A03467
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1326
Session of
2015
INTRODUCED BY GODSHALL, MILLARD, PICKETT, ROZZI, HARHART,
KILLION, MURT, DAVIS AND EVANKOVICH, JUNE 11, 2015
REFERRED TO COMMITTEE ON CONSUMER AFFAIRS, JUNE 11, 2015
AN ACT
Amending Title 66 (Public Utilities) of the Pennsylvania
Consolidated Statutes, in rates and distribution systems,
providing for valuation of acquired water and wastewater
systems for ratemaking purposes.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Title 66 of the Pennsylvania Consolidated
Statutes is amended by adding a section to read:
§ 1329. Valuation of acquired water and wastewater systems.
(a) Process to establish fair market value of selling
utility.--Upon agreement by both the acquiring public utility
and the selling utility, the following procedure shall be used
to determine the fair market value of the selling utility:
(1) Two utility valuation experts shall perform two
separate appraisals of the selling utility for the purpose of
establishing its fair market value.
(2) Each utility valuation expert shall determine fair
market value in compliance with the Uniform Standards of
Professional Appraisal Practice, employing the cost, market
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and income approaches.
(3) Each utility valuation expert shall engage the
services of a licensed engineer to conduct an assessment of
the tangible assets of the selling utility. The assessment
shall be incorporated into the appraisal under the cost
approach required under paragraph (2).
(4) Each utility valuation expert shall provide the
completed appraisal to the acquiring public utility and
selling utility within 60 days of execution of the service
contract.
(b) Utility valuation experts.--
(1) The utility valuation experts required under
subsection (a) shall be selected as follows:
(i) one shall be selected by the acquiring public
utility; and
(ii) one shall be selected by the selling utility.
(2) The utility valuation experts shall not:
(i) derive any material financial benefit from the
sale of the selling utility other than fees for services
rendered; or
(ii) be an immediate family member of a director,
officer or employee of either the acquiring public
utility or selling utility within a 12-month period of
the date of hire to perform an appraisal.
(3) Fees paid to utility valuation experts may be
included in the transaction and closing costs associated with
acquisition by the acquiring utility, however, fees may not
exceed the greater of:
(i) thirty thousand dollars; or
(ii) five percent of the fair market value of the
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selling utility.
(c) Ratemaking rate base.--The following apply:
(1) Upon entry of a commission order approving the
acquisition, the ratemaking rate base of the selling utility
shall be incorporated into the rate base of the acquiring
public utility.
(2) The ratemaking rate base of the selling utility
shall be the lesser of the purchase price negotiated by the
acquiring public utility and selling utility or the fair
market value of the selling utility.
(d) Commission approval.--The following apply:
(1) If the acquiring public utility and selling utility
agree to use the process outlined in subsection (a), the
acquiring public utility shall include the following as an
attachment to its application for commission approval of the
acquisition filed pursuant to section 1102 (relating to
enumeration of acts requiring certificate):
(i) Copies of the two appraisals performed by the
utility valuation experts under subsection (a).
(ii) The purchase price of the selling utility as
agreed to by the acquiring public utility and selling
utility.
(iii) The recommended ratemaking rate base.
(iv) The transaction and closing costs incurred by
the acquiring public utility that will be included in its
rate base.
(v) A tariff containing the new rate or rate
division of the acquiring public utility that the selling
public utility will be incorporated into for
postacquisition ratemaking purposes.
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(2) If the commission issues an order approving the
application for acquisition, the order shall include:
(i) The ratemaking rate base of the selling utility,
as determined under subsection (c).
(ii) The new rate that will be applicable to the
service territory acquired by the acquiring public
utility or the current rate division of the acquiring
public utility that will be applicable to the acquired
service territory, as agreed to by the acquiring public
utility and selling utility.
(3) Any rate recommended by the commission shall be
consistent with the rate recommendation provided under
paragraph (1)(v) unless it can be demonstrated that the
recommended rate will result in a rate increase to the
acquiring public utility's customers by 5% or more.
(4) The rate approved by the commission as part of its
approval of the application for acquisition shall remain in
effect until such time as new rates are approved for the
acquiring public utility as the result of a base rate case
proceeding before the commission. The acquiring public
utility may collect a distribution system improvement charge
during this time, as approved by the commission under this
chapter.
