South Carolina General Assembly
115th Session, 2003-2004

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Bill 4589


Indicates Matter Stricken
Indicates New Matter


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A BILL

TO AMEND CHAPTER 5, TITLE 58, CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 4 SO AS TO PROVIDE FOR A PROCEDURE FOR THE ADJUSTMENT OF RATES AND CHARGES OF NATURAL GAS DISTRIBUTION UTILITIES TO REFLECT CHANGES IN EXPENSES, REVENUES, INVESTMENTS, DEPRECIATION, AND OTHER CHANGES IN REVENUES AND EXPENSES TO PROVIDE PROCEDURES FOR INTERESTED PARTIES TO CHALLENGE THESE ADJUSTMENTS, AND TO PROVIDE FOR RELATED PROCEDURAL MATTERS.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    The General Assembly finds that there are important public benefits to be gained by increasing the stability and predictability of rates charged by natural gas distribution utilities in South Carolina. These utilities purchase natural gas from interstate and intrastate suppliers and deliver it to customers through the local distribution systems that they own and operate. The prices charged by these utilities are already subject to routine adjustments for changes in the prices of natural gas suppliers. Those changes in price are passed through to customers annually, with appropriate review by the South Carolina Public Service Commission, in Purchased Gas Adjustment proceedings.

There is, however, no similar means for the predictable and routine adjustment of these utilities' other rate components. Those components reflect the utilities' current levels of investment, revenue, and expense. Changing these cost and revenue items requires filing comprehensive rate proceedings. Such proceedings are both expensive and time consuming and their costs are ultimately borne by the customers of the utilities through rates and by the people of this State through the budgets of the Public Service Commission and Department of Consumer Affairs.

Furthermore, in an effort to avoid or postpone rate proceedings, utilities may forego or delay investments in beneficial expansions or improvements of utility infrastructure. In addition, because of the expense and complexity of these proceedings, utilities often delay filing them until the required rate increase is substantial, and the need for the increase cannot be delayed any longer. As a result, such filings often come at irregular intervals, reflect large one-time rate increases, and are difficult to postpone even in periods of economic downturn.

For these reasons, proceedings under existing provisions of law tend to create more perceived economic hardship for consumers and engender more public controversy than would smaller and more regular rate adjustments spread over a number of years.

Natural gas distribution utilities are especially well suited to a more streamlined and predictable ratemaking mechanism that would allow for routine adjustments in rate components. Natural gas distribution utilities generally experience steady and predictable changes in cost as distribution facilities are added to serve a growing customer base.

For these reasons, the General Assembly has determined that the best interests of the State support establishing a mechanism for the regular and periodic adjustment of the base rates of natural gas distribution utilities. These adjustments will take place under procedural safeguards which fully preserve the power of the Public Service Commission to conduct comprehensive rate proceedings whenever it determines doing so to be in the public interest.

The General Assembly is providing the State's natural gas consumers and its gas utilities with an efficient rate setting mechanism that will allow for more periodic yet generally smaller rate adjustments. It will encourage investment in new, updated, and expanded gas infrastructure thereby encouraging additional economic development in the State. It will also dramatically reduce the costs of proceedings to adjust gas rates and thereby reduce costs for consumers and the public.

SECTION    2.    Chapter 5 of Title 58 of the 1976 Code is amended by adding.

"Article 4

Natural Gas Adjustment Act

Section 58-5-400.    This article may be cited as the 'Natural Gas Adjustment Act.'

Section 58-5-410.    A public utility providing natural gas distribution service, in its discretion and at anytime, may elect to have the terms of this article apply to its rates and charges for gas distribution service, on a prospective basis, by filing a notice of the election with the commission. The election shall remain in effect, and the provisions of this article shall apply to the public utility's rates and charges, until the next general rate proceeding for the public utility pursuant to Section 58-5-240 at which time the public utility may then elect to continue the applicability of this article to its rates and charges or elect to opt out of the provisions of this article. Upon receipt of notice of the election, the commission shall proceed to make the findings and establish the ongoing procedures required for adjustments in base rates to be made under this article. In carrying out the procedures established by this article with respect to such an election, the commission shall rely upon and utilize the approved rates, charges, revenues, expenses, capital structure, return, and other matters established in the public utility's most recent general rate proceeding pursuant to Section 58-5-240. A public utility may combine an election under this article with the filing of a rate proceeding pursuant to Section 58-5-240 and the commission shall include the findings required by this article in its rate orders issued in the Section 58-5-240 proceedings, and the election shall remain in effect until the next general rate proceeding.

The applicant may withdraw its request to come under the terms of this article at any time before the entry of a final order of the commission on the merits of the proceeding or on a petition for rehearing in the proceeding.

