WEST virginia legislature
2020 regular session
Introduced
Senate Bill 551
By Senators Smith, Clements, Jeffries, Sypolt, Hamilton, Romano, Lindsay, and Woelfel
[Introduced January 21,
2020; referred
to the Committee on Government Organization]
A BILL to amend and reenact §8-12-17 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new section, designated §24-2-4g, all relating generally to the Water and Wastewater Investment and Infrastructure Improvement Act to encourage investment in water and wastewater utilities; describing and expanding permissible uses for proceeds of a sale or lease of a municipal utility; making legislative findings on the valuation of utility assets in the context of certain utility acquisitions and the combination or allocation of water and wastewater revenue requirements; making legislative findings on the valuation of utility assets in the context of an acquisition; establishing a range within which a post-acquisition rate base addition is to be established; providing for ancillary approvals; specifying preliminary agreements and commitments not requiring prior approval; authorizing the Public Service Commission to combine water and wastewater revenue requirements or allocate a portion of wastewater revenue requirement to water customers where a utility provides both water and wastewater service and where the combination or allocation is reasonable and results in water and wastewater rates that are just and reasonable and based primarily on the cost of providing service; and setting forth defined terms.
Be it enacted by the Legislature of West Virginia:
Chapter 8. Municipal Corporations.
Article 12. General and Specific Powers, Duties and Allied Relations of Municipalities, Governing bodies and Municipal Officers and Employees, Suits against Municipalities.
§8-12-17. Sale or lease of municipal public utility.
In any case where a
municipality owns a gas system, an electric system, a waterworks system, a
sewer system or other public utility and a majority of not less than 60 percent
of the members of the governing body thereof shall deem it for the best
interest of such municipality that such utility be sold or leased, the
governing body may so sell or lease such gas system, electric system,
waterworks system, sewer system, or other public utility upon such terms
and conditions as said governing body in its discretion considers in the best
interest of the municipality: Provided, That such sale or lease may be
made only upon: (1) The publication of notice of a hearing before the governing
body of the municipality, as a Class I legal advertisement in compliance with
the provisions of §59-3-1 et seq. of this code, in a newspaper published
and of general circulation in the municipality, such publication to be made not
earlier than 20 days and not later than seven days prior to the hearing; and
(2) The approval by the Public Service Commission of West Virginia. The
governing body, upon the approval of the sale or lease by a majority of its
members of not less than 60 percent of the members of the governing body, shall
have full power and authority to proceed to execute or effect such sale or
lease in accordance with the terms and conditions prescribed in the ordinance
approved as aforesaid, and shall have power to do any and all things necessary
or incident thereto: Provided, however, That if at any time after such
approval and before the execution of the authority under the ordinance, any
person should present to the governing body an offer to buy such public utility
at a price which exceeds by at least five percent the sale price which shall
have been so approved and authorized or to lease the same upon terms which the
governing body, in its discretion, shall consider more advantageous to the
municipality than the terms of the lease which shall have been previously
approved as aforesaid, the governing body shall have the power to accept such
subsequent offer, and to make such sale or such lease to the person making the
offer, upon approval of the offer by a majority of not less than 60 percent of
the members of the governing body; but, if a sale shall have been approved by
the governing body as aforesaid, and the subsequent proposition be for a lease,
or, if a lease shall have been approved by the governing body, and the
subsequent proposition shall be for a sale, the governing body shall have the
authority to accept the same upon approval of the offer by a majority of not
less than 60 percent of the members of the governing body. The person making
such proposition shall furnish bond, with security to be approved by the
governing body, in a penalty of not less than 25 percent of such proposed bid,
conditioned to carry such proposition into execution, if the same shall be
approved by the governing body. In any case where any such public utility shall
be sold or leased by the governing body as hereinabove provided, no part of the
moneys derived from such sale or lease shall be applied to the payment of
current expenses of the municipality, but the proceeds of such sale or lease
shall be applied in payment and discharge of any indebtedness created in
respect to such public utility, and in case there be no indebtedness, the
governing body, in its discretion, shall have the power and authority to expend
all such moneys when received for the purchase or construction of firefighting
equipment and buildings for housing such equipment, a municipal building or
city hall, and the necessary land upon which to locate the same, for capital
investments in public works projects, vehicles and equipment, including without
limitation law enforcement vehicles and equipment, for the demolition of
dilapidates and abandoned buildings, or for the construction of
paved streets, avenues, roads, alleys, ways, sidewalks, sewers, storm water
systems, floodwalls, and other like permanent improvements, for
fulfilling municipal pension and other post-employment benefit obligations, for
reducing taxes, and for no other purposes. In case there be a surplus after
the payment of such indebtedness, the surplus shall be used as aforesaid.
