Texas Administrative Code › Title 16 - ECONOMIC REGULATION › Part 2 - PUBLIC UTILITY COMMISSION OF TEXAS › Chapter 26 - SUBSTANTIVE RULES APPLICABLE TO TELECOMMUNICATIONS SERVICE PROVIDERS › Subchapter J - COSTS, RATES AND TARIFFS › Section 26.201 - Cost of Service

Current through Reg. 49, No. 28; July 12, 2024
(a) Application.
				  Unless the context clearly indicates otherwise, in this section the term
				  "utility," insofar as it relates to telecommunications utilities, shall refer
				  to dominant certificated telecommunications utilities (DCTUs).
(b) Components of cost of service. Except as
				  provided for in the Public Utility Regulatory Act (PURA), Chapters 58 and 59,
				  or subsection (d)(2) of this section, relating to invested capital; rate base,
				  rates are to be based upon a utility's cost of rendering service to the public
				  during a historical test year, adjusted for known and measurable changes. The
				  two components of cost of service are allowable expenses and return on invested
				  capital.
(c) Allowable expenses.
				  Only those expenses which are reasonable and necessary to provide service to
				  the public shall be included in allowable expenses. In computing a utility's
				  allowable expenses, only the utility's historical test year expenses as
				  adjusted for known and measurable changes will be considered.
(1) Components of allowable expenses.
				  Allowable expenses, to the extent they are reasonable and necessary, and
				  subject to the rules in this section, may include, but are not limited to, the
				  following general categories:
(A) Operations
				  and maintenance expense incurred in furnishing normal utility service and in
				  maintaining utility plant used by and useful to the utility in providing such
				  service to the public. Payments to affiliated interests for costs of service,
				  or any property, right or thing, or for interest expense shall not be allowed
				  as an expense for cost of service except as provided in the PURA
				  §53.058.
(B) Depreciation
				  expense based on original cost and computed on a straight line basis as
				  approved by the commission.
(C)
				  Assessments and taxes other than income taxes.
(D) Federal income taxes on a normalized
				  basis. Federal income taxes shall be computed according to the provisions of
				  PURA §53.060.
(E) Advertising,
				  contributions and donations. The actual expenditures for ordinary advertising,
				  contributions, and donations may be allowed as a cost of service provided that
				  the total sum of all such items allowed in the cost of service shall not exceed
				  three-tenths of 1.0% (0.3%) of the gross receipts of the utility for services
				  rendered to the public. Funds expended advertising methods by which the
				  consumer can effect a savings in total utility bills shall be included in the
				  calculation of the three-tenths of 1.0% (0.3%) maximum.
(F) Accruals credited to reserve accounts for
				  self insurance under a plan requested by a utility and approved by the
				  commission. The commission shall consider approval of a self insurance plan in
				  a rate case in which expenses or rate base treatment are requested for such a
				  plan. For the purposes of this rule, a self insurance plan is a plan providing
				  for accruals to be credited to reserve accounts. The reserve accounts are to be
				  charged with property and liability losses which occur, and which could not
				  have been reasonably anticipated and included in operating and maintenance
				  expenses, and are not paid or reimbursed by commercial insurance. The
				  commission will approve a self insurance plan to the extent it finds it to be
				  in the public interest. In order to establish that the plan is in the public
				  interest, the utility must present a cost benefit analysis performed by a
				  qualified independent insurance consultant that demonstrates that, with
				  consideration of all costs, self insurance is a lower cost alternative than
				  commercial insurance and that the ratepayers will receive the benefits of the
				  self insurance plan. The cost benefit analysis shall present a detailed
				  analysis of the appropriate limits of self insurance, an analysis of the
				  appropriate annual accruals to build a reserve account for self insurance, and
				  the level at which further accruals should be decreased or
				  terminated.
(G) Postretirement
				  benefits other than pensions (known in the utility industry as "OPEB"). For
				  ratemaking purposes, expense associated postretirement benefits other than
				  pensions (OPEB) shall be treated as follows:
(i) OPEB expense shall be included in a
				  utility's cost of service for ratemaking purposes based on actual payments
				  made.
(ii) A utility may request a
				  one-time conversion to inclusion of current OPEB expense in cost of service for
				  ratemaking purposes on an accrual basis in accordance with generally accepted
				  accounting principles (GAAP). Rate recognition of OPEB expense on an accrual
				  basis shall be made only in the context of a full rate case.
(iii) A utility shall not be allowed to
				  recover current OPEB expense on an accrual basis until GAAP requires that
				  utility to report OPEB expense on an accrual basis.
(iv) For ratemaking purposes, the transition
				  obligation shall be amortized over 20 years.
(v) OPEB amounts included in rates shall be
				  placed in an irrevocable external trust fund dedicated to the payment of OPEB
				  expenses. The trust shall be established no later than six months after the
				  order establishing the OPEB expense amount included in rates. The utility shall
				  make deposits to the fund no less frequently than annually. Deposits on the
				  fund shall include, in addition to the amount included in rates, an amount
				  equal to fund earnings that would have accrued if deposits had been made
				  monthly. The funding requirement can be met with deposits made in advance of
				  the recognition of the expense for ratemaking purposes. The utility shall, to
				  the extent permitted by the Internal Revenue Code, establish a postretirement
				  benefit plan that allows for current federal income tax deductions for
				  contributions and allows earnings on the trust funds to accumulate tax
				  free.
(vi) When a utility
				  terminates an OPEB trust fund established pursuant to clause (v) of this
				  subparagraph, it shall notify the commission in writing. If excess assets
				  remain after the OPEB trust fund is terminated and all trust related
				  liabilities are satisfied, the utility shall file, for commission approval, a
				  proposed plan for the distribution of the excess assets. The utility shall not
				  distribute any excess assets until the commission approves the disbursement
				  plan.