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PSC Water Currents  -  August 3, 2026

In this edition:

• Ask Staff: What is a Future Test Year (FTY), and Why Does the PSC Use FTYs?
• File Rate Cases Now for Safe Drinking Water Loans Closing Next Year!
• 2025 Wisconsin Act 201: Impacts to PFAS Project Review at the PSC
• Consumer Affairs Corner: Leak Credits
• PSC’s Financial Outreach, and What to Do if You Receive a Letter
• New Resource: LSL Rate Recovery Webinar Added to the Website
• Deadlines, Events, and Activities
• Recent Commission Cases: April 1 – June 30, 2026

Ask Staff: What is a Future Test Year (FTY), and Why Does the PSC Use FTYs?

Similar to other industries, utility rates are set by considering the costs of providing water to customers.  Costs include operating expenses such as labor, cost of materials (e.g. chemical & fuel expenses), and a return on capital investments used to buy equipment.  Unlike other industries, water utilities are not free to set just any rates – instead, the PSC oversees water utility rates to ensure that they are fair, just, and reasonable.

Utilities file an application to request rate adjustments through the PSC.  PSC staff then reviews the evidence provided in the utility application and analyzes whether the proposed rates will generate sufficient revenue for the utility without unfairly charging customers.  PSC staff subsequently conducts a comprehensive audit of the utility’s accounting and financial information to understand how the utility spends money and then looks to the future to model how the utility’s expenses will change.  The projected budget for the utility is estimated for a Future Test Year (FTY), which is the time period that provides the basis for developing the rates set by the PSC in its Final Decision.

Utility budgets may be somewhat stable from year to year, but other expenses and revenues fluctuate.  A utility may sell more water during a drought year, or a polar vortex may strain infrastructure to the point of breaking, resulting in costly unexpected repairs.  Looking back at the utility’s financial picture over several years helps establish parameters for the expected costs during the FTY.  Identifying known changes in the future – such as new regulatory requirements (lead inventory development), capital projects (main replacements), or labor changes (expanding staff) - and removing costs – such as paying off a loan – helps predict the revenue required for the utility to operate with sufficient funding during the FTY.

The PSC has used a FTY in ratemaking for over 35 years.  One of the accepted advantages of the FTY method is that when rates go into effect, they reflect the needs of the utility at the time it collects revenue.  Another advantage is that it can help smooth out rate impacts over time with phased-in rates or a multi-step rate structure to align revenue increases to the need to pay for planned infrastructure projects. 

The annual deadline for filing a conventional rate case (CRC) application using the current year (2026) as the FTY is July 31^st.  Applications filed and accepted on August 1st and after must be based on a 2027TY application projecting expenses to the following year.

File Rate Cases Now for Safe Drinking Water Loans Closing Next Year!

Using water revenue to secure your Safe Drinking Water Loan Program (SDWLP) loan next year?  Utilities annually rush to receive rate adjustments prior to the late summer/early fall date the Wisconsin Department of Natural Resources (DNR) and Department of Administration (DOA) establishes for closing on SDWLP Financial Assistance Agreements (FAA).  If your utility will need a rate adjustment prior to DNR’s/DOA’s closing date next summer, we encourage you to file your CRC THIS FALL (end of September).  Each year, a few utilities miss closing because they wait until after January 1 to file.  Please contact us to discuss your plans if you need a rate adjustment prior to closing on your FAA in September of 2027.

2025 Wisconsin Act 201:  Impacts to PFAS Project Review at the PSC

2025 Wisconsin Act 201, enacted and published in April, created Wis. Stat. § 196.49(7), revised Wis. Admin. Code § PSC 184.06, and led to other new programs and requirements at DNR to address per- and polyfluoroalkyl substances (PFAS) contamination in Wisconsin.

How does 2025 Wisconsin Act 201 impact PFAS project review at the PSC?

Wisconsin Act 201 allows flexibility for certain utilities to address PFAS, including by:

1. Authorizing limited use of ratepayer funds for PFAS source reduction measures.
2. Allowing certain water and sewer utilities to commence projects to respond to PFAS-related public health concerns without first obtaining approval from the PSC. The total cost of the project may not be greater than $2,000,000 and the utility must notify the PSC of the project within 30 days after commencing work and submit the relevant application and supporting documentation.

How to notify the PSC of construction related activities to address PFAS:

1. Submit a letter to the PSC’s Electronic Records Filing System (ERF) under your utility ID within 30 days of commencing work on the PFAS project.
2. Submit a PSC Water Construction Application and supporting documentation, including the General Application Checklist and appropriate supplemental checklist.
3. Include a rationale for and justification describing how the project responds to public health concern caused by PFAS.

For more information about construction authorization, contact Bureau Director Laura Fay at Laura2.Fay@wisconsin.gov or 608-267-0913.

Consumer Affairs Corner:  Leak Credits

Overview:

Leak credits are discounted rates water utilities offer to customers experiencing wasted water because of a leak in a customer’s appliance or plumbing.   Utilities are encouraged - but not required – to develop a leak credit policy to offer customers a leak credit for this wasted water.  A leak credit policy must meet certain requirements under the law.  See Wis. Admin. Code § PSC 185.35(6).  All leak credit policies must:

• Be written;
• Be made available to all customers within the same customer class in a non-discriminatory manner;
• Specify the method of determining the reduced rate for wasted water, while ensuring those rates are no lower than the actual cost of the water; and
• Apply only to customers who were not notified of the leak and have not had an opportunity to correct the leak.

How does a utility implement a leak credit policy?