The requirements of this section shall not apply to the sale or lease of any part of the properties of any such public utility determined by the governing body to be unnecessary for the efficient rendering of the service of such utility.
Chapter 24. Public Service Commission.
Article 2. Powers and Duties of Public Service Commission.
§24-2-4g. Establishing the value of utility assets in the context of the acquisitions of a utility or utility assets and providing for the combination or allocation of water and wastewater revenue requirements.
(a) The Legislature finds that:
(1) Many West Virginia publicly-owned municipal, public service district-owned, and investor-owned water and wastewater utilities face substantial capital investment needs to replace aging utility infrastructure and to maintain compliance with regulatory requirements, and many municipalities that own and operate utility systems are confronted with additional financial challenges arising from diminishing tax bases, the need to repair streets and other municipally-owned facilities, and unfunded or underfunded liabilities for pension and other post-employment benefit programs;
(2) Given these challenges, some of these utilities may be unable to continue to provide acceptable levels of utility service at reasonable rates, and may wish to consider the sale of their utility assets, and this decision will require those utilities to consider the expected valuation of their utility assets, the manner in which the post-acquisition rates of their customers will be established and moderated, and the purposes to which the proceeds of any sale of utility assets by a municipality may be devoted under state law;
(3) For utilities considering the sale of their utility assets, a valuation of the utility assets that is primarily based on the original cost of those assets less depreciation and less the value of contributed property will: (i) Understate the actual fair value of those assets to an acquiring party, (ii) fail to account for potential income that could be generated from those assets, (iii) reduce the financial benefit to utilities considering selling those assets, and (iv) thereby disincentivize those utilities from selling those assets;
(4) To assist utilities considering the sale of their utility assets in making informed decisions on whether to sell their utility assets, the commission will permit acquiring and selling parties to negotiate a fair value for those assets that lies between ascertainable minimum and maximum values set forth in this section, permit the acquiring party to include the negotiated sale price of the assets in the acquiring utility’s post-acquisition rate base for ratemaking purposes, and make its post-acquisition rate base determination based on the valuation approach specified in this section;
(5) To assist utilities that provide both water and wastewater utility service in moderating the rate impact of wastewater service investment on wastewater system customers, it is appropriate to authorize the combination of water and wastewater revenue requirements or the allocation of a portion of a wastewater revenue requirement to water customers if such a combination or allocation is just and reasonable and results in water and wastewater rates that are based primarily on the cost of providing service;
(6) Expanding the permissible uses by a municipality of the proceeds of a sale of utility assets as provided for in §8-12-17 of this code will also facilitate and encourage a municipality’s ability to sell its utility assets should it choose to do so; and
(7) The enactment of these regulatory improvements will facilitate the repair and replacement of utility infrastructure by improving access to investment capital, moderating the rate impact to customers of investments in utility infrastructure, and thereby enhancing the state of water and wastewater utility infrastructure assets and the service provided by those assets, all of which are in the best interest of West Virginia and its citizens.
(b) Fair value of utility assets; rate base addition; ancillary approvals. –
(1) In any case filed pursuant to §24-2-12 of this code seeking the commission’s prior consent and approval of the acquisition by an acquiring utility of the utility assets of a selling utility, the applicants may propose a negotiated sale price for the utility assets that falls between the depreciated original cost and the reproduction cost new less depreciation, and in that case the applicants will present evidence of those two values in the application.
(2) If the commission finds that the proposed acquisition, including the negotiated sale price, satisfies the requirements for approval in §24-2-12 of this code, including a finding that the terms and conditions of the acquisition are reasonable and that neither party thereto is given an undue advantage over the other, and do not adversely affect the public in this State, then if the negotiated sale price:
(i) Is within the range described in subdivision (b)(1) above, the negotiated sale price is presumed appropriate and the commission will establish the rate base addition at the negotiated sale price; or
(ii) Is outside the range described in subdivision (b)(1) above, the commission will establish the rate base addition at no less than the lesser of the negotiated sale price and the reproduction cost new less depreciation of the utility assets.
(3) In its order granting, denying, or modifying the relief requested in an application described in subdivision (b)(1) above, the commission may also approve any rate stabilization plan, tariff change or provision, or surcharge mechanism proposed by the applicants and that the commission finds reasonable in view of the proposed transaction and the acquiring utility’s proposed post-acquisition improvements to the utility assets.
