PUBLIC UTILITY CODE (66 PA.C.S.) - AMEND RATES
                  Act of Apr. 4, 1990, P.L. 107, No. 24               Cl. 66
                             Session of 1990
                               No. 1990-24

     HB 24

                                  AN ACT

     Amending Title 66 (Public Utilities) of the Pennsylvania
        Consolidated Statutes, further providing for rates.

        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:
      § 1327.  Acquisition of water and sewer utilities.
        (a)  Acquisition cost greater than depreciated original
     cost.--If a public utility acquires property from another public
     utility, a municipal corporation or a person at a cost which is
     in excess of the original cost of the property when first
     devoted to the public service less the applicable accrued
     depreciation, that excess, or any portion thereof found by the
     commission to be reasonable, may be included in the rate base of
     the acquiring public utility, provided that the acquiring public
     utility proves that:
            (1)  the property is used and useful in providing water
        or sewer service;
            (2)  the public utility acquired the property from
        another public utility, a municipal corporation or a person
        which had 1,200 or fewer customer connections;
            (3)  the public utility, municipal corporation or person
        from which the property was acquired was not, at the time of
        acquisition, furnishing and maintaining adequate, efficient,
        safe and reasonable service and facilities, evidence of which
        shall include, but not be limited to, the following:
                (i)  violation of statutory or regulatory
            requirements of the Department of Environmental Resources
            or the commission concerning the safety, adequacy,
            efficiency or reasonableness of service and facilities;
                (ii)  a finding by the commission of inadequate
            financial, managerial or technical ability of the small
            water or sewer utility;
                (iii)  a finding by the commission that there is a
            present deficiency concerning the availability of water,
            the palatability of water or the provision of water at
            adequate volume and pressure; or
                (iv)  a finding by the commission that the small
            water or sewer utility, because of necessary improvements
            to its plant or distribution system, cannot reasonably be
            expected to furnish and maintain adequate service to its
            customers in the future at rates equal to or less than
            those of the acquiring public utility;
            (4)  reasonable and prudent investments will be made to
        assure that the customers served by the property will receive
        adequate, efficient, safe and reasonable service;
            (5)  the public utility, municipal corporation or person
        whose property is being acquired is in agreement with the
        acquisition and the negotiations which led to the acquisition
        were conducted at arm's length;
            (6)  the actual purchase price is reasonable;
            (7)  neither the acquiring nor the selling public
        utility, municipal corporation or person is an affiliated
        interest of the other;
            (8)  the rates charged by the acquiring public utility to
        its preacquisition customers will not increase unreasonably
        because of the acquisition; and
            (9)  the excess of the acquisition cost over the
        depreciated original cost will be added to the rate base to
        be amortized as an addition to expense over a reasonable
        period of time with corresponding reductions in the rate
        base.
        (b)  Procedure.--The commission, upon application by a public
     utility, person or corporation which has agreed to acquire
     property from another public utility, municipal corporation or
     person, may approve an inclusion in rate base in accordance with
     subsection (a) prior to the acquisition and prior to a
     proceeding under this chapter to determine just and reasonable
     rates if:
            (1)  the applicant has provided notice of the proposed
        acquisition and any proposed increase in rates to the
        customers served by the property to be acquired, in such form
        and manner as the commission, by regulation, shall require;
            (2)  the applicant has provided notice to its customers,
        in such form and manner as the commission, by regulation,
        shall require, if the proposed acquisition would increase
        rates to the acquiring public utility's customers;
            (3)  the applicant has provided notice of the application
        to the Director of Trial Staff and the Consumer Advocate; and
            (4)  in addition to any other information required by the
        commission, the application includes a full description of
        the proposed acquisition and a plan for reasonable and
        prudent investments to assure that the customers served by
        the property to be acquired will receive adequate, efficient,
        safe and reasonable service.
        (c)  Hearings.--The commission may hold such hearings on the
     application as it deems necessary.
        (d)  Forfeiture.--Notwithstanding section 1309 (relating to
     rates fixed on complaint; investigation of costs of production),
     the commission, by regulation, shall provide for a utility to
     remove the costs of acquisition from its rates and to refund any
     revenues collected as a result of this section, plus interest,
     which shall be the average rate of interest specified for
     residential mortgage lending by the Secretary of Banking in
     accordance with the act of January 30, 1974 (P.L.13, No.6),
     referred to as the Loan Interest and Protection Law, during the
     period or periods for which the commission orders refunds, if
     the commission, after notice and hearings, determines that the
     reasonable and prudent investments to be made in accordance with
     this section have not been completed within a reasonable time.
        (e)  Acquisition cost lower than depreciated original cost.--
     If a public utility acquires property from another public
     utility, a municipal corporation or a person at a cost which is
     lower than the original cost of the property when first devoted
     to the public service less the applicable accrued depreciation
     and the property is used and useful in providing water or sewer
     service, that difference shall, absent matters of a substantial
     public interest, be amortized as an addition to income over a
     reasonable period of time or be passed through to the ratepayers
     by such other methodology as the commission may direct. Notice
     of the proposed treatment of an acquisition cost lower than
     depreciated original cost shall be given to the Director of
     Trial Staff and the Consumer Advocate.
        (f)  Reports.--The commission shall annually transmit to the
     Governor and to the General Assembly and shall make available to
     the public a report on the acquisition activity under this
     title. Such report shall include, but not be limited to, the
     number of small water or sewer public utilities, municipal
     corporations or persons acquired by public utilities, and the
     amounts of any rate increases or decreases sought and granted
     due to the acquisition.
        (g)  Expiration.--This section shall expire in five years
     unless extended by statute.
        Section 2.  This act shall take effect in 60 days.

     APPROVED--The 4th day of April, A. D. 1990.

     ROBERT P. CASEY