§ 14-234-802 — Fiscal distress - Improvement plans - Rates and rate studies - Definition

(a) (1) For the purposes of this section, a provider is in fiscal distress if the provider: (A) Fails to obtain a rate study as required under this section; (B) Fails to implement a completed rate study required under this section; or (C) Has been found by the Arkansas Natural Resources Commission to be in significant noncompliance with rules of the commission because of inadequate funds for operation and maintenance or inadequate compliance with rules of the commission. (2) A provider may be found by the commission to be subject to this section if a member of the provider's board does not receive the training required under § 14-234-805 . (b) The commission shall maintain and publish on the commission's website a list of providers in fiscal distress. (c) (1) A provider shall obtain a rate study on the following schedule: (A) By July 1, 2024, and every five (5) years thereafter for a provider that serves five hundred (500) or fewer customers; (B) By July 1, 2025, and every five (5) years thereafter for a provider that serves five hundred one (501) to one thousand (1,000) customers; and (C) By July 1, 2026, and every five (5) years thereafter for a provider that serves more than one thousand (1,000) customers. (2) (A) Rates and other revenue dedicated to the support of the provider's water system shall adequately address costs for: (i) Operation and maintenance; (ii) Debt service; (iii) Required reserves; (iv) Depreciation; (v) Future capital expenses; (vi) Preparation of an annual audit or agreed-upon procedures and compilation report as required by law; and (vii) Other expenses as necessary. (B) (i) The rates recommended in the rate study that is obtained and chosen by the provider shall be implemented by the provider in the manner provided under the applicable law for modifying rates. (ii) Except as provided in subdivision (c)(2)(B)(iii) of this section, an increase in rates recommended in the rate study shall be implemented within one (1) year of the receipt of the rate study. (iii) If recommended rates increase the provider's rates by fifty percent (50%) or more from the fiscal year before the rate study was completed, the provider may phase in the rate increase over a two-year period. (iv) If through the rate study it is recommended that a series of rate increases be implemented over a period of time that exceeds the periods of time required in subdivisions (c)(2)(B)(ii) and (iii) of this section, the provider may implement the series of rate increases without regard to the limitations of subdivisions (c)(2)(B)(ii) and (iii) of this section, provided that the series of rate increases conform with the recommendations of the rate study. (d) (1) The commission shall determine by rule the requirements of the rate study, including without limitation a review of the provider's refurbishment and replacement account and asset management plan. (2) (A) The rate study shall use as its basis the guidelines of the American Water Works Association and the Water Environment Federation. (B) The commission shall determine by rule an appropriate entity to provide guidelines for the rate study to use as its basis if guidelines of the American Water Works Association and the Water Environment Federation are unavailable. (e) (1) Each provider shall deposit a minimum of five percent (5%) per annum of gross revenues in a dedicated refurbishment and replacement account. (2) The provider may spend any amount of the provider's cash savings referenced in subdivision (e)(1) of this section at any time for refurbishment and replacement of the provider's water system facilities and other real property. (3) If a different amount is determined by a rate study, then the amount determined by the rate study shall be deposited into a dedicated refurbishment and replacement account. (f) (1) The commission shall maintain an approved list of entities to conduct rate studies required by this section, including without limitation the Arkansas Rural Water Association, professional engineers, certified public accountants, economists, and actuaries. (2) If a provider chooses an entity to conduct the rate study that is not on the approved list of entities, the entity is required to have conducted at least one (1) rate study in the state in the previous five-year period. (g) (1) To ensure fiscal soundness, the commission shall consider and approve a new provider with fewer than three hundred (300) customers within the proposed service area only if: (A) The commission determines that public health or the environment is threatened without the approval of the new provider; or (B) There is no other viable alternative. (2) A new provider with fewer than three hundred (300) customers seeking approval shall: (A) Be organized through a political subdivision, including without limitation an improvement district, a county, or a municipality; (B) Demonstrate the ability to remain fiscally sustainable; and (C) Complete a technical, financial, and managerial capacity review conducted by the commission. (h) [Repealed.] (i) A provider shall file its most recent rate study annually with Arkansas Legislative Audit at the same time the provider files its audit report or agreed-upon procedures and compilation report as required under § 14-234-120 . (j) (1) The commission shall annually identify and notify a provider if the provider is in fiscal distress. (2) The provider may appeal the finding to the Pulaski County Circuit Court. (k) (1) A provider found to be in fiscal distress shall file an improvement plan with the commission, including without limitation specific action to be taken to correct financial, technical, and managerial deficiencies, within ninety (90) days of the finding of fiscal distress. (2) (A) Upon receipt of the improvement plan under this subsection, the commission shall review the improvement plan and: (i) Approve the improvement plan in whole or in part; (ii) Modify the improvement plan; or (iii) Deny the improvement plan. (B) At the time the commission determines that the provider is no longer in fiscal distress, the commission shall remove the fiscal distress designation and notify the provider. (l) If a provider is found to be in fiscal distress, the provider shall not receive state financial assistance for water operations until an improvement plan that has been approved by the commission is in place, unless the financial assistance is immediately necessary to ensure preservation of the public peace, health, and safety, as determined by the commission. (m) If the provider is found to be in fiscal distress, the provider shall obtain written authorization from the commission to: (1) Incur additional debt; (2) Accept assistance for the refurbishment or replacement of facilities or construction of facilities not within the provider's improvement plan; or (3) Transfer assets to another entity.

Legislative History

Amended by Act 2023, No. 545,§ 3, eff. 8/1/2023. Amended by Act 2023, No. 545,§ 2, eff. 8/1/2023. Amended by Act 2023, No. 545,§ 1, eff. 8/1/2023. Added by Act 2021, No. 605,§ 1, eff. 7/28/2021.