Code provisions provide the Commission with the authority to conduct property valuation investigations and property valuation is the core purpose of Section 1329 proceedings. I&E R. Exc. at 18. Regarding Aqua’s statutory interpretation arguments, I&E proffers that the sections of the Code should be interpreted harmoniously. Absent some exceptions not pertinent here, a later statute – Section 1329 – shall not be construed to repeal earlier statutes – Sections 505 and 1103 – unless the statutes are irreconcilable, states I&E. I&E R. Exc. at 18 (citing 1 Pa. C.S. § 1971(c)). Here, I&E contends that the Section 1329 fair market value procedure is reconcilable with the Commission’s authority under Sections 505 and 1103 of the Code. I&E R. Exc. at 18. The OCA in its replies also objects to the Company’s argument that under Section 1329 there can be no challenge to the UVE appraisals. Rather, the OCA asserts that the public interest can only be protected if the Commission can consider evidence regarding errors and unsupported judgments in the UVE appraisals. The OCA contends that Aqua’s position is contrary to the plain language of Section 1329 and the rules of statutory construction, which dictate that all provisions of a statute should be given effect. Here, the OCA states that Section 1329 was established under Chapter 13 of the Code and must be implemented consistent with the requirement that all rates be just and reasonable. OCA R. Exc. at 14 (citing, in part, 66 Pa. C.S. § 1301). Eliminating the Commission’s ability to investigate the reasonableness of the appraisals and make necessary adjustments to determine the fair market value, the OCA continues, would prevent the Commission from ensuring that rates are just and reasonable. OCA R. Exc. at 14. The OCA highlights the importance of the Commission’s review by noting the potential impact of approving the $29,500,000 ratemaking rate base and the possible resulting rate increase of sixteen percent for all Aqua wastewater customers. Further, the
I&E also disagrees with Aqua’s argument that the rate commitments in the APA are not relevant in this proceeding. I&E asserts that Aqua’s conclusion regarding rate stabilization contradicts the mandate in the Final Implementation Order which requires supporting documents that explain how the rate stabilization plan may potentially impact existing customers of the acquiring utility to be filed with the rate stabilization plan in a Section 1329 proceeding. Id. at 13-14 (citing Final Implementation Order at 27). I&E also questions Aqua’s comparison of the instant proceeding to the PAWC/Scranton acquisition. I&E asserts that because the instant proceeding is both a Section 1102 and a Section 1329 proceeding and requires the filing of supporting documents to establish the basis of a rate stabilization plan, Aqua’s comparison of this case with the PAWC/Scranton case has no bearing. I&E therefore concludes that the Commission should deny the instant Application because Aqua failed to justify its rate stabilization plan as required by Section 1329. I&E R. Exc. at 14-15. c. OCA’s Replies to Aqua’s Exceptions In its Reply to Aqua’s Exception No. 2, while the OCA did not take a position on whether the rate restrictions in Aqua’s APA constitute a rate stabilization plan, the OCA nonetheless echoes I&E’s argument that unlike the PAWC/Scranton proceeding, Aqua’s Application was filed under both Sections 1102 and 1329 and requires ratemaking rate base to be determined in this proceeding. OCA R. Exc. at 1011. The OCA argues that because Aqua requested in its Application that the lesser of the purchase price or the average of the two fair market values be used as the ratemaking rate base in the instant proceeding, Aqua’s comparison of the instant proceeding with the PAWC/Scranton proceeding is misplaced and should be rejected. Id. Furthermore, the OCA asserts that Aqua’s failure to provide supporting documents or information regarding the rate restrictions in the APA makes it all the more
With regard to the municipal ownership scenario under the DCF method, Aqua argues that the OCA’s proposed adjustment that the 2.66 percent discount rate be discarded is borne out of a lack of understanding of the difference between a discount rate and a capitalization rate. Id. at 13-14. Aqua avers that Gannett did not use a 2.66 percent discount rate but only used the 3.66 percent discount rate under the municipal ownership market multiple DCF. According to Aqua, Gannett could only use the 3.66 percent discount rate because the market multiple DCF uses only discount rates and not capitalization rates. Aqua further notes that because 2.66 percent is a capitalization rate, Gannett could not use it. Id. at 14. Finally, Aqua asserts that unlike the OCA’s zero growth assumption, Gannett’s one percent growth projection was based on substantial evidence in the record. According to Aqua, New Garden is one of the fastest growing areas in the Commonwealth of Pennsylvania and that Gannett reasonably concluded in its appraisal that “[t]he combination of the Township’s higher than average projected population growth and the domestic growth resulting from failing on-lot septic system owners switching over to Sewer System service indicates appreciably higher future growth for the Sewer System.” Id. at 14 (quoting Aqua Exh. U at 7-10). Aqua further states that Gannett’s growth assessment is also based on independent population growth projections published by the Delaware Valley Regional Planning Commission (DVRCP). According to Aqua, the potential for septic system conversions is based on DEP’s 25-year life span of an on-lot septic system coupled with the fact that 72 percent of the Township’s homes were built before the year 2000. Id. at 15 (citing Aqua Stmt. 3R at 6). Aqua references various sections of documents in its Application including New Garden’s Chapter 94 Report for 2015, New Garden’s Act 537 Plan, and several other exhibits in the Application to support its growth projections and its decision to subtract 100-basis points from the capitalization of earnings method based on 2.66 percent municipal bond yield. Aqua R. Exc. at 15-17 (citing Aqua Exh. 1; Aqua Exh. U at 10).
