2017 TRWA-TWCA Water Law Seminar - PUC Update

2705 Bee Cave Road, Suite 200
Austin, Texas 78746
(512) 614-0901
www.carltonlawaustin.com
©2017
Rate Case & Rate Appeals
Before the PUC:
Regulatory & Litigation
Developments
TRWA/TWCA Water Law Seminar
Waves of Change
January 11–12, 2017

Austin, Texas 78746
(512) 614-0901
©2017
Transfer to PUC
• 2011 - 82nd Legislature, the Sunset
Advisory Commission:
– “the state could benefit from transferring
regulatory functions related to water and
wastewater utilities to PUC.”

Austin, Texas 78746
(512) 614-0901
©2017
Transfer to PUC
• 2013 - 83rd Legislature:
– the Sunset Advisory Commission reaffirmed the
recommendation that water and wastewater
utility ratemaking functions be transferred to
PUC.
– Subcommittees of the Senate Natural Resources
Committee and Business and Commerce
Committee held hearings that established support
for ending the one-size-fits-all treatment for
IOU rate setting.

Austin, Texas 78746
(512) 614-0901
©2017
Proponents Stated Benefits*
• Ensure fairness by:
– “Modernizing” the rate setting process;
– Giving Office of Public Utility Counsel standing to
intervene and represent residential and small
commercial consumers in water rate cases;
– ending the current practice of allowing the utilities
to charge proposed rates while the case
proceeds through the hearing process;
*Per House Research Organization

Austin, Texas 78746
(512) 614-0901
©2017
– establishing three classes of IOUs and provide
time lines to guide the ratemaking process;
– giving utilities more certainty on the time line for
obtaining a final rate determination; and
– giving the smallest IOUs a mechanism to keep up
with rising costs without going through a costly
rate proceeding.

Austin, Texas 78746
(512) 614-0901
©2017
• Compare what is spent now on a case that can
drag on indefinitely to a case that may require
more paperwork but would be resolved in 150
days (Class A) and 185 days. NOW 265 days
(Class B)
• The intent … can certainly not be to raise costs.
• If … bill resulted in higher costs for rate cases,
those issues could be addressed in the future with
the addition of streamlined mechanisms for all
utility classes.

Austin, Texas 78746
(512) 614-0901
©2017
Opposition Stated Concerns*
• Would not result in cost savings, better
governance, or relief to ratepayers.
• Would complicate regulating water and
sewage service in Texas.

Austin, Texas 78746
(512) 614-0901
©2017
• PUC rate application filing requirements
are more extensive than at the TCEQ and
would require a greater expenditure at the
outset because the PUC requires expert
written testimony submitted with the
application.

Austin, Texas 78746
(512) 614-0901
©2017
• While the PUC offers a shorter timeframe
for a final rate determination, the PUC
discovery rules allow for unlimited levels of
discovery, the costs of which would be
significant.

Austin, Texas 78746
(512) 614-0901
©2017
RATE CASES & APPEALS

Austin, Texas 78746
(512) 614-0901
©2017
Water/Sewer Rate Proceedings
• Rates
– Original Applications
– Retail Appeals
– Wholesale Appeals

Austin, Texas 78746
(512) 614-0901
©2017
Rate Appeals
• Retail
– Water Code §13.043 (a) & (b)
• Cities (a), Districts (b), etc.
• De Novo Proceedings
– Several Active Proceedings
• Generally dealing with same issues as original
applications

Austin, Texas 78746
(512) 614-0901
©2017
Rate Appeals
• Wholesale
– Water Code §13.043(f)
• Public Interest Test
• Petition Of The Cities Of Garland, Mesquite, Plano And
Richardons Appealing The Decision By North Texas
Municipal Water District Affecting Wholesale Water Rates,
filed 12/14/16 (Docket 46662)
• Appeal Of M.E.N. Water Supply Corporation, Angus Water
Supply Corporation, Chatfield Water Supply Corporation,
Corbet Water Supply Corporation, And The City Of Kerens
For Review Of A Decision By The City Of Corsicana To Set
Wholesale Water Rates, filed 12/9/14 (Docket 43931)
– Currently Abated

Austin, Texas 78746
(512) 614-0901
©2017
Rate Appeals
• Wholesale
– Water Code §13.044
• Specific circumstances
• No Public Interest Test
– Petition Of Shady Hollow Municipal Utility District From The
Ratemaking Actions Of The City Of Austin And Request For
Interim Rates In Travis County, filed 10/28/16 (Docket 46483)
– Petition Of The North Austin Municipal Utility District No. 1,
Northtown Municipal Utility District, Travis County Water Control
And Improvement District No. 10, And Wells Branch Municipal
Utility District From The Ratemaking Actions Of The City Of
Austin And Request For Interim Rates In Williamson And Travis
Counties, filed 4/12/13 (Docket 42857)
• On Appeal

Austin, Texas 78746
(512) 614-0901
©2017
Rate Issues at PUC
• Rate Applications
– Abatement of Rate
– Confidentiality of Documents
– Unlimited Discovery
– Justification of Expenses
– Rate Base
– Rate of Return
– Rate Case Expenses

Austin, Texas 78746
(512) 614-0901
©2017
Water and Sewer Rate Cases
• Abatement of Rates
– Standard Practice to Abate Implementation of
Rates
– Interim Rates Available if Staff and Other
Parties Agree

Austin, Texas 78746
(512) 614-0901
©2017
Confidential Filings
• All documents filed with PUC on interchange
• All accessible to public
– Unless designated as confidential
• Standard Protective Order issued
– Addresses Public Information Act requirements
• Judges raising questions about need for
confidential filings
– Confusion of “confidential” under PIA vs
“privileged” for private companies under TRE

