[49 Pa.B. 1259]
[Saturday, March 16, 2019]
[Continued from previous Web Page] Checklist Item 20
In the TSIO, we proposed to revise Item 20 of the Section 1329 Application Filing Checklist by adding the following subsection:
20. Proof of Compliance—provide proof of compliance with applicable design, construction and operation standards of DEP or of the county health department, or both, including:. . .f. Provide documentation of all Notices of Violation issued to seller by DEP for the last 5 years, an explanation of each, including a description of any corrective or compliance measures taken.. . .TSIO Appendix A at 4-5. The purpose of this revision is to distinguish between Department of Environmental Protection (DEP) violations and Notices of Violation, which may not in fact be a substantiated violation of law.
Comments
Aqua stated that it does not oppose Item 20.f as revised. Aqua Comments at 11. Aqua requested clarification that the request will come to the selling municipality and the Buyer will provide, to the best of its ability, what information the Seller may have. Id. Aqua argued that the Buyer should not have to utilize its limited resources to track down information from DEP during the due diligence process that may or may not confirm prior notices of violation. Id.
Reply Comments
PAWC indicated that it agrees with Aqua. PAWC Reply Comments at 3. PAWC noted that it is concerned that an application may be rejected due to the failure to include information that is within the sole custody and control of the Seller. Id.
Conclusion
While the information required by Item 20 regarding DEP violations and Notices of Violation may be requested of the Seller from the Buyer as Aqua suggested, the applicant is expected to provide this information in response to the Checklist. The Section 1329 application process is voluntary. If a Seller does not wish to comply, it bears the risk of that decision. Moreover, as the Buyer is seeking to acquire and operate the Seller's system, the Commission believes that it is in the Buyer's interest to attempt to obtain information regarding DEP violations and Notices of Violation, including corrective and compliance measures, as a part of necessary due diligence. Therefore, we decline to modify the language of Item 20. The revisions to Item 20 set forth in the TSIO remain intact.
Public Meetings and the Six-Month Consideration Period
In the TSIO, we recognized concerns regarding procedural schedules in Section 1329 proceedings due to the relationship between the mandatory six-month deadline of Section 1329(d)(2) and the investigation, analysis, and effort demanded to provide competent representation in these proceedings. We also recognized scheduling concerns resulting from the relationship between the six-month deadline and the Public Meeting schedule to which that deadline is applied.
These types of statutory deadlines require the presiding ALJ and the parties to ''back-into'' a procedural schedule that accommodates the Section 1329 application filing date and the last Public Meeting within the proscribed six-month period. Problems may arise if there is only one Public Meeting in a month or if a Public Meeting is rescheduled or canceled. These issues may result in a procedural schedule as much as thirty days short of what is an already ambitious six-month consideration period. In the TSIO, the Commission proposed several options as a remedy.
First, we proposed that applicants consider the effect of a specific filing date, including consideration of the ten-day review of the Application Filing Checklist by TUS established in the FIO. For example, filing on a Wednesday, as opposed to a Friday, will assist in avoiding days wasted awaiting Pennsylvania Bulletin publication. Similarly, applicants should avoid submitting filings on dates where the six-month consideration period stands to run afoul of the published Public Meeting schedule. We further proposed that applicants may consider voluntarily extending the consideration period to avoid undue time pressure for the litigants or Commission staff charged with evaluating the proceeding.
Second, we proposed to permit TUS to hold acceptance of an application for up to five calendar days if doing so would avoid the problem of establishing a consideration period of 170 days or less.
Third, we proposed using planned notational voting to consider and adjudicate Section 1329 applications to permit the use of the entire six-month period that Section 1329 provides. See 4 Pa. Code § 1.43(c).
