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Introduced Version House Bill 3059 History

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Key: Green = existing Code. Red = new code to be enacted

WEST virginia Legislature

2017 regular session

Introduced

House Bill 3059

By Delegates Lane, Hanshaw, Butler, Byrd,  Eldridge and White

[Introduced March 14, 2017; Referred
to the Committee on Government Organization then the Judiciary.]

A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new section, designated §24-2-12b, relating to providing for the voluntary valuation of water and sewer systems for ratemaking purposes.

Be it enacted by the Legislature of West Virginia:


That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new section, designated §24-2-12b, to read as follows:

ARTICLE 2. POWERS AND DUTIES OF PUBLIC SERVICE COMMISSION.


§24-2-12b. Voluntary procedure for fair market valuation of water, sewer, and storm water utilities.

(a) Legislative findings. The Legislature finds and declares that water, storm water, and sewer utilities (and not other regulated utilities) and the local governments operating water, storm water, and sewer utilities often struggle financially to meet their regulatory health, safety, and environmental obligations particularly in times of declining use, declining population, and increasing operating costs and regulatory compliance. The net book values of the utility systems owned by these water, storm water and sewer utilities, however, often does not reflect their fair market value thus denying local governments of the ability to obtain the full value of their utilities in a sale and compounding their financial woes. The Legislature, wanting to provide all water and sewer utilities with a fair and transparent method to arrive at a fair market value of their utility systems, declares that as a matter of public policy, it is necessary to protect the public interest through enactment of this section and to establish a fair and transparent method for and otherwise regulate the approval of water and sewer utility sales.

(b) Definitions. The following words and phrases when used in this section have the meanings given to them in this section unless the context clearly indicates otherwise:

(1) “Acquiring utility.” A water utility, sewer utility, storm water utility, or a utility combining two or more of these services located in this state subject to the provisions of this chapter that is acquiring a selling water and sewer utility as the result of a voluntary arm’s-length transaction between the buyer and seller.

(2) “Fair market value.” The average of the two utility valuation expert appraisals conducted under subdivision (2), subsection (d) of this section.

(3) “Rate base addition.” The dollar amount of utility rate base associated with the utility system that the acquiring utility may include in the calculation of its post-sale rate base for ratemaking purposes.

(4) “Selling utility.” Any water utility, sewer utility, storm water utility, or utility combining two or more of these services located in this state subject to the provisions of this chapter that proposes to sell its utility system to an acquiring utility as the result of a voluntary arm’s-length transaction between the buyer and seller.

(5) “Utility system.” The water system, storm water system, sewer system, or system combining two or more of these services owned by the selling utility that the acquiring utility proposes to purchase.

(c) Where the acquiring utility and selling utility agree to use the process outlined in subsection (d) of this section, the “proper showing” required for the commission’s consent to the sale under section twelve of this article and the commission’s rules promulgated thereunder is modified as follows:

(1) Terms and conditions of the sale based on the fair market value of the utility system are reasonable and neither party has an undue advantage in relying on the fair market value unless the commission finds significant error in the appraisal used in arriving at the fair market value.

(2) It is reasonable and does not adversely affect the public in the state to increase the net book value of the utility system to a level equal to the lesser of the fair market value or the purchase price of the utility system if this rate base addition will not result in a rate increase to the acquiring utility’s customers of five percent or more.

(3) The commission may approve the use of a distribution system improvement charge or like mechanism for post-sale system improvements.

(4) Except as modified by subdivisions (1), (2), and (3) of this subsection, the commission’s review and consent to water and sewer utility acquisitions will remain the same as required under section twelve of this article.

(d) Process to establish fair market value of selling utility. Upon agreement by both the acquiring utility and the selling utility, the following procedure shall be used to determine the fair market value of the utility system:

(1) Each of the acquiring utility and the selling utility shall select a utility valuation expert.

(2) Each utility valuation expert shall determine the utility system’s fair market value. This fair market value shall be determined, in compliance with the Uniform Standards of Professional Appraisal Practice, by considering the cost, market and income approaches. The original source of funding for any part of the utility system is not relevant and may not be considered in determining the fair market value.

(3) The fair market value is the average of the two utility valuation expert appraisals conducted under subdivision (2) of this subsection.

(4) The acquiring utility, selling utility, or both utilities jointly shall engage the services of a West Virginia licensed engineer to conduct an assessment of the tangible assets of the utility system. The licensed professional engineer may be an employee or contractor of either utility. The assessment shall be incorporated into the appraisal under the cost approach required under subdivision (2) of this subsection.

(5) Each utility valuation expert shall provide the completed appraisal to the acquiring utility and selling utility within ninety days of execution of the service contract.

(6) The use of the process in this subsection satisfies all state or local laws or rules that otherwise would require competitive bidding.

(e) Utility valuation experts.--

(1) The utility valuation experts may not:

(A) Derive any material financial benefit from the sale of the utility system other than fees for services rendered; or

(B) Be an immediate family member of a director, officer or employee of either the acquiring utility or selling utility within a twelve-month period of the date of hire to perform an appraisal.

(2) Fees and expenses paid to utility valuation experts may be included in the proposed rate base addition, and may be capitalized for ratemaking purposes by the acquiring utility.  However, the aggregate of these fees and expenses may not exceed the greater of $30,000 or five percent of the fair market value of the utility system unless a higher amount is approved by the commission.

(f) Freedom of the parties in negotiating an agreement. Nothing in this section prohibits the parties from agreeing to and implementing the following agreements, without the need for prior approval under section twelve of this article, incident to their negotiation of a sale transaction:

(1) Entering into an exclusive negotiating agreement;

(2) Negotiating a sale price that differs from the fair market value;

(3) Providing for terms of the payment of transaction costs between the parties, reimbursement of those costs upon closing of a sale, or the allocation of costs in the event no sale is consummated;

(4) Making agreements on the acquiring water and sewer utility’s completion of post-sale additions or improvements to the utility system; or

(5) Otherwise structuring the purchase and sale agreement.

 

 

NOTE: The purpose of this bill is to provide a procedure for the voluntary valuation of water and sewer systems for ratemaking purposes.

Strike-throughs indicate language that would be stricken from a heading or the present law and underscoring indicates new language that would be added.

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