1. The comments made by the presenters represent the presenter’s opinions only; these comments and opinions do not necessarily represent those of the Kentucky Public Service Commission

2. KENTUCKY PUBLIC SERVICE COMMISSION
Sam Reid Jr.
Ariel Miller

3. NRC’S – REVENUE NEUTRAL
REVIEW
NON-RECURRING CHARGES
Tap Fee
Returned Check Charge
Meter Test Charge
Service Call
Field Collection Charge
Reconnection Charge
NRC’S – REVENUE NEUTRAL

4. Non-Recurring Charges
807 KAR 5:011 Section 10. Non-Recurring Charges.
807 KAR 5:006 Section 9. Special Charges
Cost Justification forms are available on PSC website

5. http://www.psc.ky.gov/ Utility Information FORMS Utility Forms
NRC Cost Justification
Water specific Forms
Average meter connection Cost Justification

6. 2008 WATER TRAINING SEMINARS*
PUBLIC
SERVICE
COMMISSION
“If it is not in your tariff you can not do it, if it is in your tariff you must do it”
-Brent Kirtley
CLICK *

7. Purchased Water Adjustments (PWA)
When a utility’s wholesale supplier increases the rate charged to the utility, the utility can apply for a purchased water adjustment to increase the rates the utility charges its customers.
KRS and KRS
807 KAR 5:068 for Water Districts and Associations
807 KAR 5:067 for Privately- owned

8. PWA FILING REQUIREMENTS
Name of all wholesale suppliers and the base (current) rate and changed rate of each.
A copy of the supplier’s notice of the changed rate showing the effective date of the increase.
A schedule listing the current and proposed rates must be attached with the application.

9. PWA FILING REQUIREMENTS
Completed form and supporting information.
A copy of the resolution or other document of the utility’s governing body authorizing the proposed rates. ( Board meeting minutes)

13. Purchased Water Adjustment
Public Notice
Post a copy of the notice at place of business no later than date of application.

14. Purchased Water Adjustment
Public Notice
The water district shall notify its customers of any increase in rates resulting from a supplier increase not later than the rendering of the first bill at the increased rate.
Including notice with customers bill
Mailing the written notice to each customer.
Publishing notice one time in newspaper
Affidavit shall be filed within 30 days of date of final order.

15. ALTERNATIVE RATE FILING (ARF) 807 KAR 5:076
Requirement-In its immediate past calendar
year of operation, Applicant had $5,000,000 or less
in gross annual revenues.

16. Billing Analysis for ABC Water District
Test Period January 1, 2015 to December 31, 2015
USAGE TABLE
FIRST
NEXT
OVER
USAGE
BILLS
GALLONS
2,000
3,000
5,000
10,000
TOTAL
11,740
10,730,975
15,582
52,429,577
31,164,000
21,265,577
8,372
56,484,203
16,744,000
25,116,000
14,624,203
2,767
90,612,971
5,534,000
8,301,000
13,835,000
62,942,971
38,461
210,257,727
64,172,975
54,682,577
28,459,203

17. Billing Analysis for ABC Water District REVENUE BY RATE INCREMENT
BILLS
GALLONS
RATE
REVENUE
FIRST
2,000
38,461
64,172,975
$14.42
$554,607.62
NEXT
3,000
54,682,577
4.70
257,008.11
5,000
28,459,203
4.06
115,544.36
All Over
10,000
62,942,971
3.42
215,264.96
TOTAL
210,257,727
$1,142,425.06

18. MONTH PURCHASED SOLD 12,000 10,000 TOTAL 144,000 120,000 JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
TOTAL
144,000
120,000

19. 2012 ANNUAL REPORT
GALLONS
DATE
MAXIMUM GALLONS PUMPED IN ANY ONE DAY X
1,761,400
7/14/2012
MINIMUM GALLONS PUMPED IN ANY ONE DAY X
756,800
2/17/2012
PEAK MONTH – GALLONS SOLD X
32,414,200
August
PEAK DAY – GALLONS SOLD X
2013 ANNUAL REPORT
GALLONS
DATE
MAXIMUM GALLONS PUMPED IN ANY ONE DAY X
1,761,400
7/14/2013
MINIMUM GALLONS PUMPED IN ANY ONE DAY X
756,800
2/17/2013
PEAK MONTH – GALLONS SOLD X
32,414,200
August
PEAK DAY – GALLONS SOLD X

20. Unaccounted For Water Loss
Commission Orders for Rate cases, purchased water adjustments, CPCNs and water financing cases will all include language on UAF water losses when in excess of 15%
A utility’s inability or continued inaction to reduce UAF water losses will lead to greater PSC attention

21. 807 KAR 5:066
Section 6(3) Unaccounted-for water loss. Except for purchased water rate adjustments for water districts and water associations, and rate adjustments pursuant to KRS (4), for rate making purposes a utility's unaccounted-for water loss shall not exceed fifteen (15) percent of total water produced and purchased, excluding water used by a utility in its own operations.

22. Section 6. (3) Cont’d.
Upon application by a utility in a rate case filing or by separate filing, or upon motion by the commission, an alternative level of reasonable unaccounted-for water loss may be established by the commission. A utility proposing an alternative level shall have the burden of demonstrating that the alternative level is more reasonable than the level prescribed in this section.

23. FREQUENCY OF ARF APPLICATIONS
NO LIMITATIONS.
Review system rates annually.
Better to have frequent small increases than a large increase after many years of no increase.