Comments
Aqua indicated that it agrees with the first proposal. Aqua Comments at 12. Aqua noted that, in its most recent application, it sought a filing date that would maximize the consideration period for all parties. Id. Aqua further noted that it will take into consideration Pennsylvania Bulletin publication dates, although it may file in the latter part of a week in order to make a Public Meeting date. Id. Aqua stated that it opposes the second proposal and argued that the Commission should not permit TUS to hold acceptance of applications for an additional five calendar days. Id. at 12-13. As to the third proposal, Aqua indicated that it does not oppose the use of notational voting.
BIE pointed out that, recently, applicants have been mindful of the Public Meeting schedule in filing applications. BIE Comments at 4. BIE stated that it supports the use of planned notational voting in situations where the consideration period falls short of a full six months. Id. at 5. BIE noted that planned notational voting would aid stakeholders in creating a more robust record for review. Id.
The OCA identified a voluntary extension of the suspension period and the scheduling of a special Public Meeting as additional options. OCA Comments at 5. The OCA argued that the scheduling of a special Public Meeting would provide a reasonable approach when there is only one Public Meeting per month. Id. The OCA stated that it prefers these alternative options. Id. at 5-6. Regarding notational voting, the OCA submitted that notational voting could be used, if it is the only way to avoid a shortened consideration period when there is not a Public Meeting that will allow a 180-day period, or a special Public Meeting cannot be held. Id. at 6. The OCA argued that a process to permit the parties and ALJ to know that notational voting will be used must be activated when the filing is under review, because the schedule is developed at that time. Id.
PAWC argued that an extension of the ten-day review period for TUS seems unnecessary because the Commission can use notational voting to meet its statutory obligations. PAWC Comments at 7. PAWC also requested that the Commission reconsider the timeline in the FIO and that parties be given additional time to prepare and litigate cases and consider utilizing the certification of the record procedure. Id. at 8.
Reply Comments
Aqua argued that it is fairly simple for utilities to back into a public meeting date that will allow the parties the most amount of time for processing an application. Aqua Reply Comments at 3. Aqua committed to filing in this manner, absent extraordinary circumstances, and noted that the timing issue should be alleviated for utilities that have been through the process. Id.
BIE argued that the benefit of TUS holding an application for an additional five calendar days outweighs Aqua and PAWC's concerns regarding a five-day delay of the acceptance of an application. BIE Reply Comments at 4. BIE also indicated that it agrees with the OCA that, if planned notational voting is to be used, the parties should be notified so that the additional time can be included in the litigation schedule. Id. BIE requested that the parties be notified prior to the Prehearing Conference. Id.
The OCA contended that Aqua's opposition to a five-day extension to the ten-day review period for TUS is not reasonable. OCA Reply Comments at 6. The OCA noted that the extension will benefit all parties. Id. at 7. In response to PAWC's argument that a five-day extension seems unnecessary as notational voting is available, the OCA maintained that notational voting should be used as a last resort and only if other options will not work to ensure a minimum of 170 days. Id. The OCA agreed with PAWC that certification of the record is one option that would provide more time to prepare and litigate the case. Id.
PAWC stated that it agrees with Aqua's comments. PAWC Reply Comments at 3. PAWC argued that it is legally questionable and unnecessary to allow staff to extend the six-month period. Id. PAWC argued that notational voting should be used to maximize the consideration period and that the Commission can provide the parties with more time without artificially extending the six-month review period. Id.
Conclusion
In consideration of the above comments and reply comments, the Commission determines to take a multi-prong approach to maximize the availability of the six-month consideration period. This approach reflects a combination of the proposals in the TSIO and allows for flexibility and case-by-case consideration of the needs of the applicant, the parties, and Commission staff.
We first direct applicants to consider the effect of a particular filing date on the length of the consideration period, including the ten-day review of the Application Filing Checklist by TUS, the timeframe for publication in the Pennsylvania Bulletin, and the Public Meeting schedule. Applicants should consider these factors with the goal of attaining a consideration period of 170 to 180 days. We agree with Aqua that it is feasible for applicants to back into a Public Meeting date that will maximize the use of the six-month consideration period and we expect all applicants to make a good faith effort to do so.
