HB1955 97TH GENERAL ASSEMBLY

LRB097 10530 ASK 50859 b

97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
HB1955

Introduced , by Rep. Thomas Holbrook

SYNOPSIS AS INTRODUCED:

220 ILCS 5/9-210	from Ch. 111 2/3, par. 9-210
220 ILCS 5/9-210.5 new

Amends the Public Utilities Act. Provides an alternative procedure that a large public utility may choose in establishing the ratemaking rate base of a water or sewer utility that the large public utility is acquiring. Defines "large public utility" and "water or sewer utility". Provides that the Commission's order that approves the large public utility's acquisition of the water or sewer utility shall include the Commission's decision establishing (1) the ratemaking rate base of the water or sewer utility and (2) the district or tariff group with which the water or sewer utility will be combined for ratemaking purposes. Sets forth provisions concerning definitions, appraisers and their duties, ratemaking rate base, and rate cases. Makes other changes. Effective immediately.

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Public Utilities Act is amended by changing Section 9-210 and by adding Section 9-210.5 as follows:

(220 ILCS 5/9-210) (from Ch. 111 2/3, par. 9-210)

Sec. 9-210. The Commission shall have power to ascertain the value of the property of every public utility in this State and every fact which in its judgment may or does have any bearing on such value. In all proceedings before the Commission, initiated by the Commission upon its own motion, or initiated by an application of such public utility, in which the value of the property of any public utility or utilities is an issue, the burden of establishing such value shall be upon such public utility or utilities. In making such valuation the Commission may avail itself of any information, books, documents, or records in the possession of any officer, department or board of the State or any subdivision thereof. The Commission shall have power to make revaluation from time to time and also to ascertain the value of all new construction, extensions, and additions to the property of every public utility.

For purposes of establishing the value of public utility property, when determining rates or charges, or for any other reason, the Commission may base its determination on the original cost of such property.

This Section does not apply to valuations of water or sewer utilities under Section 9-210.5.

(Source: P.A. 84-617.)

(220 ILCS 5/9-210.5 new)

Sec. 9-210.5. Valuation of water and sewer utilities.

(a) In this Section:

"Water or sewer utility" means any of the following:

(1) a public utility that regularly provides water or sewer service to 30,000 or fewer customer connections;

(2) a water district, including, but not limited to, a public water district, water service district, or surface water protection district, or a sewer district of any kind established as a special district under the laws of this State that regularly provides water or sewer service to 30,000 or fewer customer connections;

(3) a waterworks system or sewerage system established under the Township Code that regularly provides water or sewer service to 30,000 or fewer customer connections; or

(4) a water system or sewer system owned by a municipality that regularly provides water or sewer service to 30,000 or fewer customer connections; and

(5) any other entity that regularly provides water or sewer service to 30,000 or fewer customer connections.

"Large public utility" means an investor-owned public utility that:

(1) is subject to regulation by the Illinois Commerce Commission under this Act;

(2) regularly provides water or sewer service to more than 30,000 customer connections;

(3) provides safe and adequate service; and

(4) is not a water or sewer utility as defined in this subsection (a).

"District" means a service area of a large public utility whose customers are subject to the same rate tariff.

"Utility service source" means the water or sewer utility or large public utility from which the customer receives its utility service type.

"Utility service type" means water utility service or wastewater utility service or water and wastewater utility service.

"Prior rate case" means a large public utility's general rate case with a statutory effective date occurring immediately prior to the date of the large public utility's acquisition of a water or sewer utility.

"Next rate case" means, a large public utility's general rate case with a test-year end date as updated and adjusted in accordance with Commission rules and regulations, occurring immediately after the date of the large public utility's acquisition of a water or sewer utility.

"Actual pre-tax earnings" means the average daily sum of the revenues and expenses, exclusive of income taxes, of the water or sewer utility recorded in the large public utility's accounting books over a time period beginning on the date of the large public utility's acquisition of the water or sewer utility and extending through the next rate case's test-year end date as updated and adjusted accordance with Commission rules and regulations, multiplied by the number of days in the time period beginning with the acquisition date and extending through the statutory effective date of new rates in the next rate case.

"Authorized pre-tax earnings" means the pre-tax earnings calculated utilizing the following:

(1) the average of:

(A) the large public utility's rate base in the water or sewer utility, as defined in subsection (d) of this Section, recorded at the date of the large public utility's acquisition of the water or sewer utility; and

(B) the large public utility's estimated rate base in the water or sewer utility as of the statutory effective date of new rates in the next rate case. The estimated rate base shall include adjustments for new investments, retirements, depreciation, and deferred taxes;

(2) the large public utility's actual regulatory capital structure;

(3) the large public utility's actual cost rates for debt and preferred stock;

(4) the large public utility's cost of common equity and effective income tax rate, as determined in the prior rate case. In the event that either or both the equity cost or effective income tax rate from the prior rate case is not available, and either cannot otherwise be agreed to by parties to the next rate case, reference shall be made to the testimony submitted during the prior rate case and an average recommended cost of common equity or effective income tax rate based upon the various recommendations contained in such testimony shall be used in lieu thereof;

(5) the actual property tax rate for the water or sewer utility acquired by the large public utility; and

(6) the actual invested capital tax rate for the water or sewer utility acquired by the large public utility.