c. Aqua’s Exceptions In its Exception No. 4, Aqua disagrees with the ALJ’s adoption of the growth and risk adjustments to Gannett’s market approach as proposed by the OCA. Aqua believes any form of adjustment to the fair market value is contrary to the clear and unambiguous statutory language of Section 1329 and should be rejected. Aqua Exc. at 27 (citing 66 Pa. C.S. § 1329(a)(2) and (a)(3); R.D. at 34-39). Aqua posits that although the ALJ’s recommended ratemaking rate base of $29.5 million is the same as that proposed by the Company, the ALJ’s calculated average appraisal value containing the OCA’s adjustment is contrary to the statute. Aqua asserts that the General Assembly clearly stated that only the UVEs are legally qualified and competent enough to address fair market valuation in a Section 1329 proceeding. Aqua Exc. at 28 (citing Table 2 of R.D. at 39; Aqua M.B. at 15-16; 66 Pa. C.S. § 1329(c)). Aqua also disputes the ALJ’s determination that “there was not an adequate explanation presented in the [Gannett] appraisal to substantiate the growth and risk rates ranging from ninety-five percent to 200 percent, which increased the value of the property under the market approach.” Aqua Exc. at 29 (citing R.D. at 36). According to Aqua, “[a] full and complete explanation of the adjustments is presented in the Gannett Fair Market Value Appraisal.” Aqua Exc. at 29 (citing Aqua Exh. 1; Exh. U at 33-36). Thus, Aqua requests that the Commission reject the ALJ’s recommendation on this issue. Aqua Exc. at 29. d. OCA’s Replies to Exceptions In its Reply to Aqua Exception No. 4, the OCA discounts Aqua’s argument that there is no legislative authorization to adjust a fair market value appraisal conducted by the UVEs and that the Commission should not give any weight to the ALJ’s recommendation adopting the OCA’s proposed adjustments. OCA R. Exc. at 17 (citing
Aqua Exc. at 27). The OCA argues that while Section 1329(a) and (b) provide the process of engaging and selecting a UVE and the fees and other affiliation of the UVE with the acquiring and selling utility, there is no language in Section 1329 that prohibits any party or the Commission from reviewing those appraisals to make a determination of their reasonableness. OCA R. Exc. at 17-18. Additionally, in its response to Aqua’s argument that the proposed adjustments by the OCA’s witness should not be given any weight because she is not a registered UVE and has no prior experience regarding fair market value appraisal, the OCA argues that neither of the two UVEs in this proceeding has conducted a fair market valuation appraisal for ratemaking purposes. OCA R. Exc. at 18 (citing Aqua Exc. at 28; OCA R.B. at 7; OCA Exh. AEE-2, 3 and 5). Finally, with regard to Aqua’s claim that the OCA selectively relied on parts of the appraisals in order to produce a lower ratemaking rate base, the OCA retorts that it only adjusted portions of the appraisal that were not supported and outside the realm of reasonable ratemaking metrics. OCA R. Exc. at 19 (citing Aqua Exc. at 28; OCA M.B. at 9-25; OCA R.B. at 7). The OCA concurs with the ALJ’s determination that there “was not an adequate explanation presented in the appraisal to substantiate growth and risk rates that ranged from 95% to 200%, which increased the value of the property under the market approach.” Thus, the OCA requests that the Commission reject Aqua’s Exception No. 4. OCA R. Exc. at 18 (quoting R.D. at 36). e. Disposition After consideration of the record in this proceeding, including the positions of the Parties and the applicable law, we shall deny both the OCA’s Exception No. 1 and Aqua’s Exception No. 4. Preliminarily, however, we shall emphasize our agreement with several aspects of the Recommended Decision. We agree with the finding of the ALJ that consistent with the requirements of Section 1329, both UVEs conducted their