100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018
HB5185

 

Introduced , by Rep. John Connor

 

SYNOPSIS AS INTRODUCED:
 
220 ILCS 5/9-210.5

    Amends the Public Utilities Act. Provides that an acquisition of a water or sewer utility shall be paid for by shareholders and not existing ratepayers (rather than charging ratepayers in the tariff group into which the water or sewer utility is to be combined specific rates). Changes the repeal date of provisions concerning valuation of water and sewer utilities from June 1, 2018 to June 1, 2021. Effective May 31, 2018.


LRB100 19710 SMS 34984 b

 

 

A BILL FOR

 

HB5185LRB100 19710 SMS 34984 b

1    AN ACT concerning regulation.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Public Utilities Act is amended by changing
5Section 9-210.5 as follows:
 
6    (220 ILCS 5/9-210.5)
7    (Section scheduled to be repealed on June 1, 2018)
8    Sec. 9-210.5. Valuation of water and sewer utilities.
9    (a) In this Section:
10        "Disinterested" means that the person directly
11    involved (1) is not a director, officer, or an employee of
12    the large public utility or the water or sewer utility or
13    its direct affiliates or subsidiaries for at least 12
14    months before becoming engaged under this Section; (2)
15    shall not derive a material financial benefit from the sale
16    of the water or sewer utility other than fees for services
17    rendered, and (3) shall not have a member of the person's
18    immediate family, including a spouse, parents or spouse's
19    parents, children or spouses of children, or siblings and
20    their spouses or children, be a director, officer, or
21    employee of either the large public utility or water or
22    sewer utility or the water or sewer utility or its direct
23    affiliates or subsidiaries for at least 12 months before

 

 

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1    becoming engaged under this Section or receive a material
2    financial benefit from the sale of the water or sewer
3    utility other than fees for services rendered.
4        "District" means a service area of a large public
5    utility whose customers are subject to the same rate
6    tariff.
7        "Large public utility" means an investor-owned public
8    utility that:
9            (1) is subject to regulation by the Illinois
10        Commerce Commission under this Act;
11            (2) regularly provides water or sewer service to
12        more than 30,000 customer connections;
13            (3) provides safe and adequate service; and
14            (4) is not a water or sewer utility as defined in
15        this subsection (a).
16        "Next rate case" means a large public utility's first
17    general rate case after the date the large public utility
18    acquires the water or sewer utility where the acquired
19    water or sewer utility's cost of service is considered as
20    part of determining the large public utility's resulting
21    rates.
22        "Prior rate case" means a large public utility's
23    general rate case resulting in the rates in effect for the
24    large public utility at the time it acquires the water or
25    sewer utility.
26        "Utility service source" means the water or sewer

 

 

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1    utility or large public utility from which the customer
2    receives its utility service type.
3        "Utility service type" means water utility service or
4    sewer utility service or water and sewer utility service.
5        "Water or sewer utility" means any of the following:
6            (1) a public utility that regularly provides water
7        or sewer service to 6,000 or fewer customer
8        connections;
9            (2) a water district, including, but not limited
10        to, a public water district, water service district, or
11        surface water protection district, or a sewer district
12        of any kind established as a special district under the
13        laws of this State that regularly provides water or
14        sewer service to 7,500 or fewer customer connections;
15            (3) a waterworks system or sewerage system
16        established under the Township Code that regularly
17        provides water or sewer service to 7,500 or fewer
18        customer connections; or
19            (4) a water system or sewer system owned by a
20        municipality that regularly provides water or sewer
21        service to 7,500 or fewer customer connections; and
22            (5) any other entity that regularly provides water
23        or sewer service to 7,500 or fewer customer
24        connections.
25    (b) Notwithstanding any other provision of this Act, a
26large public utility that acquires a water or sewer utility may

 

 

