Senate Study Bill 3060 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON COMMERCE BILL BY CHAIRPERSON BOUSSELOT) A BILL FOR An Act relating to the acquisition of water, sanitary sewer, 1 and storm water utilities, including required findings by 2 the Iowa utilities commission, the timeline for issuing 3 ratemaking principles, and the determination of applicable 4 ratemaking principles. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5599XC (1) 91 sb/js

S.F. _____ Section 1. Section 476.84, subsection 2, paragraphs a and c, 1 Code 2026, are amended to read as follows: 2 a. A public utility shall not acquire, in whole or 3 in part, a water, sanitary sewer, or storm water utility 4 with a purchase price of three million dollars or more 5 from a non-rate-regulated entity described in section 6 476.1, subsection 3 , unless the commission first approves 7 the acquisition and finds that the acquisition will not 8 detrimentally affect ratepayers of either the utility to be 9 acquired or the acquiring utility . In addition, if the utility 10 to be acquired is a city utility, then the public utility 11 shall not acquire the city utility until the city has first 12 certified completion of the requirements of sections 362.3 , 13 364.2 , 364.7 , 384.84 , 388.2 , 388.2A , and 388.6 . A certified 14 completion submitted pursuant to this paragraph shall contain 15 an affirmation that the city that is the subject of the 16 acquisition has timely and substantially complied in relation 17 to the acquisition with the applicable provisions of sections 18 362.3 , 364.2 , 364.7 , 384.84 , 388.2 , 388.2A , and 388.6 . 19 c. As part of its review of the proposed acquisition, the 20 commission shall specify in advance , by order issued after 21 a contested case proceeding, the ratemaking principles that 22 will apply when the costs of the acquired utility are included 23 in regulated rates , and the commission shall not defer the 24 ratemaking principles to a later contested case proceeding . 25 The lesser of the sale price or the fair market value of the 26 acquired utility as established pursuant to section 388.2A, 27 subsection 2 , or the net book value of the acquired utility, 28 as established in the contested case proceeding, shall be 29 used in determining the applicable ratemaking principles. 30 In determining the applicable ratemaking principles, the 31 commission shall not be limited to traditional ratemaking 32 principles or traditional cost recovery mechanisms. Among the 33 principles and mechanisms the commission may consider, the 34 commission has the authority to approve ratemaking principles 35 -1- LSB 5599XC (1) 91 sb/js 1/ 3

S.F. _____ that provide for reasonable restrictions upon the ability of 1 the public utility to seek an increase in specified regulated 2 rates for a period of time after the acquisition takes place. 3 If the acquisition would increase the average rate base per 4 customer for existing customers of the acquiring utility, 5 the commission shall not consolidate the rates for the two 6 utilities for a period of at least ten years following the 7 contested case proceeding. The final order including the rate 8 base and approving the acquisition shall consider reasonable 9 and customary closing costs, the cost of appraisals, and 10 regulatory and legal expenses incurred in connection with the 11 acquisition. 12 EXPLANATION 13 The inclusion of this explanation does not constitute agreement with 14 the explanation’s substance by the members of the general assembly. 15 This bill relates to the acquisition of water, sanitary 16 sewer, and storm water utilities, including required findings 17 by the Iowa utilities commission (commission), the timeline 18 to issue ratemaking principles, and the determination of 19 applicable ratemaking principles. 20 Under current law, a public utility is not allowed to acquire 21 a water, sanitary sewer, or storm water utility with a purchase 22 price of $3 million or more without commission approval. 23 The bill removes the $3 million qualifier and requires the 24 commission to find, in addition to current requirements, that 25 the acquisition will not detrimentally affect ratepayers of 26 either the utility to be acquired or the acquiring utility. 27 Under current law, the commission provides ratemaking 28 principles after a contested case proceeding. This could 29 include a general rate case in a later contested case 30 proceeding. The bill requires the commission to provide 31 ratemaking principles before the acquisition is approved 32 and prohibits the commission from deferring the ratemaking 33 principles to a later contested case proceeding. 34 Under current law, the lesser of the sale price or the 35 -2- LSB 5599XC (1) 91 sb/js 2/ 3

S.F. _____ established fair market value of the acquired utility is used 1 in determining the applicable ratemaking principles. The bill 2 replaces the established fair market value option with the 3 net book value, which is established in the contested case 4 proceeding. 5 If the acquisition would increase the average rate base per 6 customer for existing customers of the acquiring utility, the 7 bill directs the commission to prohibit the consolidation of 8 rates for the two utilities for a period of at least 10 years 9 following the contested case proceeding. 10 -3- LSB 5599XC (1) 91 sb/js 3/ 3