Senate File 2304 - Reprinted SENATE FILE 2304 BY COMMITTEE ON COMMERCE (SUCCESSOR TO SSB 3068) (COMPANION TO HF 2032 BY VONDRAN) (As Amended and Passed by the Senate March 31, 2026 ) A BILL FOR An Act relating to certain public utilities, including the 1 development of ratemaking principles permitted for recovery 2 costs of certain investments in infrastructure by water 3 and wastewater utilities and cost considerations for 4 acquisitions of water, sanitary sewer, or storm water 5 utilities. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 SF 2304 (3) 91 sb/js/mb

S.F. 2304 Section 1. NEW SECTION . 476.59 System enhancement 1 infrastructure. 2 1. It is the intent of the general assembly to authorize 3 alternative ratemaking mechanisms to develop and sustain 4 adequate water and wastewater treatment facilities within the 5 state to ensure resilient water supply and sanitation services 6 for Iowa consumers. The commission shall not be bound by 7 traditional ratemaking principles or traditional cost recovery 8 mechanisms with respect to system enhancement infrastructure. 9 2. For purposes of this section: 10 a. “Blanket-type work project order” means an agreement 11 between an eligible utility and a supplier to deliver goods or 12 services at a set price on a recurring basis over a specified 13 time period. 14 b. “Eligible utility” means an investor-owned public 15 utility providing water or wastewater service subject to rate 16 regulation by the commission pursuant to section 476.1. 17 c. “Plan” means a multiyear plan to implement system 18 enhancement improvements. 19 d. “Pretax return” means the revenues necessary to 20 accomplish all of the following: 21 (1) Producing net operating income equal to the utility’s 22 weighted cost of capital approved in the utility’s most recent 23 rate case and the actual embedded cost of debt at the time the 24 filing is made multiplied by investments in system enhancement 25 improvements. 26 (2) Paying state and federal income taxes applicable to 27 income under subparagraph (1). 28 e. “Requirement” means any decision or regulation imposed on 29 an eligible utility by a local government unit, a state, or the 30 federal government in connection with any of the following: 31 (1) The federal Water Pollution Control Act, 33 U.S.C. §1251 32 et seq. 33 (2) The federal Safe Drinking Water Act, 42 U.S.C. §300f et 34 seq. 35 -1- SF 2304 (3) 91 sb/js/mb 1/ 8

S.F. 2304 (3) Any other law, order, or regulation administered by 1 the United States environmental protection agency, the United 2 States army corps of engineers, the United States department of 3 transportation, the Iowa department of transportation, or the 4 Iowa department of natural resources. 5 (4) Regulations imposed by a local government unit. 6 f. “System enhancement charge” means a charge assessed by an 7 eligible utility to recover system enhancement costs. 8 g. (1) “System enhancement costs” means the following 9 costs associated with any of the following system enhancement 10 improvements: 11 (a) Depreciation expenses, including any such expenses 12 incurred prior to the approval of a plan containing the 13 applicable system enhancement improvement. 14 (b) Restoration costs incurred to restore property to its 15 preconstruction condition other than those already capitalized 16 and included in depreciation expenses. 17 (c) Property taxes to be paid by the utility based upon the 18 first assessment date following placement in service. 19 (d) Pretax return. 20 (2) “System enhancement costs” does not include fines 21 or penalties assessed against or imposed on a utility for 22 violating laws, regulations, or consent decrees. 23 h. (1) “System enhancement improvement” means a water or 24 wastewater utility plant project incurred pursuant to a plan 25 that does any of the following: 26 (a) Installs new utility infrastructure required by 27 federal, state, or local requirements pertaining to resilience, 28 health, safety, or environmental protection. 29 (b) Relocates utility infrastructure necessary to 30 accommodate public improvement projects required by a federal, 31 state, or local jurisdiction to the extent the relocation costs 32 are not otherwise reimbursed through the public improvement 33 project. 34 (c) Is nonrevenue producing and is required to maintain 35 -2- SF 2304 (3) 91 sb/js/mb 2/ 8