Section 58-5-420.    In issuing its order pursuant to Section 58-5-410, and in addition to the other requirements of Section 58-5-240 if a proceeding pursuant to that section is required:

(1)    The commission shall specify a range for the utility's cost of equity that includes a band of fifty basis points (0.50 percentage points) below and fifty basis points (0.50 percentage points) above the cost of equity on which rates have been set.

(2)    The commission separately shall state the amount of the utility's net plant in service, construction work in progress, accumulated deferred income taxes, inventory, working capital and other rate base components; its depreciation expense, operating and maintenance expense, income taxes, taxes other than income taxes, and other components of income for return; its revenues, its capital structure, cost of debt, overall cost of capital and earned return on common equity; and its cost of service by customer class. The figures stated shall be those which the commission has determined to be the appropriate basis on which rates were set in the applicable orders.

Section 58-5-430.    The utility shall file with the commission monitoring reports for each twelve-month period ended on March thirty-first, June thirtieth, September thirtieth, and December thirty-first of each year, the filings to be required not less than seventy-five days after the close of each period. These quarterly monitoring reports shall include the information set forth in Section 58-5-430. The quarterly monitoring reports required by this article shall show or include the following:

(1)    the utility's actual net plant in service, construction work in progress, accumulated deferred income taxes, inventory, working capital and other rate base components; its depreciation expense, operating and maintenance expense, income taxes, taxes other than income taxes, and other components of income for return; its revenues; and its capital structure, cost of debt, overall cost of capital and earned return on common equity;

(2)    all applicable accounting and pro-forma adjustments historically permitted or required by the commission for the utility in question, or for similarly situated utilities, or authorized by general principles of utility accounting, or authorized by accounting letters or orders issued by the commission. This authorization may occur either in a general rate hearing or in any other type of filing or hearing that the commission deems appropriate. However, other parties shall be given sufficient opportunity to review and provide comments on any proposed accounting letter or order issued after the initial order allowing future base rate adjustments pursuant to this article;

(3)    pro-forma adjustments to annualize for the twelve-month period any rate adjustments imposed pursuant to this article or other events affecting only part of the period covered by the filing such that the annualization is required to show the effects of those events on the utility's earnings going forward;

(4)    pro-forma or other adjustments are required to properly account for atypical, unusual, or nonrecurring events.

Section 58-5-440.    In the monitoring report filed for the twelve-month period ended March thirty-first of each year, the utility shall provide additional schedules indicating the following revenue calculations:

(1)    If the utility's earnings exceed the upper end of the range established in the order, the utility shall calculate the reduction in revenue required to lower its return on equity to the midpoint of the range established in the order.

(2)    If the utility's earnings are below the lower range established in the order, the utility shall calculate the additional revenue required to increase its return on equity to the mid point of the range established by the order.

The utility also shall provide a schedule that specifies changes in its tariff rates required to achieve any indicated change in revenue. The changes specified shall constitute an application for a gas rate adjustment pursuant to this article.

Section 58-5-450.    The commission shall review the monitoring report filed pursuant to Section 58-5-440 to determine compliance with its terms taking into account any adjustments the commission determines to be required to bring the report into compliance with Section 58-5-440, and based upon the findings of any audit conducted by the commission staff concerning compliance with Section 58-5-440, the commission shall order the utility to make the adjustments to tariff rates necessary to achieve the revenue levels indicated in Section 58-5-440. The commission shall issue a final order requiring these adjustments within seventy-five days of the filing of the monitoring report or the application for a gas rate adjustment shall be deemed to be granted. The adjustment in rates shall be effective no later than October first of that year.

Section 58-5-460.    Within thirty days of the issuance of an order pursuant to Section 58-5-450, or within thirty days of the failure by the commission to issue an order as required pursuant to Section 58-5-450, any aggrieved party may petition the commission for review of the order or failure to issue an order and all interested parties of record shall have a right to be heard at an evidentiary hearing on the matter. The time limits and remedies contained in Section 58-5-240(c) and (e), and the provisions of Sections 58-5-330 and 58-5-340 concerning rehearing and appeal shall apply to the proceeding pursuant to this section.

Section 58-5-470.    The review pursuant to Section 58-5-460 is limited to issues related to compliance with the terms of this article. Matters determined in orders issued pursuant to Section 58-5-420 are not subject to review except in full rate proceedings pursuant to Section 58-5-240. Any proceedings pursuant to this article are without prejudice to the right of the commission to issue or any interested party to request issuance of a rule to show cause why a full rate proceeding should not be initiated, nor does this article limit the right of a utility to file an application pursuant to Section 58-5-240 for an adjustment to its rates and charges, nor does it impose the restrictions on filings contained in Section 58-5-240(F)."

SECTION    3.    This act takes effect upon approval by the Governor.

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