UTC Water Company General Rate Case Workbook User’s Manual

UTC Water Company General Rate Case Workbook

Washington Utilities and Transportation Commission
June 1, 2018

GENERAL INFORMATION

General Rate Case Workbook Overview

The intent of the General Rate Case Workbook (GRCW) workbook is helping streamline water utility companies’ general rate cases by utilizing the company’s information, including: historical costs, assets and customer usage to determine the cost of providing water service.

Using the company’s information, the GRCW will help determine what services are impacted and the dollar and percentage change for each, as well as the net impact of all the changes on the company’s total regulated revenue, while supplying a rate design to generate the required total revenue.

GRCW requires the Utilities and Transportation Commission’s (Commission) administrator to change any locked or password protected configurations within the workbook.

The GRCW workbook’s design provides two separate functions: Input and Output. These differences will be covered in more detail later in this document.

This workbook is functionally capable of generating a revenue requirement and a monthly rate design from company data provided on the “Input” tab. The “Output” tab shows the proposed revenue requirement and proposed monthly rate design.

Note – The model’s design provides a zero unit allowance, with three blocks increasing in rate based on meter factors. This rate design is generally optimal for most water utility companies, while encouraging conservation of water resources.

Completion Time for GRCW

Times will vary depending on the size of the company, number of assets, number of customers served, familiarity with Excel and material orderliness. Two different types of company scenarios are presented:

• The time required for a company with a small number of assets, organized records, and proficient Excel knowledge with forty (40) customers; may take less than forty five (45) minutes to complete.
• The time required for a company with either numerous assets, unorganized records, novice Excel knowledge and/or with one thousand (1,000) or more customers; may take three (3) hours or more to complete.

Point of Contact

For support or questions, contact the GRCW Team through Regulatory Services – Water and Transportation Section at 360-664-1300.

Required Documents

To fill in the GRCW make sure you have the following documents:

• Tariff;
• Income Statement or General Ledger;
• Balance Sheet;
• Loans with Interest Rate;
• Asset, Depreciation, and Contributions In Aid of Construction Schedules; and
• Customer Usage by billing cycle with meter size(s)

Acronyms and Abbreviations

Below is a list of acronyms and abbreviations used in this document and the GRCW workbook with the meaning of each; for additional information, see document labeled “glossary [pdf]” on the Commission’s website under glossary [pdf].

• PFIS – Proforma Income Statement
• Sch – Schedule
• Depn – Depreciation
• CIAC – Contributions in Aid of Construction
• BOY – Beginning of Year
• EOY – End of Year
• NTG – Net-to-Gross
• ADJs – Adjustments
• Interest Sync – Interest Synchronization
• FIT – Federal Income Tax

SYSTEM SUMMARY

System Configuration

This workbook is contained entirely within a single Microsoft Excel workbook

Software Requirements

To take advantage of the new capabilities offered by the GRCW, you will need Microsoft Office 2007 or newer.

If you do not have Microsoft Office, or a computer meeting the system requirements of the software (see 2.3 Hardware Requirements), a one-time technology upgrade will be allowed up to fifteen hundred dollars ($1,500), reflected as a proforma adjustment recovered over three (3) years.

Microsoft office 2013, the oldest currently supported Office package, has multiple versions (see Microsoft Office 2013 Chart below). The Commission is not concerned with which version the company chooses to use, as long as it has Word and Excel.

Microsoft Office 2013 Chart

Hardware Requirements

For Microsoft Office 2013 to run properly and to improve communications with the Commission be sure to take note of the following computer system requirements below. Any consumer electronics retail associate will be able to assist with finding a computer and hardware with  the following specifications:

with SSE2
Memory| 1 GB RAM (32-bit); 2 GB RAM (64-bit)
Hard Disk| 3.0 GB available disk space
Drive| Read/Write CD-ROM, DVD or Flash drive
Display| 1024 x 768 or higher resolution monitor
Graphics| Graphics hardware acceleration requires a DirectX 10 graphics card.
Operating System| Windows 10 or Windows 8.1 (Usually new computers come preinstalled with an operating system.)
Printer| All-in-one printer that comes with printing, scanning, and copy capabilities.
USB Ports| Universal Serial Bus is a way of setting up communication between a computer and peripheral devices (such as flash drives).
Other| The current or immediately previous version of Internet Explorer; the current version of Microsoft Edge, Safari, Chrome, or Firefox. Internet functionality requires Internet access (fees may apply).