S.F. 2304 resilience, public health, safety, or environmental protection. 1 (2) “System enhancement improvement” does not include a 2 water or wastewater utility plant included in the eligible 3 utility’s rate base in its most recent general rate case. 4 3. a. Before an eligible utility may seek recovery of its 5 system enhancement costs through a system enhancement charge 6 under this section, it must first obtain approval from the 7 commission of a plan including the proposed system enhancement 8 improvements. The eligible utility must file with the 9 commission an application and supporting evidence for the plan. 10 An eligible utility may only file one plan every twelve months 11 for water and wastewater system enhancement improvements. The 12 commission shall dismiss an application to approve a plan if 13 the commission has not issued a final order in a general rate 14 case proceeding under section 476.6 involving the eligible 15 utility for the same type of utility service within the past 16 five years. 17 b. Evidence supporting an application to approve a plan 18 shall include all of the following: 19 (1) Projected annual capital expenditures including a 20 contingency identified by major categories of expenditures of 21 system enhancement improvements included in the plan. 22 (2) A description of the age, condition, or other similar 23 and reasonably available information about the existing 24 infrastructure and any deficiencies in resilience, public 25 health, safety, or environmental protection, if applicable. 26 (3) The applicable requirements, including any consent 27 decrees and conditions, including but not limited to completion 28 deadlines, related to the requirements. 29 (4) A narrative describing how the system enhancement 30 improvements enable compliance with the requirements. 31 (5) Alternative plans for compliance considered by the 32 eligible utility. 33 (6) An engineering evaluation and report identifying the 34 system enhancement improvements included in the plan, with 35 -3- SF 2304 (3) 91 sb/js/mb 3/ 8

S.F. 2304 descriptions of project objectives, detailed cost estimates, 1 and the estimated in-service dates for each system enhancement 2 improvement. 3 (7) Any blanket-type work order and its associated costs 4 proposed to implement the improvements. 5 (8) Proposed rate schedules establishing a system 6 enhancement charge. 7 (9) The estimated rate impact of the proposed system 8 enhancement charge. 9 (10) A financial impact analysis demonstrating that the 10 total projected costs of the improvements included in the plan 11 will not result in aggregate system enhancement charge revenues 12 exceeding the ten percent limit established under subsection 13 4, paragraph “c” . 14 c. An application for approval of a plan shall be a 15 contested case. The commission shall issue its final order on 16 the application not more than eight months after the filing 17 of the application. However, upon good cause shown, the 18 commission may extend the time for issuing the order. When 19 reviewing the plan and corresponding system enhancement charge, 20 the commission shall make reasonable efforts to ensure the 21 utility is in compliance with the requirements as supported by 22 evidence in the application and the proceeding. The commission 23 may also consider the following criteria: 24 (1) The plan consists of projects that are system 25 enhancement improvements, except any removed pursuant to 26 paragraph “d” . 27 (2) The plan includes cost estimates that enable a 28 reasonable assessment of the costs of the plan. 29 (3) The plan will result in rates that are just and 30 reasonable. 31 d. The commission shall not disapprove the plan on the basis 32 that one or more system enhancement improvements within the 33 plan do not satisfy paragraph “e” . The commission may approve 34 the plan subject to the removal of the system enhancement 35 -4- SF 2304 (3) 91 sb/js/mb 4/ 8

S.F. 2304 improvements found not to satisfy paragraph “e” . 1 e. An eligible utility that operates both a water and 2 wastewater utility shall establish separate plans for water and 3 wastewater system enhancement improvements and such plans shall 4 be presented to the commission through different applications. 5 f. (1) The commission shall not approve a system 6 enhancement plan, or an update to an existing plan, if the 7 commission finds that the projected annualized revenue required 8 to recover the costs of the improvements included in the plan 9 would exceed ten percent of the utility’s revenue requirement 10 as authorized in its most recent general rate case. 11 (2) In making the determination under subparagraph (1), the 12 commission shall consider the cumulative impact of all existing 13 and proposed system enhancement improvements for both water and 14 wastewater service. 15 4. a. An eligible utility with one or more plans 16 approved under subsection 3 shall file with the commission an 17 application annually setting forth rate schedules establishing 18 a system enhancement charge, which may thereafter be 19 automatically adjusted and include a reconciliation of revenues 20 collected under previous system enhancement charges. A revenue 21 reconciliation filing shall be filed on an annual basis no 22 later than ninety days following the expiration of the charge. 23 Revenues collected from a system enhancement charge for water 24 service shall not be used to offset costs associated with a 25 wastewater enhancement plan, and the commission shall ensure no 26 cross-subsidization occurs between the two distinct services. 27 The commission shall review the filing to ensure compliance 28 with previously approved filings. 29 b. The system enhancement charge shall do all of the 30 following: 31 (1) Be calculated as a monthly fixed charge based upon meter 32 size. 33 (2) Not include recovery of any system enhancement costs 34 recovered by the eligible utility through contributions in aid 35 -5- SF 2304 (3) 91 sb/js/mb 5/ 8

