An act relating to the nonregulated activities of regulated utilities and their affiliates



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UNOFFICIAL COPY AS OF 04/14/16 00 REG. SESS. 00 RS BR 2395

AN ACT relating to the nonregulated activities of regulated utilities and their affiliates.

Be it enacted by the General Assembly of the Commonwealth of Kentucky:

SECTION 1. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

The General Assembly finds that utilities may engage in a nonregulated activity or may conduct business with a nonregulated affiliate. It is imperative to develop guidelines to ensure that costs, including common costs, of providing nonregulated services or products are appropriately allocated to the nonregulated activity and are not subsidized by the ratepayers of the utility. In addition, transactions between a utility and its nonregulated affiliates must be conducted in a fair and consistent manner.

SECTION 2. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

As used in Sections 1 to 10 of this Act, unless the context requires otherwise:

(1) "Corporation" includes private, quasi-public, and public corporations, and all boards, agencies, and instrumentalities thereof, associations, joint stock companies, and business trusts;

(2) "Incidental nonregulated activity" means an activity that is not subject to regulation by the commission and that is a minor concomitant of providing regulated service by a utility;

(3) "Person" includes natural persons, partnerships, corporations, and two (2) or more persons having a joint or common interest;

(4) "Regulated service" means a service regulated by the commission that is provided by a utility;

(5) "Utility" means any corporation formed under KRS Chapter 279 that provides electric generation, distribution services, or retail electric service over which the commission has jurisdiction, and any person, except a city, who owns, controls, operates, or manages any facility used or to be used for or in connection with:

(a) The generation, production, transmission, or distribution of electricity to or for the public, for compensation, for lights, heat, power, or other uses;

(b) The production, manufacture, storage, distribution, sale, or furnishing of natural or manufactured gas, or a mixture thereof, to or for the public, for compensation, for light, heat, power, or other uses; or

(c) The transporting or conveying of gas, crude oil, or other fluid substance by pipeline to or for the public, for compensation;

(6) "Affiliate" means a person that controls or that is controlled by, or is under common control with, a utility;

(7) "Control" means the power to direct the management or policies of a person through ownership, by contract, or otherwise;

(8) "Commission" means the Public Service Commission;

(9) "Nonregulated activity" means the provision of competitive retail gas or electric services or other products or services over which the Commission exerts no regulatory supervision. This definition does not include telecommunications services;

(10) "USoA" means a uniform system of accounts;

(11) "CAM" means a cost allocation manual developed by a utility pursuant to Section 4 of this Act;

(12) "USDA" means the United States Department of Agriculture;

(13) "FERC" means the Federal Energy Regulatory Commission; and

(14) "SEC" means the Federal Securities and Exchange Commission.

SECTION 3. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

(1) A utility that engages in a nonregulated activity shall identify all costs of the nonregulated activity and report the costs in accordance with the guidelines in the USoA and the cost allocation methods described in subsection (2) of this section.

(2) In allocating costs between regulated and nonregulated activities, a utility shall utilize one (1) of the following cost allocation methods:

(a) The fully distributed cost method; or

(b) A cost allocation method recognized or mandated by the rules of the Federal Securities and Exchange Commission promulgated under 15 U.S.C. sec. 79, eq seq., or promulgated by the Federal Energy Regulatory Commission or by the United States Department of Agriculture.

(3) A utility's compliance with federal cost allocation methods shall constitute compliance with Sections 1 to 10 of this Act.

(4) Notwithstanding subsections (1) to (3) of this section, a utility may report an incidental nonregulated activity as regulated activity if:

(a) The revenue from that incidental activity plus any other incidental activities reported at the same time does not exceed the lesser of two percent (2%) of the utility's total revenue or one million dollars ($1,000,000) annually; and

(b) The nonregulated activity is reasonably related to the utility's regulated activity.

(5) Nothing contained in Sections 1 to 10 of this Act shall be construed as to require a utility to violate any cost allocation methods required to be employed under any service agreement validly existing as of the effective date of this Act.

SECTION 4. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

(1) Any utility that engages in a nonregulated activity whose revenue exceeds the amount provided for incidental nonregulated activities under subsection (4)(a) of Section 3 of this Act, shall develop and maintain a CAM as described in subsections (2) to (7) of this section.

(2) A CAM shall contain the following information for a utility's Kentucky jurisdictional operations:

(a) A list of regulated and nonregulated divisions within the utility;

(b) A list of all regulated and nonregulated affiliates of the utility to which the utility provides services or products and where the affiliates provide nonregulated activities as defined in subsection (7) of Section 2 of this Act;

(c) A list of the categories of services and products provided by the utility, an identification of each as regulated or nonregulated, and the cost allocation method generally applicable to each category;

(d) A list of incidental, nonregulated activities as defined in subsection (2) of Section 2 of this Act that are subject to the provisions of subsection (4) of Section 3 of this Act; and

(e) A description of the nature of transactions between the utility and the affiliate.

(3) Within two hundred seventy (270) days of the effective date of this Act, a utility required to develop a CAM shall file with the commission a statement, signed by an officer of the utility, certifying that the CAM has been developed and adopted by the utility's management.

(4) If there is a material change in matters required to be listed in the CAM, the utility shall, within sixty (60) days, amend the CAM to reflect the change.

(5) Subsequent to the initial certification of the CAM's development and adoption, the utility shall annually certify, in writing to the commission, within sixty (60) days of the close of the utility's fiscal year, that the utility maintains its CAM up to date.