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1request that the Commission use, and, if so requested, the
2Commission shall use, the procedures set forth under this
3Section to establish the ratemaking rate base of that water or
4sewer utility at the time when it is acquired by the large
5public utility.
6    (c) If a large public utility elects the procedures under
7this Section to establish the rate base of a water or sewer
8utility that it is acquiring, then 3 appraisals shall be
9performed. The average of these 3 appraisals shall represent
10the fair market value of the water or sewer utility that is
11being acquired. The appraisals shall be performed by 3
12appraisers selected by the Commission's water department
13manager and engaged by either the water or sewer utility being
14acquired or by the large public utility. The Commission's water
15department manager shall select the appraisers within 30 days
16after the water department manager is officially notified. Each
17appraiser shall be engaged on reasonable terms approved by the
18Commission. Each appraiser shall be a disinterested person
19licensed as a State certified general real estate appraiser
20under the Real Estate Appraiser Licensing Act of 2002.
21    Each appraiser shall:
22        (1) be sworn to determine the fair market value of the
23    water or sewer utility by establishing the amount for which
24    the water or sewer utility would be sold in a voluntary
25    transaction between a willing buyer and willing seller
26    under no obligation to buy or sell;

 

 

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1        (2) determine fair market value in compliance with the
2    Uniform Standards of Professional Appraisal Practice;
3        (3) engage one disinterested engineer who is licensed
4    in this State to prepare an assessment of the tangible
5    assets of the water or sewer utility, which is to be
6    incorporated into the appraisal under the cost approach;
7        (4) if the water or sewer utility is a public utility
8    that is regulated by the Commission, request from the
9    manager of the Accounting Department a list of investments
10    made by the water or sewer utility that had been disallowed
11    previously and that shall be excluded from the calculation
12    of the large public utility's rate base in its next rate
13    case; and
14        (5) return their appraisal, in writing, to the water or
15    sewer utility and large public utility in a reasonable and
16    timely manner.
17    If the appraiser cannot engage an engineer, as described in
18paragraph (3) of this subsection (c), within 30 days after the
19appraiser is engaged, then the Commission's water department
20manager shall recommend the engineer the appraiser should
21engage. The Commission's water department manager shall
22provide his or her recommendation within 30 days after he or
23she is officially notified of the appraiser's failure to engage
24an engineer and the appraiser shall promptly work to engage the
25recommended engineer. If the appraiser is unable to negotiate
26reasonable engagement terms with the recommended engineer

 

 

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1within 15 days after the recommendation by the Commission's
2water department manager, then the appraiser shall notify the
3Commission's water department manager and the process shall be
4repeated until an engineer is successfully engaged.
5    (d) The lesser of (i) the purchase price or (ii) the fair
6market value determined under subsection (c) of this Section
7shall constitute the rate base associated with the water or
8sewer utility as acquired by and incorporated into the rate
9base of the district designated by the acquiring large public
10utility under this Section, subject to any adjustments that the
11Commission deems necessary to ensure such rate base reflects
12prudent and useful investments in the provision of public
13utility service. The reasonable transaction and closing costs
14incurred by the large public utility shall be treated
15consistent with the applicable accounting standards under this
16Act. The amount of the appraiser's fees to be included in the
17transaction and closing costs shall not exceed the greater of
18$15,000 or 5% of the appraised value of the water or sewer
19utility being acquired. This rate base treatment shall not be
20deemed to violate this Act, including, but not limited to, any
21Sections in Articles VIII and IX of this Act that might be
22affected by this Section. Any acquisition of a water or sewer
23utility shall be paid for by shareholders and not existing
24ratepayers that affects the cumulative base rates of the large
25public utility's existing ratepayers in the tariff group into
26which the water or sewer utility is to be combined by less than

 

 

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1(1) 2.5% at the time of the acquisition for any single
2acquisition completed under this Section or (2) 5% for all
3acquisitions completed under this Section before the
4Commission's final order in the next rate case shall not be
5deemed to violate Section 7-204 or any other provision of this
6Act.
7    In the Commission's order that approves the large public
8utility's acquisition of the water or sewer utility, the
9Commission shall issue its decision establishing (1) the
10ratemaking rate base of the water or sewer utility and (2) the
11district or tariff group with which the water or sewer utility
12shall be combined for ratemaking purposes.
13    (e) If the water or sewer utility being acquired is owned
14by the State or any political subdivision thereof, then the
15water or sewer utility must inform the public of the terms of
16its acquisition by the large public utility by (1) holding a
17public meeting prior to the acquisition and (2) causing to be
18published, in a newspaper of general circulation in the area
19that the water or sewer utility operates, a notice setting
20forth the terms of its acquisition by the large public utility
21and options that shall be available to assist customers to pay
22their bills after the acquisition.
23    (f) The large public utility shall recommend the district
24or tariff group of which the water or sewer utility shall, for
25ratemaking purposes, become a part after the acquisition. The
26Commission's recommended district or tariff group shall be

 

 

