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June 22, 2010

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State Regulatory Relations

Federal Court Dismisses Suit Against Aqua America

The United States District Court for the Eastern District of Virginia has dismissed a complaint filed by a customer of Aqua America’s Land Or Utility Company, alleging, inter alia, breach of contract and violations of the antitrust acts (apparently stemming from the Virginia State Corporation Commission’s approval of the merger of all of Aqua America’s regulated water and wastewater utilities in Virginia into a single entity). Freeman v. Aqua America, Inc., 2010 U.S. Dist. LEXIS 56600. The Court first determined that the plaintiff had not established subject matter jurisdiction, noting that “[t]he fact that a complaint contains a reference to federal statutes is insufficient to create federal question jurisdiction.” The Court then concluded that even if it had subject matter jurisdiction, the case would have to be dismissed because: (1) the plaintiff had failed to state a claim for relief that was plausible on the face of the complaint; and (2) the State Corporation Commission had primary jurisdiction to adjudicate disputes over the performance by a utility of its public duties.


Best Practices Added to NAWC’s Website

The NAWC Regulatory Program serves as a clearinghouse for information on regulatory best practices. As part of this effort, NAWC has posted information on a number of regulatory best practices and noted which states have implemented those practices.

The best practices currently listed are:

  • Distribution System Investment Charge (DSIC)
  • Prospectively Relevant Test Year
  • Acquisition Adjustment
  • Construction Work in Progress
  • Decoupling
  • Pass-through Adjustments
  • Rate Consolidation
  • Mediation and Settlement Procedures
  • Defined Timeframes for Rate Cases

The National Association of Regulatory Utility Commissioners Water Committee supports review and consideration of a broad array of innovative regulatory policies and best practices as detailed in its July 2005 resolution.

NAWC continues to advocate for adoption of regulatory best practices. The recently held NAWC Water Policy Forum discussed many of these practices. A summary report of the forum is forthcoming and will be posted to the NAWC site. New to this year’s report will be a contact list of commissioners and commission staff who have volunteered to serve as a point of contact to others interested in learning about how regulatory best practices have been implemented in their respective states.


Anthony Urges Vigilance on Accounting Standards

NARUC members must remain vigilant to ensure that orderly regulatory accounting principles are contained in the new standards now being considered for adoption in the United States, Oklahoma Corporation Commission Chairman Bob Anthony said last month in London.

At the request of NARUC President David Coen of Vermont, Chairman Anthony joined Federal Energy Regulatory Commission Member Marc Spitzer and Tom McGuiness of Pricewaterhouse Coopers for day-long May 11 meetings in London with members and staff of the International Accounting Standards Board (IASB). NARUC committees have been actively involved in tracking proposed IASB changes for well over a year.

Chairman Bob Anthony

IASB principles are either required or permitted in 100 countries and are under consideration for adoption in the United States pushed by the Securities and Exchange Commission. Following issuance of draft standards last fall, IASB staff reported there was not enough of a consensus to make a recommendation on including regulatory assets and liabilities.

“Nationally, public utilities could see a cumulative $100 billion in regulatory assets disappear from their balance sheets, possibly to be replaced by a footnote, while the companies would continue to carry some $20 billion in regulatory liabilities,” Chairman Anthony said. “During the London meeting I distributed photographs of two once-in-a-hundred year ice storms that occurred in the same 12 month period in Oklahoma creating over $100 million in damages to one of our investor-owned electric utilities. Our agency established a regulatory asset spreading collection from customers over five years. Under the IASB proposal the $100 million would have to be shown as an immediate loss, followed by five years each of $20 million in extraordinary profits as recovery from ratepayers occurred.

“Such accounting treatment would cause serious market volatility, confusion to investors and raise the risk level on utility stocks. This, in turn, impacts the way rating agencies view those stocks. All of which could lead to requested higher rates of return on equity that could result in significantly higher rates to consumers,” Anthony explained.

“NARUC and others such as the Federal Energy Regulatory Commission and major utilities across the country need to continue working to get the IASB staff to modify its recommendation to its board and we need to push the board to adopt standards that recognize orderly regulatory accounting practices,” Anthony said.

Chairman Anthony serves on the NARUC Board and is on the board of the National Regulatory Research Institute.


Georgia Governor Perdue Signs Water Conservation Measures

On June 1, 2010, Georgia Governor Sonny Perdue signed into law comprehensive water conservation legislation that, among other things, bans most outdoor watering from 10 a.m. to 4 p.m. and mandates that new buildings install high-efficiency toilets, shower heads and faucets. The legislation is a partial response to a federal court decision last year that significantly diminished Atlanta’s claims to water from Lake Lanier.