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REGULATORY PROCEEDINGS | 9 Months Ended
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Sep. 30, 2024
REGULATORY PROCEEDINGS [Abstract] |
REGULATORY PROCEEDINGS | N OTE 13 – REGULATO RY PROCEEDINGS Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state public service commissions through a rate-setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the Company’s requested level of rates. We are subject to regulation by the following state regulatory commissions: • The DEPSC, regulates Artesian Water, Artesian Wastewater, and TESI. • The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland. • The PAPUC, regulates Artesian Water Pennsylvania. Our water and wastewater utility operations are also subject to regulation under the federal Safe Drinking Water Act of 1974, or Safe Drinking Water Act, the Clean Water Act of 1972, or the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws. These laws and regulations establish criteria and standards for drinking water and for wastewater discharges. Capital expenditures and operating costs required as a result of water quality standards and environmental requirements have been traditionally recognized by state regulatory commissions as appropriate for inclusion in establishing rates. Water and Wastewater Rates Our regulated subsidiaries periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business. In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. Any DSIC rate in effect will be reset to zero upon implementation of a temporary increase in base rates charged to customers. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales. Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect. If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest. The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase. We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase. Artesian Water filed an initial request with the DEPSC on April 28, 2023, further supplemented with a request filed on November 30, 2023, to implement new rates to meet a requested increase in revenue of approximately $16.7 million, on an annualized basis, or 22.7%. The DEPSC approved and Artesian Water implemented a temporary rate increase effective November 28, 2023 of approximately $10.8 million, on an annualized basis, or 14.6%, subject to refund, and reduced the DSIC previously in effect from approximately 7.5% to zero. On May 22, 2024, Artesian Water, the Staff of the DEPSC, and the Division of the Public Advocate, or DPA, (collectively, the Parties) entered into an agreement, or Settlement Agreement, to settle Artesian Water’s April 2023 application to implement new rates. On June 12, 2024, a DEPSC order was issued approving the settlement agreement entered into on May 22, 2024 between the Parties. The Settlement Agreement authorizes a total increase in the revenue requirement of $11.2 million, on an annualized basis, or approximately 15.2%, with a rate effective date of June 12, 2024, which encompasses a 9.5% return on common equity and an overall rate of return on rate base of 6.75%. Temporary rates that were in effect since November 28, 2023 were replaced with the final approved rates from the Settlement Agreement. Revised depreciation rates for utility plant and revised amortization rates for certain regulatory assets and liabilities were also approved effective June 12, 2024. Other Proceedings Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility’s overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at 7.50% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0% within any 12-month period. The following table summarizes (1) Artesian Water’s last two applications with the DEPSC to collect DSIC rates and (2) the rate upon which eligible plant improvements was based:
Application Date | 11/20/2020 | 05/30/2024
DEPSC Approval Date | 12/14/2020 | 06/12/2024
Effective Date | 01/01/2021 | 07/01/2024
Cumulative DSIC Rate | 7.50% | 0.34%
Net Eligible Plant Improvements – Cumulative Dollars (in millions) | $43.1 | $2.0
Eligible Plant Improvements – Installed Beginning Date | 10/01/2014 | 10/01/2023
Eligible Plant Improvements – Installed Ending Date | 04/30/2019 | 04/30/2024
On June 12, 2024, the DEPSC approved Artesian Water’s application to implement a DSIC rate of 0.34%, effective July 1, 2024, which is subject to periodic audit by the DEPSC. Effective January 1, 2021, Artesian Water was permitted to recover specific investments made in infrastructure through the assessment of a 7.50% DSIC. The January 1, 2021 DSIC rate was reset to zero when the temporary base rate increase was placed into effect on November 28, 2023. For both the three and nine months ended September 30, 2024, we earned approximately $0.1 million in DSIC revenue. For the three and nine months ended September 30, 2023, we earned approximately $1.4 million and $3.9 million in DSIC revenue.

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