SECTION 1.  Chapter 165 of the General Laws is hereby amended by inserting after Section 2B, the following section:-

Section 2C. (a) The following words as used in this section shall have the following meanings, unless otherwise expressly provided or the context otherwise requires:--

"Eligible projects", those water company plant projects not previously included in the water company's rate base in its most recent general rate case and that are intended to improve or protect the quality and reliability of service to customers, including (1) renewal or replacement of existing infrastructure, including mains, valves, services, meters and hydrants that have either reached the end of their useful life, are worn out, are in deteriorated condition, are or will be contributing to unacceptable levels of unaccounted for water, or are negatively impacting water quality or reliability of service if not replaced; (2) main cleaning and relining projects; (3) relocation of facilities as a result of government actions, the capital costs of which are not otherwise eligible for reimbursement; and (4) purchase of leak detection equipment or installation of production meters, and pressure reducing valves.

"Infrastructure assessment report", a report filed by a water company with the department that identifies water system infrastructure needs and the company's criteria for determining the priority for eligible projects related to infrastructure.

"Pretax return", the revenue necessary, after deduction of depreciation and property taxes, to produce net operating income equal to the water company's weighted cost of capital as approved by the department in the company's most recent general rate case multiplied by the new original cost of eligible projects.

"Reconciliation adjustment", the difference between revenues actually collected through the water infrastructure and conservation adjustment and the amount allowed under the WICA for that period for the eligible projects. The amount of revenues over collected or under collected through the adjustment will be recovered or refunded, as appropriate, as a reconciliation adjustment over a one-year period commencing on April first.

"Water infrastructure and conservation adjustment", an adjustment applied as a charge or credit to a company’s rates to recover the depreciation and property tax expenses and associated return on completed eligible projects.

"Water infrastructure and conservation adjustment revenues", the revenues provided through a water infrastructure and conservation adjustment for eligible projects.

(b) The department may authorize a company to use a rate adjustment mechanism, such as a water infrastructure and conservation adjustment, for eligible projects completed and in service for the benefit of the customers. A company may only charge customers such an adjustment to the extent allowed by the department based on a company's infrastructure assessment report, as approved by the department and upon semiannual filings by the company which reflects plant additions consistent with such report.  The department shall conduct the proceeding in accordance with the provisions of section 94 of chapter 164.

(c) The department shall promulgate rules and regulations to establish guidelines for infrastructure assessment reports and annual reconciliation reports and the criteria for determining priority of eligible projects. Criteria may include but not be limited to, the following:

age, material or condition of the facilities;

extent and frequency of main breaks or interruption of service;

adequacy of pressure;

head loss;

availability of fire flows; and

the potential of such projects to improve system integrity and reliability.

(d) The company shall file their individual infrastructure assessment report with the department and such report shall identify the water system infrastructure needs and a company's criteria for determining priority for eligible projects related to infrastructure.

(e) The department may approve a company's individual infrastructure assessment report upon determining that the company has demonstrated through generally accepted engineering practices that:

the infrastructure projects considered for renewal or replacement are eligible projects;

such projects will benefit customers by improving water quality, system integrity or service reliability;

they adhere to the criteria established for determining priority for infrastructure projects; and

there is a sufficient level of investment in infrastructure.

(f) Upon department approval of a company's individual infrastructure assessment report, the company may charge the water infrastructure and conservation adjustment for eligible projects in addition to such company's existing rate schedule pursuant to subsection (g) of this section and the procedures and customer notification requirements in subsections (h) and (i) of this section.

(g) The water infrastructure and conservation adjustment shall be calculated as a percentage, based on the original cost of completed eligible projects multiplied by the applicable rate of return, plus associated depreciation and property tax expenses related to eligible projects and any  reconciliation adjustment calculated pursuant to subsection (k) of this section as a percentage of the retail water revenues approved in its most recent rate filing for the regulated activities of said company.

(h) A company may impose the water infrastructure and conservation adjustment for eligible projects as a charge or credit on customers' bills at intervals of not less than 6 months, commencing on January 1, April 1, July 1 or October 1 in any year. No proposed water infrastructure and conservation adjustment charge or credit shall become effective until the department has approved such charges or credits.

(i) Companies shall notify customers through a bill insert or other direct communications when the adjustment is first applied and the water infrastructure and conservation adjustment charge or credit shall appear as a separate item on customers' bills.

(j) The amount of the water infrastructure and conservation adjustment applied between general rate case filings shall not exceed 7½ per cent of the company's annual retail water revenues approved in its most recent rate filing, and shall not exceed 5 per cent of such revenues for any 12-month period. The amount of the adjustment shall be reset to zero as of the effective date of new base rates approved pursuant to section 94 of chapter 164 and shall be reset to zero if the company exceeds the allowable rate of return by more than 100 basis points for any calendar year.

(k) On or before February 28 of each year, a company shall submit to the department an annual reconciliation report for any water infrastructure and conservation adjustment charges applied to customers' rates through December 31 of the previous calendar year. Such reconciliation report shall identify those projects that have been completed, demonstrate that the water infrastructure and conservation adjustment charges are limited to eligible projects that are in service and used and useful as of the end of the calendar year, and include any other information required as a result of the generic docket conducted pursuant to subsection (b) of this section. The company shall indicate in its report any significant changes in the extent of infrastructure spending, the priorities for determining eligible projects or the criteria established in the infrastructure assessment report.

In addition, the reconciliation report shall compare the water infrastructure and conservation adjustment revenues actually collected to the allowed amount of the adjustment. If upon completion of the review of the annual reconciliation report the department determines that a company over collected or under collected the water infrastructure and conservation adjustment, the difference between the revenue and costs for eligible projects will be recovered or refunded, as appropriate, as a reconciliation adjustment over a 1-year period commencing on April 1. The company shall refund the customers with interest for any over collection but shall not be eligible for interest for any under collection.