Texas Administrative Code › Title 16 - ECONOMIC REGULATION › Part 2 - PUBLIC UTILITY COMMISSION OF TEXAS › Chapter 24 - SUBSTANTIVE RULES APPLICABLE TO WATER AND SEWER SERVICE PROVIDERS › Subchapter B - RATES AND TARIFFS › Section 24.41 - Cost of Service

Current through Reg. 49, No. 28; July 12, 2024
(a) Components of
				  cost of service. Rates are based upon a utility's cost of rendering service.
				  The two components of cost of service are allowable expenses and return on rate
				  base.
(b) Allowable expenses. Only
				  those expenses that are reasonable and necessary to provide service to the
				  ratepayers may be included in allowable expenses. In computing a utility's
				  allowable expenses, only the utility's test year expenses as adjusted for known
				  and measurable changes will be considered. A change in rates must be based on a
				  test year as defined in §
										RSA
				  24.3<subdiv>(37)</subdiv> of this
				  title, relating to Definitions of Terms. Payments to affiliated interests for
				  costs of service, or any property, right, or thing, or for interest expense are
				  not allowed as an expense for cost of service except as provided in Texas Water
				  Code (TWC) §13.185(e).
(1) Components of
				  allowable expenses. Allowable expenses, to the extent they are reasonable and
				  necessary, 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.
(B) Depreciation expense based on
				  original cost and computed on a straight-line basis over the useful life of the
				  asset as approved by the commission.
(i)
				  Depreciation expense is allowed on all currently used and useful depreciable
				  utility property owned by the utility and depreciable utility plant, property
				  and equipment retired by the utility, subject to the requirements of
				  subparagraph (c)(2)(C) of this section. Depreciation expense is not allowed for
				  property provided under explicit customer agreements or funded by customer
				  contributions in aid of construction. Depreciation expense is allowed for all
				  currently used and useful developer or governmental entity contributed
				  property. A utility must calculate depreciation on a straight-line basis over
				  the expected or remaining life of the asset, but is not required to use the
				  remaining life method if salvage value is zero. A utility that does not use
				  group depreciation and proposes to change the useful life of an asset with an
				  accumulated depreciation balance must not change the accumulated depreciation
				  balance and must adjust depreciation expense going forward based on the changed
				  useful life.
(ii) The depreciation
				  accrual for all assets must account for expected net salvage value in the
				  calculation of the depreciation rate and actual net salvage value related to
				  retired plant. The utility must submit sufficient evidence with the application
				  establishing that the estimated salvage value, including removal costs, is
				  reasonable. For a utility that uses group accounting, salvage value will be
				  applied to the asset group in depreciation studies. For a utility that uses
				  itemized accounting, salvage value will be applied to specific assets.
(C) Assessments and
				  taxes other than income taxes.
(D)
				  Federal income taxes on a normalized basis. Federal income taxes must be
				  computed according to the provisions of TWC §13.185(f), if applicable.
(E) Funds expended in support of
				  membership in professional or trade associations, provided such associations
				  contribute toward the professionalism of their membership.
(F) Advertising, contributions and donations.
				  The actual test year expenditures for 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 must not exceed three-tenths of 1.0%
				  (0.3%) of the gross receipts of the utility for services rendered to the
				  public. The following expenses are the only expenses that may be included in
				  the calculation of the three-tenths of 1.0% (0.3%) maximum:
(i) funds expended advertising methods of
				  conserving water;
(ii) funds
				  expended advertising methods by which the consumer can achieve a savings in
				  total utility bills; and
(iii)
				  funds expended advertising water quality protection.
(G) Credit card and electronic payment
				  processing fees. Expenditures or fees charged by banks or companies for
				  accepting and processing credit card, debit card or other forms of electronic
				  payment from customers for water and sewer utility service may be allowed as a
				  cost of service.