S.F. 2304 of construction. 1 (3) Recover eighty percent of the revenue requirement 2 necessary to recover system enhancement costs incurred prior 3 to the date of the application and not previously recovered 4 through a system enhancement charge. 5 (4) Reflect system enhancement costs for system enhancement 6 improvements placed in service prior to the date the 7 application is filed. 8 (5) Include the pretax return associated with the accrued 9 asset value reflected on the eligible utility’s books 10 and records as of the date of the application for system 11 enhancement improvements. 12 c. (1) The aggregate total annualized revenue produced 13 by all system enhancement charges, including those for water 14 and wastewater service, shall not exceed ten percent of the 15 utility’s total revenue requirement authorized in its most 16 recent general rate case. 17 (2) Costs incurred in excess of the limit established in 18 subparagraph (1) that are not otherwise exempt under paragraph 19 “b” shall be deferred for consideration in the utility’s next 20 general rate case. 21 d. The application filed to implement the system enhancement 22 charge shall include all of the following: 23 (1) A breakdown of costs for each system enhancement 24 improvement that clearly identifies the status of completion of 25 such project. 26 (2) The actual costs incurred, the projected construction 27 timeline for projects, and the in-service or estimated 28 in-service dates or aggregate information capturing system 29 enhancement improvements constructed pursuant to blanket-type 30 work project orders and the actual annual costs of the 31 replacement programs performed pursuant to blanket-type work 32 project orders. 33 e. The commission shall not authorize an adjustment to the 34 system enhancement charge to incorporate system enhancement 35 -6- SF 2304 (3) 91 sb/js/mb 6/ 8

S.F. 2304 costs incurred since the date of prior application filed under 1 this subsection if the commission has not issued a final order 2 in a general rate case proceeding under section 476.6 involving 3 the eligible utility within the past five years. 4 f. An eligible utility that recovers system enhancement 5 costs under this subsection shall defer the remaining twenty 6 percent of revenue requirement necessary to recover the system 7 enhancement costs approved under this subsection and shall 8 recover the deferral as part of its next general rate case that 9 the eligible utility files with the commission. 10 5. System enhancement costs may be deferred by an eligible 11 utility for recovery through the utility’s next approved system 12 enhancement charge. 13 6. An application to implement or change a system 14 enhancement charge may include changes or updates to any 15 information provided in the plan, provided that the eligible 16 utility has a reasonable expectation that the changes or 17 updates will occur during the time the plan is effective. 18 The commission shall review such changes in accordance with 19 subsection 3, paragraph “c” . Project changes may include 20 but shall not be limited to additions, replacements, or 21 deferral projects that otherwise qualify as system enhancement 22 improvements. 23 7. Notice of an eligible utility’s applications under 24 section 476.6, subsection 2, must be published. 25 8. In its next general rate case, the eligible utility with 26 a plan approved pursuant to subsection 3 may include the system 27 enhancement improvements to its rate base in its application. 28 An eligible utility’s system enhancement charge approved under 29 this section shall reset to zero upon approval of new base 30 rates. 31 9. The commission shall adopt rules under chapter 17A 32 establishing procedures to implement this section. 33 Sec. 2. Section 476.84, subsection 2, paragraph b, Code 34 2026, is amended to read as follows: 35 -7- SF 2304 (3) 91 sb/js/mb 7/ 8

S.F. 2304 b. If a water, sanitary sewer, or storm water utility that 1 is the subject of an acquisition meets the requirements of 2 paragraph “a” , then the acquiring public utility may apply to 3 the commission, prior to the completion of the acquisition, for 4 advance approval of a proposed initial tariff for providing 5 service to customers of the acquired utility. If a water, 6 sanitary sewer, or storm water utility that is the subject of 7 an acquisition does not meet the requirements of paragraph “a” , 8 the commission shall consider reasonable and customary closing 9 costs, the costs of the appraisals, and regulatory and legal 10 expenses incurred in connection with the acquisition in the 11 public utility’s next rate case. 12 -8- SF 2304 (3) 91 sb/js/mb 8/ 8