If an applicant nonetheless files an application such that the consideration period is less than 170 days, TUS will encourage the applicant to voluntarily extend the consideration period to between 170 and 180 days. If the applicant declines, TUS is permitted to hold acceptance of the application one to five additional calendar days to achieve a consideration period of 170 to 180 days.
Lastly, with regard to PAWC's request that we reconsider the timeline set forth in the FIO, we note that, as provided in the FIO, the proposed model timeline is a guide for achieving a Commission final order within the six-month deadline and, in our opinion, the parties are free to propose modifications to the presiding ALJ. FIO at 35. We expect any proposed modifications to recognize the requirements of due process in a particular proceeding and be tailored to the development of a full and complete record for Commission review. Id.
Public Notice of Accepted Section 1329 Applications
In the TSIO, we recognized that, because a docket number is not assigned to an application seeking Section 1329 valuation until after TUS determines that the applicant has satisfied the Application Filing Checklist and the application is suitable to accept for filing, interested stakeholders cannot enter a notice of appearance until after the filing is accepted. At that time, e-filing and e-service are unavailable as these services require at least pending party status. As such, stakeholders have no timely way to know that they can file a notice of appearance and that tolling of the six-month consideration period has begun. We also recognized that a three or four-day delay in notice of acceptance can make a difference in the context of a six-month consideration period.
To address this situation, we directed interested stakeholders to make full use of the general aspects of the Commission's e-filing system and provided instructions for creating a generic e-filing subscription that provides a user with an electronic email alert when the Commission accepts a Section 1329 filing.
Comments
Aqua indicated that it does not oppose the section of the TSIO addressing public notice of accepted Section 1329 applications. Aqua Comments at 12.
The OCA claimed that, according to the TSIO, the reason that a Secretarial Letter accepting an application cannot be sent to stakeholders, including statutory advocates, is because the docket number is not assigned until the filing is accepted and, thus, stakeholders cannot have pending party status. OCA Comments at 6. The OCA suggested that the Commission serve the statutory advocates with all Secretarial Letters that accept or reject a Section 1329 filing. Id. at 6. The OCA suggested that another option would be to assign a docket number at an earlier point in the process. Id. at 7. The OCA argued that doing so would allow stakeholders to follow a proceeding by docket number and intervene to obtain pending party status and would permit the customer notice to include the docket number. Id. The OCA further argued that this would be similar to the assignment of a docket number to a general rate increase filing at the time of the 30-day notice letter and the assignment of a docket number when a utility asks for a waiver of the regulation between the end of the test year and the filing of the rate increase request. Id.
Reply Comments
Aqua stated that it does not oppose the OCA's suggestion that statutory advocates be served with copies of any acceptance or rejection letter as it will provide timely notice of the beginning of the six-month consideration period. Aqua Reply Comments at 4.
PAWC indicated that it does not object to the OCA's suggestion that statutory advocates be served with a copy of the Secretarial Letter accepting or rejecting an application. PAWC Reply Comments at 8. PAWC argued that this approach would allow the statutory advocates to intervene in a case earlier and may alleviate the problem of TUS data requests being issued before the statutory advocates intervene, but answers not being due until after they intervene. Id.
Conclusion
In the FIO, we directed that the acquiring utility or entity should notify the Commission and the statutory advocates when they enter into a service contract with a UVE to appraise a potential acquisition. FIO at 35. Buyers have done so by filing ''UVE letters'' and, to date, UVE letters have appeared in the instant docket, M-2016-2543193, rather than in individual dockets.
For purposes of administrative efficiency, the Secretary's Bureau will now assign a docket number upon receipt of the UVE letter pertaining to that acquisition. We clarify that for the purposes of Section 1329, the assignment of a docket number is a ministerial document tracking mechanism with no legal significance. The assignment of a docket number does not indicate that a filing has been accepted and, therefore, a docket will remain inactive until a Section 1329 application under that docket number has been formally accepted by the Commission. Filings in an inactive docket will not be considered until the time at which the docket becomes active.
