(1) Some water companies have insufficient funds to respond to emergencies, replace or upgrade failing infrastructure, or add plant to accommodate growth. Frequently, water companies cannot obtain financing through traditional capital markets. The purpose of a surcharge or a facilities charge is to provide the water company with a source of capital, provided by customers, to fund capital needs. No company may collect a surcharge or facilities charge except by commission order or approval.

(2) Surcharges.

(a) Surcharges are designed to fund three types of financing needs:

(i) Future water utility plant. This surcharge allows the company to collect money from current customers to fund a reserve in order to pay for future capital projects that are part of a long-range plan. The project must be approved by the department of health as a part of a long-range plan, or required by the department of health to assure compliance with federal or state drinking water regulations, or to perform construction or maintenance required by the department of ecology to secure safety to life and property under RCW 43.21A.064(2).

(ii) Current water utility plant. This surcharge is tied to the servicing and repayment of the debt used for the financing of the water utility plant required by:

(A) Washington department of health order or letter to adequately serve current customers; or

(B) Department of ecology.

(iii) Special expenses. This surcharge is used to pay for operating expenses that are independent and unique from normal operating expenses or that may be subject to large variations. This type of operating expense may need periodic reevaluation without the need of a general rate case. Examples of the use of this type of surcharge are: New or highly variable safe drinking water act testing and treatment expenses, extraordinary maintenance expenses, or temporary taxes.

(b) A surcharge may fund up to one hundred percent of the total cost of a project or expense.

(c) Funds received by surcharge, including any interest earned on the funds while being held in reserve, are contributions in aid of construction.

(d) When seeking approval of a surcharge the company must file:

(i) A cover letter explaining the request;

(ii) A tariff page, stating the amount of the surcharge and who must pay;

(iii) Supporting justification for the charge; and

(iv) If applicable, requests for capital surcharges must refer to the appropriate sections of the company's submitted comprehensive water system plan, or include a copy of the Washington department of health order or letter requiring plant improvements to adequately serve current customers.

(3) Facilities charges.

(a) Facilities charges are designed to fund two types of capital needs:

(i) Future water utility plant. This type of facilities charge allows the company to collect money from new customers to fund a reserve in order to pay a portion of future capital projects that are part of a long-range plan. The project must be in accordance with the company's submitted comprehensive water system plan or Washington department of health order or letter requiring plant improvements to adequately serve current customers, or utility plant that is required by department of ecology.

(ii) Current water utility plant. This type of facilities charge allows the company to collect money from new customers to be used to fund a reserve to partially finance current plant improvements required by Washington department of health order or letter to adequately serve current customers or required by department of ecology.

(b) A facilities charge may not fund one hundred percent of the total cost of qualifying projects. The water company must maintain an appropriate ratio of rate base to total plant.

(c) Funds received through a facilities charge, including any interest earned on the funds while being held in reserve, are contributions in aid of construction.

(d) A water company may impose a facilities charge by tariff or contract.

(e) When seeking approval of a facilities charge the company must file:

(i) A cover letter explaining the request;

(ii) A tariff page or signed contract, stating the amount of the charge and who must pay;

(iii) Supporting justification for the charge;

(iv) Requests for a facilities charge must refer to the appropriate sections of the company's submitted comprehensive water system plan, or include a copy of the Washington department of health order or letter requiring plant improvements to serve current or potential customers.

(4) Accounting and reporting requirements.

(a) Surcharge funds and facilities charge funds collected pursuant to this rule, and interest earned upon such funds must be held in a separate account by the company for the benefit of customers. Such funds do not become the property of company owners and may not (except as authorized in (b) of this subsection), be disbursed, alienated, attached, or otherwise encumbered by the company or its owners. In the event of a sale or transfer of the company, the trust obligations established in this rule regarding any unspent surcharge or facilities charge funds are transferred to the new owner of the company.

(b) Funds may be used from the account only to the extent and for the purposes approved by the commission.

(i) At the discretion of the commission, disbursements from the account may become subject to prior approval by the commission either by order by the commission or by letter from the executive secretary.

(ii) The company may be required to file requests for disbursements.

Requests must provide sufficient detail to allow the determination that the requested disbursement is in compliance with the commission's order.

(c) The water company must report for each tariffed surcharge or facilities charge the following information to the commission within sixty days of the end of the calendar quarter:

(i) Beginning balance;

(ii) Amounts received, detailed by source;

(iii) Amounts spent, detailed by project or expense;

(iv) Ending balance;

(v) Reconciliation of bank balance to general ledger.