SECTION 7.7101. Interim Rate Adjustments

(a) General requirements. Pursuant to Texas Utilities Code, §104.301, a gas utility may file with the Commission an application for an interim rate adjustment, subject to the requirements of this section. The director may reject any filing that, at the time of filing or within a reasonable time afterward, does not substantially comply with the requirements of this section.

(1) The filing date of the gas utility's most recent rate case in which there is a final order setting rates for the area in which the interim rate adjustment will apply shall be no more than two years prior to the date the gas utility files its initial interim rate adjustment application under this section. The gas utility shall state in its application the gas utilities docket number of the gas utility's most recent rate case.

(2) A gas utility shall file its application for interim rate adjustment with the Commission at least 60 days before the proposed implementation date of the interim rate adjustment.

(3) A gas utility shall complete notice of its application for interim rate adjustment to all affected customers in accordance with subsection (b) of this section no later than the 45th day after the date the gas utility files its application for interim rate adjustment.

(4) An application for interim rate adjustment is complete on the date the gas utility has filed at the Commission all information required by this section.

(5) A gas utility shall not implement its requested interim rate adjustment until the later of:

(A) the 60th day after the filing is complete;

(B) the day after the utility completes notice to customers; or

(C) the day after the last day of a suspension period imposed pursuant to paragraph (6) of this subsection.

(6) During the 60-day period following a gas utility's filing of an application for interim rate adjustment, the director may suspend the implementation of the interim rate adjustment for a period of up to 45 days from the later of:

(A) the 60th day after the gas utility's application is complete;

(B) the proposed implementation date; or

(C) the day after the utility completes notice to customers.

(b) Notice. The utility shall print the notice of its application for an interim rate adjustment in type large enough for easy reading. The notice shall be the only information contained on the piece of paper on which it is written. A gas utility may give the notice required by this section either by separate mailing or by mailing or otherwise delivering the notice with its billing statements. Notice by mail shall be presumed to be complete three days after the date of deposit of the paper upon which it is written, enclosed in a post-paid, properly addressed wrapper, in a post office or official depository under the care of the United States Postal Service. The notice to customers shall include the following information:

(1) a description of the proposed revision of rates and schedules;

(2) the effect the proposed interim rate adjustment is expected to have on the rates applicable to each affected customer class and on an average bill for each affected customer class;

(3) the service area or areas in which the proposed interim rate adjustment would apply;

(4) the date the proposed interim rate adjustment was or will be filed with each other regulatory authority;

(5) the gas utility's address, telephone number, and web site where information concerning the proposed interim rate adjustment may be obtained; and

(6) a statement that any affected person may file written comments or a protest concerning the proposed interim rate adjustment with Gas Services, Market Oversight Section, Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967.

(c) Contents of application. A gas utility shall submit a signed original and two copies of the following information with Gas Services as the utility's application for interim rate adjustment:

(1) a copy of the notice to customers and an affidavit stating the method of giving notice and the date or dates on which the notice was or will be given;

(2) a tariff or rate schedule or schedules;

(3) an annual project report, as more specifically described in subsection (d) of this section;

(4) an annual earnings monitoring report, as more specifically described in subsection (e) of this section; and

(5) the gas utility's business address, telephone number, and, if applicable, facsimile transmission number and/or e-mail address.

(d) Annual project report. A gas utility seeking to implement an interim rate adjustment shall electronically file with the Commission an annual project report as part of the application.

(1) The annual project report shall be made on a form approved by the Commission and found in the Gas Services section of the Commission's website.

(2) The annual project report shall describe by jurisdictional area:

(A) the gas utility investment projects completed and placed in service during the preceding calendar year;

(B) the gas utility investment retired or abandoned during the preceding calendar year; and

(C) the cost of, need for, and customers, by class and location, benefitted by the change(s) in gas utility investment projects.

(3) Similar investment projects, such as service lines or small tools that the gas utility normally accounts for on a group basis, may be reported as a single investment project.

(e) Annual earnings monitoring report. A gas utility seeking to implement an interim rate adjustment shall electronically file with the Commission an annual earnings monitoring report as part of the application.

(1) The annual earnings monitoring report shall be made on a form approved by the Commission and found in the Gas Services section of the Commission's website.

(2) The annual earnings monitoring report shall demonstrate the utility's earnings during the preceding calendar year. A gas utility whose annual earnings monitoring report shows that the utility is earning a return on invested capital of more than 75 basis points above the return established by Commission final order setting rates in the utility's most recent rate case for the area in which the interim rate adjustment was implemented shall include with its annual earnings monitoring report a statement of the reasons the rates are not unreasonable or in violation of law.

(f) Methodology for interim rate adjustments. Approval of a gas utility's application for interim rate adjustment is subject to the requirements of this subsection.

(1) The components of the revenue to be recovered through an interim rate adjustment shall be limited to those set forth in this subsection. The revenue to be recovered through an interim rate adjustment shall be incremental to that established in the gas utility's most recent rate case for the area in which the interim rate adjustment is to be implemented, as previously adjusted.

(2) All incremental values for investment, accumulated depreciation, return on investment, depreciation expense, ad valorem taxes, revenue related taxes, and incremental federal income taxes shall be calculated and presented on a full calendar year basis, except as provided in paragraph (3) of this subsection.

(3) The amount by which the gas utility may adjust its rates upward or downward using the interim rate adjustment for each calendar year is based on the difference between the value of the gas utility's invested capital for the preceding calendar year and the value of the invested capital for the calendar year preceding that calendar year; except for a gas utility's first interim rate adjustment application following a rate case and except for amounts that can be collected by the utility under Texas Utilities Code, §104.112. For the first interim rate adjustment following a rate case, the allowed adjustment shall be based on the difference between the gas utility's invested capital at the end of the rate case test year and the invested capital at the end of the calendar year following the end of such test year. The value of the gas utility's invested capital is equal to the original cost of the investment at the time the investment was first dedicated to public use minus the accumulated depreciation related to that investment.