The utility must determine the discounted rate for the wasted water, which can never be less than the utility’s actual cost of water.  (Many utilities set this rate at either the utility’s lowest volumetric tier rate or the actual cost of water.)  Then the policy must be finalized in writing and made available to customers.  Finally, the written policy should be added to the utility’s tariff in its next rate case, where it will appear as Schedule X-4.  (A copy of a sample X-4 tariff can be viewed here on page 44.)  However, utilities with a written leak credit policy may provide leak credits even if the policy has not yet been added to its tariff.  When the utility applies the policy to customer billing, it must ensure that its process complies with both the written policy and the requirements of Wis. Admin. Code § PSC 185.35(6).  For example, a leak credit may not be provided to any customers who have had the opportunity to correct a known leak.

Please contact Commission staff if your utility has questions about developing a leak credit policy or applying a leak credit.  File a Utility Inquiry or call 608-266-3766.

PSC’s Financial Outreach, and What to Do if You Receive a Letter

Background

Since 1998, PSC’s Water Team has screened financial information to identify utilities which may require enhanced outreach to confirm their financial capacity is sufficient to meet utility needs.  PSC staff refer to this program of screening, outreach, and review as the Financial Outreach (FO) program.  The current FO program has been in place since 2016.  The goal of this program is to identify those utilities which may require action in the near-term (6-24 months) to re-align their financial outlook.

How does PSC screen utilities?

Using PSC Annual Report information, Commission staff evaluates two Key Performance Indicators (KPIs):  days cash on hand, and consecutive years of operating losses.  These KPIs are recognized by organizations such as bond rating agencies, the Water Research Foundation, the American Water Works Association, University of North Carolina’s Environmental Finance Center, and the Alliance for Water Efficiency as valid measures of a utility’s financial integrity.

If a utility has fewer than 90 days cash on hand, two consecutive years of operating losses, and has not had a rate case within the last year to rectify these issues, it is identified in the screening process.  The Water Team’s audit staff conducts additional analysis of each identified utility to ensure the screening was accurate.  This includes identifying accounting anomalies, eliminating errors, adding external funding sources omitted from the PSC Annual Report, etc.

How does PSC use this list?

Utilities remaining after this review receive either a Year 1 or a Year 2 letter, depending on whether the Commission has reached out to them before.  Utilities receiving the Year 2 letter will have had at least three consecutive years of operating losses.  All utilities are strongly encouraged to file a CRC or a simplified rate case (SRC) with the Commission to avoid further deterioration of their financial status.

Commission staff may recommend the Commission open an investigation into utilities that do not take adequate steps to improve their financial condition following Year 2 letters.  The Commission, at its discretion, may order a utility to file a CRC.  If a utility fails to respond to this order, Commission staff may develop rates using annual financial report data without input from the utility.

The PSC also shares the list of utilities with DNR field staff to help ensure consistency between PSC and DNR assessments and to position DNR field staff to understand potential financial issues during in-person visits to utilities.

What to do if you receive this letter:

If you receive this letter, please follow the instructions in the letter to contact the PSC.  Staff will work with you to help you understand options to improve your utility’s financial position.  Acting sooner, rather than later, is usually better for the utility and its customers.  Smaller, more frequent rate adjustments ensure funding is available for utilities to maintain and operate a financially healthy utility and are often easier for household budgets to absorb compared to large rate increases caused by delayed rate adjustments.

New Resource:  LSL Rate Recovery Webinar Added to the Website

The PSC continues to build its resources to help utilities understand rate recovery and financial assistance plans (FAPs) for Lead Service Line (LSL) replacements.  In its June 3 webinar, Commission staff discussed the Commission's recently issued decision regarding rate recovery for a FAP, described how it impacts FAP implementation, and outlined ways in which it influences considerations for the future cost recovery of utility private-side LSL replacement programs through rates.  Access the materials on the LSL Page, or directly here:  Webinar Recording; Webinar Slides.

Deadlines, Events, and Activities:

• Mid July: Commission sends out letters reminding utilities of the opportunity to file SRCs.  For more information on SRCs, see the article in the July, 2025 Currents Newsletter.
• July 31^st: Deadline for filing 2026TY CRC applications.  Applications filed on August 1^st and after must be based on a 2027TY.
• August 23-27: World Water Week.  Promoted by the UN each year, this year’s theme is “Water for the People and Progress.”  Check out programming here.
• Early September:
  • Commission sends out letters to utilities that require Reclassification.
  • Commission sends out FO letters.
• September 16-18: Wisconsin Section of the AWWA’s 105^th Annual Conference.  Catch presentations by PSC staff on: 
  • What's a FAP Charge? Financial Assistance for Private LSL Replacement
  • Expense Depreciation: A Tool for Battling the Infrastructure Replacement Crisis
  • Unauthorized Construction and How to Avoid It
  • Finding the Appropriate Costs for Water: Converting the Public Fire Protection Charge
  • Updates & Trends from the PSC
• September 23: Final Closing Date for the SFY 2026 Safe Drinking Water Loan Program Projects.
• September 30: Last recommended date for submitting an Application to Increase Water Rates to the PSC for SDWLP FAAs closing in September 2027.
• October 15: Imagine a Day Without Water.  Sponsored by the Value of Water Campaign, this day is meant to help everyone understand how important water is to our health, economy, and success.  Access resources and learn more here.

Recent Commission Cases:  April 1 – June 30, 2026

Conventional Rate Cases:  Rate adjustments depend on a range of factors presented in each request.  Click on the rate change to access the Final Decision for details.

Construction Authorizations:  The Commission issued the following construction authorizations.  Click on the project description to read the Final Decision.   

Simplified Rate Cases: the Commission approved each of the following utilities for a 3% increase through the SRC process:

Questions?

For any questions regarding Currents, please contact Angela James at angela.james@wisconsin.gov.