Senate File 2304 S-5124 Amend Senate File 2304 as follows: 1 1. By striking everything after the enacting clause and 2 inserting: 3 < Section 1. NEW SECTION . 476.59 System enhancement 4 infrastructure. 5 1. It is the intent of the general assembly to authorize 6 alternative ratemaking mechanisms to develop and sustain 7 adequate water and wastewater treatment facilities within the 8 state to ensure resilient water supply and sanitation services 9 for Iowa consumers. The commission shall not be bound by 10 traditional ratemaking principles or traditional cost recovery 11 mechanisms with respect to system enhancement infrastructure. 12 2. For purposes of this section: 13 a. “Blanket-type work project order” means an agreement 14 between an eligible utility and a supplier to deliver goods or 15 services at a set price on a recurring basis over a specified 16 time period. 17 b. “Eligible utility” means an investor-owned public 18 utility providing water or wastewater service subject to rate 19 regulation by the commission pursuant to section 476.1. 20 c. “Plan” means a multiyear plan to implement system 21 enhancement improvements. 22 d. “Pretax return” means the revenues necessary to 23 accomplish all of the following: 24 (1) Producing net operating income equal to the utility’s 25 weighted cost of capital approved in the utility’s most recent 26 rate case and the actual embedded cost of debt at the time the 27 filing is made multiplied by investments in system enhancement 28 improvements. 29 (2) Paying state and federal income taxes applicable to 30 income under subparagraph (1). 31 e. “Requirement” means any decision or regulation imposed on 32 an eligible utility by a local government unit, a state, or the 33 federal government in connection with any of the following: 34 (1) The federal Water Pollution Control Act, 33 U.S.C. §1251 35 -1- SF 2304.3596 (1) 91 sb/js 1/ 8 #1.

et seq. 1 (2) The federal Safe Drinking Water Act, 42 U.S.C. §300f et 2 seq. 3 (3) Any other law, order, or regulation administered by 4 the United States environmental protection agency, the United 5 States army corps of engineers, the United States department of 6 transportation, the Iowa department of transportation, or the 7 Iowa department of natural resources. 8 (4) Regulations imposed by a local government unit. 9 f. “System enhancement charge” means a charge assessed by an 10 eligible utility to recover system enhancement costs. 11 g. (1) “System enhancement costs” means the following 12 costs associated with any of the following system enhancement 13 improvements: 14 (a) Depreciation expenses, including any such expenses 15 incurred prior to the approval of a plan containing the 16 applicable system enhancement improvement. 17 (b) Restoration costs incurred to restore property to its 18 preconstruction condition other than those already capitalized 19 and included in depreciation expenses. 20 (c) Property taxes to be paid by the utility based upon the 21 first assessment date following placement in service. 22 (d) Pretax return. 23 (2) “System enhancement costs” does not include fines 24 or penalties assessed against or imposed on a utility for 25 violating laws, regulations, or consent decrees. 26 h. (1) “System enhancement improvement” means a water or 27 wastewater utility plant project incurred pursuant to a plan 28 that does any of the following: 29 (a) Installs new utility infrastructure required by 30 federal, state, or local requirements pertaining to resilience, 31 health, safety, or environmental protection. 32 (b) Relocates utility infrastructure necessary to 33 accommodate public improvement projects required by a federal, 34 state, or local jurisdiction to the extent the relocation costs 35 -2- SF 2304.3596 (1) 91 sb/js 2/ 8

are not otherwise reimbursed through the public improvement 1 project. 2 (c) Is nonrevenue producing and is required to maintain 3 resilience, public health, safety, or environmental protection. 4 (2) “System enhancement improvement” does not include a 5 water or wastewater utility plant included in the eligible 6 utility’s rate base in its most recent general rate case. 7 3. a. Before an eligible utility may seek recovery of its 8 system enhancement costs through a system enhancement charge 9 under this section, it must first obtain approval from the 10 commission of a plan including the proposed system enhancement 11 improvements. The eligible utility must file with the 12 commission an application and supporting evidence for the plan. 13 An eligible utility may only file one plan every twelve months 14 for water and wastewater system enhancement improvements. The 15 commission shall dismiss an application to approve a plan if 16 the commission has not issued a final order in a general rate 17 case proceeding under section 476.6 involving the eligible 18 utility for the same type of utility service within the past 19 five years. 20 b. Evidence supporting an application to approve a plan 21 shall include all of the following: 22 (1) Projected annual capital expenditures including a 23 contingency identified by major categories of expenditures of 24 system enhancement improvements included in the plan. 25 (2) A description of the age, condition, or other similar 26 and reasonably available information about the existing 27 infrastructure and any deficiencies in resilience, public 28 health, safety, or environmental protection, if applicable. 29 (3) The applicable requirements, including any consent 30 decrees and conditions, including but not limited to completion 31 deadlines, related to the requirements. 32 (4) A narrative describing how the system enhancement 33 improvements enable compliance with the requirements. 34 (5) Alternative plans for compliance considered by the 35 -3- SF 2304.3596 (1) 91 sb/js 3/ 8