Example Upgrade

Acme Water Company wants to use the GRCW but does not have a system capable of using Excel. After contacting the WUTC, Acme Water Company goes to a local retail outlet carrying computers and equipment where they purchase a computer meeting the requirements of the most advanced program needed, justifiable programs (Microsoft Office and Accounting Software),  and necessary peripherals(such as, if not included in computer purchase, Monitors, Mouse, Keyboard, and a Printer).
Acme Water Company includes the expense with their new General Rate Case and the cost of upgrading is included in their water rates over the next three years.

USING GRCW WORKBOOK

USING GRCW WORKBOOK

Below are detailed series of instructions describing the procedures the user will need to follow to use the workbook. The following procedures are related to the “Input” tab within the workbook. Within the GRCW, all input cells are in (text or number entry) or (drop down selection) , while output cells are purple and information cells are orange.

Please note that all input values should match the company financial information for the test period.
Entries will be 1) direct text, 2) direct numbers, or 3) drop down menu selections. Input to yellow or green cells only.

Information – Section 1

In column (b) Company Information, enter requested information in the cells, such as, full legal name; test period ending; billing cycle; most common meter size; customer count broken-down by unmetered, ready to serve (RTS), and metered; and current monthly rate design (use only whole single numbers, not a range).
Note: Use monthly numbers only, even if billing is bi-monthly.

Balance Sheet – Section 2

Starting with column (d) Asset Values and from the company’s balance sheet, enter the end-of-test-period total company current assets, and Utility Plant and related Accumulated Depreciation. Accumulated Depreciation may be entered as positive or negative numbers.

Column (f) Liability Values/Equity Values, enter the requested Liability and CIAC information in the cells, including the Accumulated Amortization. Accumulated Amortization may be entered as positive or negative numbers.

Continue down the Column (f) to complete the company equity section.

To enter multiple items in one cell, use the Inputs – Calculations tab to enter detailed information and link totals to the Input tab.

Assets, liabilities, and equity totals will automatically add the appropriate entries. Verify the amounts are correct with the company’s records. In addition, the workbook will indicate whether the balance sheet, actually balances (Assets = Liabilities + Equity) (see bottom line of section 2).

Income Statement – Section 3

Starting with column (h) Company End of Year, enter the requested information in the related cells. To enter multiple items in one cell, use the Inputs – Calculations tab to enter detailed information and link totals to the Input tab.

Income and expense totals will automatically add the appropriate entries. Verify the amounts are correct with the company’s records. Then, enter total interest paid and total Federal Income Tax (FIT) paid for the year, this will automatically calculate net income and operating incomes.

Under column (i) Restating Adjustments , enter any restating adjustments done, to the company end of year records to reflect regulatory accounting and have the test period reflect a “normal” year of operating expenses. In example, remove large repair projects from expenses, add them to utility plant (capitalizing) and depreciate them over the useful life of the repaired asset.

Under column (j) Proforma Adjustments, enter any proforma adjustments done after the company end of test year records to reflect regulatory accounting or future known and measurable expenses. For example, property taxes or postage increases after the end of the test  period.

Debt Structure – Section 4

Starting with column (k) Year thru (o) Company Interest Rate, enter the requested information in the correct cells, such as the year the loan originated, description of the loan, the type of loan (which is a drop down menu), enter loan balance at end of test year, and the interest rate on the loan.

Assets, and Depreciation Schedules, CIAC – Section 5

Starting with column (p) CIAC thru (v) Original Cost, enter the requested information in their related cells. Grouping of like items placed in service over a short period (monthly or quarterly) is allowable. Most of the columns are self-explanatory; those requiring specific formats or consideration are below.

