On August 15, the Public Utility Commission made public a report that provides an additional reference for the Commission in Section 1329 of the Public Utility Code (Section 1329) proceedings.

Section 1329 outlines a process to establish a fair market value acquisitions of municipal water or wastewater systems, as opposed to a depreciated original cost (DOC) valuation. 

As the 1329 process allows the acquiring utility to recover costs which may exceed the DOC, the Commission must weigh the costs and benefits of the transaction.

The publication of a reasonableness review ratio serves 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.

This ratio, based on data from publicly traded investor-owned utilities, is compared against the ratio of DOC of the selling utility and the resulting rate base addition of the 1329 transaction. 

This comparison provides an objective proxy between the historical cost of plant and a market derived valuation which, in turn, offers an additional reference to evaluate the costs and benefits of a transaction.

The Commission recently 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.

On June 13, 2024, the Commission adopted a motion by Chairman Stephen M. DeFrank and issued a Final Supplemental Implementation Order 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, and new criteria for the Commission to assess the proposed addition to rate base.

The release of this report is part of the PUC’s ongoing commitment to enhance transparency and public participation, and follows a thorough review of extensive feedback gathered from public comments submitted in response to the Commission’s Tentative Supplemental Implementation Order entered on Feb. 7, 2024.

These comments played a crucial role in shaping the final revisions aimed at refining the evaluation of Section 1329 applications.

Click Here for a copy of the report.

Documents related to this initiative are available at PUC Docket Number: M-2016-2543193

[Posted: August 15, 2024]

8/19/2024