(5) The selling utility's cost of service shall be
incorporated into the revenue requirement of the acquiring
public utility either as part of the commission's order
approving the acquisition or as part of the acquiring
utility's next base rate case proceeding. The original source
of funding for any part of the water or sewer assets of the
selling public utility shall not be relevant to determining
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the value of said assets.
(e) Postacquisition projects.--The following apply:
(1) Any postacquisition improvements made by the
acquiring public utility that are not eligible to be
collected through a distribution system improvement charge
shall be eligible for inclusion in allowance for funds used
during construction after the date the expense was incurred.
(2) An acquiring public utility may collect allowance
for funds used during construction, through rates, until the
improved asset has been in service for a period of four years
or until the asset is included in the acquiring public
utility's next base rate case, whichever is earlier.
(3) For ratemaking purposes, any postacquisition
improvements made to the selling utility's assets by the
acquiring public utility shall not be subject to depreciation
from the date the expense was incurred until such time as the
improved asset has been in service for a period of four years
or until the asset is included in the acquiring public
utility's next base rate case, whichever is earlier.
(f) Definitions.--The following words and phrases when used
in this section shall have the meanings given to them in this
section unless the context clearly indicates otherwise:
"Acquiring public utility." An investor-owned water or
wastewater public utility subject to regulation under this title
for a period of at least five years that is acquiring a selling
utility as the result of a voluntary arm's-length transaction
between the buyer and seller.
"Allowance of funds used during construction." An accounting
practice that recognizes the capital costs, including debt and
equity funds that are used to finance the construction costs of
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an improvement to a selling utility's assets by an acquiring
public utility.
"Fair market value." The average of the two utility
valuation expert appraisals conducted under subsection (a)(1).
"Ratemaking rate base." The dollar value of a selling
utility which, for postacquisition ratemaking purposes, is
incorporated into the rate base of the acquiring public utility.
"Selling utility." A water or wastewater company located in
this Commonwealth, owned by a public utility, municipal
corporation or authority that is being purchased by an acquiring
public utility as the result of a voluntary arm's-length
transaction between the buyer and seller.
"Utility valuation expert." A person hired by an acquiring
public utility and selling utility for the purpose of conducting
an economic valuation of the selling utility to determine its
fair market value.
Section 2. This act shall take effect in 60 days.
Section 1. Title 66 of the Pennsylvania Consolidated
Statutes is amended by adding a section to read:
§ 1329. Valuation of acquired water and wastewater systems.
(a) Process to establish fair market value of selling
utility.--Upon agreement by both the acquiring public utility or
entity and the selling utility, the following procedure shall be
used to determine the fair market value of the selling utility:
(1) The commission will maintain a list of utility
valuation experts from which the acquiring public utility or
entity and selling utility will choose.
(2) Two utility valuation experts shall perform two
separate appraisals of the selling utility for the purpose of
establishing its fair market value.
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(3) Each utility valuation expert shall determine fair
market value in compliance with the Uniform Standards of
Professional Appraisal Practice, employing the cost, market
and income approaches.
(4) The acquiring public utility or entity and selling
utility shall engage the services of the same licensed
engineer to conduct an assessment of the tangible assets of
the selling utility. The assessment shall be incorporated
into the appraisal under the cost approach required under
paragraph (3) .
(5) Each utility valuation expert shall provide the
completed appraisal to the acquiring public utility or entity
and selling utility within 90 days of execution of the
service contract.
(b) Utility valuation experts.--
(1) The utility valuation experts required under
subsection (a) shall be selected as follows:
(i) one shall be selected by the acquiring public
utility or entity ; and
(ii) one shall be selected by the selling utility.
(2) The utility valuation experts shall not:
(i) derive any material financial benefit from the
sale of the selling utility other than fees for services
rendered; or
(ii) be an immediate family member of a director,
officer or employee of either the acquiring public
utility , entity or selling utility within a 12-month
period of the date of hire to perform an appraisal.
(3) Fees paid to utility valuation experts may be
included in the transaction and closing costs associated with
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acquisition by the acquiring utility or entity. Fees eligible
for inclusion may be of an amount not exceeding 5% of the
fair market value of the selling utility or a fee approved by
the commission.