In the FIO, we stated that notice of rejection of a Section 1329 filing, in the form of a Secretarial Letter, shall be provided to the statutory advocates, the entities required to be served with the application, and anyone else on the application's certificate of service so that all parties or potential parties are aware of the acceptance or rejection of the filing. FIO at 25. We agree with the OCA that the statutory advocates should also be served with notice of acceptance of a Section 1329 filing as has been done in recent Section 1329 applications. We memorialize this requirement here.
Consistent with our directive in the TSIO, we continue to encourage interested stakeholders and potential parties should to make full use of the general aspects of the Commission's e-filing system by creating a generic e-filing subscription that provides an electronic email alert when the Commission accepts any Section 1329 filing.
Standard Data Requests for Applications Seeking Section 1329 Valuation
In the TSIO, we clarified that TUS does not review the veracity or substantive qualify of information that an applicant may submit to fulfill the threshold requirements of the Application Filing Checklist. In accordance with the FIO, TUS reviews whether the applicant has included, in good faith, the information required by the Commission for the initial filing such that the six-month consideration period of Section 1329(d)(2) may begin without causing (1) the applicant to suffer a summary rejection, if the application were to remain under TUS review, and (2) due process and other procedural concerns before the OALJ. TUS is not precluded from making subsequent data requests, provided that the data requests are issued before the Commission receives a protest or filing in opposition to an application.
In the TSIO, we determined to incorporate Standard Data Requests into Item 4 of the Application Filing Checklist in lieu of electronic working documents and provided proposed Standard Data Requests as well as instructions. See TSIO, Appendix B. The Standard Data Requests are designed to make the process of investigation and analysis of the Section 1329 application more efficient by providing key information at the outset of the application proceeding. Providing the information in the Standard Data Requests is intended, along with other initiatives, to address issues created by the Section 1329(d)(2) six-month consideration period.
Further, in terms of additional discovery, we declined to establish universal discovery modifications for Section 1329 proceedings. We encourage the voluntary modification of its discovery regulations at 52 Pa. Code §§ 5.321—5.372 due to the six-month consideration period. We also strongly encourage applicants to propose discovery rules and conditions suitable for the circumstances of each Section 1329 proceeding.
Below we first address comments and reply comments on the Standard Data Requests in their entirety, TUS data requests, and discovery modifications. We then address comments and reply comments regarding specific data requests. Portions of the Standard Data Requests that did not generate comment remain intact and will not be addressed further. A copy of the final Standard Data Requests is attached as Appendix B.
Comments
Aqua generally noted that certain information can be provided in the Standard Data Requests to assist in the application review process and that TUS may serve data requests on an applicant, provided that no protest or opposition filing has been made. Aqua Comments at 14. With regard to discovery modifications, Aqua noted that it will work with the parties once the application is accepted as complete to establish mutually agreeable discovery schedules and enter stipulated discovery schedule agreements so the parties will not have to wait for a prehearing order. Id.
BIE opined that, due to the compressed schedules of Section 1329 transactions, the standard discovery response time of 20 days is inappropriate. BIE Comments at 8. BIE further opined that it has frequently filed motions to expedite discovery before a prehearing conference is held. Id. BIE suggested that a discovery conference take place soon after acceptance of an application so that modification can be established. Id. at 9. In this regard, BIE recognized the willingness of utilities in Section 1329 proceedings to voluntarily agree to discovery modifications. Id. BIE also encouraged OALJ to impose modifications if the parties do not propose them on their own. Id.