(b) Notwithstanding any other provision of this Act, a large public utility that acquires a water or sewer utility may request that the Commission use the procedures set forth under this Section to establish the ratemaking rate base of that water or sewer utility at the time when it is acquired by the large public utility.

(c) If a large public utility elects the procedures under this Section to establish the ratemaking rate base of a water or sewer utility that it is acquiring, then an appraisal shall be performed by 3 appraisers. The water or sewer utility being acquired and the large public utility shall each appoint one appraiser individually and shall together appoint an agreed-upon third appraiser. Each appraiser shall be a disinterested person licensed as a State certified general real estate appraiser under the Real Estate Appraiser Licensing Act of 2002.

The appraisers shall:

(1) be sworn to determine the fair market value of the water or sewer utility, by establishing the amount for which the water or sewer utility would be sold in a voluntary transaction between a willing buyer and willing seller under no obligation to buy or sell;

(2) determine fair market value in compliance with the Uniform Standards of Professional Appraisal Practice;

(3) engage one disinterested engineer who is licensed in this State to prepare a reproduction cost new less deprecation assessment of the tangible assets of the water or sewer utility, which is to be incorporated into the appraisal under the cost approach;

(4) return their appraisal, in writing, to the water or sewer utility and large public utility in a reasonable and timely manner; and

(5) if the appraisers cannot agree on the engineer, as described in paragraph (3) of this subsection (c), within 30 days after the appraisers are appointed, then the large public utility shall select the engineer.

If all 3 appointed appraisers cannot agree as to the appraised value of the water or sewer utility, then an appraisal signed by 2 of the appointed appraisers shall constitute a good and valid appraisal.

(d) The lesser of the purchase price and the appraised value, together with the transaction, closing, and transition costs incurred by the large public utility, shall constitute the ratemaking rate base associated with the water or sewer utility as acquired by and incorporated into the ratemaking rate base of the district designated by the acquiring large public utility under this Section. This rate base treatment shall not be deemed to violate this Act, including, but not limited to, any Sections in Articles VIII and IX of this Act.

In the Commission's order that approves the large public utility's acquisition of the water or sewer utility, the Commission shall issue its decision establishing (1) the ratemaking rate base of the water or sewer utility and (2) the district or tariff group with which the water or sewer utility will be combined for ratemaking purposes.

(e) If the water or sewer utility being acquired is owned by the State or any political subdivision thereof, then the water or sewer utility must hold a public meeting prior to the acquisition to inform the public of the terms of its acquisition by the large public utility.

(f) Upon the date of acquisition, the water or sewer utility shall, for ratemaking purposes, become part of the district or tariff group designated by the acquiring large public utility.

(g) From the date of acquisition until the date that new rates are effective in the acquiring large public utility's next rate case, the customers of the acquired water or sewer utility shall pay the then-existing rates of the district or tariff group designated by the acquiring large public utility. For each customer of the water or sewer utility with potable water usage values that cannot be reasonably obtained, a value of 5,000 gallons per month shall be assigned. These rates shall not be deemed to violate this Act including, but not limited to, Section 9-101 and any other applicable Sections in Articles VIII and IX of this Act. The Commission shall issue its decision establishing the rates effective for the water or sewer utility immediately following an acquisition in its order approving the acquisition.

(h) In the acquiring large public utility's next rate case, the water or sewer utility and the district or tariff group designated by the acquiring large public utility and their costs of service shall be combined under the same rate tariff. This rate tariff shall be based on allocation of the large public utility's and water or sewer utility's combined costs of service and rate design without distinction among customers on the basis of utility service source or type. This rate tariff shall not be deemed to violate this Act including, but not limited to, Section 9-101 of this Act.

(i) The actual pre-tax earnings and authorized pre-tax earnings difference shall be recorded as a regulatory asset or liability, included in the rate base of the large public utility, and amortized over a period not to exceed 3 years.

(j) This Section shall be exclusively applied to large public utilities providing water or sewer service in the voluntary and mutually agreeable acquisition of water or sewer utilities providing water or sewer service. Any petitions filed with the Commission related to the acquisitions described in this Section, including petitions seeking approvals or certificates required by this Act, will be deemed approved unless the Commission issues its final order within 6 months after the date the large public utility filed its initial petition. This Section shall not be construed in any manner to apply to electric corporations, natural gas corporations, or any other utility subject to this Act.

(k) Nothing in this Section shall prohibit a party from declining to proceed with an acquisition or be deemed as establishing the final purchase price of an acquisition.

Section 99. Effective date. This Act takes effect upon becoming law.