Arkansas Code
Subchapter 4 - Utilities — Rate Changes and Surcharges Generally
§ 23-4-422. Cost allocation — Definition

(a)
(1) The Arkansas Public Service Commission shall establish and regulate the rates and charges of a public utility under this subchapter and shall allocate or assign costs among all classes of customers of the public utility.
(2) In determining the rates for utility services and the cost allocation among all of a public utility's classes of customers, the commission shall:
(A) Consider the costs and expenses incurred by the public utility in providing the utility services to customers in each class;
(B) Consider the economic impact of the proposed rates and charges for utility services by giving equal consideration to each class of customers; and
(C) Make findings that are based on substantial evidence.

(b) Notwithstanding the commission's authority to otherwise determine and fix rates for all classes of customers, including allocating or assigning costs and designing rates, if the commission finds that it will be beneficial to economic development or the promotion of employment opportunities, and that it will result in just and reasonable rates for all classes of customers, the commission shall determine rates and charges for utility services that:
(1) For the class of customers with the highest level of consumption per customer which has rates that include a demand component, and any successors to such class, as they existed on January 1, 2015, ensure that all costs and expenses related to demand and capacity are identified and allocated on a demand basis and recovered from customers in those classes through a demand rate component and not through a volumetric rate component unless the commission determines that the rates should be adjusted under subsections (e) and (f) of this section;
(2) For the retail jurisdiction rate classes, ensure that:
(A) All electric utility production plant, production-related costs, nonfuel production-related costs, purchased capacity costs, and any energy costs incurred resulting from the electric utility's environmental compliance are classified as production demand costs; and
(B)
(i) Production demand costs are allocated to each customer class pursuant to the average and excess method shown in Table 4-10B on page 51 of the 1992 National Association of Regulatory Utility Commissioners Electric Utility Cost Allocation Manual, as it existed on January 1, 2015, using the average of the four (4) monthly coincident peaks for the months of June, July, August, and September for each class for the coincident peak referenced in Table 4-10B of the manual, as it existed on January 1, 2015, or any subsequent version of the manual to the extent it produces an equivalent result.
(ii) Subdivision (b)(2)(B)(i) of this section does not prescribe an allocation for a wind production plant; and

(3)
(A)
(i) For purposes of allocation of natural gas distribution plant costs, including costs in distribution mains and related distribution plant expenses, among the state's retail jurisdiction rate classes, ensure that each natural gas public utility classifies all natural gas distribution plant costs as customer-related or capacity-related.
(ii) For purposes of subdivision (b)(3)(A)(i) of this section, the natural gas distribution plant costs shall include:
(a) Amounts charged to account numbers 374 through 387, as defined under the account numbering system in the Uniform System of Accounts prescribed for natural gas public utilities by the rules of the commission; and
(b) Related depreciation, return on investment, property insurance and taxes, excluding state and federal income taxes, and fixed operation and maintenance expense charged to account numbers 870 through 894, as defined under the account numbering system in the Uniform System of Accounts prescribed for natural gas public utilities by the rules of the commission, including all labor-related costs for the expenses described in this subdivision (b)(3)(A).

(iii) To develop a cost allocation method under this section for natural gas utilities, the commission shall use the Gas Distribution Rate Design Manual, June 1989 edition, as prepared by the National Association of Regulatory Utility Commissioners, as it existed on January 1, 2015, or any subsequent version of the manual, to the extent it produces an equivalent result.

(B)
(i) The customer-related natural gas distribution plant costs shall be allocated to each customer class based on the number of customers in each class.
(ii) The customer-related portion of natural gas distribution plant costs related to account numbers 374 through 376, as defined under the account numbering system in the Uniform System of Accounts prescribed for natural gas public utilities by the rules of the commission, shall be the percentage of the average cost of all mains that is represented by the average cost of the minimum size main and computed using a cost allocation method based upon the predominant size main that is installed by the natural gas public utility that is at least two inches (2") in diameter, with the investment costs of the predominant size mains set as the minimum size.
(iii) The customer-related portion of natural gas distribution costs related to account numbers 377 through 387, as defined under the account numbering system in the Uniform System of Accounts prescribed for natural gas public utilities by the rules of the commission, shall be computed using a study that reflects the investments required to meter, regulate, and connect each class of customers to the natural gas utility's system.
(iv) Any remaining natural gas distribution plant costs shall be classified as capacity-related costs.

(C)
(i) Except for natural gas distribution plant costs related to account numbers 380 through 385, as defined under the account numbering system in the Uniform System of Accounts prescribed for natural gas public utilities by the rules of the commission, the natural gas distribution plant costs classified as capacity-related costs shall be allocated to the customer classes based on the contribution to peak day demand that is made by each customer class.
(ii) As used in subdivision (b)(3)(C)(i) of this section, “peak day demand” means the computed quantity of gas that would be supplied to each customer class calculated using the coldest day in a recent thirty-year period for each gas utility.

(c) In an application for a general change or modification in a public utility's rates and charges under this subchapter:
(1) A public utility may present evidence that demonstrates that the implementation of rates under subsection (b) of this section will result in rates that will be beneficial to economic development or the promotion of employment opportunities and result in just and reasonable rates for all classes of customers; and
(2) A public utility shall present evidence of whether or not rate design in subdivision (b)(1) of this section results in an increase to the base rate charges that are billed to customers in the affected class of more than ten percent (10%) as compared to the then currently approved base rate charges of the applicable rate schedules.

(d) Unless the commission adjusts the rates under subsection (e) or subsection (f) of this section, the commission shall by order establish and design rates, allocate or assign costs to all classes of customers, and regulate the rates for each class of customers of a public utility according to this section.
(e) Pursuant to the commission's authority to otherwise determine and fix rates for all classes of customers, including allocating or assigning costs and designing rates, the commission may adjust rates under subdivisions (b)(2) and (3) of this section if the commission finds:
(1) It is in the public interest;
(2) It is necessary to produce just and reasonable rates; or
(3) Implementation of rates under subdivisions (b)(2) and (3) of this section will result in rates that are not beneficial to economic development or the promotion of employment opportunities.

(f) If implementation of rates under subdivision (b)(1) of this section will result in an increase in the base rate charges billed to customers in the affected class of more than ten percent (10%) as compared to the currently approved base rate charges of the applicable rate schedules, the commission may adjust the rates to ensure that the greatest increase in the base rate charges billed to customers in the affected class is ten percent (10%) as compared to the then currently approved base rate charges of the applicable rate schedules.
(g) If the commission makes any adjustment under subsections (e) and (f) of this section, the commission shall provide in an order the rationale for determining that rates under subsection (b) of this section may not be just and reasonable and the rationale for determining that the rates adjusted in the order of the commission are just and reasonable and in the public interest. The commission shall make its findings based on substantial evidence.
(h) An electric cooperative corporation established under the Electric Cooperative Corporation Act, § 23-18-301 et seq., is not subject to this section.
(i) Effective March 27, 2015, the cost allocation provisions of this section shall apply to any pending application for a change in general rates and charges.