Arkansas Code of 1987 (2023) › Title 23 - PUBLIC UTILITIES AND REGULATED INDUSTRIES (§§ 23-1-101 — 23-119-105) › Subtitle 1 - PUBLIC UTILITIES AND CARRIERS (§§ 23-1-101 — 23-19-210) › Chapter 4 - REGULATION OF RATES AND CHARGES GENERALLY (§§ 23-4-101 — 23-4-1209) › Subchapter 12 - FORMULA RATE REVIEW (§§ 23-4-1201 — 23-4-1209) › Section 23-4-1208 - Term - Formula rate review

(a)
(1)
The term of any formula rate review approved by the Arkansas Public Service Commission shall not exceed five (5) years from the date of the commission's final order on the application by the public utility for a general change in rates and charges.
(2)
(A)
(i)
Upon a determination that it is in the public interest, a public utility may request and the commission may extend the term of the formula rate review mechanism by a period of no more than five (5) years beyond the initial term.
(ii)
Except as provided in subdivision (a)(2)(A)(iii) of this section, as part of granting any extension of the initial term of a formula rate mechanism, the public utility may propose and the commission may make the following adjustments, consistent with this subchapter and other applicable statutory provisions for a public utility or any other party to a proceeding subject to the commission's jurisdiction that may be proposed, and the commission may approve:
(a)
Reasonable and necessary revisions to the formula rate plan mechanism proposed by the parties that are necessary to ensure that the mechanism is consistent with the public interest but that do not materially change the provisions of the formula rate plan mechanism; and
(b)
An increase or decrease to the utility's authorized return on equity by no more than ten (10) basis points based upon consideration of §
23-4-410(c)
-(e), including making any required findings.
(iii)
For an electric utility if the electric utility's class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh):
(a)
An electric utility may request, and the commission shall approve, an extension of the term of the formula rate review mechanism by a period of five (5) years beyond the initial five-year term, provided the request is made on or before March 15, 2021; and
(b)
Any requests for an extension of the initial term of a formula rate plan mechanism made after March 15, 2021, shall be subject to subdivision (a)(2)(A)(i) of this section.
(B)
As part of any extension of the initial term of a formula rate review, for an electric utility if the electric utility's class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh), the commission shall adjust the cost allocation of any adjustment with respect to the total change in the formula rate review mechanism revenue level under §
23-4-1207(d)
to each applicable rate schedule consistent with §
23-4-422(b)(2)
and §
23-4-422(d)(2)
using the public utility's most recent cost of service that was submitted under the terms of the public utility's formula rate review mechanism, and the public utility shall file with the commission the resulting rate schedules as part of any formula rate review compliance filing.
(C)
As part of any extension of the initial term of a formula rate review mechanism, for an electric utility if the electric utility's class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh), the commission shall approve changes to the rate design within an individual customer class under §
23-4-1205(c)(3)(B)
and subject to §
23-4-422(b)(1)
using the public utility's most recent cost of service that was submitted under the terms of the public utility formula rate review mechanism, and the public utility shall file with the commission the resulting rate schedules as part of any formula rate review compliance filing.
(3)
During the five-year term of an extension of any formula rate review mechanism with an initial five-year term approved before March 15, 2021, for an electric utility if the electric utility's class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh):
(A)
(i)
If the commission as part of its order in the public utility's most recent application for a general change in rates and charges under §
23-4-401
et seq. adjusted the cost allocation to each applicable rate schedule under the then-applicable provisions of §
23-4-422
, then the commission shall:
(a)
Use a public utility's most recent cost of service that was submitted under the terms of the public utility's formula rate review mechanism;
(b)
Adjust the revenues recoverable from each class of customers to implement the unadjusted cost allocation in an equal annual adjustment over the five-year term of an extension; and
(c)
This subdivision (a)(3)(A) shall be used to adjust the amounts under §
23-4-1207(d)(1)
.
