H.F. 2307 Section 1. NEW SECTION . 388.2A Procedure for disposal of 1 city utility by sale. 2 1. A proposal to discontinue a city utility and dispose of 3 such utility by sale, whether upon the council’s own motion 4 or upon the receipt of a valid petition pursuant to section 5 388.2, subsection 1, paragraph “b” , shall not be submitted 6 to the voters of the city pursuant to section 388.2 at any 7 election unless the governing body of the city utility meets 8 the requirements of this section. 9 2. a. (1) The governing body of the city utility shall 10 determine the fair market value of the utility system after 11 obtaining two appraisals of the system’s fair market value. 12 One appraisal shall be obtained from an independent appraiser 13 selected by the governing body, and the other appraisal shall 14 be obtained from an independent appraiser approved by the 15 Iowa utilities board. Both appraisals shall be conducted 16 in conformance with the uniform standards of professional 17 appraisal practice or substantially similar standards. 18 (2) Any appraisal obtained pursuant to this paragraph 19 shall consider the depreciated value of the capital assets 20 to be sold, the loss of future revenues to the city utility, 21 including the right to generate surpluses, and the cost of any 22 capital improvements reasonably necessary to provide adequate 23 service and facilities to the city utility’s customers. 24 b. After considering the appraisals obtained pursuant to 25 paragraph “a” , the governing body shall establish the city 26 utility’s fair market value. The fair market value shall be 27 the greater of any of the following: 28 (1) The average of the two appraisals obtained pursuant to 29 paragraph “a” . 30 (2) The depreciated value of the capital assets to be sold. 31 (3) The amount necessary to retire all of the city’s 32 outstanding revenue and general obligations issued for purposes 33 of the city utility. 34 c. The governing body’s determination of a city utility’s 35 -1- LSB 5223HV (2) 87 gh/rn 1/ 8

H.F. 2307 fair market value pursuant to this subsection shall not be 1 dispositive of the city utility’s system price, which shall be 2 subject to negotiation by the governing body. 3 d. The governing body shall prepare an inventory of the 4 city utility’s real and personal property, and a statement of 5 net position or balance sheet of the city utility, including 6 all assets, liabilities, outstanding revenue and general 7 obligations used to finance the city utility system. 8 e. The governing body shall prepare a financial information 9 statement of the city utility that includes current and 10 projected rate schedules for the next five fiscal years, as 11 well as the five most recent fiscal year revenue statements, if 12 such statements exist, and a projection of the city utility’s 13 revenue statements for the next five fiscal years. 14 f. The governing body shall consider alternatives to 15 disposing of the city utility system by sale, including 16 entering into an agreement pursuant to chapter 28E, or into a 17 finance agreement, purchase agreement, or lease agreement with 18 another entity described in section 476.1, subsection 5. 19 g. (1) The governing body shall make available on its 20 internet site, at least sixty days prior to submitting a 21 proposal for election pursuant to section 388.2, a copy of each 22 item listed in paragraphs “a” through “f” of this subsection. 23 (2) If, at the time of posting information pursuant to 24 subparagraph (1), the governing body has received any offers or 25 appraisals of fair market value from any prospective purchasers 26 of the city utility system in connection with a proposal to 27 discontinue the city utility and dispose of such utility by 28 sale, then the governing body shall make available on its 29 internet site each offer and appraisal then in existence. 30 Proprietary information of a rate-regulated public utility 31 under chapter 476 that is exempt from disclosure pursuant to 32 section 22.7 may be withheld from disclosure on the governing 33 body’s internet site. The governing body may continue to 34 receive new or revised offers or appraisals thereafter. 35 -2- LSB 5223HV (2) 87 gh/rn 2/ 8

