SB3573 97TH GENERAL ASSEMBLY

LRB097 18541 CEL 63773 b

97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB3573

Introduced 2/10/2012, by Sen. William R. Haine

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 6,000 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 sewer utility service or water and sewer utility service.

"Prior rate case" means a large public utility's general rate case resulting in the rates in effect for the large public utility at the time it acquires the water or sewer utility.

"Next rate case" means a large public utility's first general rate case after the date the large public utility acquires the water or sewer utility where the acquired water or sewer utility's cost of service is considered as part of determining the large public utility's resulting rates.

"Disinterested" means that the person directly involved (1) is not a director, officer, or an employee of the large public utility or the water or sewer utility; (2) shall not derive a material financial benefit from the sale of the water or sewer utility other than fees for services rendered, and (3) no member of the person's immediate family, including a spouse, parents or spouse's parents, children or spouses of children, or siblings and their spouses or children, is a director, officer, or employee of either the large public utility or water or sewer utility, or may receive a material financial benefit from the sale of the water or sewer utility other than fees for services rendered.

(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 rate base of a water or sewer utility that it is acquiring, then an appraisal shall be performed. If the water or sewer utility being acquired and the large public utility agree on one appraiser, then the appraisal shall be performed by that jointly selected appraiser. If the water or sewer utility being acquired and the large public utility cannot agree on one appraiser, then the appraisal shall be performed by 3 appraisers with the water or sewer utility being acquired and the large public utility each appointing one appraiser individually and those resulting 2 appraisers shall together appoint an agreed-upon third appraiser. If the third appraiser is not appointed within 30 days after the first 2 appraisers are appointed, then the manager of the Commission's Water Department shall recommend the third appraiser to be appointed. The manager of the Water Department shall provide his or her recommendation for an appraiser within 30 days after when he or she is officially notified of the failure of the 2 appraisers to agree upon a third appraiser, and the 2 appraisers shall promptly work to engage the recommended third appraiser. If the appraiser or appraisers are unable to negotiate reasonable engagement terms with the recommended third appraiser within 15 days after the recommendation by the manager of the Water Department, then the appraisers shall notify the manager of the Water Department and the process shall be repeated until a third appraiser is successfully engaged. 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 an assessment of the tangible assets of the water or sewer utility, which is to be incorporated into the appraisal under the cost approach;

(4) if the water or sewer utility is a public utility that is regulated by the Commission, request from the manager of the Accounting Department a list of investments made by the water or sewer utility that had been disallowed previously and that shall be excluded from the calculation of the large public utility's rate base in its next rate case;

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

(6) 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 Commission's manager of the Water Department shall recommend the engineer which the appraiser or appraisers should engage; the manager of the Water Department shall provide his or her recommendation within 30 days from when he or she is officially notified of the appraiser or appraisers failure to engage an engineer and the appraiser or appraisers shall promptly work to engage the recommended engineer; if the appraiser or appraisers are unable to negotiate reasonable engagement terms with the recommended engineer within 15 days after the recommendation by the manager of the Water Department, then the appraisers shall notify the manager of the Water Department and the process shall be repeated until an engineer is successfully engaged.

When 3 appraisers are required and in the event 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. In this event, the third appraisal shall be submitted to the Commission with the filing for approval of the transaction. The Commission shall consider the third appraisal in its determination of the rate base of the water or sewer utility.

(d) The lesser of the purchase price and the appraised value, together with reasonable transaction and closing costs incurred by the large public utility, shall constitute the rate base associated with the water or sewer utility as acquired by and incorporated into the rate base of the district designated by the acquiring large public utility under this Section, subject to any adjustments that the Commission deems necessary to ensure such rate base reflects prudent and useful investments in the provision of public utility service. 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 that might be affected by this Section. Without otherwise limiting the application of Section 7-204 or any other Article of this Act, any acquisition of a water or sewer utility that affects the cumulative base rates of the large public utility's existing ratepayers in the tariff group into which the water or sewer utility is to be combined by less than 5% at the time of the acquisition shall not be deemed to violate any other Article 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 shall 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) The large public utility shall recommend the district or tariff group of which the water or sewer utility shall, for ratemaking purposes, become a part after the acquisition. The Commission's recommended district or tariff group shall be consistent with the large public utility's recommendation, unless such recommendation can be shown to be contrary to the public interest.

(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 ordered by the Commission. 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 ordered by the Commission and their costs of service shall be combined under the same rate tariff. This rate tariff shall be based on allocation of costs of service of the acquired water or sewer utility and the large public utility's district or tariff group ordered by the Commission and utilizing a rate design that does not distinguish 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) Any post-acquisition improvements made by the large public utility in the water or sewer utility shall accrue a cost for financing set at the large public utility's determined rate for allowance for funds used during construction, inclusive of the debt, equity, and income tax gross up components, after the date on which the expenditure was incurred by the large public utility until the investment has been in service for a 4-year period or, if sooner, until the time the rates are implemented in the large public utility's next rate case.

Any post-acquisition improvements, made by the large public utility in the water or sewer utility shall not be depreciated for ratemaking purposes from the date on which the expenditure was incurred by the large public utility until the investment has been in service for a 4-year period or, if sooner, until the time the rates are implemented in the large public utility's next rate case.

(j) This Section shall be exclusively applied to large public utilities in the voluntary and mutually agreeable acquisition of water or sewer utilities. Any petitions filed with the Commission related to the acquisitions described in this Section, including petitions seeking approvals or certificates required by this Act, shall be deemed approved unless the Commission issues its final order within 11 months after the date the large public utility filed its initial petition. This Section shall only apply to utilities providing water or sewer service and 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.

(l) Any contractor or subcontractor that performs work on a water or sewer utility acquired by a large public utility under this Section shall be a responsible bidder as described in Section 30-22 of the Illinois Procurement Code. The contractor or subcontractor shall submit evidence of meeting the requirements to be a responsible bidder as described in Section 30-22 to the water or sewer utility. Any new water or sewer facility built as a result of the acquisition shall require the contractor to enter into a project labor agreement. The large public utility acquiring the water or sewer utility shall offer employee positions to qualified employees of the acquired water or sewer utility.

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