(ii)
The commission shall not make any other adjustments to the amounts under §
23-4-1207(d)
;
(B)
For a public utility's class of customers with the highest level of consumption per customer that has rates with a demand component, any decrease in the costs allocated to that class of customers under subdivision (a)(3)(A) of this section shall serve to lower the maximum amount of the revenue increase for that class under §
23-4-1207(d)(2)
;
(C)
For a public utility's classes of customers other than the class of customers with the highest level of consumption per customer that has rates with a demand component, any increase in the costs allocated to those classes of customers as well as any amounts that lower the maximum revenue increase for any class of customers under subdivision (a)(3)(B) of this section shall be included in the adjustment of customer rates for those classes of customers subject to §
23-4-1207(d)(2)
;
(D)
For a public utility's nonresidential classes of customers that have rates with a demand component other than the class of customers with the highest level of consumption per customer that has rates with a demand component, the public utility may establish and the commission shall approve a maximum level of consumption or demand to be eligible for service as part of those classes that is lower than the minimum level of consumption or demand to be eligible for the class of customers with the highest level of consumption per customer that has rates with a demand component; and
(E)
If the commission as part of its order in the public utility's most recent application for a general change in rates and charges under §
23-4-401
et seq. adjusted the rate design for the class of customers with the highest level of consumption per customer that has rates with a demand component under the then-applicable provisions of §
23-4-422
, then:
(i)
The commission shall approve changes to the rate design within an individual customer class under §
23-4-1205(c)(3)(B)
subject to §
23-4-422(b)(1)
using the utility's most recent cost of service that was submitted under the terms of its formula rate review mechanism;
(ii)
The commission shall modify the rate design changes required under §
23-4-422(b)(1)
, § 23-4-1205(c)(3)(B), and this subdivision (a)(3), as described in this subdivision (a)(3)(E); and
(iii)
The commission shall adjust the rate design to the class of customers with the highest level of consumption per customer, which has rates with a demand component in an equal annual adjustment over the first three (3) years of the five-year term of an extension, and the public utility shall file the resulting rate schedules annually as part of any formula rate review compliance filing until the adjustment in this subdivision (a)(3)(E)(iii) is fully implemented.
(4)
During the five-year term of an extension, for an electric public utility with a formula rate review mechanism that uses a test period based on a projected year with an initial five-year term and that was approved and in effect by the commission before March 15, 2021, for an electric utility if the electric utility's class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh):
(A)
The debt-to-equity ratio, for the purpose of setting rates, shall be fixed at a public utility's actual debt-to-equity ratio reflected in the commission order issued on December 11, 2020, addressing the annual formula rate review filing during the final year of the initial five-year term;
(B)
If the commission imputes a level of short-term debt for ratemaking purposes, the amount, stated as a percentage, shall not exceed the amount included in the capital structure reflected in the commission order issued on December 11, 2020, addressing the annual formula rate review filing during the final year of the initial five-year term;
(C)
The target return rate in effect during the five-year term of the formula rate review mechanism shall be set equal to an amount that is ten (10) basis points lower than the target return rate in effect during the initial five-year term of the formula rate review mechanism;
(D)
All other capital structure components, for the purpose of setting rates as well as all other components of a public utility's books and records, including the balance sheet and income statement accounts, shall be determined consistent with §
23-4-1206(g)
; and
(E)
If the commission imputes any amount for any liabilities that are reflected in the capital structure for ratemaking purposes, it shall not include any amount stated as a percentage that exceeds the amount stated as a percentage included in the capital structure reflected in the commission order issued on December 11, 2020, addressing the annual formula rate review filing during the final year of the initial five-year term.
(5)
During the five-year term of an extension, for an electric public utility with a formula rate review mechanism that uses a test period based on a projected year with an initial five-year term and that was approved and in effect by the commission before March 15, 2021, for an electric utility if the electric utility's class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh), to the extent practicable, the public utility shall do the following with respect to providing support for its annual formula rate review evaluation reports during the five-year term of the extension:
(A)
(i)
The public utility shall support the purpose for and level of its projected year investments or expenses with those projections based primarily upon historical averages and making specific adjustments to those amounts instead of basing those projections primarily on the public utility's corporate budget.
(ii)
The public utility shall use its four-year average historical plant balances for enumerated blanket funding projects associated with capital investment that are mandated by law or regulation, customer-driven, or necessary to maintain the reliability of the electric grid as the baseline for the investments going forward, and to complete this, the public utility may categorize investments according to the public utility's primary objective, including mandated work, preapproved projects, storm work, and reliability work instead of using the public utility's corporate budget to determine the amount included in the projected year.