eligible utility. 1 (6) An engineering evaluation and report identifying the 2 system enhancement improvements included in the plan, with 3 descriptions of project objectives, detailed cost estimates, 4 and the estimated in-service dates for each system enhancement 5 improvement. 6 (7) Any blanket-type work order and its associated costs 7 proposed to implement the improvements. 8 (8) Proposed rate schedules establishing a system 9 enhancement charge. 10 (9) The estimated rate impact of the proposed system 11 enhancement charge. 12 (10) A financial impact analysis demonstrating that the 13 total projected costs of the improvements included in the plan 14 will not result in aggregate system enhancement charge revenues 15 exceeding the ten percent limit established under subsection 16 4, paragraph “c” . 17 c. An application for approval of a plan shall be a 18 contested case. The commission shall issue its final order on 19 the application not more than eight months after the filing 20 of the application. However, upon good cause shown, the 21 commission may extend the time for issuing the order. When 22 reviewing the plan and corresponding system enhancement charge, 23 the commission shall make reasonable efforts to ensure the 24 utility is in compliance with the requirements as supported by 25 evidence in the application and the proceeding. The commission 26 may also consider the following criteria: 27 (1) The plan consists of projects that are system 28 enhancement improvements, except any removed pursuant to 29 paragraph “d” . 30 (2) The plan includes cost estimates that enable a 31 reasonable assessment of the costs of the plan. 32 (3) The plan will result in rates that are just and 33 reasonable. 34 d. The commission shall not disapprove the plan on the basis 35 -4- SF 2304.3596 (1) 91 sb/js 4/ 8

that one or more system enhancement improvements within the 1 plan do not satisfy paragraph “e” . The commission may approve 2 the plan subject to the removal of the system enhancement 3 improvements found not to satisfy paragraph “e” . 4 e. An eligible utility that operates both a water and 5 wastewater utility shall establish separate plans for water and 6 wastewater system enhancement improvements and such plans shall 7 be presented to the commission through different applications. 8 f. (1) The commission shall not approve a system 9 enhancement plan, or an update to an existing plan, if the 10 commission finds that the projected annualized revenue required 11 to recover the costs of the improvements included in the plan 12 would exceed ten percent of the utility’s revenue requirement 13 as authorized in its most recent general rate case. 14 (2) In making the determination under subparagraph (1), the 15 commission shall consider the cumulative impact of all existing 16 and proposed system enhancement improvements for both water and 17 wastewater service. 18 4. a. An eligible utility with one or more plans 19 approved under subsection 3 shall file with the commission an 20 application annually setting forth rate schedules establishing 21 a system enhancement charge, which may thereafter be 22 automatically adjusted and include a reconciliation of revenues 23 collected under previous system enhancement charges. A revenue 24 reconciliation filing shall be filed on an annual basis no 25 later than ninety days following the expiration of the charge. 26 Revenues collected from a system enhancement charge for water 27 service shall not be used to offset costs associated with a 28 wastewater enhancement plan, and the commission shall ensure no 29 cross-subsidization occurs between the two distinct services. 30 The commission shall review the filing to ensure compliance 31 with previously approved filings. 32 b. The system enhancement charge shall do all of the 33 following: 34 (1) Be calculated as a monthly fixed charge based upon meter 35 -5- SF 2304.3596 (1) 91 sb/js 5/ 8