H.F. 2307 (3) The governing body shall make a good-faith effort to 1 provide, by regular mail to each property owner of the city and 2 each ratepayer of the city utility, a notice of the proposal to 3 dispose of the city utility by sale, a summary of the proposal, 4 a summary of the information described in subparagraphs (1) and 5 (2), and instructions for locating the information described 6 in subparagraphs (1) and (2) on the governing body’s internet 7 site. 8 3. Upon the governing body meeting the requirements 9 of subsection 2, a city council may submit a proposal to 10 discontinue and dispose of a city utility pursuant to section 11 388.2. 12 4. If a proposal to discontinue and dispose of a city 13 utility is to be submitted to voters following the receipt 14 of a valid petition pursuant to section 388.2, subsection 1, 15 paragraph “b” , the council shall submit the proposal at the next 16 general election, regular city election, or a special election 17 called for that purpose, within one hundred twenty days after 18 the governing body of the city utility meets the requirements 19 of subsection 2. 20 5. A proposal to discontinue and dispose of a city utility 21 by sale that is approved by the voters pursuant to section 22 388.2, subsection 2, paragraph “a” , shall not require the 23 governing body or any purchasing entity to finalize a sale of 24 the city utility. 25 6. No action may be brought which questions the legality of 26 the election or the city and governing body’s compliance with 27 this section, except as provided in section 57.1, within twenty 28 days of the canvass of votes for the election by the county 29 board of supervisors. 30 Sec. 2. Section 476.72, subsection 4, Code 2018, is amended 31 to read as follows: 32 4. “Public utility” means a gas or electric rate-regulated 33 public utility providing electric, gas, water, sanitary sewage, 34 or storm water drainage service, or any combination thereof . 35 -3- LSB 5223HV (2) 87 gh/rn 3/ 8

H.F. 2307 Sec. 3. NEW SECTION . 476.84 Water, sanitary sewer, and 1 storm water utilities —— acquisitions —— advance ratemaking. 2 1. This section applies to the acquisition of water, 3 sanitary sewer, and storm water utilities by rate-regulated 4 public utilities. This section does not apply to the 5 acquisition of such utilities by non-rate-regulated entities 6 described in section 476.1, subsection 5. 7 2. a. A public utility shall not acquire, in whole or in 8 part, a water, sanitary sewer, or storm water utility with a 9 fair market value of five hundred thousand dollars or more 10 from a non-rate-regulated entity described in section 476.1, 11 subsection 5, unless the board first approves the acquisition. 12 In addition, if the utility to be acquired is a city utility, 13 then the public utility shall not acquire the city utility 14 until the city has first met the requirements of section 15 388.2A. 16 b. If a water, sanitary sewer, or storm water utility that 17 is the subject of an acquisition meets the requirements of 18 paragraph “a” , then the acquiring public utility may apply to 19 the board, prior to the completion of the acquisition, for 20 advance approval of a proposed initial tariff for providing 21 service to customers of the acquired utility. 22 c. As part of its review of the proposed acquisition, 23 the board shall specify in advance, by order issued after a 24 contested case proceeding, the ratemaking principles that will 25 apply when the costs of the acquired utility are included in 26 regulated rates. In determining the applicable ratemaking 27 principles, the board shall not be limited to traditional 28 ratemaking principles or traditional cost recovery mechanisms. 29 Among the principles and mechanisms the board may consider, the 30 board has the authority to approve ratemaking principles that 31 provide for reasonable restrictions upon the ability of the 32 public utility to seek an increase in specified regulated rates 33 for a period of time after the acquisition takes place. 34 d. In determining the applicable ratemaking principles, 35 -4- LSB 5223HV (2) 87 gh/rn 4/ 8

H.F. 2307 the board shall find that the proposed acquisition will result 1 in just and reasonable rates to all customers of the public 2 utility, including but not limited to existing customers of the 3 public utility. In making this finding, the board may consider 4 any factor it reasonably concludes may affect future rates, 5 including but not limited to the price paid for the acquired 6 utility and the projected cost of reasonable and prudent 7 changes to the acquired utility in order to provide adequate 8 services and facilities to customers. The board shall consider 9 whether there are ratemaking principles that will result in 10 just and reasonable rates to all customers in determining 11 whether to approve or disapprove a proposed acquisition. 12 e. Upon the approval of a proposal for acquisition by 13 board order, the parties subject to the acquisition shall 14 have the option of either proceeding with such acquisition or 15 not, subject to any termination provisions contained in the 16 acquisition agreement. 17 f. Notwithstanding any provision of this chapter to the 18 contrary, the ratemaking principles established by the board 19 pursuant to this section shall be binding with regard to the 20 acquired utility in any subsequent rate proceeding. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 This bill relates to the sale or acquisition of certain 25 utilities. 26 The bill establishes a procedure for the disposal of city 27 utilities by sale. The bill provides that a proposal to 28 discontinue a city utility and dispose of such utility by sale 29 shall not be submitted to the voters of the city pursuant to 30 Code section 388.2 unless the governing body of the city meets 31 the requirements of the bill. 32 The bill requires the governing body of the city utility 33 to determine the fair market value of the utility system, as 34 specified in the bill. The governing body’s determination of 35 -5- LSB 5223HV (2) 87 gh/rn 5/ 8