• Column (p) CIAC – denote Plant CIAC by placing an “X” in the column, Cash CIAC with a “C”, case does not matter. If an asset has both CIAC and Company contributions, list the portions on separate lines.
• Column (q) Asset Category (drop-down list), and Column (t) Service Life – the Asset Category drop down includes a generally accepted life, shown as the number in parenthesis. Documented experience that asset lives differ is accepted.
• Column (s) Date in Service – the form requires the use mm/dd/yy format.

Annual depreciation, beginning and ending accumulated depreciation and rate base will automatically calculate. The GRCW uses end-of-year depreciation to calculate the rate base.

Usage Data (All Metered Customers) – Section 6

A company can use any consecutive 12-month period for their test year. In column (ac) line 4, use the green drop down to select the starting month of the test year. (Default is\ for Jan-Dec)

If the company bills and reads meters “bi-monthly” please ensure that under section 1, Information (4.1.1), that “bi-monthly” is selected for billing cycle and enter usage data into the yellow unshaded input cells only.

Starting with column (aa) Meter ID thru (an) Dec, enter the requested information in the related cells. Start by selecting from the drop down menu the meter size. Next, enter the meter id. If no meter id or account number is available, enter a simple count (1, 2, etc.). Usage data for each customer for the test year must align with the month in column title. Note: information may be copied to excel using the Copy” and “Paste Special – Value” functions into the appropriate cells. Both functions are accessed through right clicking. Complete usage data adjustments prior to entry in the workbook.
DO NOT enter zero for a meter reading, leave cell blank if no usage.

Meter usage data input should only be used for metered customers. Non- metered and ready-to-serve customer data is taken from the input section 1 under company information. Do not enter any nonmetered customer information in this \ section.

Federal Income Tax Rate – Section 7

In column (ao), company’s FIT rate is 21 %. Leave at default of 21 percent

Conversion Factor – Section 8

In column (aq), enter the company’s conversion factor. If unknown, enter the suggested conversion factor (Suggested CF) calculated by the worksheet. Note: suggested conversion factor will change when a number is entered into column (aq); repeat entering this number until the suggested conversion factor stops changing.

The Conversion Factor cell should be yellow, and the “PFIS Setting” green. If the Conversion Factor cell and the “PFIS Setting” are red, go to the “PFIS” tab, and use the drop down to change cell Q9 (Select Party) to “Company”

Expected Output [Tab Output]

Below are detailed series of instructions describing the expected outputs for the GRC workbook.

Revenue Requirement – Section 9

The revenue requirement will calculate the revenue impact of the proposed rates by each class affected (metered, unmetered, and ready-to-serve), it will also give the total additional annual revenue requirement, and a percentage difference from current revenue. This information is useful in drafting the notice to customers and cover letter for the general rate filing.
This information is in compliance with WAC 480-07-530 (c) (General Rate Proceeding’s – Water Companies) part for what is required in a cover letter to the Commission for a general rate case and work papers.

Monthly Rates (Company Proposed Rate Design) – Section 10

Based on the following rate design practices, this proposed rate design starting point should be part of the company’s general rate filing. The rate design will calculate for ready-to serve, unmetered, and metered customers.

To help conservation, the rate design by default removes any water usage allowance, sets ready-to-serve equal to the base rate for most common meter size, and implements an inclining three-block design, based on average winter (block 1), average summer (block 2), and high usage (block 3). It also generates rates for other meter sizes based on meter factor (flow capacities).

Example of inclining three block design below.

Distress Model and Other Ratios – Section 11

The distress model calculates the impact of the company’s decisions and its effect on operations both before and after the general rate case and give it a rating of “distressed”, “weak to marginal”, or “viable”. The other ratios calculate and show different performance measures that most successful companies use to make investment and operational decisions.

The distress model, along with, the other ratios are to help the company see where management can improve the company’s situation.

