A rate-regulated public utility proposing to acquire, in
whole or in part, a water, sanitary sewage, or storm water system with a fair
market value of $500,000 or more from a non-rate-regulated entity described in
Iowa Code section
476.1(4)
shall file an application for approval of
the acquisition with the board. If the acquisition is approved, ratemaking
principles that will apply when the costs of the acquisition are included in
regulated rates shall be determined as part of the board's review of the
application. At a minimum, an application made under this rule shall
substantially comply with the following informational requirements, to the
extent such information is reasonably available. Any omission of required
information on the basis that it is not reasonably available shall be
adequately justified by the applicant. The board will consider such omissions
on a case-by-case basis and may require the applicant to provide additional
information.
(1)
General
information. An application shall include the following general
information:
a. A general description of the
system to be acquired, including the total number of customers, a description
of the general arrangement of major structures and equipment, maps of the
system, and a general description of the scope of the system.
b. The identification and general description
of all material capital investments and operating expenses associated with the
proposed acquisition anticipated within five years of the date of the
acquisition.
c. A proposed
procedural schedule that, at a minimum, provides proposed dates for direct
testimony, rebuttal testimony, and a hearing for cross-examination of all
testimony. The proposed schedule should generally comply with the board's
procedural rules in 199-Chapter 7.
(2)
Acquisition information.
An application shall include the following information related to the
acquisition:
a. The final reports of both
appraisals prepared pursuant to Iowa Code section
388.2A(2)"a"(2).
b. Final fair market value of the system as
identified in Iowa Code section
388.2A(2)
"b."
c. The final
price for the system as negotiated pursuant to Iowa Code section
388.2A(2)"c."
d.
An inventory of the acquired system's real and personal property as identified
in Iowa Code section
388.2A(2)
"d."
e. A
financial information sheet prepared pursuant to Iowa Code section
388.2A(2)
"e."
f. An
affirmation that the acquiring utility and the acquired system have complied
with the applicable components of Iowa Code section
388.2A.
g. The proposed acquisition
contract.
(3)
Impact of acquisition. An application shall include the
following information related to the acquired system and its potential impact
on the acquiring utility:
a. If the acquired
system is not in compliance with applicable local, state, or federal standards,
estimates of the approximate cost and time required to put the system in
compliance with such standards.
b.
A description of anticipated capital investments and retirements for the
acquired system, including estimated dollar amounts, for each of the first five
years after the acquisition.
c. Any
anticipated staffing changes due to the proposed acquisition.
d. A description of the proposed accounting
to be utilized in any transfer of assets necessary to accomplish the
acquisition.
e. A description of
the anticipated effects of the acquisition, including a cost-benefit analysis
which describes the projected benefits and costs of the acquisition, quantified
in terms of present value and identifying the sources of such benefits and
costs.
f. An analysis of the
projected financial impact of the acquisition on the ratepayers of each of the
affected utilities for each of the first five years after the
acquisition.
g. Historical and
projected fixed expenses for the acquired system, including expense factors for
fixed operation and maintenance costs.
h. Historical and projected variable expenses
for the acquired system, including expected variable operation and maintenance
costs.
i. The estimated maximum,
minimum, and expected cash inflows and outflows for the acquired
system.
j. A description of the
financing components of the acquisition and an analysis of the impacts on the
acquiring utility's ability to attract capital on reasonable terms and to
maintain a reasonable capital structure.
(4)
Ratemaking principles.
Each ratemaking principle proposed shall be supported as described in this
subrule. Proposed ratemaking principles not envisioned by these rules shall be
supported by sufficient information to justify the use of such principles.
a.
Cost of equity. The
utility shall file financial models demonstrating the proposed equity rate or
range of equity rates necessary to attract equity capital for the proposed
acquisition. The financial analysis shall include a risk assessment of the
proposed acquisition, including a comparison with similar
acquisitions.
b.
Ratepayer
allocations. Proposals for allocating the cost of the acquired system
and anticipated improvements to customers of the acquired system and the
utility's existing customers shall include information showing that the
proposed allocation will result in rates that are just and reasonable for both
groups of customers.
c.
Initial depreciable value. Proposals for establishing the
value of the acquired system to be used as the initial gross asset balance for
depreciation shall be supported by the lesser of the sale price or the fair
market value of the system as determined consistent with Iowa Code section
388.2A(2)"b." The utility shall also provide the accumulated
depreciation balances for the assets.
d.
Depreciable life.
Proposals for establishing rates which will be used to depreciate the acquired
system shall be supported by a depreciation study or by depreciation rates
applied in the utility's last general rate case.
(5)
At-risk systems. An
application shall state whether the system to be acquired is an at-risk system,
as defined by Iowa Code section
455B.199D
as enacted by 2020 Iowa Acts, House File 2452. If the board determines that an
application to acquire an at-risk system does not contain sufficient
information consistent with this rule to render a timely decision, the board
may reject the application without prejudice.