Virginia Administrative Code › Title 20 - PUBLIC UTILITIES AND TELECOMMUNICATIONS › Agency 5 - STATE CORPORATION COMMISSION › Chapter 210 - WATER OR WASTEWATER UTILITY APPLICATIONS SEEKING FAIR VALUATION OF ACQUISITIONS OF MUNICIPAL WATER OR WASTEWATER SYSTEMS › Section 20VAC5-210-20 - General filing instructions

Current through Register Vol. 40, No. 24, July 15, 2024
A. An applicant shall provide a notice of
				intent to file an application pursuant to this chapter to the commission at
				least 30 days prior to the application filing date. Such notice of intent shall
				identify the parties involved in the proposed transaction and the specific
				section and subsection of the Code of Virginia pursuant to which the
				application will be filed.
B.
				Applications filed pursuant to this chapter shall include, in addition to all
				other filing requirements in Chapter 5 (§
									56-88 et
				seq.) of Title 56 of the Code of Virginia applications:
1. Testimony in support of the proposed
				acquisition and purchase price. Such testimony shall include a statement from
				each of the acquiring and selling entities concerning each entity's agreement
				and intent to consummate the transaction according to the terms and conditions
				represented in the application.
2.
				Complete and unredacted copies, including all supporting documentation and
				workpapers, of two qualified, independent, and impartial utility valuation
				experts' appraisals of the system assets to be acquired in compliance with the
				uniform standards of professional appraisal practices. The appraisals shall be
				submitted and treated confidentially under
				5VAC5-20-170.
				Such appraisals shall be completed and submitted in accordance with the
				following requirements:
a. One appraisal
				shall be sponsored by the water or wastewater public utility acquiring the
				utility system assets, and one appraisal shall be sponsored by the government
				entity selling its utility system assets.
b. The qualifications of each utility
				valuation expert, specifically as they relate to water or wastewater utility
				systems, shall be clearly identified in the application.
c. The appraisals shall clearly identify
				whether they are based on a cost, market, income, other methodology, or a
				combination of such methodologies, and shall state the historical period on
				which they are based.
d. To the
				extent any assets are proposed to be acquired apart from those to be currently
				used and useful in utility service, the appraisals shall (i) separately
				identify such assets and (ii) describe the acquiring utility's intended use of
				such assets.
3. A
				complete and unredacted copy, including all supporting documentation and
				workpapers, of the assessment performed by an independent professional engineer
				licensed in Virginia, jointly retained by the acquiring and selling entities,
				regarding the tangible assets of the utility system to be acquired. For
				purposes of this section, "jointly retained" means retained collectively by the
				acquiring and selling entities, retained by the selling entity and adopted by
				the acquiring entity, or retained by the acquiring entity and adopted by the
				selling entity. Such assessment shall be (i) used by the utility valuation
				experts as a basis for their valuations in determining fair market value and
				(ii) submitted and treated confidentially under 5VAC5-20-170. Such assessments
				shall be completed and submitted in accordance with the following:
a. The qualifications of such licensed
				engineer, specifically as the qualifications relate to water or wastewater
				utility systems, shall be clearly identified in the application.
b. To the extent assets are to be acquired
				apart from those to be currently used and useful in utility service, such
				assessment shall separately quantify the assets that are to be currently used
				and useful in utility service.
c.
				An analysis of the condition of the system shall be provided, including the
				in-service date, if available, and an assessment of the useful life of each
				asset [or asset class, where information on an individual asset basis is
				unavailable or would be unduly burdensome to provide,] and its operating
				condition. [If analysis of each asset is not provided, the analysis shall
				include other details as available and shall explain the basis for how the
				engineer determined the in-service date, useful life, and condition of the
				asset class.]
4. The
				following market data regarding water or wastewater utility transfers, if
				available, should be provided as part of the appraisals. To the extent such
				data is not available from the selling entity, an explanation should be
				provided.
a. Identification of the acquiring
				and selling entities.
b. A
				description of the assets.
c. The
				geographic footprint of the acquired system.
d. The number of customers.
e. The transaction amount, identification of
				the recorded cost of the assets, and identification of whether such transaction
				was based on original cost, fair value, or other basis.
f. Quantification of purchase of equity or
				debt, if applicable.
g. Date of the
				transaction.
5. The
				following cost data for the assets to be acquired, if available, should be
				included as part of the appraisals. To the extent such data is not available
				from the selling entity, an explanation should be provided.
a. A detail of historical cost of assets by
				plant account, or categories of assets if not available by account, including
				plant additions and retirements by vintage year.
b. A detail of the recorded reserve for
				depreciation by plant account or categories of assets if not available by
				account.
c. Existing depreciation
				rates by account, or categories of assets, for the system to be
				acquired.
6. The
				following income data, if available, should be included as part of the
				appraisals. To the extent such data is not available from the selling entity,
				an explanation should be provided.
a. Any
				impairment tests performed for the system to be acquired as performed
				internally by the selling entity or its external auditors for the five prior
				years.
b. Annual financial
				forecasts prepared by management of the selling entity for the three prior
				years.
c. An analysis of the
				following for the acquired system by rate class and meter or service line size
				for the three most recent years:
(1) Number
				of customers.
(2) Usage data.
(3) Billed revenues.
(4) Net charge-offs.
7. Other required information
				pertaining to the acquired system to include:
a. An unredacted copy of the purchase
				agreement.
b. A map of the service
				area of the acquired system.
c. A
				detailed description of all assets of the acquired system, with identification
				of any assets that were not used and useful at the time of the appraisals.
d. A statement of any obsolescence
				considered (e.g., physical, functional, and economic) and supporting
				documentation and calculations for any obsolescence quantified.
e. The comprehensive annual financial report
				for the municipality or other selling governmental entity for the three prior
				years.
f. Any presentations made by
				investment advisors or senior management of either the acquiring or selling
				entity regarding the potential sale.
g. A detailed analysis of any rehabilitations
				or improvements the acquiring utility plans to make to the acquired system to
				address any known deficiencies of the acquired system.
8. To the extent the proposed purchase price
				is different than that provided in the filed appraisals, the application shall
				identify the proposed purchase price.
9. The acquiring utility's proposed journal
				entries anticipated to result from the proposed acquisition, including tax
				entries and account numbers recognized by the National Association of
				Regulatory Utility Commissioners.
10. An analysis identifying the qualitative
				and quantitative benefits and estimated customer rate impacts for the next five
				years as a result of the proposed acquisition for each of (i) the customers of
				the acquired system and (ii) the legacy customers of the acquiring utility.
				Such analysis shall clearly identify all assumptions relied upon.
11. Documentation of (i) incurred and
				additional estimated costs and fees of the utility valuation experts in the
				fair market value determination and (ii) incurred and additional estimated
				transaction and closing costs.