24. Authorized Debt, KRS
“No utility shall issue any securities or evidences of indebtedness…until it has been authorized so to do by order of the commission.” “This section does not apply to notes issued by a utility, for proper purposes and not in violation of law, that are payable at periods of not more than two years from the date thereof, or to like notes, payable at a period of not more than two years from date thereof, that are issued to pay or refund in whole or in part any such notes, or to renewals of such notes from time to time, not exceeding in the aggregate six years from the date of the issue of the original notes so renewed or refunded.

25. Authorized Debt, KRS 278.300 (continued)
KRS (1). Any officer, agent, or employee of a utility, as defined in KRS , and any other person who willfully violates any of the provisions of this chapter or any regulation promulgated pursuant to this chapter, or fails to obey any order of the commission from which all rights of appeal have been exhausted, or who procures, aids, or abets a violation by any utility, shall be subject to either a civil penalty to be assessed by the commission not to exceed two thousand five hundred dollars ($2,500) for each offense or a criminal penalty of imprisonment for not more than six (6) months, or both.
Case No.

26. Commissioner Compensation KRS 74.020
(6) Each Commissioner shall receive an annual salary of not more than $3,600, which shall be paid out of the water district fund, except that beginning January 1, 1999, each commissioner who completes during an educational year a minimum of six (6) instructional hours of water district management training approved by the Public Service Commission may receive an annual salary of not more than $6,000 to be paid out of the water district fund.

27. Commissioner Compensation KRS 74.020 (continued)
(6) In the case of single-county districts, which shall be deemed to include districts described in paragraph (c) of subsection (1) of this section, the salary shall be fixed by the county judges/executive with the approval of the fiscal court; in multicounty districts, it shall be fixed by the agreement between the county judges/executive with the approval of their fiscal courts.

28. Employee Compensation and Benefits
Recent Commission Actions: “.. consistent with recent orders in which the Commission has reduced benefit expenses for utilities that pay 100 percent of an employee's health insurance coverage, Staff reduced Water District A’s family health insurance premiums by 33 percent and the single premiums by 21 percent, the national average employee contribution rate, as shown below.”

29. Employee Compensation and Benefits (continued)
Recent Commission Actions: “The Commission is placing greater emphasis on evaluating employees’ total compensation packages, including both salary and benefits programs, for market and geographic competitiveness to ensure the development of a fair, just and reasonable rate. It has found in most cases, 100 percent of employer-funded health care does not meet those criteria.”

30. Employee Compensation and Benefits (continued)
Bureau of Labor Statistics, Healthcare Benefits, March 2018, Table 2 and 3, private industry workers. 21% employee share of premium for single coverage 33% employee share of premium for family coverage

31. Adjustments for GASB 68 -History
Prior to 2015: Pursuant to Governmental Accounting Standards Board Statement No. 27 (GASB 27) - CERS Contributions to be reported as employee retirement expense - Did not require Districts to report a liability on its financial statements for a portions of either CERS’s Net Pension Liability or CERS’s underfunded post-retirement health care costs

32. Adjustments for GASB 68 -History
After 2015:
Governmental Accounting Standards Board Statement No. 68 (GASB 68) – Required that beginning in 2015 Districts must report for pensions
A charge against Retained Earnings to account for the cumulative effect of switching from GASB 27 to GASB 68
A District’s proportionate share of the CERS NPL
Deferred Inflow of Resources and Deferred Outflow of Resources related to pensions; and
Annual pension expense that incorporates the above items

33. Adjustments for GASB 68 -What does all this mean?
For book purposes, it is likely that a number of adjustments will be made by a District’s independent Auditor (a Certified Public Accountant) For ratemaking purposes, it is likely that an adjustment will be made to reverse these adjustments during the ratemaking process Example: Water District A “To mitigate the impact of GASB 68 on Water District A’s Balance Sheet and to smooth the level of annual pension expense that will be reported by Water District A from year to year, Staff finds that Water District A should be allowed to recover an amount of pension expense through rates that is equal to its test-year contributions to CERS…”

34. Adjustments for GASB 68 -What does all this mean? (continued)
Resulting Adjustment for GASB 68 increased pension expense in the amount of $16,339 in Staff’s Report Does not always result in an increase to pension expense

35. Revenue Requirement Calculation – Debt Service Coverage Method

36. Percentage of Principal and Interest
Creditors require that utility borrowers assess rates that produce revenues that exceed cash related expenses by a specific margin. Bond resolutions between Rural Development and a Water District generally require that a District’s “annual net revenues (defined as gross revenues less operating expenses)…are equal to not less than 120 percent of the average annual debt service requirements for principal and interest…” Other lenders may require a Debt Service Coverage (“DSC”) ratio that is different than 120 percent.

37. Revenue Requirement Calculation – Operating Ratio Method

38. Depreciation
Depreciation is the periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.
Periodic Allocation: Accounting Instruction 33 of the Uniform Systems of Accounts (USoA) for Water Districts and Water Associations requires the use of straight-line depreciation.
Estimated Useful Life: Commission follows NARUC Study.

39. Depreciation
The PSC finds adequate funds to be any amount requested by the District that is equal to or less than annual depreciation expense if the expense is calculated using reasonable depreciable lives (NARUC Study).
Neither the Court nor the PSC limits the use of “depreciation funds” to asset renewal and replacement. These funds may be used for other costs necessary to deliver potable water. In fact, the PSC has required that depreciation funds be used to pay operation and maintenance expenses in some cases.
Note: Lenders require a very small amount of cash reserves be set aside in a specific account designated as Depreciation Fund for as long as the debt remains outstanding. Refer to the flow of funds section of your bond resolutions and loan resolutions for details.

40. QUESTIONS?