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State House Moves One Step Closer to Tighter Regulations on the Sale of Municipal Water Systems

A House panel has approved moving forward with a package of four bills that could have a major impact on municipalities that are exploring sales of their municipal water systems. In 2016, Pennsylvania passed Act 12, which allowed municipalities to sell their public utility systems to private entities for fair market value. Now it appears as though the House is poised to try to rein in some of the effects of Act 12.

One bill places additional notice requirements on the municipality, including the estimated impact on a ratepayer’s bill should the transaction be finalized. A second bill would increase the amount of time the Pennsylvania Public Utility Commission has to approve a sale from six months to nine months, with the option to extend that period for up to three additional months. A third proposed bill would limit initial increases for ratepayers to the depreciated original cost of the system, with the difference between the depreciated original cost and the ratemaking base rate gradually increased equally over the next three rate cases. The fourth bill also limits the impact of a sale of a public water system on ratepayers by limiting the ratemaking base to the lesser of the sale price, the fair market value of the system, or 125% of the depreciated original cost of the system. By limiting the amount that a private utility can spread costs over their entire ratemaking base to 125% of the depreciated original cost of the system, the bill essentially puts a cap on sale prices.

These bills have not passed the House and Senate, but there does appear to be bipartisan support for the package, at least in the House. Any municipalities considering the sale of their municipal water systems should keep a close eye on how this package of bills develops over the next several months. Stock and Leader will provide further updates as they become available.

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