H.F. 2307 the city utility’s fair market value shall not be dispositive 1 of the city utility’s system price, which shall be subject to 2 negotiation by the governing body. 3 The bill provides that the governing body shall prepare an 4 inventory of the city utility’s real and personal property, 5 and a statement of net position or balance sheet, including 6 all assets, liabilities, and outstanding revenue and general 7 obligations used to finance the city utility system. The 8 bill also requires the governing body to prepare a financial 9 information statement of the city utility, as specified in the 10 bill. 11 The bill requires the governing body to consider 12 alternatives to disposing of the city utility by sale, 13 including entering into an agreement pursuant to Code chapter 14 28E, or into a finance agreement, purchase agreement, or lease 15 agreement with certain entities. 16 The bill requires the governing body to make certain 17 information available on its internet site, as specified in 18 the bill. The bill also requires the governing body to make 19 a good-faith effort to provide certain information by regular 20 mail to each property owner of the city and each ratepayer of 21 the city utility, as specified in the bill. 22 The bill provides that upon a governing body meeting the 23 requirements specified in the bill, a city council may submit a 24 proposal to discontinue and dispose of a city utility pursuant 25 to Code section 388.2. If such a proposal is to be submitted 26 to voters, the council shall submit the proposal at the next 27 general election, regular city election, or a special election 28 called for that purpose, within 120 days after the governing 29 body meets the requirements of the bill. Any such proposal 30 approved by the voters shall not require the governing body or 31 any purchasing entity to finalize a sale of the city utility. 32 No action may be brought which questions the legality of an 33 election or the city and governing body’s compliance with the 34 bill, except as provided in Code section 57.1, within 20 days 35 -6- LSB 5223HV (2) 87 gh/rn 6/ 8

H.F. 2307 of the canvass of votes by the county board of supervisors. 1 The bill also establishes a procedure for the acquisition 2 of water, sanitary sewer, and storm water utilities by 3 rate-regulated public utilities, as defined in the bill. 4 The bill provides that a public utility shall not acquire, 5 in whole or in part, a water, sanitary sewer, or storm water 6 utility with a fair market value of $500,000 or more from 7 certain non-rate-regulated entities, unless the Iowa utilities 8 board first approves the acquisition. If the utility to be 9 required is a city utility, then the city must first meet the 10 requirements for the disposal of city utilities by sale, as 11 specified in the bill, before such acquisition. 12 The bill allows an acquiring public utility to apply to the 13 board, prior to the completion of an acquisition of a water, 14 sanitary sewer, or storm water utility, for advance approval of 15 a proposed initial tariff for providing service to customers 16 of the acquired utility. 17 The bill provides that as part of its review of the proposed 18 acquisition, the board shall specify in advance, by order 19 issued after a contested case proceeding, the ratemaking 20 principles that will apply when the costs of the acquired 21 utility are included in regulated rates. In determining such 22 ratemaking principles, the board shall not be limited to 23 traditional ratemaking principles or cost recovery mechanisms, 24 and may approve ratemaking principles that provide for 25 reasonable restrictions upon the ability of the public utility 26 to seek an increase in specified regulated rates for a period 27 of time. 28 The bill provides that in determining the applicable 29 ratemaking principles, the board shall find that the proposed 30 acquisition will result in just and reasonable rates to all 31 customers, including but not limited to existing customers. 32 In making this finding, the board may consider any factor it 33 reasonable includes may affect future rates, as specified 34 in the bill. The board shall consider whether there are 35 -7- LSB 5223HV (2) 87 gh/rn 7/ 8

H.F. 2307 ratemaking principles that will result in just and reasonable 1 rates to all customers in determining whether to approve or 2 disapprove a proposed acquisition. 3 The bill provides that upon the approval of a proposal 4 for acquisition by board order, the parties subject to the 5 acquisition shall have the option of either proceeding with 6 the acquisition or not, subject to any applicable termination 7 provisions contained in the acquisition agreement. 8 The bill provides that notwithstanding any provisions of 9 Code chapter 476 to the contrary, the ratemaking principles 10 established by the board pursuant to the bill shall be binding 11 with regard to the acquired utility in any subsequent rate 12 proceeding. 13 -8- LSB 5223HV (2) 87 gh/rn 8/ 8