CWA suggested a number of additions to the Standard Data Requests. CWA Comments at 3—6. CWA argued, inter alia, that the Commission should request information used to determine the asset inventory of the system and information regarding assets that may represent contributed plant. Id. at 3. CWA also argued that the Commission should require the Buyer and Seller to provide a bill comparison for a typical residential customer at the rates of the Seller upon acquisition and at the approved standard tariff pricing rates of the Buyer as well as require the Buyer to provide a pro forma income statement for the acquired system as a stand-alone entity at the rates of the Seller upon acquisition and reflecting the anticipated expenses of the Buyer. Id. at 4-5. Additionally, CWA requested that, for water and wastewater systems in the Delaware River Basin, the Commission require the Buyer and Seller to provide copies of the current dockets authorizing water diversions or wastewater discharge. Id. at 5. For systems operating under a DEP Consent Order, CWA requested that the Commission required the Buyer and the Seller to provide copies of the Orders and explain the compliance status. Id. For wastewater systems, CWA requested that the Buyer and the Seller inform the Commission if DEP has issued any determinations of overload of conveyance or treatment capacity. Id. Further, CWA suggested that the Seller describe the process used to identify and select the Buyer. Id. CWA also suggested that corporate resolutions of the stockholders or referendum of the public bodies authorizing the transaction be provided to the Commission. Id. at 5-6.
The OCA also proposed additions to the Standard Data Requests. OCA Comments at 8. The OCA argued that its additional data requests are reasonable to assist intervening parties in understanding the appraisals in the context of valuations that the Buyer and Seller may have made independently of the Section 1329 requirements. Id. The OCA's proposed additional data requests include the following:
1. Provide a copy of any valuation studies BUYER used in its evaluation of the Seller's system that have not already been provided.2. Provide a copy of any valuation studies SELLER used, in preparation for sending or receiving the request for proposals, if application, regarding the proposed sale of the system.OCA Attachment A.
PAWC stated generally that the Commission should reconsider the Standard Data Requests. PAWC Comments at 10. PAWC averred generally that some of the Standard Data Requests are unduly burdensome and seek documentation that is not relevant. Id. In addition, PAWC claimed that the TSIO does not address the situation in which TUS issues data requests and the Commission receives a protest or opposition to the application before the responses are due. Id. at 9. PAWC argued that TUS data requests should be deemed withdrawn when the application is assigned to the OALJ. Id. PAWC argued that answering the TUS data requests serves no practical purpose and increases the costs to ratepayers with no corresponding benefit. Id. at 10. Moreover, with regard to discovery modifications, PAWC noted that it agrees with the Commission refusal to establish modified discovery rules for all Section 1329 proceedings. Id. at 11. PAWC argued that a five-day response time is not warranted in future proceedings. Id. PAWC also argued that the Commission should establish a presumption that a seven-day discovery response period is reasonable absent good cause shown. Id.
With regard to TUS's data requests, SWPA noted that, in a prior proceeding, TUS took the position that SWPA was required to answer two sets of data requests, despite reassignment of the applications from TUS to OALJ. SWPA Comments at 2. SWPA further noted that many of the data requests were duplicative of discovery requests that SWPA would later receive from the public advocates. Id. SWPA requested that the Commission clarify that, once a protest is filed, the applicant no longer has an obligation to answer the TUS data requests. Id.
Reply Comments
Aqua argued that, with regard to the OCA's proposed additions to the Standard Data Requests, the fair market valuations submitted with the Section 1329 application in determination of the fair market value are the only relevant valuations. Aqua Reply Comments at 4. Aqua further argued that any other valuations that are not completed in accordance with the USPAP and the jurisdictional exceptions do not provide comparable information relevant to the determination of fair market value. Id.
