14 CAR § 2-104 – Rate studies for retail water providers

(a) Retail water providers shall obtain rate studies pursuant to the requirements in Arkansas Code § 14-234-802.
(b)
1. (1) Rate studies shall be based on the guidelines of the American Water Works Association and the Water Environment Federation.
2. (2) The rate studies shall include:
  1. (A) Reports containing the following information for the current year and projections for the next five (5) years:
(i) A comprehensive cost analysis, including:
(a) (a) Operations and maintenance (O&M) expenses;
(b) (b) Financing expenses, including but not limited to debt service payments, bond issuance costs, and commercial paper fees, if applicable;
(c) (c) Any required cash reserves unavailable to pay for expenses, including but not limited to the annual refurbishment and replacement account deposit requirement as set out in Arkansas Code § 14-234-802(e);
(d) (d) Depreciation expenses;
(e) (e) Future capital expenses;
(f) (f) Expenses required for an annual audit or agreed-upon procedures and compilation report;
(g) (g) Expenses required for rate studies required under Arkansas Code § 14-234-802; and
(h) (h) Any other expenses not accounted for in subdivisions (b)(2)(A)(i)(a) – (g) of this section;
1. (ii) A comprehensive revenue earnings analysis, including:
(a) (a) Available cash balance;
(b) (b) Nonrate revenue; and
1. (c) (c) Rate revenue without recommended increases;
  1. (iii) For the five (5) projected years, recommended rate increases and the projected additional revenue derived therefrom;
    1. (iv) Debt service coverage ratios;
    2. (v) The number of days that the available cash balance could cover O&M expenses without additional revenue; and
    3. (vi) Annualized revenue requirement;
  2. (B) The provider’s asset management plan, including:
    1. (i) Inventory of essential assets and for each essential asset, without limitation, the following information:
(a) (a) Asset type;
(b) (b) Annual maintenance costs;
1. (c) (c) Year installed;
  1. (d) (d) Vendor-specified useful life, if available;
(e) (e) Anticipated date of replacement;
(f) (f) Installation or replacement cost estimate; and
(g) (g) Projected consequence of failure; and
1. (ii) The provider’s plan for replacement of essential assets;
  1. (C) Proposed changes in rates should be based on achieving and maintaining a debt service coverage ratio of 1.1 or higher;
  2. (D) An explanation of the provider’s chosen rate design;
  3. (E) Recommendations for any changes to the provider’s operations, including a plan on how the changes should be implemented; and
  4. (F) Certification by the entity performing the rate study that such study complies with:
    1. (i) Arkansas Code § 14-234-801 et seq.; and
    2. (ii) This part.
2. (3) Rate studies shall be provided to the Department of Agriculture at the time they are provided to Arkansas Legislative Audit under Arkansas Code § 14-234-802(i).
3. (4) The Arkansas Natural Resources Commission may request further information necessary to determine a provider’s fiscal status, and providers shall cooperate with the commission’s requests.
4. (5) The commission may waive any one (1) or more requirement in subdivision (b)(2) of this section, upon written request.
  1. (c) Rate studies for providers that operate a joint and integrated water and sewer system shall analyze the total system.
    1. (d) Rate studies performed shall be an objective and unbiased review of the provider’s fiscal status.
(e)
1. (1) The commission will maintain a list of approved entities to conduct rate studies as required under Arkansas Code § 14-234-802(f)(1).
2. (2) The commission may remove an approved entity from its list of approved entities if it determines that an entity violated Arkansas law or commission rules in performing a rate study.