(c) Ratemaking rate base.--The following apply:
(1) The ratemaking rate base of the selling utility
shall be incorporated into the rate base of:
(i) the acquiring public utility during the
acquiring public utility's next base rate case; or
(ii) the entity in its initial tariff filing.
(2) The ratemaking rate base of the selling utility
shall be the lesser of the purchase price negotiated by the
acquiring public utility or entity and selling utility or the
fair market value of the selling utility.
(d) Acquisitions by public utility .--The following apply:
(1) If the acquiring public utility and selling utility
agree to use the process outlined in subsection (a), the
acquiring public utility shall include the following as an
attachment to its application for commission approval of the
acquisition filed pursuant to section 1102 (relating to
enumeration of acts requiring certificate):
(i) Copies of the two appraisals performed by the
utility valuation experts under subsection (a).
(ii) The purchase price of the selling utility as
agreed to by the acquiring public utility and selling
utility.
(iii) The ratemaking rate base determined pursuant
to subsection (c)(2) .
(iv) The transaction and closing costs incurred by
the acquiring public utility that will be included in its
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rate base.
(v) A tariff containing a rate equal to the existing
rates of the selling utility at the time of the
acquisition and a rate stabilization plan, if applicable
to the acquisition.
(2) The commission shall issue a final order on an
application submitted under this section within six months of
the filing date of an application meeting the requirements of
subsection (d)(1).
(3) If the commission issues an order approving the
application for acquisition, the order shall include:
(i) The ratemaking rate base of the selling utility,
as determined under subsection (c)(2) .
(ii) Additional conditions of approval as may be
required by the commission.
(4) The tariff submitted pursuant to subsection (d)(1)
(v) shall remain in effect until such time as new rates are
approved for the acquiring public utility as the result of a
base rate case proceeding before the commission. The
acquiring public utility may collect a distribution system
improvement charge during this time, as approved by the
commission under this chapter.
(5) The selling utility's cost of service shall be
incorporated into the revenue requirement of the acquiring
public utility as part of the acquiring utility's next base
rate case proceeding. The original source of funding for any
part of the water or sewer assets of the selling utility
shall not be relevant to determine the value of said assets.
(e) Acquisitions by entity.--An entity shall provide all the
information required by subsection (d)(1) to the commission as
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an attachment to its application for a certificate of public
convenience filed pursuant to section 1102.
(f) Postacquisition projects.--The following apply:
(1) An acquiring public utility's postacquisition
improvements that are not included in a distribution
improvement charge shall accrue allowance for funds used
during construction after the date the cost was incurred
until the asset has been in service for a period of four
years or until the asset is included in the acquiring public
utility's next base rate case, whichever is earlier.
(2) Depreciation on an acquiring public utility's
postacquisition improvements that have not been included in
the calculation of a distribution system improvement charge
shall be deferred for book and ratemaking purposes.
(g) Definitions.--The following words and phrases when used
in this section shall have the meanings given to them in this
section unless the context clearly indicates otherwise:
"Acquiring public utility." A water or wastewater public
utility subject to regulation under this title that is acquiring
a selling utility as the result of a voluntary arm's-length
transaction between the buyer and seller.
"Allowance of funds used during construction." An accounting
practice that recognizes the capital costs, including debt and
equity funds that are used to finance the construction costs of
an improvement to a selling utility's assets by an acquiring
public utility.
"Entity." A person, partnership or corporation that is
acquiring a selling utility and has filed or whose affiliate has
filed an application with the commission seeking public utility
status pursuant to section 1102.
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"Fair market value." The average of the two utility
valuation expert appraisals conducted under subsection (a)(2) .
"Ratemaking rate base." The dollar value of a selling
utility which, for postacquisition ratemaking purposes, is
incorporated into the rate base of the acquiring public utility
or entity .
"Rate stabilization plan." A plan that will hold rates
constant or phase rates in over a period of time after the next
base rate case.
"Selling utility." A water or wastewater company located in
this Commonwealth, owned by a municipal corporation or authority
that is being purchased by an acquiring public utility or entity
as the result of a voluntary arm's-length transaction between
the buyer and seller.
"Utility valuation expert." A person hired by an acquiring
public utility and selling utility for the purpose of conducting
an economic valuation of the selling utility to determine its
fair market value.
Section 2. This act shall take effect in 60 days.
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