size. 1 (2) Not include recovery of any system enhancement costs 2 recovered by the eligible utility through contributions in aid 3 of construction. 4 (3) Recover eighty percent of the revenue requirement 5 necessary to recover system enhancement costs incurred prior 6 to the date of the application and not previously recovered 7 through a system enhancement charge. 8 (4) Reflect system enhancement costs for system enhancement 9 improvements placed in service prior to the date the 10 application is filed. 11 (5) Include the pretax return associated with the accrued 12 asset value reflected on the eligible utility’s books 13 and records as of the date of the application for system 14 enhancement improvements. 15 c. (1) The aggregate total annualized revenue produced 16 by all system enhancement charges, including those for water 17 and wastewater service, shall not exceed ten percent of the 18 utility’s total revenue requirement authorized in its most 19 recent general rate case. 20 (2) Costs incurred in excess of the limit established in 21 subparagraph (1) that are not otherwise exempt under paragraph 22 “b” shall be deferred for consideration in the utility’s next 23 general rate case. 24 d. The application filed to implement the system enhancement 25 charge shall include all of the following: 26 (1) A breakdown of costs for each system enhancement 27 improvement that clearly identifies the status of completion of 28 such project. 29 (2) The actual costs incurred, the projected construction 30 timeline for projects, and the in-service or estimated 31 in-service dates or aggregate information capturing system 32 enhancement improvements constructed pursuant to blanket-type 33 work project orders and the actual annual costs of the 34 replacement programs performed pursuant to blanket-type work 35 -6- SF 2304.3596 (1) 91 sb/js 6/ 8

project orders. 1 e. The commission shall not authorize an adjustment to the 2 system enhancement charge to incorporate system enhancement 3 costs incurred since the date of prior application filed under 4 this subsection if the commission has not issued a final order 5 in a general rate case proceeding under section 476.6 involving 6 the eligible utility within the past five years. 7 f. An eligible utility that recovers system enhancement 8 costs under this subsection shall defer the remaining twenty 9 percent of revenue requirement necessary to recover the system 10 enhancement costs approved under this subsection and shall 11 recover the deferral as part of its next general rate case that 12 the eligible utility files with the commission. 13 5. System enhancement costs may be deferred by an eligible 14 utility for recovery through the utility’s next approved system 15 enhancement charge. 16 6. An application to implement or change a system 17 enhancement charge may include changes or updates to any 18 information provided in the plan, provided that the eligible 19 utility has a reasonable expectation that the changes or 20 updates will occur during the time the plan is effective. 21 The commission shall review such changes in accordance with 22 subsection 3, paragraph “c” . Project changes may include 23 but shall not be limited to additions, replacements, or 24 deferral projects that otherwise qualify as system enhancement 25 improvements. 26 7. Notice of an eligible utility’s applications under 27 section 476.6, subsection 2, must be published. 28 8. In its next general rate case, the eligible utility with 29 a plan approved pursuant to subsection 3 may include the system 30 enhancement improvements to its rate base in its application. 31 An eligible utility’s system enhancement charge approved under 32 this section shall reset to zero upon approval of new base 33 rates. 34 9. The commission shall adopt rules under chapter 17A 35 -7- SF 2304.3596 (1) 91 sb/js 7/ 8

establishing procedures to implement this section. 1 Sec. 2. Section 476.84, subsection 2, paragraph b, Code 2 2026, is amended to read as follows: 3 b. If a water, sanitary sewer, or storm water utility that 4 is the subject of an acquisition meets the requirements of 5 paragraph “a” , then the acquiring public utility may apply to 6 the commission, prior to the completion of the acquisition, for 7 advance approval of a proposed initial tariff for providing 8 service to customers of the acquired utility. If a water, 9 sanitary sewer, or storm water utility that is the subject of 10 an acquisition does not meet the requirements of paragraph “a” , 11 the commission shall consider reasonable and customary closing 12 costs, the costs of the appraisals, and regulatory and legal 13 expenses incurred in connection with the acquisition in the 14 public utility’s next rate case. > 15 2. Title page, lines 1 and 2, by striking < establishing 16 procedures for system enhancement of infrastructure, including 17 for > and inserting < relating to certain public utilities, 18 including the > 19 3. Title page, line 5, after < utilities > by inserting < and 20 cost considerations for acquisitions of water, sanitary sewer, 21 or storm water utilities > 22 ______________________________ SCOTT WEBSTER -8- SF 2304.3596 (1) 91 sb/js 8/ 8 #2. #3.