For a more complete explanation and source document, please see The National Regulatory Research Institute, July 1997, Evaluation Water Utility Capacity with Ratio Analysis  and Discounted Cash Flows

Special Instructions for Error Correction

For troubleshooting errors, contact regulatory services, Water and Transportation section, (360) 664- 1300, to talk with regulatory staff. Please be ready to provide a copy of the workbook and describe all error conditions so staff will be able to give corrective actions

Caveats and Exceptions

You should have a revenue requirement and an inclining 3-block rate design. If both of these conditions are true, move onto the next section of this manual, if not, keep reading this section of the manual.

If the revenue requirement shows a decrease, this could mean two things:

1. Data was incorrectly entered on the “input” tab, or
2. The company does not meet the criteria for a rate increase at this time.

If the rate design does not show a reasonable three-block rate design, contact the regulatory staff. This workbook has hardcoded percentages and overrides that are not available to the company. Staff will work with you, and assist in determining the best rate design.

FILING A GENERAL RATE CASE

This section describes and depicts all standards for a general rate increase filing by water companies and what information must be included. If the company files by electronic means please refer to WAC 480- 07-140 and http://www.utc.wa.gov/docs/Pages/howToFile.aspx for more detailed examples.

General Rate Case Statue and Required Information

Under WAC 480-07-530, general rate increase filings by water companies must include the information described in this section.

Cover Letter

The cover letter must:

1. Provide a description of the filing, and the requested action, in  understandable terms;
   a) Technical terms are acceptable, but descriptions must use common terms so the public can easily understand the impact of the filing;
   b) Acronyms, if used, must be defined before they are used in the text of the letter;

2. State why the filing is being made (e.g., increased costs for water testing);

3. Describe each service impacted and the dollar and percentage change for each service as well as the net impact of all changes on the company’s total regulated revenue.

Tariff

The proposed tariff must include explanatory markings, for additional information on tariffs; see WAC 480-80 -101–105.

Customer Notice

A copy of the notice mailed to customers must be included with the GRC filing; the notice must be reviewed by the Commission’s Consumer Protection section at least one week before the company has planned printing date for distribution. For additional information on customer notices, see WAC 480-110-425 or contact Consumer Protection at 360-664-1113 or toll free at 888-333-9882.

Work Papers

The supporting work papers, which the GRCW satisfies the majority, for the test period including:

1. A calculation of the revenue impact of proposed rates by each class affected;

2. Balance Sheet and Income Statement;

3. Plant Depreciation Schedule and CIAC Amortization Schedule;

4. Adjustments proposed including a schedule showing adjustments to the Income Statement, including any restating adjustments and/or proforma adjustments including the effect of proposed rates;

5. Work papers that explain both restating and proforma adjustments that the company proposes, specifying all relevant assumptions, and including specific references to charts of accounts, financial reports, studies, and all similar records relied on by the company in preparing its filing, and its supporting testimony and exhibits.
   a) “Restating actual adjustments” adjust the booked operating results for any defects or infirmities in actual recorded results, which can distort test period earnings. Restating actual adjustments are also used to adjust from an as-recorded basis to a basis that is acceptable for ratemaking. Examples of restating actual adjustments are adjustments to remove prior period amounts, to eliminate below-the-line items that were recorded as operating expenses in error, to adjust from book estimates to actual amounts, and to eliminate or to normalize extraordinary items recorded during the test period.
   b) “Proforma adjustments” give effect for the test period to all known and measurable changes that are not offset by other factors. The filing must identify dollar values and underlying reasons for each proposed proforma adjustment.

6. Usage statistics verifying test year revenues and proposed revenues.

7. Public water system identification number assigned by the Washington Department of Health for each system that the new rates will affect.

8. Schedule showing separation of revenues and expenses between regulated and non-regulated operations.

9. Information about every transaction with an affiliated interest or subsidiary that directly or indirectly affects the proposed rates. This must include a full description of the relationship, terms and amount of the transaction, the length of time the relationship has been ongoing, and an income statement and balance sheet for every affiliated entity.

Note: The commission has moved to electronic filing and communications. This provides faster, more secure, and greater access for all concerned parties. Please see staff notes on Electronic Filings.

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