(4) In any application described in subdivision (b)(1) above, the commission will issue a final order granting, denying, or granting in part and denying in part the relief requested in the application.
(5) Nothing in this section or §24-2-12 of this code requires an acquiring utility or a selling utility to obtain the prior consent and approval of the commission to enter into agreements or undertake commitments incident to the negotiation, due diligence, or finalization of an agreement to purchase and sell utility assets, including without limitation agreements and commitments relating to:
(i) The exclusivity of negotiations for a defined period;
(ii) The confidentiality of negotiations and nondisclosure of facts relevant to the negotiations;
(iii) The payment of transaction costs as between the parties, the reimbursement of those costs upon closing of an acquisition of utility assets, or the allocation of costs in the event the acquisition is not consummated;
(iv) The acquiring utility’s completion of post-acquisition additions or improvements to the utility assets or its commitments as to post-acquisition rates and charges for utility service; or
(v) Any other commercial term reasonably necessary to facilitate the negotiation, due diligence, or finalization of the purchase and sale agreement.
(c) Request for revenue requirement combination or allocation. –
(1) A single utility that provides both water and wastewater utility services may request a combination of the revenue requirements of the water and wastewater utility services or an allocation of a portion of the wastewater revenue requirement to water customers. Such a request may be made as a separate filing with the commission or as part of a base rate case, a tariff filing, a statutory consent case under §24-2-12 of this code, or another proceeding before the commission.
(2) If the commission finds that a combination or allocation requested under subdivision (c)(1) above: (i) Will enable the acquisition and construction of wastewater infrastructure improvements or compliance with regulatory requirements at a more moderate rate impact for wastewater customers; and (ii) will result in a combined water and wastewater rate, or separate water and wastewater rates, that are just, reasonable, and based primarily on the cost of providing service, then the commission may authorize the utility to implement the combination or allocation, subject to such modifications as the commission may determine to be appropriate.
(d) Definitions. – The following words and phrases when used in this section will have the meanings given to them in this section unless the context clearly indicates otherwise: “Acquiring utility” means (i) A water, sewer, or stormwater utility subject to the provisions of this chapter that has entered into an agreement with a selling utility to acquire utility assets of the selling utility, or; (ii) any person or business entity that has entered into such an agreement and that, upon commission approval of the acquisition of those utility assets, will become a water, sewer, or stormwater utility subject to the provisions of this chapter.
“Depreciated original cost” means the original cost of utility assets net of accumulated depreciation.
“Negotiated sale price” means the purchase price of utility assets that the acquiring utility and the selling utility agree upon through voluntary, arm’s-length negotiations.
“Original Sources of Funding” means all methods used to fund the utility assets including, but not limited to, loan funding, grant funding, and property otherwise contributed to the utility.
“Rate base addition” means the dollar amount of utility rate base associated with the utility assets that the acquiring utility may include in the calculation of its post-acquisition rate base for ratemaking purposes.
“Reproduction cost new less depreciation” means an estimate of the cost to construct, at current prices, an exact duplicate or replica of the utility assets, without regard to the original sources of funding for those assets, using the same materials, construction standards, design, layout, and quality without adjustment for deficiencies, super-adequacies, and obsolescence of those assets.
“Selling utility” means a water, sewer, or stormwater utility subject to the provisions of this chapter that has entered into an agreement to sell utility assets to an acquiring utility.
“Utility assets” or “assets” mean all or substantially all of the tangible and intangible assets of a selling utility that: (i) The selling utility has used in the provision of utility service or held for the future provision of such service, and; (ii) the acquiring utility will reasonably require to provide utility service after the acquisition to facilitate its plans for the provision of utility service after the acquisition.
(e) This section, together with the amendments to §8-12-17 of this code made during the 2020 regular session of the West Virginia Legislature, shall be known and referred to as the “Water and Wastewater Investment Facilitation Act.”
NOTE: The purpose of this bill is to enact the Water and Wastewater Investment Facilitation Act. This act (i) expand the uses to which a municipality that sells or leases a municipal gas, electric, water, wastewater, or other public utility may apply the proceeds of any such sale or lease, (ii) establish a process to recognize the appropriate value of a selling utility’s assets to be included in the calculation of an acquiring utility’s post-acquisition rate base for ratemaking purposes, and (iii) authorize water and wastewater utilities owned by a single entity to combine water and wastewater revenue requirements or allocate a portion of the wastewater revenue requirement to water customers.
Strike-throughs indicate language that would be stricken from a heading or the present law and underscoring indicates new language that would be added.