1. (a) Procedures.

   1. (1) When a small water public utility or a small wastewater public utility desires to file a change in its tariff which increases annual revenues, it may obtain copies of the applicable rate forms from the Commission’s website. The small water public utility or the small wastewater public utility shall set forth its proposed tariff changes and reasons for the changes, together with the completed forms.
   2. (2) {Reserved}.
   3. (3) The small water public utility or the small wastewater public utility shall file a tariff or tariff supplement, including the completed forms if used, incorporating the proposed changes. The effective date of the proposed increase contained in the tariff or tariff supplements may not be less than 61 days after the filing, and customers shall be notified in accordance with § 53.45(b)(2) (relating to notice of new tariffs and tariff changes).
   4. (4) On the basis of the tariff or tariff supplement filing, the accompanying data and completed forms if used, Commission staff may prepare a report that includes staff-determined tentative allowable revenues. If this report forms the basis of any action by the Commission, the report shall be made public as an attachment to a Commission order as described in paragraph (5).
   5. (5) If the proposed revenues exceed the tentative allowable revenues, the Commission will enter an order suspending the supplement but with a ‘‘condition subsequent’’ added, to the effect that if the small water public utility or the small wastewater public utility within a specified number of days files a superseding tariff or a tariff supplement which produces the allowable revenues found by the staff and which has a rate structure satisfactory to the Commission, the suspension and investigation orders of the Commission will be deemed inoperative and terminated. However, if the small water public utility or the small wastewater public utility fails to meet the ‘‘condition subsequent,’’ or if a customer files a formal complaint, the small water public utility or the small wastewater public utility may present the supporting data and the additional facts referred to in this section in formal proceedings. Additionally, in these formal proceedings, the small water public utility or the small wastewater public utility may agree to accept the most recent rate of return or operating ratio allowed a water public utility or wastewater public utility by the Commission in a fully-litigated water public utility or wastewater public utility rate case, but the agreement will not be binding on the Commission or any formal complainant.
   6. (6) {Reserved}.
   7. (7) When a small water public utility’s or a small wastewater public utility’s operating revenues increase in amounts that the public utility no longer meets the criteria of the definition of a small water public utility or a small wastewater public utility in § 53.51a (relating to definitions), the public utility shall continue to use a previously Commission-approved EMOF, reserve account and rates and reporting as required under this section until the public utility is permitted by the Commission to change its EMOF or rates as a result of a base rate case filed with the Commission.

2. (b) Operating ratio methodology.

   1. (1) This ratemaking method develops a revenue requirement where little or no rate base exists. The operating ratio at present rates must be calculated as a ratio of operating expenses to operating revenues, where the numerator must include operations and maintenance expense, annual depreciation on non-contributed facilities, amortization of multiyear expenses and applicable taxes and the denominator must consist of the small water public utility’s or the small wastewater public utility’s operating revenues at present rates.

   2. (2) The appropriate target operating ratio in a particular case must be determined by considering at least all of the following factors:

      1. (i) The operating ratios of comparable water public utilities or wastewater public utilities.
      2. (ii) Coverage of actual interest expense or hypothetical interest expense, or both.
      3. (iii) A comparison of the cost of service with the cost of service of similar companies which do not employ an operating ratio rate methodology.
      4. (iv) Current market conditions, including price inflation.
      5. (v) The quality of service and efficiency of operations.
      6. (vi) The rate case history.
      7. (vii) Whether there is any rate base and, if so, whether any depreciation expense is being claimed in the filing.
      8. (viii) An acquisition adjustment, if any.
      9. (ix) Financial resources.
      10. (x) The fairness of the resulting return.
   3. (3) An increase or decrease in operating revenues will be determined by dividing the small water public utility’s or the small wastewater public utility’s reasonable and legitimate operating expenses by the target operating ratio determined in paragraph (2) and subtracting that amount from the test period operating revenues.
   4. (4) The operating ratio methodology will be available to small water public utilities or small wastewater public utilities. If a small water public utility or a small wastewater public utility chooses to use an operating ratio methodology in calculating its rates, it shall make this request in the context of a rate case and shall bear the burden of proving all necessary elements thereof.

3. (c) Purchased water cost adjustment, purchased wastewater conveyance or treatment cost adjustment—sliding scale of rates.

   1. (1) A small water public utility or a small wastewater public utility may establish a sliding scale of rates under 66 Pa.C.S. § 1307 (relating to sliding scale of rates; adjustments) upon 60 days’ notice to customers to recover the cost of purchased water or purchased wastewater conveyance or purchased wastewater treatment, or both, obtained from municipal authorities or entities which are not affiliated interests as defined in 66 Pa.C.S. § 2101 (relating to definition of affiliated interest). The purchased water cost adjustment or purchased wastewater conveyance or treatment cost adjustment filing shall be accompanied by all of the following:

      1. (i) A tariff or tariff supplement which establishes the new rates to be placed into effect.
      2. (ii) A calculation showing the application of the new rate schedule to the average level of customer usage for a small water public utility or a small wastewater public utility.
      3. (iii) An income statement demonstrating the effect of the tariff or tariff supplement upon the small water or small wastewater public utility’s revenues for the period in which the proposed tariffs would be in effect.
      4. (iv) A copy of the notice provided to customers.
      5. (v) A verification that all customers have received notice of the proposed rate change.
   2. (2) A purchased water cost adjustment or a purchased wastewater conveyance or treatment cost adjustment, or both, must be revised and refiled within 60 days of a decrease in purchased water costs or purchased wastewater conveyance or treatment costs, or both, and shall be designed to pass through to customers the entire reduction in purchased water costs or purchased wastewater conveyance or treatment costs, or both, from the date the reduction becomes effective. A purchased water cost adjustment or purchased wastewater conveyance or treatment cost adjustment may be revised and refiled at any time after an increase in purchased water costs or purchased wastewater conveyance or treatment costs, or both, and shall be designed to recover cost increases prospectively from the date of filing only.
   3. (3) Within 30 days following the end of the calendar year, each small water public utility and each small wastewater public utility using a purchased water cost adjustment or purchased wastewater conveyance or treatment cost adjustment shall file the report prescribed by 66 Pa.C.S. § 1307(e) for the preceding 1-year period ending December 31st. Each report will be reviewed by the Commission’s Bureau of Audits, and, if no complaint or objection is raised within 45 days after filing, either by the Commission’s Bureau of Audits or another person, a report will be deemed approved.

4. (d) Emergency Maintenance and Operation Fund.

   1. (1) EMOF burden of proof. A small water public utility or a small wastewater public utility may submit a claim for an EMOF in anticipation of emergencies such as extraordinary repairs and maintenance, drought conditions, extraordinary environmental and physical damages to sources of supply, floods, storms, freeze-ups, or other health and welfare-threatening situations. The burden of demonstrating that actual or proposed disbursements from the EMOF are reasonable and in the public interest shall be borne by the small water public utility or the small wastewater public utility.
   2. (2) Methodology. The EMOF expense may not exceed 45 days of average operating expenses, excluding taxes and non-cash operating expenses (for example, depreciation, amortization and bad debt expenses). If a claim for EMOF expense is made, no additional claim for cash working capital shall be made or considered.
   3. (3) Procedures. The amounts allocated for an EMOF shall be kept in a separate cash account, and disbursements shall be restricted to the uses in paragraph (1). Each small water public utility and each small wastewater public utility shall report all disbursements from its EMOF to the Commission within 10 days and shall provide a summary of each year’s disbursements on its Annual Report. Disbursements from an EMOF which are found by the Commission to have been made improperly, or in violation of a statute, regulation or order of the Commission or other Commonwealth agency shall be returned to the EMOF or be refunded to ratepayers as the Commission may direct. A person or individual who makes, authorizes or directs disbursement from an EMOF which is improper or in violation of any statute, regulation or order of the Commission shall be subject to 66 Pa.C.S. § § 3301 and 3302 (relating to civil penalties for violations; and criminal penalties for violations).
   4. (4) Availability. The Commission may authorize funding an EMOF for a small water public utility or a small wastewater public utility.

5. (e) Reserve account.

   1. (1) Reserve account burden of proof. The burden of demonstrating that actual or proposed expenditures are reasonable and in the public interest shall be borne by the small water public utility or the small wastewater public utility.
   2. (2) Procedures. The amounts to be allocated to the reserve account will be determined by the Commission after review of the small water public utility’s or the small wastewater public utility’s proposed capital budget and the justification for that budget. Funds in the reserve account shall be kept in a separate interest-bearing cash account. Interest accrued must be credited to the reserve account and shall become part of the corpus of the reserve account. Funds from the reserve account may not be employed for a purpose other than those permitted under this section. Disbursements from the reserve account may not be made without written authorization by the Commission upon petition, will be restricted to the uses in subsection (d)(1), and must be made in accordance with a capital budget submitted with the initial rate filing or as modified with the consent of the Commission. In proposing any modifications of the capital budget, the Commission or a party may solicit the advice or testimony of the Department of Environmental Protection. The small water public utility or the small wastewater public utility shall report all disbursements from the reserve account by written notice to the Commission and to other persons as the Commission may direct. Disbursements from the reserve account which are found by the Commission to have been made improperly or in violation of any statute, regulation or order of the Commission or other Commonwealth agency must be returned to the reserve account or be refunded to ratepayers as the Commission may direct. A person who makes, authorizes or directs a disbursement from a reserve account without authorization by the Commission in accordance with these rules shall be subject to 66 Pa.C.S. § § 3301 and 3302.
   3. (3) Accounting. Plant capitalized by means of the reserve account must be accounted for as a contribution in aid of construction.
   4. (4) Availability. The Commission may authorize funding of a reserve account for a small water public utility or a small wastewater public utility.

Authority

The provisions of this § 53.54 amended under 66 Pa.C.S. § § 315, 501, 1301—1304 and 1307—1309, 1350—1360 and 1501.

Source

The provisions of this § 53.54 amended January 17, 1997, effective January 18, 1997, 27 Pa.B. 301; amended August 29, 2025, effective August 30, 2025, 55 Pa.B. 6180. Immediately preceding text appears at serial pages (375441) to (375442) and (332449) to (332451).

Cross References

This section cited in 52 Pa. Code § 53.51 (relating to general); 52 Pa. Code § 53.51a (relating to definitions); and 52 Pa. Code § 53.52 (relating to applicability).