Austin, Texas 78746
(512) 614-0901
©2017
Discovery
• TWENTY rounds of RFIs from PUC Staff
in large utility case (22,000 customers)
• Four rounds of RFIs (150+) from PUC
Staff in small utility case (250 customers)

Austin, Texas 78746
(512) 614-0901
©2017
Expenses
• Water Code §13.185(d)
– Net income is the total revenues of the utility
less all reasonable and necessary expenses
as determined by the regulatory authority.
The regulatory authority shall:
• (1) base a utility's expenses on historic test year
information adjusted for known and measurable
changes, as determined by utility commission
rules; …

Austin, Texas 78746
(512) 614-0901
©2017
Expenses
• Invoices, Invoices, Invoices…
– They want them; you need them.
• Justification
– Benchmarking of costs by PUC Staff based
upon Staff experience.

Austin, Texas 78746
(512) 614-0901
©2017
Determining Rate Base
• PUC practice to fix rate base if not already set
– Water Code § 13.183
• … the regulatory authority shall fix its overall revenues at a
level that will . . . permit the utility a reasonable opportunity to
earn a reasonable return on its invested capital used and
useful in rendering service to the public . . . .
– Water Code § 13.184
• [T]he utility commission may not prescribe any rate that will
yield more than a fair return on the invested capital used and
useful in rendering service to the public.

Austin, Texas 78746
(512) 614-0901
©2017
Determining Rate Base
• What is sufficient to prove rate base?
– TWC § 13.185
• Utility rates shall be based on the original cost of
property used by and useful to the utility in
providing service ….

Austin, Texas 78746
(512) 614-0901
©2017
Rate of Return
• Application Formula?
– Only if not contested per PUC Staff
• Expert Testimony
– Adjustments in Return on Equity
– Reasonable Debt Rate
– Capital structure (D/E Ratio)

Austin, Texas 78746
(512) 614-0901
©2017
Rate Case Expenses
• Docket 45570 (Monarch)
– $ Unknown
– Severed to Docket 46216
– 22,000 customers
• Docket 44809 (Quadvest)
– $220,000 (through prefiled case)
– ~8800 customers
– Recommended Reductions of
$34,000+
• Docket 45418 (Corix)
– $340,000 (through prefiled case)
– ~4000 customers
– Recommended Approval and
Currently Abated
• Docket 43076 (Consumers
Water)
– $16,000 (through direct filing)
– ~2000 customers
– Recommended Denial (51% rule)
• Docket 43242 (Wiedenfeld)
– $147,000 est. (through end of
case)
– ~715 customers
– Settled.
• Docket 45720 (Rio Concho)
– $105,000 (through end of hearing)
– ~240 customers
– Recommended Denial (51% rule)

Austin, Texas 78746
(512) 614-0901
©2017
Chapter 22 Rulemaking
Proceedings
• New Procedural Rules -16 TAC Chapter
22
– Docket No. 46199 – Adopted
• Rulemaking related to Motions to Dismiss
– Docket No. 45116 – Adopted 11/15/16
• Chapter 22 Procedural Rules - Phase II - Water
and Sewer Utilities

Austin, Texas 78746
(512) 614-0901
©2017
Proceedings
• Docket No. 45116 – Highlights
– Still Have to File Hard Copies in Person
– Commissioners’ staff Have access to ALL
confidential filings
– Must include Email Address with all Pleading
signatures
– WSC Tariffs must comply with PUC formatting
and citation requirements

Austin, Texas 78746
(512) 614-0901
©2017
Proceedings
• Docket No. 45116 – Highlights
– Can request email service by motion
• ALJ Discretion
• Mandatory if all parties request
– If a party has no access to the internet or
email, must file statement as part of FIRST
pleading

Austin, Texas 78746
(512) 614-0901
©2017
Proceedings
• Docket No. 45112 – Adopted 11/14/16
– Rulemaking Proceeding to Amend 16 Tex. Admin.
Code § 24.21 (TAC)
• Relating to Water/Sewer Pass Through Clauses and
Surcharge Rules
– Rulemaking Project to Amend Chapter 24 for
Water/Sewer Rules for Rate Appeals
• Implements SB 1148 (2015) regarding information
about customers outside city limits

Austin, Texas 78746
(512) 614-0901
©2017
Proceedings
– Rulemaking to Amend Chapters 22 and 24 ‒
Implementation of Senate Bill 1148
• Relating to Emergency Orders/Rates and Notice of
Applications

Austin, Texas 78746
(512) 614-0901
©2017
Proceedings
• Docket No. 45757
– Project to Simplify Class B Water and Sewer Rate
Filing Package Form, Notice and Instructions for
1,200 or Less Connections
• No Action yet
• Docket No. 45758
– Minor Amendments to the Class B Water & Sewer
Rate Filing Package Form, Instructions & Notice
• No Action Yet

Austin, Texas 78746
(512) 614-0901
©2017
Proceedings
– Minor Amendments to the Class C Water &
Sewer Rate Filing Package Form, Instructions
& Notice

Austin, Texas 78746
(512) 614-0901
©2017
Helpful Websites
• Public Utility Commission
– www.puc.texas.gov
• PUC Interchange
– interchange.puc.texas.gov
• Texas Legislature
– http://www.legis.state.tx.us
• Texas Water Code, Chapter 13 (Utilities)
– http://www.statutes.legis.state.tx.us/Docs/WA/htm/WA.13.h
tm
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2017 TRWA-TWCA Water Law Seminar - PUC Update

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2017 TRWA-TWCA Water Law Seminar - PUC Update