(6) The CAM shall be available for inspection by commission representatives, agents, or staff.

(7) Notwithstanding subsection (6) of this section, a utility may maintain the confidentiality of any proprietary information contained in its CAM in any action or proceeding before the commission that may include the discovery of all or part of the CAM.

SECTION 5. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

(1) Except for transactions between affiliated public utilities, the terms for transactions between a utility and one (1) of its affiliates shall be in accordance with the following:

(a) Services and products provided to an affiliate by the utility pursuant to a tariff shall be at the tariffed rate, with nontariffed items priced at the utility's fully distributed cost or in compliance with the utility's existing USDA, SEC, or FERC approved cost allocation methodology; and

(b) Services and products provided to the utility by an affiliate shall be priced at the affiliate's fully distributed cost or in compliance with the utility's existing USDA, SEC, or FERC approved cost allocation methodology.

(2) A utility may file an application with the commission requesting a deviation from the requirements of this section for a particular transaction or class of transactions. The utility shall have the burden of demonstrating that the requested pricing is reasonable. The commission may grant the deviation if it determines the deviation is in the public interest.

SECTION 6. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

In any formal commission proceeding in which cost allocation is at issue, a utility shall provide sufficient information to document that its cost allocation procedures and affiliate transaction pricing are consistent with the Sections 1 to 10 of this Act.

SECTION 7. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

(1) The commission may have access to the books and records of a utility's affiliate to the extent necessary to ensure that transactions between the entities affecting jurisdictional rates comply with the requirements of Sections 1 to 10 of this Act under the following circumstances:

(a) A formal proceeding has been held, as provided for in Section 6 of this Act; and

(b) 1. The commission deems the evidence provided by the utility to be insufficient; or

2. The commission finds there is good cause or evidence to show the utility has not complied with Sections 1 to 10 of this Act.

(2) The commission shall have the right to perform or order a financial audit of the utility. Audits will be initiated only upon a showing of sufficient probative evidence of noncompliance, and nothing contained in Sections 1 to 10 of this Act shall be construed to require periodic audits of utilities.

(3) If a utility does not comply with the provisions of subsections (1) and (2) of this section, the costs attached to the affiliate transactions may be disallowed from rates.

SECTION 8. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

The following rules of conduct shall govern the activities of utilities and their affiliates:

(1) A utility and its affiliates shall be separate corporate entities and maintain separate books and records;

(2) Any utility that engages in nonregulated activities directly, rather than through an affiliate, shall separately account for all investments, revenues, and expenses, including start-up costs for nonregulated activities, in accordance with Section 3 of this Act;

(3) A utility shall not provide advertising space in its billing envelope to its affiliates or for its nonregulated activities unless it offers the same to competing service providers on the same terms it provides to its affiliates;

(4) A utility shall not attempt to persuade customers to do business with its affiliates by offering rebates or discounts on tariffed services;

(5) A utility that carries out any marketing or research and development with its affiliate or for its nonregulated activities shall be subject to the cost allocation requirements set forth in Section 3 of this Act;

(6) No utility employee shall share any confidential customer information with the utility's affiliates unless the customer has consented or the information is publicly available or is simultaneously made publicly available;

(7) All dealings between a utility and one (1) of its affiliates shall be in accordance with applicable federal and state laws and regulations;

(8) Employees transferring from the utility to an affiliate shall not disclose to the affiliate information that would provide an undue preference to the affiliate to the detriment of its competitors;

(9) A utility shall not provide preferential treatment to an affiliate to the detriment of a competitor. The provision of products or services between and among utilities and their nonregulated affiliates, when provided in compliance with federal, state, and local laws, shall not constitute preferential treatment;

(10) If a utility receives a request for a recommendation from a customer seeking a specific service that is offered by the utility's affiliate, or by the utility itself, the utility must provide the customer with:

(a) A copy of a list prepared and maintained by the commission that identifies the names of competing suppliers of the service that has been requested; or

(b) A telephone number, website address, or mailing address where a list prepared and maintained by the commission that identifies the names of competing suppliers of the service that has been requested can be obtained;

(11) The commission shall prepare and maintain a list that identifies the names of competing suppliers of services provided by nonregulated affiliates of regulated utilities. Competing suppliers that want to be identified on the list shall make a written request to the commission; and

(12) A utility and its affiliates may share employees, provided that the costs are allocated in accordance with Section 3 of this Act and provided that shared employees do not disclose information that would provide an undue preference to the affiliate to the detriment of its competitors.

SECTION 9. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

The provisions of Sections 1 to 10 of this Act shall not apply to telecommunications utilities or telecommunications services. Nothing in this section shall limit the authority of the commission to promulgate administrative regulations governing transactions between telecommunications utilities and their affiliates.

SECTION 10. A NEW SECTION OF KRS CHAPTER 278 IS CREATED TO READ AS FOLLOWS:

(1) Notwithstanding any provisions in Sections 1 to 10 of this Act to the contrary, a utility may apply to the commission for a waiver or deviation from any or all provisions of Sections 1 to 10 of this Act.

(2) The utility's application to the commission shall:

(a) Demonstrate the basis of the utility's need to be granted a waiver or deviation; and

(b) Contain, if appropriate, documentation regarding the costs and benefits of compliance with Sections 1 to 10 of this Act.

(3) The commission shall grant a waiver or deviation if compliance with Sections 1 to 10 of this Act is determined to be impracticable or unreasonable.


Page of

BR239500.100-2395



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