§ 37-22 — System improvement charge

Sec. 37-22. - System improvement charge.

(a) Definitions. The following words, terms, or phrases, when used in this division, shall have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning: (1) Capitalized operation and maintenance expenses means expenses that have been deferred or amortized as a regulatory asset or liability. (2) Eligible plant means: a plant properly recorded in the National Association of Regulatory Utility Commissioners System of Accounts, accounts 304 through 336 for water utility service or accounts 354 through 382 for sewer utility service which has been placed into service; is prudent, reasonable, and necessary; and applicable to customers within the city's municipal boundaries. Eligible Plant does not include: indirect corporate costs; capitalized operations and maintenance expenses; and capital recovered through a separate rate including a surcharge, tracker, rider, or other mechanisms. (b) Eligibility. (1) A utility is eligible to file for a system improvement charge if the latter of: the date on 1) the ordinance approving the utility's most recently-filed comprehensive base rate case which was filed pursuant to section 37-20 or 2) the Commission's final order for the utility's most recently-filed comprehensive base rate case, is not older than the following: a. Four years for a utility that was a Class A utility at the time of application; b. Six years for a utility that was a Class B utility at the time of application; or c. Eight years for a utility that was a Class C or Class D utility at the time of application. (2) A utility must have only one system improvement charge in effect for water and one system improvement charge in effect for sewer for each of its approved rate schedules at any time. (3) A utility may apply to establish or amend one or more system improvement charges in accordance with the requirements of this section. A utility must not adjust its rates under this section more than once each calendar year. A utility that is applying to establish or amend multiple system improvement charges in a calendar year must do so in a single application. (4) A utility may not apply to establish or amend a system improvement charge while it has a comprehensive rate proceeding pending before the city or the Commission. (5) If a utility with a pending application to establish or amend a system improvement charge files an application to change before the city or the Commission, or if the city or the Commission initiates a rate change review, the utility will be deemed to have withdrawn its application to establish or amend a system improvement charge and the application will be presumed dismissed. (c) An application to establish or amend a system improvement charge must include the following: (1) A description of the eligible plant for which cost recovery is sought through the system improvement charge, including the project or projects included in the request and an explanation of how each project has improved or will improve service and an indication of which specific systems and customers benefitted from the change in investment; (2) A calculation of the system improvement charge in accordance with subsection (f) of this section and all supporting calculations and assumptions for each component of the system improvement charge; (3) Information that sufficiently supports the eligible cost, such as invoices, receipts, and direct testimony, and that sufficiently addresses the exclusion of costs for plant provided by explicit customer agreements or funded by customer contributions in aid of construction; (4) A copy of the utility's most recent annual report filed with the Commission, which must be the annual report most recently due for filing; (5) If the utility is earning a return on invested capital as demonstrated through its most recently filed annual report with the Commission that is more than 75 basis points above the return established in the Order from the utility's most recently filed comprehensive base rate case, the utility must also file a statement as to how the system improvement charge as requested results in rates which are just and reasonable; and (6) An affidavit confirming that the application meets the requirements of this section. (d) The revenue requirement for the system improvement charge must be calculated using the following formula: SIC RR = (Reconcilable Cost * ROR) + Federal Income Taxes + Depreciation + ad valorem taxes + other revenue related taxes, where: (1) SIC = the system improvement charge; (2) SIC RR = system improvement charge revenue requirement; (3) Reconcilable Cost = the original costs of eligible plant installed after the end of the test year used in the utility's most recent base-rate proceeding, less: a. Accumulated depreciation; and b. Any costs for plant provided by explicit customer agreements or funded by customer contributions in aid of construction; (4) Accumulated depreciation = depreciation accumulated for eligible plant after the date the eligible plant was placed in service; (5) ROR = after-tax overall rate of return as defined in paragraph (10) of this subsection; (6) Federal Income Taxes = current annual federal income tax, as related to eligible costs; (7) Depreciation = current annual depreciation expense for the eligible plant; (8) Ad Valorem Taxes = current annual amount of taxes based on the assessed value of the eligible cost; (9) Other Revenue Related Taxes = current annual amount of any additional taxes resulting from the utility's increased revenues related to the SIC; (10) The after-tax overall rate of return shall be the after-tax rate overall rate of return approved by the City or Commission in the utility's last base-rate case; and (11) The SIC must be calculated based on annualized meter equivalents, derived using the most recent month's total customer meter equivalents multiplied by 12. The base SIC must be calculated as the SIC RR divided by annual meter equivalents. The SIC for each meter size must be calculated as the base SIC multiplied by the multiplier for that meter size. Meter Size | Multiplier ⅝" | 1.00 ¾" | 1.50 1" | 2.50 1½" | 5.00 2" | 8.00 3" | 15.00 (e) By the first business day after it files its application, the utility must send notice of its SIC application to all affected ratepayers by first class mail, e-mail (if the customer has agreed to receive communications electronically), bill insert, or hand delivery. The utility must include the date the application was filed with the city, the intervention deadline, and a brief explanation of how an affected ratepayer may participate in the ratemaking proceeding. The intervention deadline is 25 days from the date service of notice is complete. (f) System improvement charge reconciliation shall be conducted in accordance with 16 Tex. Admin. Code § 24.76(i). (g) Recovery of rate case expenses may be requested and must be reviewed in the utility's next comprehensive base rate case.

(Ord. No. 2023-1079, § 3, 12-6-2023)