Press Release

PUC Announces Enhanced Public Notification and Review Standards for Acquisitions of Municipal or Authority-Owned Water & Wastewater Systems

Published on 6/13/2024

Filed under: Water and Wastewater

New Guidelines Aim to Boost Public Engagement and Standardize Evaluation for these Impactful Applications

HARRISBURG – The Pennsylvania Public Utility Commission (PUC) today approved revised guidelines and procedures designed to increase public involvement and ensure greater consistency in the process for reviewing and evaluating the acquisition and valuation of municipal or authority-owned water and wastewater systems under Section 1329 of the Public Utility Code (Section 1329).

The Commission voted 5-0 to adopt a motion by Chairman Stephen M. DeFrank and issue a Final Supplemental Implementation Order (FSIO) that updates existing guidelines and procedures in four areas. These updates include the introduction of mandatory in-person public hearings, enhanced rate impact notification for customers, standardization of methods used by utility valuation experts (UVEs), and new criteria for the Commission to assess the fairness of acquisition prices. 

“I am pleased to support this necessary step forward which I believe will better inform the public about 1329 proceedings, improve the public’s understanding of potential rate impacts, and establish additional guidelines for the Commission to utilize in determining the prudency of acquisition prices and their prospective effects on customer rates,” Chairman DeFrank stated in his motion.

Today’s action is part of the PUC’s ongoing commitment to enhance transparency and public participation.  It follows a thorough review of extensive feedback gathered from public comments submitted in response to the Commission’s Tentative Supplemental Implementation Order entered on February 7, 2024. These comments played a crucial role in shaping the final revisions aimed at refining the evaluation of Section 1329 applications.

Revisions to the Section 1329 Valuation Process

The Commission’s FSIO revises current PUC procedures and guidelines related to the evaluation of Section 1329 applications, to include the following:

• Public Meeting/Hearing Requirements – The Commission is bolstering requirements for public notice by requiring utilities to hold at least two public meetings before signing an asset purchase agreement. The utility will now have to provide proof of compliance with this requirement in its initial application.
  
  
• Rate Impact Notices – Applicants are required to attest, or declare under affidavit, the following within an initial filing:
  
  
• Both parties acknowledge the seller is aware of the potential impacts the transaction may have on the selling utility’s rates. This would include detailing the overall dollar and percentage impact implicated from stand-alone rates from the transaction price.
  
  
• The selling utility has publicly communicated such implications on rates through notices issued to its existing customers.
  
  
• Both parties understand the Commission may shift rate allocations in manners different from any commitments made in the underlying application.
  
  
• Default Weights for Appraisals – In an effort to instill consistency in the valuation process, the Commission is requiring UVEs to weigh each valuation result evenly:  one-third for cost, one-third for market and one-third for income.  Applicants may seek approval to deviate from this requirement but are required to show good cause to do so.
  
  
• Reasonableness Review Ratio (RRR) – Publication of a reasonableness review ratio as a guidepost that the Commission can use when it analyzes and eventually makes a final determination on the overall prudency of various 1329 applications. That ratio will be based on publicly available data from investor-owned utilities and be compared against the ratio of depreciated original cost of the selling utility and the 1329 transaction price.

The provisions of the FSIO are not retroactive.  The rate impact notice, public hearings and default appraisal weight provisions of the FSIO will go into effect 30 days after the entry of this Order with respect to all acquisitions where an asset purchase agreement (APA) has not been executed.

For acquisitions where an APA has been executed, including those for which a Section 1329 application has been filed but not finally accepted, the Commission will consider the unique facts and circumstances of each acquisition and take into account the dates on which the APAs were executed, and applications were filed.

As it pertains to the RRR, the Commission will publish an initial RRR 30 days after entering this Order.

Act 12 of 2016

Signed into law as Act 12 of 2016 (Act 12), Section 1329 addresses the sale of water and wastewater systems owned by municipal corporations or authorities by providing a process for the sale of public water and wastewater assets at fair market rates.  The fair market valuation process requires the acquiring public utility or entity (buyer) and the selling municipal corporation or authority (seller) to engage the services of the same licensed engineer to assess the tangible assets of the seller. The buyer and seller then provide the asset assessment to separate utility valuation experts for independent analysis which are then incorporated into an application submitted to the Commission for approval.

Following passage of Act 12, the Commission issued a series of Implementation Orders to assist its administration of Section 1329.  To date, the Commission has received 27 applications under Section 1329.

For recent news releases and video of select Commission proceedings or more information about the PUC, visit our website at www.puc.pa.gov. Follow the PUC on X (formerly Twitter) for all things utility.  “Like” Pennsylvania Public Utility Commission on Facebook for easy access to information on utility issues.

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Docket No.:  M-2016-2543193

Contact:

• Nils Hagen-Frederiksen
  Press Secretary
  717-418-2701
  nhagen-fre@pa.gov
• David Hixson
  Deputy Press Secretary
  717-772-2766
  dhixson@pa.gov