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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.
Whereas, 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 supplies. 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; and
Whereas, there is, however, no similar means for the predictable and routine adjustment of these utilities' other rate components. These components reflect the utilities' current levels of investment, revenue, and expense. Changing these cost and revenue items requires filing comprehensive rate proceedings. These 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 Office of Regulatory Staff; and
Whereas, 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; and
Whereas, 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; and
Whereas, 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; and
Whereas, 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, and for natural gas distribution utilities only. These adjustments shall 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; and
Whereas, 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 encourages investment in new, updated, and expanded gas infrastructure, thereby encouraging additional economic development in the State. It also dramatically reduces the costs of proceedings to adjust gas rates and thereby reduces costs for consumers and the public. Now, therefore,
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 5 of Title 58 of the 1976 Code is amended by adding:
Section 58-5-400. This article may be cited as the 'Natural Gas Rate Stabilization 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 and on the same day and by the same means serving a copy on the Office of Regulatory Staff. 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, returns, and other matters established in the public utility's most recent general rate proceeding pursuant to Section 58-5-240; provided, however, that the most recent such order must have been issued no more than five years prior to the initial election to come under the terms of this article. 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.
Section 58-5-415. The election by a utility to have the terms of this article apply to its rates and charges for gas distribution service once made shall remain in effect until the next Section 58-5-240 general rate proceeding for the public utility 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. 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 in which the election is made 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; and
(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. It also shall state the utility's depreciation expense, operating and maintenance expense, income taxes, taxes other than income taxes, other components of income for return, revenues, capital structure, cost of debt, overall cost of capital, and earned return on common equity. 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 ending on March thirty-first, June thirtieth, September thirtieth, and December thirty-first of each year, the filings to be made no later than the fifteenth day of the third month following the close of the period. The utility shall serve a copy of such reports on the Office of Regulatory Staff on the same day and by the same means as they are provided to the commission. These quarterly monitoring reports shall 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. The report shall also show the utility's depreciation expense, operating and maintenance expense, income taxes, taxes other than income taxes, other components of income for return, revenues, 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 considers 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 so that the annualization is required to show the effects of those events on the utility's earnings going forward; and
(4) pro-forma or other adjustments required to properly account for atypical, unusual, or nonrecurring events.
Section 58-5-440. In the monitoring report filed for the twelve-month period ending 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; or
(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 midpoint of the range established in 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 proposed rate changes, filed by the utility, shall conform as nearly as is practicable with the revenue allocation principles contained in the most recent rate order.
Section 58-5-450. The Office of Regulatory Staff shall review the monitoring report filed pursuant to Sections 58-5-430 and 58-5-440 to determine compliance with its terms taking into account the findings of any audit conducted by the Office of Regulatory Staff concerning compliance with Sections 58-5-430 and 58-5-440. The Office of Regulatory Staff shall propose those adjustments it determines to be required to bring the report into compliance with Section 58-5-440. Based upon that report and the findings of any audit conducted by the Office of Regulatory Staff, 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.
Section 58-5-455. The procedures contained in this section shall apply to monitoring reports related to the quarter ending March thirty-first.
(1) The utility shall file the monitoring reports with the commission and Office of Regulatory Staff on or before June fifteenth and simultaneously shall mail or electronically transmit copies to any interested parties who have requested in writing to receive them.
(2) Interested parties shall be allowed until July fifteenth to file comments in writing to the commission and the Office of Regulatory Staff concerning the monitoring report.
(3) In cases where the monitoring report indicates rate adjustments are required, or where it otherwise appears to the commission or the Office of Regulatory Staff that an adjustment in rates may be warranted under this article, the Office of Regulatory Staff shall conduct an audit of the monitoring report and specify any changes that the Office of Regulatory Staff determines to be necessary to correct errors in the report or to otherwise bring the report into compliance with this article. The Office of Regulatory Staff's audit reports shall be provided to the commission and to the utility and made available to all interested parties no later than September first.
(4) Interested parties shall be allowed until September fifteenth to file written comments with the commission and the Office of Regulatory Staff related to the Office of Regulatory Staff's audit report and shall simultaneously mail or electronically transmit copies of these comments to the utility and to all parties who previously appeared and filed comments.
(5) On or before October fifteenth the commission shall issue an initial order setting forth any changes required in the utility's request to adjust rates under this article (the `Initial Order'). In the absence of such an Initial Order, the gas rate adjustment contained in the utility's filing shall be considered to be granted as filed.
(6) Any gas rate adjustments authorized under the terms of this article shall take effect for all bills rendered on or after the first billing cycle of November of that year.
Section 58-5-460. Within thirty days of the issuance of an Initial 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 Initial 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 party shall serve a copy of such petition on the Office of Regulatory Staff on the same day and by the same means as it is provided to the commission.
Section 58-5-465. After conducting the hearing required by Section 58-5-460, the commission shall issue a final order that:
(1) sets forth any changes that are required to the rates approved in the Initial Order issued under Section 58-5-455(5);
(2) determines the amount of any overcollection or undercollection by the utility that resulted from collection of the rates authorized in the Initial Order as compared to the rates authorized in the final order issued under this section; and
(3) establishes a credit to refund the amount of any overcollection, or a surcharge to collect the amount of any undercollection that arose during the time that the rates approved in the Initial Order were collected, and requires the utility to apply the credit or surcharge until such time as the overcollection or undercollection is exhausted.
The commission shall issue any final order required under this section by April fifteenth of the year following the year in which the monitoring report was filed. The order shall make the corrected rates and the credit or surcharge, if any, effective as of the first billing cycle of May of that year.
The provisions of Sections 58-5-330 and 58-5-340 concerning rehearing and appeal shall apply to the orders issued pursuant to this section.
Section 58-5-470. The review of Initial Orders pursuant to Sections 58-5-460 and 58-5-465 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 2. This act takes effect upon approval by the Governor.
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