Bill Text: TX SB1725 | 2019-2020 | 86th Legislature | Introduced
Bill Title: Relating to the valuation of a retail public utility or its facilities as part of a voluntary acquisition.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2019-04-29 - Left pending in committee [SB1725 Detail]
Download: Texas-2019-SB1725-Introduced.html
86R13595 GRM-D | ||
By: Lucio | S.B. No. 1725 |
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relating to the valuation of a retail public utility or its | ||
facilities as part of a voluntary acquisition. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Subchapter H, Chapter 13, Water Code, is amended | ||
by adding Section 13.305 to read as follows: | ||
Sec. 13.305. VOLUNTARY VALUATION OF ACQUIRED UTILITY OR | ||
FACILITIES. (a) In this section: | ||
(1) "Acquiring utility" means a Class A utility that | ||
is acquiring a selling utility, or facilities of a selling utility, | ||
as the result of a voluntary arm's-length transaction. | ||
(2) "Ratemaking rate base" means the dollar value of a | ||
selling utility that is incorporated into the rate base of the | ||
acquiring utility for postacquisition ratemaking purposes. | ||
(3) "Selling utility" means a retail public utility | ||
that is being purchased by an acquiring utility, or is selling | ||
facilities to an acquiring utility, as the result of a voluntary | ||
arm's-length transaction. | ||
(b) The utility commission shall maintain a list of experts | ||
qualified to conduct economic valuations of utilities for the | ||
purposes of this section. | ||
(c) An acquiring utility and a selling utility may agree to | ||
determine by the following process the fair market value of the | ||
selling utility or the facilities to be sold, as applicable: | ||
(1) the acquiring utility and the selling utility | ||
shall notify the utility commission of their intent to determine | ||
the fair market value under this section; | ||
(2) not later than the 30th day after the date the | ||
utility commission receives notice under Subdivision (1), the | ||
utility commission shall select three utility valuation experts | ||
from the list maintained under Subsection (b); | ||
(3) each utility valuation expert shall perform an | ||
appraisal in compliance with Uniform Standards of Professional | ||
Appraisal Practice, employing the cost, market, and income | ||
approaches, to determine the fair market value; and | ||
(4) the three utility valuation experts selected under | ||
Subdivision (2) jointly shall retain a licensed engineer to conduct | ||
an assessment of the tangible assets of the selling utility, or the | ||
facilities to be sold, as applicable, and each utility valuation | ||
expert shall: | ||
(A) incorporate the assessment into the | ||
appraisal under the cost approach required under Subdivision (3); | ||
and | ||
(B) provide the completed appraisal to the | ||
acquiring utility and the selling utility in a reasonable and | ||
timely manner. | ||
(d) A utility valuation expert described by Subsection (b) | ||
may not: | ||
(1) derive any material financial benefit from the | ||
sale other than fees for services rendered; or | ||
(2) be or have been within the year preceding the date | ||
the service contract is executed an immediate family member of a | ||
director, officer, or employee of the acquiring utility or the | ||
selling utility. | ||
(e) A fee paid to a utility valuation expert may be included | ||
in the transaction and closing costs associated with the | ||
acquisition by the acquiring utility. A fee may not exceed the | ||
lesser of: | ||
(1) five percent of the fair market value; or | ||
(2) a fee amount approved by the utility commission. | ||
(f) For the purposes of the acquisition, the fair market | ||
value is the average of the three utility valuation expert | ||
appraisals conducted under Subsection (c). | ||
(g) For an acquisition of a selling utility, the ratemaking | ||
rate base of the selling utility is the lesser of the purchase price | ||
negotiated by the acquiring utility and the selling utility or the | ||
fair market value. The ratemaking rate base of the selling utility | ||
shall be incorporated into the rate base of the acquiring utility | ||
during the utility's next rate base case under Subchapter F. | ||
(h) If the acquiring utility and the selling utility use the | ||
process for establishing fair market value in Subsection (c), the | ||
acquiring utility shall submit as attachments to an application | ||
required under Section 13.301: | ||
(1) copies of the three appraisals performed by the | ||
utility valuation experts under Subsection (c); | ||
(2) the purchase price agreed to by the acquiring | ||
utility and the selling utility; | ||
(3) if applicable, the ratemaking rate base determined | ||
under Subsection (g); | ||
(4) if applicable, the transaction and closing costs | ||
incurred by the acquiring utility that will be included in the | ||
utility's rate base; and | ||
(5) if applicable, a tariff containing a rate equal to | ||
the existing rates of the selling utility at the time of the | ||
acquisition. | ||
(i) If the utility commission approves the application for | ||
acquisition under Section 13.301, the utility commission shall | ||
issue an order that includes: | ||
(1) the ratemaking rate base of the selling utility as | ||
determined under Subsection (g); and | ||
(2) any additional conditions for the acquisition the | ||
utility commission requires. | ||
(j) A tariff submitted under Subsection (h)(5) shall remain | ||
in effect until the utility commission approves new rates as part of | ||
a rate base case proceeding. | ||
(k) The original sources of funding for any part of the | ||
water or sewer assets of the selling utility are not relevant to | ||
determine the value of the selling utility's assets. The selling | ||
utility's cost of service shall be incorporated into the revenue | ||
requirement of the acquiring utility's next rate base case | ||
proceeding. | ||
(l) In this subsection, "allowance of funds used during | ||
construction" means an accounting practice that recognizes the | ||
capital costs, including debt and equity funds, that are used to | ||
finance the construction costs of an improvement to a selling | ||
utility's assets by an acquiring utility. An acquiring utility's | ||
postacquisition improvements shall accrue an allowance of funds | ||
used during construction after the date the cost was incurred until | ||
the earlier of: | ||
(1) the fourth anniversary of the date the asset | ||
entered into service; or | ||
(2) the inclusion of the asset in the acquiring | ||
utility's next rate base case. | ||
(m) Depreciation on an acquiring utility's postacquisition | ||
improvements shall be deferred for book and ratemaking purposes. | ||
SECTION 2. This Act takes effect September 1, 2019. |