Section 1220-04-13-.07 - FINANCIAL SECURITY(1) All public wastewater utilities either holding or seeking to hold a CCN and owning wastewater systems shall furnish to the Commission, an acceptable financial security. The public wastewater utility shall ensure that such financial security is maintained in continuous force in conformity with these rules.(2) Proof of financial security shall be furnished to the Commission as follows: (a) A public wastewater utility submitting an initial application for a CCN shall present to the Commission, prior to approval of the application, proof of financial security in the amount of $20,000. Prior to providing service the public utility shall file proof of financial security in the amount required by 1220-04-13-.07(2)(b) based on the annual revenue forecast in the CCN application submitted to the Commission.(b) On or before July 1 of each year, any public wastewater utility holding a CCN and providing service shall file proof with the Commission of a security in the amount of fifty percent (50%) of annual wastewater revenues in the most recent annual or $20,000, whichever is greater. The minimum financial security amount is $20,000. The maximum required security is $300,000. When calculating wastewater revenues, no monies received from customers for bonding under this rule or for meeting bonding requirements of a local government shall be included in the calculation of wastewater revenues.(c) Initial compliance revenue is defined as the amount of revenue upon which a public wastewater utility submits proof of financial security for the first time after the effective date of this rule. Notwithstanding (2)(b), a public wastewater utility is not required to submit a new financial security until the initial compliance revenue increases by 10% as reported on its annual report. Once the public wastewater utility submits a new financial security, the revenues upon which the financial security is based shall become the new initial compliance revenue. The public wastewater utility must provide proof that its financial security is still in effect by July 1 or each year.(3) Financial security shall be provided in one of the following manners: (a) A bond issued by any surety company that has been authorized to issue such security by the Tennessee Department of Commerce and Insurance; or(b) An irrevocable letter of credit issued by a financial institution that is a designated state depository under Tenn. Code Ann. § 9-4-107.(4) The public wastewater utility shall ensure that the Commission is notified within thirty (30) days prior to any termination action concerning an irrevocable letter of credit that will not be renewed or the expiration date for a bond of non-perpetual duration that is not to be renewed.(5) The recurring cost of the financial security may be funded from customer contributions by means of a pass-through mechanism that adjusts a customer's monthly rate by a specified amount. The amount of the rate adjustment shall be established by the Commission for a public wastewater utility on a case-by-case basis.(a) For the initial security, each public wastewater utility shall submit for the Commission's consideration a proposed tariff specifying the amount of the security, the amount of the monthly rate adjustment to be billed to its customers for recovery of the cost of such security and the percentage rate increase this represents, based on currently approved rates. The tariff filing documentation shall contain at a minimum a calculation of the rate adjustment based on the annual cost of the security and the number of existing or projected customers at the time of the tariff filing. The resulting cost per customer (total security cost divided by the number of customers) shall be recovered from customers on a monthly basis (total cost per customer divided by 12).1. For public wastewater utilities holding a CCN as of the effective date of this rule, a proposed tariff to recover the cost of the required security shall be submitted to the Commission within thirty (30) days of the effective date of the financial security.2. For public wastewater utilities seeking a CCN after the effective date of this rule, a proposed tariff to recover the cost of the required security shall be submitted to the Commission with the CCN application.(b) Thereafter, on or before July 1 of each year, each public wastewater utility shall file with the Commission the following information to update its financial security and true up the recovery of its security costs:1. Proof of financial security compliant with this rule.2. A proposed revised tariff to become effective August 1, specifying the amount of security in place, the updated monthly rate adjustment to be billed to customers and the percentage rate increase this represents.3. Documentation supporting the calculation of the updated monthly rate adjustment. The documentation shall include but not be limited to:
(i) The annual cost of the new security;(ii) The current number of customers;(iii) The total actual security costs paid in the previous reporting period or part thereof in the public wastewater utility's first year of operations or the first year this rule is in effect; and(iv) The security cost recovered from customers in the previous reporting period or part thereof.4. A true-up calculation of the new monthly rate adjustment, calculated as follows: Click to view Image
Where:
RA = New monthly rate adjustment to be effective August 1.
CP = Total security costs actually paid in the prior reporting period or part thereof netted against any credits or refunds received by the public wastewater utility from the holder of the financial security.
CR = Total security costs actually recovered from customers in the prior reporting period.
SC = Annual security costs associated with the new security filed on July 1.
C = Number of customers at July 1.
(6) Upon the filing of an initial CCN application, a determination shall be made regarding the establishment of a reserve/escrow account. The Commission may review the financial condition of any public wastewater utility at any time to determine whether a reserve/escrow account balance is adequate or an account should be established. The requirement for a public wastewater utility to maintain a reserve/escrow account shall be determined by the Commission on a case-by-case basis.(7) Reserve/escrow accounts established by a public wastewater utility shall be limited to paying for or reimbursing the utility for extraordinary expenses of the utility or for necessary capital projects, unless otherwise permitted by the Commission. Extraordinary expenses are those resulting from events which are infrequent and unusual in nature, and unrelated to the utilities' routine service or business activities. The utility must first receive authorization from the Commission via approved petition or, in emergency situations, authorization in writing from the Chairman of the Commission upon written request by a representative of the utility to use such funds. The Commission may require public wastewater utility employees having signature authority over such account to obtain a fidelity bond. The public wastewater utility's tariff shall set forth the specific amount charged to customers to fund the reserve/escrow account.(8) The TPUC may waive or modify requirements of this rule for good cause shown, including but not limited to affordability of rates, minimization of rate shock or other operating characteristics of the utility.Tenn. Comp. R. & Regs. 1220-04-13-.07
Public necessity rule filed December 29, 2005; effective through June 12, 2006. Original rule filed March 29, 2006; effective June 12, 2006. Administrative changes made to this chapter on April 27, 2018 pursuant to Public Chapter 94 of 2017; "Tennessee Regulatory Authority" references were changed to "Tennessee Public Utility Commission," "Authority" references were changed to "Commission," "Authority Director" references were changed to "Commissioner," and "Chief" references were changed to "Director." Amendments filed September 5, 2018; effective 12/4/2018.Authority: T.C.A. §§ 65-2-102, 65-4-104, 65-4-111, 65-4-201, and 65-4-305.