- Gov. Ron DeSantis signed HB 125 into law, bringing reforms to the valuation and acquisition process of utility systems regulated by the Public Service Commission (PSC).
- The law establishes a rate base value for acquired utility systems, determined by the “original cost” method, which allows the acquiring utility to earn a rate of return based on the net book value of the acquired assets.
- An alternative valuation process has been introduced for certain water and wastewater utilities, allowing them to petition the PSC for rate-based establishment based on negotiated purchase prices or appraisals, considering factors such as appraisal fees and transaction costs.
Gov. Ron DeSantis signed House Bill 125 (HB 125) into law on Monday night, which introduces reforms to the valuation and acquisition process of utility systems regulated by the Public Service Commission (PSC).
Under the newly enacted law, when a water or wastewater utility regulated by the PSC acquires an existing system, the PSC will establish a rate base value for the acquired entity. The rate base value, determined using the “original cost” method, sets the amount upon which the acquiring utility can earn a rate of return. It considers the net book value of the acquired utility, which is the original cost of its assets when first dedicated to public service, minus depreciation.
Additionally, If the purchase price of a utility system exceeds its net book value, the acquiring utility will not automatically include the difference in its rate base. The law, however, allows for extraordinary circumstances, such as anticipated cost efficiencies and improvements in service quality and regulatory compliance, to be considered.
The PSC may grant the acquiring utility a “positive acquisition adjustment” in its rate base during the utility’s next general rate case if it determines that extraordinary circumstances exist.
HB 125 also introduces an alternative valuation process for certain PSC-regulated water and wastewater utilities. Those with more than 10,000 customers or permitted to produce at least 3 million gallons of drinking water per day can now petition the PSC to establish the rate base for an acquired system based on either the negotiated purchase price or the average of three appraisals conducted by licensed appraisers chosen from a list provided by the PSC. The appraisal process will also consider appraisal fees and transaction costs, with an engineering assessment provided for evaluation.
To support such petitions, utilities must provide specific information as outlined in the law, including a rate stabilization plan if the requested relief would result in a significant individual rate increase.
Additionally, the PSC is required to consider a list of factors when reviewing utility petitions and has the authority to set reasonable performance goals based on these factors for subsequent rate proceedings.