GENERAL RATE CASE

1. GENERAL RATE CASE SAM REID & MARK FROST KENTUCKY PUBLIC SERVICE COMMISSION

2. TYPES OF RATEAPPLICATIONS • 807 KAR 5:076. Alternative rate adjustment procedure for small utilities (ARF) • 807 KAR 5:001, Section 10. General Rate Case.

3. TYPES OF GENERALRATE CASES • Historical • Allows adjustments for for known and measurable changes • Test Period: the 12 consecutive calendar months

4. SUSPENSION PERIOD • ARF - Goal 90 Days • General Rate Case - Historical: • Rates suspended for 5 months from the effective date of the rates. • Commission decision (Order) issued within 10 months.

5. REVIEW PROCESS 1. Application is Filed 3. Staff is Assigned to Case & Reviews Application 4. Staff Schedules Field Review

6. REVIEW PROCESS (Cont.) 4. Confirmation Letter mailed 5. Staff Conducts Field Review 6. Staff Prepares & Issues Report 7. If Requested: Informal Conference and/or Hearing is Scheduled

7. REVIEW PROCESS (Cont.) 8. Commission Reaches Decision & Issues Final Order 9. Rehearing is Granted or Denied 10. Order on Rehearing Issued

8. ASSISTANCE PROCESS 1. Request for Rate Case Assistance is filed with: Beth O'Donnell Executive Director Public Service Commission P.O. Box 615 Frankfort, KY 40602

9. FIELD REVIEW • General Ledger, Cash Receipts, and Cash Disbursements Journals. • Copies of the Accountant's workpapers and year-end adjusting journal entries.

10. FIELD REVIEW (Cont.) • Invoices: • Test Period • Six Months Prior • From the test period to current date. • Monthly customer usage records for the test period.

11. BILLING INFORMATIONFORMAT

12. BillingAnalysis Summarization of customer bills -By meter size -Customer classification Determines test yearrevenue Show customer usage patterns

13. Data Quality • Bill adjustments • Misread meters • Leak adjustments • Usage should be adjusted as well as dollar amounts in billing information • Remove Inactive accounts

14. Declining Block First 2,000 gallons $15.00 Min. Bill Next 3,000 gallons 4.00 per 1,000 gallons Next 5,000 gallons 3.50 per 1,000 gallons Over 10,000 gallons 3.25 per 1,000 gallons

15. FIELD REVIEW (Cont.) • Supporting Documentation for pro forma adjustments. • Schedule of employees • job duties; • length of employment; • test-period salary; • date of pay increases and current salary.

16. REVIEW OF TEST YEAR OPERATIONS • Reconcile Books to Test Year Amounts • Review: • Disbursements Journal • Adjusting Journal Entries • Proper Accrual Accounting • Invoices for Test Year Expenses

17. ALLOCATION OF COMMON COSTS • Shared Costs are Allocated - Eliminates cross subsidization. • Cost Allocation System. • No System - a basis for logical estimates must be determined.

18. ADJUSTMENTS TO TEST Period • Adjusts Test period numbers to reflect 12 months of normal, on-going operations. • Adjustments MUST be BOTH known and measurable. • Adjustments must be adequately documented.

19. METHODS FOR DETERMINING A REVENUE REQUIREMENT Rate of Return Debt Service Coverage (DSC) Operating Ratio

20. REVENUE REQUIREMENT Level of revenue required for a utility: • to properly operate and maintain its system; • meet its financial obligations; • basis for determining the annual revenue to collected from rates.

21. DEPRECIATION EXPENSE • General Rule: • Bond Ordinance • Commission • Exception: Private Utilities - CIAC • Straight-Line Depreciation Method • Depreciation schedules available for review

22. Cost of Service Study ALLOCATION of costs of providing water service to various types of customers RECOVERS those costs through a rate structure that is fair, just and reasonable

23. Cost of Service Study -Limits interclass and intraclass rate subsidies -Tracks costs and provides accurate price signals -Enhances revenue stability

24. MAINTAIN RECORDS • Use the appropriate system of accounts. • Records should be: • Logical • Well organized • Well documented