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1consistent with the large public utility's recommendation,
2unless such recommendation can be shown to be contrary to the
3public interest.
4    (g) From the date of acquisition until the date that new
5rates are effective in the acquiring large public utility's
6next rate case, the customers of the acquired water or sewer
7utility shall pay the then-existing rates of the district or
8tariff group ordered by the Commission; provided, that, if the
9application of such then-existing rates of the large public
10utility to customers of the acquired water or sewer utility
11using 54,000 gallons annually results in an increase to the
12total annual bill of customers of the acquired water or sewer
13utility, exclusive of fire service or related charges, then the
14large public utility's rates charged to the customers of the
15acquired water or sewer utility shall be uniformly reduced, if
16any reduction is required, by the percent that results in the
17total annual bill, exclusive of fire services or related
18charges, for the customers of the acquired water or sewer
19utility using 54,000 gallons being equal to 1.5% of the latest
20median household income as reported by the United States Census
21Bureau for the most applicable community or county. For each
22customer of the water or sewer utility with potable water usage
23values that cannot be reasonably obtained, a value of 4,500
24gallons per month shall be assigned. These rates shall not be
25deemed to violate this Act including, but not limited to,
26Section 9-101 and any other applicable Sections in Articles

 

 

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1VIII and IX of this Act. The Commission shall issue its
2decision establishing the rates effective for the water or
3sewer utility immediately following an acquisition in its order
4approving the acquisition.
5    (h) In the acquiring large public utility's next rate case,
6the water or sewer utility and the district or tariff group
7ordered by the Commission and their costs of service shall be
8combined under the same rate tariff. This rate tariff shall be
9based on allocation of costs of service of the acquired water
10or sewer utility and the large public utility's district or
11tariff group ordered by the Commission and utilizing a rate
12design that does not distinguish among customers on the basis
13of utility service source or type. This rate tariff shall not
14be deemed to violate this Act including, but not limited to,
15Section 9-101 of this Act.
16    (i) Any post-acquisition improvements made by the large
17public utility in the water or sewer utility shall accrue a
18cost for financing set at the large public utility's determined
19rate for allowance for funds used during construction,
20inclusive of the debt, equity, and income tax gross up
21components, after the date on which the expenditure was
22incurred by the large public utility until the investment has
23been in service for a 4-year period or, if sooner, until the
24time the rates are implemented in the large public utility's
25next rate case.
26    Any post-acquisition improvements made by the large public

 

 

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1utility in the water or sewer utility shall not be depreciated
2for ratemaking purposes from the date on which the expenditure
3was incurred by the large public utility until the investment
4has been in service for a 4-year period or, if sooner, until
5the time the rates are implemented in the large public
6utility's next rate case.
7    (j) This Section shall be exclusively applied to large
8public utilities in the voluntary and mutually agreeable
9acquisition of water or sewer utilities. Any petitions filed
10with the Commission related to the acquisitions described in
11this Section, including petitions seeking approvals or
12certificates required by this Act, shall be deemed approved
13unless the Commission issues its final order within 11 months
14after the date the large public utility filed its initial
15petition. This Section shall only apply to utilities providing
16water or sewer service and shall not be construed in any manner
17to apply to electric corporations, natural gas corporations, or
18any other utility subject to this Act.
19    (k) Nothing in this Section shall prohibit a party from
20declining to proceed with an acquisition or be deemed as
21establishing the final purchase price of an acquisition.
22    (l) In the Commission's order that approves the large
23utility's acquisition of the water or sewer utility, the
24Commission shall address each aspect of the acquisition
25transaction for which approval is required under the Act.
26    (m) Any contractor or subcontractor that performs work on a

 

 

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1water or sewer utility acquired by a large public utility under
2this Section shall be a responsible bidder as described in
3Section 30-22 of the Illinois Procurement Code. The contractor
4or subcontractor shall submit evidence of meeting the
5requirements to be a responsible bidder as described in Section
630-22 to the water or sewer utility. Any new water or sewer
7facility built as a result of the acquisition shall require the
8contractor to enter into a project labor agreement. The large
9public utility acquiring the water or sewer utility shall offer
10employee positions to qualified employees of the acquired water
11or sewer utility.
12    (n) This Section is repealed on June 1, 2021 2018.
13(Source: P.A. 98-213, eff. 8-9-13.)
 
14    Section 99. Effective date. This Act takes effect May 31,
152018.