On February 1, the Public Utility Commission advanced several proposals geared toward increasing public awareness and establishing greater procedural consistency when evaluating the acquisition and valuation of municipal or authority-owned water and wastewater systems under Section 1329 of the Public Utility Code.

The Commission voted 5-0 to approve a motion by PUC Chairman Stephen M. DeFrank supporting the issuance of a Tentative Supplemental Implementation Order that proposes four specific revisions to the Commission’s existing procedures and guidelines for Section 1329 acquisitions – and invites interested parties to provide formal comments on these proposals or offer recommendations for the Commission’s consideration.

“I believe the time is right for the Commission to consider revisions that are within the Commission’s purview,” said Chairman DeFrank.  “Given the Commission’s experience gained since the issuance of our last Supplemental Implementation Order in 2019, I believe the proposed updates to the Commission’s presently established 1329 implementation and administrative regimes will improve the general public’s awareness of applications, establish more consistent and expected weighing of valuation methods, and assist the Commission in its ultimate review and analysis of 1329 dockets.”

In support of the motion, Commissioner Kathryn L. Zerfuss said, “The Commission is taking concerns raised by all parties related to water acquisitions very seriously.  The revisions proposed today are a positive step forward as the Commission must carefully review each of these cases and determine whether the applicable law has been met.”

Commissioner Ralph V. Yanora added, “Given the recent stakeholder interest in Section 1329 of the Public Utility Code, I look forward to reviewing comments to the Commission’s proposals.”

Proposed Changes to the Section 1329 Implementation Process

Chairman DeFrank’s motion proposes four specific revisions to current PUC procedures and guidelines related to the evaluation of Section 1329 applications--

-- Public Meeting/Hearing Requirements – The Commission would bolster requirements for public notice by requiring utilities to hold at least two public meetings before signing an asset purchase agreement. The utility would have to provide proof of compliance with this requirement in its initial application.

-- Rate Impact Notice – Applicants would be 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 – The Commission seeks to instill consistency in the valuation processes by requiring utilities to weigh the cost, income, and market appraisals equally, 1/3rd Applicants could seek approval to deviate from this requirement but would be required to show good cause to do so.

-- Reasonableness Review Ratio – Publish 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 would 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.

Public Comment

The Commission invites interested parties to provide formal comments - and to offer recommendations for consideration - on its proposals to improve the processes, evidence and guidelines for Section 1329 applications.

Interested parties may submit written comments within 30 days of publication of the Tentative Supplemental Implementation Order in the Pennsylvania Bulletin. 

Following the close of this comment period, interested parties have an opportunity to file written reply comments within 15 days. 

Both comments and reply comments should reference Docket No. M-2016-2543193.

Interested parties submitting comments and/or reply comments are encouraged to use the Commission’s electronic filing system.  An eFiling account may be opened and used through the Commission’s website. 

Comments containing confidential information should be emailed to Commission Secretary Rosemary Chiavetta at rchiavetta@pa.gov  rather than eFiled.

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.

Find documents related to this case at PUC Docket No. M-2016-2543193.

[Posted: February 1, 2024]

2/5/2024