Senate Study Bill 1097 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON COMMERCE BILL BY CHAIRPERSON BROWN) A BILL FOR An Act relating to the acquisition of water, sanitary sewer, 1 and storm water utilities by rate-regulated public 2 utilities. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 1317XC (1) 90 es/rn

S.F. _____ Section 1. Section 476.84, subsection 2, Code 2023, is 1 amended to read as follows: 2 2. a. A public utility shall not acquire, in whole or in 3 part, a water, sanitary sewer, or storm water utility with 4 a fair market value purchase price of five hundred thousand 5 million dollars or more from a non-rate-regulated entity 6 described in section 476.1, subsection 4 , unless the board 7 first approves the acquisition. In addition, if the utility to 8 be acquired is a city utility, then the public utility shall 9 not acquire the city utility until the city has first met 10 certified completion of the requirements of section 388.2A . 11 b. If a water, sanitary sewer, or storm water utility that 12 is the subject of an acquisition meets the requirements of 13 paragraph “a” , then the acquiring public utility may apply to 14 the board, prior to the completion of the acquisition, for 15 advance approval of a proposed initial tariff for providing 16 service to customers of the acquired utility. 17 c. As part of its review of the proposed acquisition, 18 the board shall specify in advance, by order issued after a 19 contested case proceeding, the ratemaking principles that will 20 apply when the costs of the acquired utility are included in 21 regulated rates. The lesser of the sale price or the fair 22 market value of the acquired utility as established pursuant 23 to section 388.2A, subsection 2 , shall be used in determining 24 the applicable ratemaking principles. In determining the 25 applicable ratemaking principles, the board shall not be 26 limited to traditional ratemaking principles or traditional 27 cost recovery mechanisms. Among the principles and mechanisms 28 the board may consider, the board has the authority to approve 29 ratemaking principles that provide for reasonable restrictions 30 upon the ability of the public utility to seek an increase 31 in specified regulated rates for a period of time after the 32 acquisition takes place. The final order including the rate 33 base and approving the acquisition shall consider reasonable 34 and customary closing costs, the cost of appraisals, and 35 -1- LSB 1317XC (1) 90 es/rn 1/ 3

S.F. _____ regulatory and legal expenses incurred in connection with the 1 acquisition. 2 d. In determining the applicable ratemaking principles, 3 the board shall find that the proposed acquisition will result 4 in just and reasonable rates to all customers of the public 5 utility, including but not limited to existing customers of 6 the public utility. In making this finding, the board may 7 consider any factor it reasonably concludes may affect future 8 rates, including but not limited to the price paid for the 9 acquired utility and the projected cost of reasonable and 10 prudent changes to investments in the acquired utility in order 11 to provide adequate safe and reliable services and facilities 12 to customers. The board shall consider whether there are 13 ratemaking principles that will result in just and reasonable 14 rates to all customers in determining whether to approve or 15 disapprove a proposed acquisition. 16 e. If the acquisition involves a utility that is an at-risk 17 system as defined in section 455B.199D , the board shall 18 issue a final order on an application for approval of the 19 acquisition within one hundred twenty days from the filing of 20 the application. For all other acquisitions, the board shall 21 issue an order within one hundred eighty days of the filing 22 date of the application. 23 f. Upon the approval of a proposal for acquisition by 24 board order, the parties subject to the acquisition shall 25 have the option of either proceeding with such acquisition or 26 not, subject to any termination provisions contained in the 27 acquisition agreement. 28 g. Notwithstanding any provision of this chapter to the 29 contrary, the ratemaking principles established by the board 30 pursuant to this section shall be binding with regard to the 31 acquired utility in any subsequent rate proceeding. 32 EXPLANATION 33 The inclusion of this explanation does not constitute agreement with 34 the explanation’s substance by the members of the general assembly. 35 -2- LSB 1317XC (1) 90 es/rn 2/ 3

S.F. _____ This bill relates to the acquisition of water, sanitary 1 sewer, and storm water utilities by rate-regulated public 2 utilities. 3 The bill increases the threshold amount requiring utilities 4 board (board) approval from $500,000 to $5 million when a 5 public utility is acquiring a water, sanitary sewer, or storm 6 water utility. The bill modifies city utility acquisition to 7 include that the city must first certify completion of the 8 requirements of Code section 388.2A, including an appraisal 9 for the fair market value of the utility system, discussion 10 of alternatives of the sale of the utility system, and a city 11 council proposal for the sale. Current law requires that the 12 city meets the requirements, but not certifies compliance. 13 The bill provides that the rate base in the final order 14 approving an acquisition shall include reasonable and customary 15 closing costs, the cost of appraisals, and regulatory and legal 16 expenses incurred in connection with the acquisition. 17 The bill provides that the board shall issue a final order 18 within 120 days of the filing of an application for the 19 acquisition of an at-risk utility system, or an order within 20 180 days for all other acquisitions. Current law provides that 21 the board shall issue a final order within 120 days of filing 22 the application for a utility that is an at-risk system. 23 -3- LSB 1317XC (1) 90 es/rn 3/ 3