Section 1. Declaration of Policy.

It is the policy of this State that its citizens receive efficient, sufficient and adequate water service at just and reasonable rates. This Act provides an interim rate mechanism to permit water utilities under the jurisdiction of the Commission to recover their investment in needed infrastructure improvements and relocations of existing facilities as a result of governmental actions. By allowing interim rate relief to these utilities for needed or required improvements, it is expected that the frequency, and therefore, the cost of general rate proceedings will be reduced.

Section 2. Amend Subchapter III, Chapter 1, Title 26, Delaware Code by adding a new Section 314 to read as follows:

"§314. Water Utility Distribution System Improvement Charge.

(a) The following definitions shall apply in this section:

(1) As used in this section, “DSIC Rate' refers to distribution system improvement charge.

(2) As used in this section, 'DSIC Costs' means depreciation expenses and pretax return associated with eligible distribution system improvements.

(3) As used in this section, 'DSIC Revenues' means revenues produced through a DSIC exclusive of revenues from all other rates and charges.

(4) As used in this section, 'Eligible Distribution System Improvements' means new used and useful water utility plant projects that:

(i) do not increase revenues by connecting the distribution system to new customers; and

(ii) are in service; and

(iii) were not included in the public utility’s rate base in its most recent general rate case; and which

(iv) replace or renew water mains, valves, services, meters and hydrants serving existing customers that have reached their useful service life, are worn out, are in deteriorated condition, or which negatively impact the quality and reliability of service to the customer if not replaced or renewed; or

(v) extend mains to eliminate dead ends which negatively impact the quality and reliability of service to the customer; or

(vi) relocate existing facilities as a result of governmental actions that are not reimbursed, including but not limited to relocations of mains located in highway rights of way as required by the Department of Transportation; or

(vii) place in service, for the benefit of the customers of the water utility applying for the DSIC rate, water supply sources identified as “A list projects” in the Governor’s Task Force Report dated December 2, 1999 to resolve the regional water supply concerns or subsequently added to the “A list projects” by the Delaware Water Supply Coordinating Council, all such added projects to have been so identified by the Delaware Water Supply Coordinating Counsel by December 31, 2002; or

(viii) place in service new or additional water treatment facilities, plant or equipment required to meet changes in state or federal water quality standards, rules or regulations.

(5) As used in this section, 'pretax return' means the revenues necessary to:

(i) produce net operating income equal to the public water utility’s weighted cost of capital as established in the most recent general rate proceeding for the public water utility multiplied by the net original cost of eligible distribution system improvements. At any time the Commission, by its own motion, or by motion of the water utility, Commission staff or the Public Advocate, may determine to revisit and, after hearing without the necessity of a general rate filing, reset a water utility’s cost of capital to reflect its current cost of capital. The DSIC rate shall be adjusted back to the date of the motion to reflect any change in the cost of capital determined by the Commission through this process;

(ii) and provide for the tax deductibility of the debt interest component of the weighted cost of capital;

(iii) and pay state and federal income taxes applicable to such income.

(b) Notwithstanding other sections of this Subchapter, a public utility providing water service may file with the Commission rate schedules establishing a DSIC Rate that will allow for the automatic adjustment of the public water utility’s basic rates and charges to provide recovery of DSIC Costs on a semi-annual basis.

(1) The public water utility shall serve the Division of the Public Advocate’s office a copy of its filing at the time of its filing with the Commission. Customers of the public water utility shall be notified of changes in the DSIC rate by including appropriate information with the first bill they receive following any change in the rate.

(2) Publication of notice of the filing is not required.

(3) The effective date of changes in the DSIC Rate shall be January 1 and July 1 every year.

(4) The public water utility shall file any request for a change in the DSIC Rate and supporting data with the Commission at least 30 days prior to its effective date.

(5) The DSIC Rate shall be adjusted semi-annually for Eligible Distribution System Improvements placed in service during the six month period ending two months prior to the effective date of for changes in the DSIC Rate.

(6) The DSIC Rate shall be expressed as a percentage carried to two decimal places and applied to the total amount billed to each customer under the public water utility’s otherwise applicable rates and charges.

(7) The DSIC Rate applied between base rate filings shall be capped at 7.5% of the amount billed to customers under otherwise applicable rates and charges, but the DSIC rate increase applied shall not exceed 5% within any twelve month period.

(8) The DSIC Rate shall be subject to audit at intervals determined by the Commission. It will also be subject to annual reconciliation based on a period consisting of the 12 months ending December 31 of each year. The revenue received under the DSIC Rate for the reconciliation period shall be compared to the public water utility’s eligible costs for that period with the difference between revenue received and eligible costs for the period recouped or refunded, as appropriate, over a one year period commencing July 1 of each year. If the DSIC Revenues exceeded the DSIC eligible costs, such over-collections shall be refunded with interest.

(9) The DSIC Rate shall be reset to zero as of the effective date of new base rates that provide for the prospective recovery of the annual costs theretofore recovered under the DSIC Rate.

(10) The DSIC Rate shall also be reset to zero if, in any quarter, data filed with the Commission by the public water utility show that the public water utility will earn a rate of return that exceeds the rate of return established in its last general rate filing or by Commission order pursuant to § 314(a)(5)(i) of this Title, if such was determined subsequent to the final order in the water utility’s last general rate filing. Further, the DSIC rate shall be reinstated when such data show that the established rate of return is not exceeded and will not be exceeded if the DSIC rate is reinstated and reset.

(11) Any water utility filing for interim rate relief under this section must comply with all reasonable information requests related to its filing, or any other audits or proceedings conducted pursuant to this section and must do so on an expedited basis.

(c) The provisions of this section shall not be available to a water utility subject to a finding of the Commission that the water utility is unable or unwilling to provide safe, adequate and reliable water service to its existing customers.

(d) The Commission may adopt rules and regulations, not inconsistent with this Title, that the Commission finds reasonable or necessary to administer a DSIC.

Approved July 09, 2001