costs incurred, the projected construction timeline for projects with a construction period of more than twelve months, and the in-service or estimated in-service dates or aggregate information capturing service enhancement improvements constructed pursuant to blanket-type work project orders and the actual annual costs of the replacement programs performed pursuant to blanket-type work project orders.
   d.  The commission shall not authorize an adjustment to the system enhancement charge to incorporate system enhancement costs incurred since the date of prior petition filed under this subsection if the commission has not issued a final order in a general rate case proceeding under section 476.6 involving the eligible utility within the past five years.
   5.  Publication of notice of an eligible utility’s petitions under section 476.6, subsection 2, is required.
   6.  An eligible utility’s system enhancement charge approved under this section shall reset to zero upon approval of new basic rates and charges for the eligible utility by the commission in a general rate case.
   7.  The commission shall adopt rules pursuant to chapter 17A to establish procedures to implement this chapter.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill establishes procedures for system enhancement of infrastructure, including the development of ratemaking principles permitted for the recovery costs of certain investments in infrastructure by water and wastewater utilities. The bill states the intent of the general assembly that these mechanisms be available to support the development and sustainability of adequate and resilient water and wastewater treatment facilities, and provides that the commission is not bound by traditional ratemaking principles when evaluating system enhancement infrastructure.
   The bill defines terms, including “system enhancement costs” and “system enhancement improvement”. System enhancement costs include depreciation expenses, operation and maintenance expenses, restoration costs, and property taxes, but exclude fines and penalties. System enhancement improvements include a water or wastewater utility plant project that constructs infrastructure necessary to comply with federal, state, or local requirements or relocates utility infrastructure necessary to accommodate required 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 the existing infrastructure, 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, any blanket-type work order and its associated proposed cost, 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 10 months of filing. The bill requires the commission, when reviewing the plan and corresponding system enhancement charge, to make reasonable efforts to ensure that the utility is in compliance with the requirements and allows the commission to consider if 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 requires a utility providing both water and wastewater service to submit separate plans for each service.
   Following approval of a plan, the bill requires 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, and must reflect costs for system enhancement improvements placed in service before the filing date.
   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.
   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 requires petitions under the bill to follow 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.
   The bill authorizes the commission to adopt rules establishing procedures to implement the bill.