(iii)
For any projects that fall outside the recurring enumerated categories that are based on the historical averaging, the public utility shall separately identify, to the extent practicable, each project and support the project as a specific adjustment to the projected year amounts, similar to the presentation of an adjustment made during an application for a general change or modification in rates and charges, and to complete this, the public utility may determine that projects should be grouped together when the projects contain a combination of proposed investments associated with both baseline reliability and load stability projects, such as pole line and circuit inspection programs, and other reliability efforts that the public utility plans to undertake in the projected year;
(B)
The public utility shall use the four-year historical averages described in subdivision (a)(5)(A)(ii) of this section, except that:
(i)
The public utility shall adjust the historical averages upward or downward for specific capital projects and anticipated cost increases or decreases that the utility reasonably expects are likely to occur within the projected year and for which the utility provides additional support consistent with other filing support thresholds that the commission applied to the utility's formula rate review mechanism during its initial five-year term; and
(ii)
Expenses related to capital investments that the utility has already explained shall not require separate support, including depreciation and property taxes;
(C)
(i)
The support for the projected year, described in subdivisions (a)(5)(A) and (B) of this section, shall be applied to the transmission and generation functional areas to the extent deemed practicable by the public utility.
(ii)
If not practicable, the public utility shall use reasonable efforts to establish a similar framework to present capital investment;
(D)
The public utility shall use reasonable efforts to develop a similar methodology as described in subdivision (a)(4) of this section and this subdivision (a)(5) for projected year expenses; and
(E)
Not less than forty-five (45) days before the public utility's annual evaluation report filing:
(i)
The public utility shall make available to the other eligible parties in the formula rate review proceeding information regarding the public utility's construction projects and purchases that closed to plant during the historical year; and
(ii)
To the extent reasonably practicable, the public utility shall provide an overview of its planned distribution projects describing the public utility's projected year planned distribution unadjusted investment and expenses.
(6)
Subdivisions (a)(4) and (5) of this section are subject to the applicable accounting and tax requirements, including the normalization rules of the Internal Revenue Service as in effect on January 1, 2021, and generally acceptable accounting principles.
(7)
The rate review mechanism shall continue until all historical years have been netted under §
23-4-1206(e)(1)
and rates have been adjusted under §
23-4-1207(c)
.
(b)
(1)
A formula rate review shall continue until a final order is issued on an application for a general change in rates and charges filed by a public utility or an application for a change in general rates and charges filed by the public utility as ordered by the commission. The rate review mechanism shall continue until all historical years have been netted under §
23-4-1206(e)(1)
and rates have been adjusted under §
23-4-1207(c)
.
(2)
(A)
A public utility may file an application for a change in rates and charges under §
23-4-401
et seq. at any time during an:
(i)
Initial term of the formula rate review mechanism; or
(ii)
Extension of the term of a formula rate review mechanism.
(B)
If the public utility, during the five-year term of an extension, for an electric public utility with a formula rate review mechanism that uses a test period based on a projected year with an initial five-year term that was approved and in effect by the commission before March 15, 2021, for an electric utility whose largest class of customers with the highest level of consumption per customer that has rates that include a demand component, and any successors to such a class, as they existed on January 1, 2021, has an annual usage for the class as a whole in excess of five million megawatt hours (5,000,000 MWh), does not file an application for a change in general rates and charges under §
23-4-401
et seq. under subdivision (b)(2)(A) of this section before the final year of an extension term, the electric utility shall do so during the final year of the extension of the term of a formula rate review mechanism.
(3)
In any application for a change in general rates and charges filed during or at the conclusion of the initial term or any extension of the term of a formula rate review mechanism that uses a test period based upon a projected year:
(A)
A public utility's prior designation of a formula rate review test period based upon a projected year under §
23-4-1205(a)(2)
shall not affect the public utility's right to designate a test period to justify new rates under §
23-4-406
;
(B)
A public utility's formula rate review test period based upon a projected year under §
23-4-1205(a)(2)
may include, at the public utility's discretion, all or part of the same historical periods or projected periods as those included in a test period to justify new rates under §
23-4-406
; and
(C)
An application described in this subdivision (b)(3) shall not limit subdivision (b)(1) of this section.
Amended by Act 2023, No. 299,§ 1, eff. 8/1/2023.
Amended by Act 2021, No. 894,§ 5, eff. 4/25/2021.
Amended by Act 2021, No. 404,§ 1, eff. 3/22/2021. Superseded by Act 2021, No. 894and repealed by Act 2023, No. 180,§ 1, eff. 8/1/2023
Added by Act 2015, No. 725,§ 3, eff. 3/27/2015.