With doubts resolved over its legal authority, the Pennsylvania Public Utility Commission has issued "final-form" rules (but subject to legislative review) that allow an "operating-ratio" method as an alternate form of rate regulation for small water and wastewater utilities, many of which now face severe financial difficulties.
For added financial aid, the new rules also allow water utilities to create an emergency maintenance and operation fund as well as a reserve account, with both funded as "customer contributions in aid of construction."
Revenues Eaten Up. The PUC embraced the operating-ratio formula method to aid small water companies under financial duress. According to the PUC, many such companies find that their relatively modest requests for rate increases are "eaten up" by the cost of participating in a full-blown traditional rate case.
Doubts Resolved. Questions over the extent of PUC authority to vary from a cost-based, rate-of-return regulation method, and adopt the operating ratio scheme, had been put to rest on Feb. 15, 1996, when, in an appeal of a water rate case, the state commonwealth court had accepted the PUC's operating ratio method as within the PUC's discretion and expertise. (See, Popowsky v. Pa. PUC, 674 A.2d 1149). The PUC saw that ruling as affording "considerable latitude" in choosing a rate-setting method.
Emergency Funds. The PUC designated the emergency fund and reserve account as "customer contributions" so that utilities could not earn a return upon, nor charge depreciation against assets derived from either fund. Re Small Water and Sewer Ratemaking Methodologies, Docket No. L-00930082, Nov. 11, 1996 (Pa.P.U.C.).
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