(4) Based on the difference between the values of the investment amounts as determined under paragraphs (2) and (3) of this subsection, a gas utility may adjust its revenue only by the following components:

(A) return on investment;

(B) depreciation expense;

(C) ad valorem taxes;

(D) revenue related taxes; and

(E) federal income taxes.

(5) The factors used to calculate the return on investment, depreciation expense, and incremental federal income tax used to compute the revenues to be collected through the interim rate adjustment must be the same as those established or used in the final order setting rates in the gas utility's most recent rate case for the area in which the interim rate adjustment is to be implemented.

(6) The gas utility shall allocate the revenue to be collected through the interim rate adjustment among the gas utility's customer classes in the same manner as the cost of service was allocated among customer classes in the utility's most recent rate case for the area in which the interim rate adjustment is to be implemented.

(7) The gas utility shall design the interim rate adjustment as either a flat rate to be applied to the monthly customer charge or a volumetric rate to be applied to the initial block usage rate. The interim rate adjustment, whether it is applied to the monthly customer charge or the initial block rate, shall be shown on the customers' monthly billing statements as a surcharge.

(g) Procedure for review. The director shall ensure that applications for interim rate adjustments are reviewed for compliance with the requirements of Texas Utilities Code, §104.301; and this section.

(1) The director may:

(A) suspend the implementation date of an interim rate adjustment in accordance with subsection (a) of this section;

(B) request assistance in reviewing applications for interim rate adjustments from other Commission divisions; and

(C) request additional staff to achieve timely review of interim rate adjustment applications.

(2) Upon completion of the review; the director shall prepare a written recommendation, which shall be provided to the applicant gas utility. The director may recommend:

(A) approval of the application for interim rate adjustment;

(B) approval of some elements of the application to allow only those elements of the interim rate adjustment to take effect without further Commission action; or

(C) rejection of the application for interim rate adjustment.

(3) The director's recommendation shall be submitted to the Commission for decision at a scheduled open meeting.

(4) If the Commission approves an application for interim rate adjustment, the gas utility shall either file the tariff or rate schedule implementing the approved interim rate adjustment or shall, within 30 days of the Commission's action, notify Gas Services that the tariff or rate schedule initially filed with the application correctly implements the approved interim rate adjustment.

(h) Annual interim rate adjustments. A gas utility shall recalculate its approved interim rate adjustment annually in accordance with the requirements of this section and shall file an application for an annual adjustment no later than 60 days prior to the one-year anniversary of the proposed implementation date of the previous interim rate adjustment application.

(i) Refunds. All amounts collected from customers under an interim rate adjustment tariff or rate schedule are subject to refund. The issues of refund amounts, if any, whether interest should be applied to refunded amounts and, if so, the rate of interest, shall be addressed in the rate case a gas utility files or the Commission initiates after the implementation of an interim rate adjustment and shall be the subject of specific findings of fact in the Commission's final order setting rates.

(j) Review for reasonableness and prudence. In the rate case a gas utility files or the Commission initiates after the implementation of an interim rate adjustment under this section, any change in investment and related expenses and revenues that have been included in any interim rate adjustment shall be fully subject to review for reasonableness and prudence. Upon issuance of a final order setting rates in this rate case, any change in investment and related expenses and revenues that have been included in any interim rate adjustment shall no longer be subject to review for reasonableness or prudence.

(k) Suspension of interim rate adjustment. A gas utility may file a request to suspend the operation of an interim rate adjustment tariff or rate schedule for any year subject to the following requirements and conditions:

(1) A gas utility's request to suspend operation of an interim rate adjustment tariff or rate schedule shall be filed no later than the date on which the gas utility's annual adjustment of the interim rate adjustment would have been filed.

(2) A gas utility's request shall be in writing and shall state the reasons the suspension is justified.

(3) The director may grant the suspension, provided that the gas utility has made a showing of reasonable justification. If granted, the suspension shall be effective until the next annual anniversary of the implementation date of the interim rate adjustment.

(4) The utility's next annual filing for interim rate adjustment shall be made in accordance with this section.

(l) Rate case filing. A gas utility that implements an interim rate adjustment under this section and does not file a rate case before the fifth anniversary of the date its initial interim rate adjustment became effective shall file a rate case not later than the 180th day after that anniversary.

(m) Reimbursement. A gas utility that implements an interim rate adjustment under this section shall reimburse the Commission for the utility's proportionate share of the Commission's annual costs related to the administration of the interim rate adjustment mechanism. The Commission shall determine the amount of the reimbursement as follows:

(1) After the Commission has finally acted on a gas utility's application for an interim rate adjustment, the director shall estimate such utility's proportionate share of the Commission's annual costs related to the processing of such applications.

(2) In making the estimate required by paragraph (1) of this subsection, the director shall take into account the number of utilities the Commission reasonably expects to file for interim rate adjustments during the fiscal year, and the costs expected to be incurred in processing such applications.

(3) The utility shall reimburse the Commission for the amount so determined within thirty days after receipt of notice of the amount of the reimbursement.

(4) In the event that the utility wishes to contest the amount of the reimbursement determined by the director, it may file a request to have the Commission determine the appropriate amount. In such event, the utility agrees to pay the amount determined by the Commission within thirty days of the determination.

Source Note: The provisions of this §7.7101 adopted to be effective December 27, 2004, 29 TexReg 11948; amended to be effective April 25, 2017, 42 TexReg 2165; amended to be effective May 14, 2018, 43 TexReg 2997