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