17290_Authority_February_2024

municipalauthorities.org | 61 We support this language as it provides the PUC with more time to consider the substantial implications of an acquisition. HB 1864 amends Title 66 (Public Utilities), in rates and distribution systems, further providing for valuation of acquired water and wastewater systems by requiring any rate increase after an acquisition be incorporated into the rate base over three separate base rate cases. Section 1329 (c)(4) in the proposed legislation requires the acquiring entity to incorporate its proposed rate increases between the depreciated original cost and the rate base of the selling utility over three rate base cases. Although this may slow down the proposed rate shock to the customers, it would only minimally impact the investor-owned utilities because once the sale is finalized, the revenue is going to be perpetual and eventually they will recoup their investment. Although delayed, ultimately, they recognize their initial investment, and the customer shock of the new rate is deferred for a short time until rates can be increased, which will continue indefinitely. HB 1865 amends Title 66 (Public Utilities), in rates and distribution systems, further providing for valuation of acquired water and wastewater systems by capping any purchase price for a system at 125% of the depreciated original cost. While we appreciate the intent, the 125% valuation cap gives us some pause. First, it appears to be somewhat of a compromise between the old depreciated original cost concept and the Act 12 “fair market value” analysis. More importantly, however, is the reliance on Section 1327(a)(3) of the Public Utility Code in determining whether a system is indeed distressed. This particular section provides for too much unfettered discretion in determining whether a system is distressed. In conclusion, it is important to note that Section 1327, the previously and still used acquisition law, includes a provision for acquisitions above depreciated cost. Key features in Section 1327 are protections from rate increases to existing customers, burden of proof of distress on the investor- owned utility, and statutory amortization of purchase price in excess of depreciated cost. Under Section 1329, for-profit utilities can presumably keep these high purchase prices in their rate base forever. As a result, there has been a shift from acquisitions of distressed systems to those systems that are well funded and have excellent system integrity. . .