Current through Register Vol. 49, No. 6, March 15, 2024
PURPOSE: The purpose of this proposed rule is to
create a process for a water or sewer utility to propose an acquisition
incentive to encourage acquisition of nonviable water or sewer utilities by a
water or sewer utility with the resources to rehabilitate the acquired utility
within a reasonable time frame.
(1) As used in this rule, the following terms
mean:
(A) Acquisition incentive-A rate of
return premium, debt acquisition adjustment, or both designed to incentivize
the acquisition of a nonviable utility;
(B) Debit acquisition adjustment. Adjustments
to a portion or all of an acquiring utility's rate base to reflect a portion or
all of the excess acquisition cost over depreciated original cost of the
acquired system;
(C) Nonviable
utility-A small water or sewer utility, serving eight thousand (8,000) or fewer
customers that:
1. Is in violation of
statutory or regulatory standards that affect the safety and adequacy of the
service provided, including, but not limited to, the Public Service Commission
law, the federal clean water law, the federal Safe Drinking Water Act, as
amended, and the regulations adopted under these laws;
2. Has failed to comply with any order of a
federal agency, the Department of Natural Resources, or the commission
concerning the safety and adequacy of service;
3. Is not reasonably expected to furnish and
maintain safe and adequate service and facilities in the future; or
4. Is insolvent;
(D) Plant-in-service study. A report
detailing a determination of the value of the original costs of the property of
a public utility that requires the acquiring utility to accumulate the records
and accounting details in order to support reasonable plant, reserve, and
contributions in aid of construction balances; and
(E) Rate of return premiums. Additional rate
of return basis points, up to one hundred (100) basis points, applied to either
the acquiring utility's entire rate base or to the newly acquired rate base,
awarded at the commission's discretion in recognition of risks involved in
acquisition of nonviable utilities and the associated system improvement
costs.
(2) An
application for an acquisition incentive must be filed at the beginning of a
case seeking authority under sections
393.190
or
393.170,
RSMo. If the commission determines the request for an acquisition incentive is
in the public interest, it shall grant the request. The commission may apply an
acquisition incentive in the applicant's next general rate proceeding following
acquisition of a nonviable utility if the commission determines it will not
result in unjust or unreasonable rates.
(3) Filing Requirements-
(A) An application for an acquisition
incentive to acquire a nonviable utility shall include the following:
1. A statement as to whether the nonvi-able
utility is related to the operation of another utility (for example, a water or
sewer system providing service to the same or similar service area) and whether
the related utility operation is part of the transaction;
2. Records related to the original cost of
the nonviable utility. The acquiring utility must exercise due diligence and
make reasonable attempts to obtain, from the seller, documents related to
original cost. In particular, as part of its exercise of due diligence, the
acquiring utility shall request, from the seller, for purposes of conducting
the plant-in-service study, records relating to the original cost of the assets
being acquired and records relating to contributions in aid of construction
(CIAC) amounts, including:
A. Accounting
records and other relevant documentation, and agreements of donations of
contributions, services, or property from states, municipalities, or other
government agencies, individuals, and others for construction
purposes;
B. Records of un-refunded
balances in customer advances for construction (CAC);
C. Records of customer tap-in fees and
hook-up fees;
D. Prior original
cost studies;
E. Records of local,
state, and federal grants used for construction of utility plant;
F. Relevant commission records;
G. A summary of the depreciation schedules
from all filed federal tax returns; and H. Other accounting records supporting
plant-in-service; and
3.
If the system to be acquired is part of a larger transaction involving multiple
systems of which some do not qualify as nonvi-able, a detailed revenue and rate
base plan describing how the acquiring utility will only apply the sought
acquisition adjustment to the nonviable system(s) within the larger
transaction;
(B) Any
information not available from the seller shall be estimated by the acquiring
utility, along with documentation supporting the reasonableness of the
estimates developed.
(4)
When submitting an application for an acquisition incentive to acquire a
nonviable utility, the acquiring utility has the burden of proof and shall
demonstrate the following:
(A) The acquiring
utility is not a nonviable utility and will not be materially impaired by the
acquisition;
(B) The acquiring
utility maintains the managerial, technical, and financial capabilities to
safely and adequately operate the system to be acquired;
(C) The system to be acquired is a nonvi-able
utility;
(D) The purchase price and
financial terms of the acquisition are fair and reasonable and have been
reached through arm's-length negotiations;
(E) Any plant improvements necessary to make
the utility viable will be completed within a reasonable period of time, as
specified in the application, after the effective date of
acquisition;
(F) How managerial or
operational deficiencies that can be corrected without capital improvements
will be corrected within six (6) months of the acquisition;
(G) How planned capital improvements and
operational changes will correct deficiencies;
(H) The acquisition is in the public
interest; and
(I) The acquisition
would be unlikely to occur without the probability of obtaining an acquisition
incentive.
(5) If the
acquisition incentive is approved by the commission, the utility shall file a
general rate proceeding within the period of time ordered by the commission.
Rate impacts of the approved incentive mechanism will go into effect upon order
of the commission at the conclusion of the acquiring utility's first general
rate proceeding following approval of the acquisition incentive. If the
acquisition incentive is approved in a section
393.190
or
393.170,
RSMo case, prior to its next general rate proceeding, the acquiring utility
shall-
(A) Book contributions that were
properly recorded on the books of the acquired system as CIAC. If evidence
supports other CIAC that was not booked by the seller, the acquiring utility
shall make an effort, supported with documentation, to determine the actual
CIAC and record the contributions for ratemaking purposes, such as lot sale
agreements or capitalization vs. expense of plant-in-service on tax
returns;
(B) Identify all plant
retirements and plants no longer used and useful, and complete the appropriate
accounting entries; and
(C) If the
records are not available from the acquired system to complete subsection
(5)(A) or (5)(B), on a going-forward basis, create and maintain documentation
of (5)(A) and (5)(B) from the date of acquisition.
(6) If a debit acquisition adjustment is
requested, an acquiring utility shall either file a plant-in-service study to
support the amount of its requested acquisition adjustment addition to its rate
base in its next general rate proceeding, or, if it prefers to do so, the
acquiring utility may file the required plant-in-service study in section
393.170
or
393.190
application case. The acquiring utility shall reconcile and explain any
discrepancies between the acquiring utility's plant-in-service study of
original cost valuation and the commission's records, to the extent rea-sonably
known and available to the acquiring utility, at the same time the supporting
documentation for the study is filed. Any disputes regarding the acquiring
utility's plant-in-service study will be resolved in that first subsequent
general rate proceeding.
(7)
Nothing in the rule precludes an acquiring utility that pays less than the
depreciated original cost of the acquired system from seeking in its next
general rate proceeding to include in rate base an amount up to the depreciated
original cost of the acquired system.
(8) Provisions of this rule may be waived by
the commission for good cause shown.
*Original authority: 386.040, RSMo 1939; 386.250, RSMo
1939, amended 1963, 1967, 1977, 1980, 1987, 1988, 1991, 1993, 1995, 1996; and
393.140, RSMo 1939, amended 1949, 1967.
