(e) Financial
test.
(1) An owner or operator may
demonstrate financial assurance by satisfying the leverage and operations tests
that conform to the requirements of this section, unless the commission finds
good cause exists to require only one of these tests.
(2) Leverage test. To satisfy this test, the
owner or operator must meet one or more of the following criteria:
(A) The owner or operator must have a debt to
equity ratio of less than one, using long term debt and equity or net
assets;
(B) The owner or operator
must have a debt service coverage ratio of more than 1.25 using annual net
operating income before depreciation and non-cash expenses divided by annual
combined long term debt payments;
(C) The owner or operator must have
sufficient unrestricted cash available as a cushion for two years of debt
service. Restricted cash includes monetary resources that are committed as a
debt service reserve which will not be used for operations, maintenance or
other payables;
(D) The owner or
operator must have an investment-grade credit rating from Standard & Poor's
Financial Services LLC, Moody's Investors Service, or Fitch Ratings Inc.;
or
(E) The owner or operator must
demonstrate that an affiliated interest is capable, available, and willing to
cover temporary cash shortages. The affiliated interest must be found to
satisfy the requirements of subparagraphs (A), (B), (C), or (D) of this
paragraph.
(3)
Operations test. The owner or operator must demonstrate sufficient cash is
available to cover any projected operations and maintenance shortages in the
first five years of operations. An affiliated interest may provide a written
guarantee of coverage of temporary cash shortages. The affiliated interest of
the owner or operator must satisfy the leverage test.
(4) To demonstrate that the requirements of
the leverage and operations tests are being met, the owner or operator must
submit the following items to the commission:
(A) An affidavit signed by the owner or
operator attesting to the accuracy of the information provided. The owner or
operator may use the Applicant's Oath adopted by the commission as part of an
application filed under §
24.233 of this title (relating to
Contents of Certificate of Convenience and Necessity Applications) for the
purpose of meeting the requirements of this subparagraph; and
(B) A copy of one of the following:
(i) the owner or operator's independently
audited year-end financial statements for the most recent fiscal year including
the "unqualified opinion" of the auditor; or
(ii) compilation of year-end financial
statements for the most recent fiscal year as prepared by a certified public
accountant (CPA); or
(iii)
internally produced financial statements meeting the following requirements:
(I) for an existing utility, three years of
projections and two years of historical data including a balance sheet, income
statement and an expense statement or evidence that the utility is moving
toward proper accountability and transparency; or
(II) for a proposed or new utility, start up
information and five years of pro forma projections including a balance sheet,
income statement and expense statement or evidence that the utility will be
moving toward proper accountability and transparency during the first five
years of operations. All assumptions must be clearly defined and the utility
must provide all documents supporting projected lot sales or customer
growth.
(C) In
lieu of meeting the leverage and operations tests, if the applicant utility is
a city or district, the city or district may substantiate financial capability
with a letter from the city's or district's financial advisor indicating that
the city or district is able to issue debt (bonds) in an amount sufficient to
cover capital requirements to provide continuous and adequate service and
providing the document in subparagraph (B)(i) of this
paragraph.
(5) If the
applicant is proposing service to a new CCN area or a substantial addition to
its current CCN area requiring capital improvements in excess of $100,000, the
applicant must provide the following:
(A) The
owner must submit loan approval documents indicating funds are available for
the purchase of an existing system plus any improvements necessary to provide
continuous and adequate service to the existing customers if the application is
a sale, transfer, or merger; or
(B)
The owner must submit loan approval documents or firm capital commitments
affirming funds are available to install:
(i)
the plant and equipment necessary to serve projected customers in the first two
years of projections; or
(ii) a new
water system or substantial addition to an existing water system if the
applicant is proposing service to a new CCN area or a new
subdivision.
(6) If the applicant is a nonfunctioning
utility, as defined in §
24.3(23) of this
title (relating to Definitions of Terms), the commission may consider other
information to determine if the proposed certificate holder is capable of
meeting the leverage and operations tests.
