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PSC Motor Carriers

August 2020

The Public Service Commission of West Virginia (PSC) currently has a rulemaking underway to implement changes to its Motor Carrier and Tariff Rules in light of legislation adopted in 2020, including a new inflation index rate change.  Under this new procedure, the PSC will not look at a carrier’s historical revenue and expenses, but rather just apply an inflation index to the carrier’s rates. 

In order to get an inflation index rate change approved by January 1, 2021, a carrier should make application to the PSC by late September or early October so that notice can be accomplished 30 days in advance of the beginning of 2021.  The inflation index rate change process has a fairly narrow “open season” so that the increased rates can go into effect January 1.  A carrier who misses the open season time to file loses the opportunity to obtain an inflation adjustment for that year.

In the rulemaking, the PSC indicates its intent is to use the percentage inflation as reported in the Bureau of Labor Statistics, Urban Consumer Price Index,  Garbage and Trash collection index  for calendar year 2019 (since the inflation report for 2020 will not be released until mid January, 2021).   In the most recent 12-month period available to reference, the inflation index is 3.4%.  The PSC’s proposed rules say that a carrier can only file for an indexed rate increase four years in a row.  After that, it has to file a base rate increase using the PSC’s Tariff Rule 42 or 19-A process. 

The 2020 legislation and the corresponding PSC revisions to its rules creates a fundamentally new framework to evaluate rate changes.  Most carriers will file for the automatic rate change each year for four years in a row, then file a base rate case.  The inflation based rate change is somewhat like the miracle of compounding interest in that the secret to maximize benefits is to get started early.  The chart below shows the differences in rates between a carrier who starts with a $21 base rate and obtains a $3 per month base rate increase under the 19-A or Rule 42 process before filing for an inflation rate increase, as compared to one who first files for four inflation rate changes before filing a base rate case, assuming the inflation index reports out at 3.4% each year for 2021-2025:

Year Inflation Change First Base Rate Change First Difference
2021 $21.71 $24.00 $2.29
2022 $22.45 $24.82 $2.37
2023 $23.21 $25.65 $2.44
2024 $24.00 $26.53 $2.53
2025 $27.00 $27.43 $0.43

Further, the benefit of filing a base rate case early compounds over time as the cycle is repeated:

Year Inflation Change First Base Rate Change First Difference
2026 $27.92 $30.43 $2.51
2027 $28.87 $31.46 $2.59
2028 $29.85 $32.53 $2.68
2029 $30.87 $33.64 $2.77
2030 $33.87 $34.77 $0.90

We recommend that your company consider filing a base rate increase application this year so that you have new base rates in place by October 2021 to apply for the inflation index rate change for that year, and then again in 2022, 2023, and 2024.

Motor carriers with gross annual revenue in excess of $2 million, (switching to $3 million soon) have to file under the PSC’s Tariff Rule 42 procedure to obtain a base rate increase.  This requires the hiring of a CPA to prepare a Rule 42 Exhibit, which obviously adds the expense of a CPA.  In a Rule 42 Exhibit, an accountant will use the most recently completed fiscal year as the baseline, present adjustments to historical revenue and expenses, and propose a rate.  

If a motor carrier’s gross annual revenue is below $2 million, it can file a PSC Tariff Rule 19-A rate change application, which does not require a Rule 42 exhibit.  Instead, carriers using the 19-A process file one year of historical revenue and expense experience, often in the form of a tax return (which can be filed under seal),and ask the Staff of the PSC to recommend a rate adjustment.  While the 19-A process is attractive for the lower accounting fees, the problem with it is carriers tend to not be as pro-active in the process as they should be, and PSC Staff tends to be restrictive in its rate recommendations.  The application form and notice requirements are less burdensome than a Rule 42 filing.

PSC Staff looks at historical revenue and expenses and assumes the future will be just like the past unless the carrier can point to known and measurable changes to its expenses or revenue.  For example, PSC Staff will not put an additional $60,000 of revenue into rates on the basis that management says it intends to buy a new truck and new trucks cost about $60,000.  Management has to get a quote from a vendor for a truck at $59,865, and take official action to commit to buying the truck once its rates are changed.

Keep in mind that you will probably not be filing another general rate increase request for five years or so.  Consequently, for a 19-A filing, you should anticipate your capital needs over that period in advance of filing a rate increase request, and go into the rate change process with a target rate in mind. Unless you have fairly sophisticated in-house accounting staff, we recommend hiring a public utility accountant to undertake an analysis of your operation in advance of making a rate change filing to identify a target outcome.  The work the accountant will need to do for a 19-A is less extensive than preparing  a Rule 42 Exhibit, and so the fee should be less.  Having an accountant on board in advance will also give your company an ability to push back in the event PSC Staff makes an excessively restrictive rate recommendation.  Once PSC Staff’s rate recommendation comes out, there is a limited amount of time in which to respond.  If you do not have someone on board in advance who has done some homework, you are in a hard spot to contest a rate recommendation you do not like.

Bowles Rice would be happy to represent your company in any rate filing to the PSC.  We have strong relationships with accountants who frequently appear before the PSC. 

Please contact Jim Kelsh to discuss your company's situation or for more information.

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