In response to PAWC and SWPA's arguments regarding TUS's data requests, BIE argued that, to ensure that the parties are aware of the data requests, TUS could serve the data requests on BIE, the OCA, and OSBA. BIE Reply Comments at 8. BIE noted that, if the applicant is no longer required to answer the TUS data requests after reassignment to the OALJ, the parties would have to re-serve the applicant with the same or similar questions within the short litigation window. Id. BIE requested that the Commission direct applicants to answer TUS's data requests so that the same questions would not have to be regenerated as discovery. Id. With regard to discovery modifications, BIE stated that it opposes PAWC's proposal to establish a presumption that a seven-day response period is reasonable for discovery absent good cause shown. Id. at 7. BIE argued that the requirement of good cause would place an unnecessary burden on the parties. Id. BIE also noted that, in the TSIO, the Commission did not impose universal discovery rule modifications for Section 1329 proceedings because each application is independent and can warrant different modifications. Id.
In response to PAWC's claims that the Standard Data Requests are burdensome and seek information not pertinent to the application, the OCA argued that the information sought is pertinent and the Standard Data Requests will remove the pressure of answering the same questions during an expedited ligation period. OCA Reply Comments at 8. In response to PAWC and SWPA's arguments regarding TUS's data requests, the OCA noted that answering TUS's data requests could avoid requiring the parties to ask similar questions and restarting the time for responses in an abbreviated litigation timeframe. Id. With regard to discovery modifications, the OCA argued that, if any discovery response period presumption is created, it should be five days as it has been in many Section 1329 proceedings. Id. The OCA noted that the parties have used reasonable discovery modifications in Section 1329 proceedings to date. Id.
PAWC indicated that it disagrees with CWA's suggestion that applicants be required to submit numerous documents in addition to those already identified in the Standard Data Requests. PAWC Reply Comments at 18. For instance, PAWC stated it disagrees with CWA's suggestion to establish a record of the steps taken by the Seller lending to the negotiation of the agreement. Id. PAWC argued that the Commission is not authorized to second-guess the decision of municipal officials selling the system. Id. PAWC also argued that many of the documents suggested by CWA would not be useful to the Commission. Id. For example, PAWC stated it sees no value in requiring documents from the Delaware River Basin Commission. Id.
PAWC also objected to the OCA's proposed additional data requests. Id. at 8. PAWC argued that the Commission is not a super board of directors and does not have authority to second-guess municipal officials. Id. at 9. PAWC also argued that the negotiated purchase price should not be compared to how high the Buyer or how low the Seller was willing to go in negotiations. Id. Further, PAWC noted that, if the transaction does not proceed to closing, the parties may renegotiate, and it would be unfair for one party to have the proprietary business information of the other and there is a risk that a competitor would have this propriety information to use in the rebid process. Id. As it pertains to discovery modifications, PAWC opposed BIE's suggestion that a discovery conference be held soon after the acceptance of an application. Id. at 12.
SWPA stated that it does not support CWA's suggestion that referendums of the public bodies authorizing the transaction be provided to the Commission. SWPA Reply Comments. SWPA argued that an authority's board members and the municipal administration are best suited to decide whether or not to sell and that a municipality should not be compelled to conduct a referendum. Id. SWPA also stated that it does not agree with the OCA's proposed additional data requests. Id. SWPA argued that the UVE appraisals should suffice in establishing the fair market value and submission of the Buyer's and Seller's independent and confidential evaluation studies should not be required. Id. SWPA also argued that the Buyer's evaluation provides strategic information that should not be accessible to its competition. Id.
Conclusion
As it pertains to the Standard Data Requests in their entirety, we decline to adopt CWA's proposed additional data requests. While CWA identified information that may be pertinent in some Section 1329 proceedings, we believe that CWA's proposed data requests would be more appropriately addressed on a case-by-case basis. As stated in the TSIO, the Standard Data Requests are based largely on data requests routinely propounded in Section 1329 proceedings. The Standard Data Request are designed to make the investigation and analysis process more efficient for all stakeholders. Requiring a surplus of information that may only be pertinent to some, but not all, Section 1329 proceedings as part of the Standard Data Request does not likely support an efficient review process.
We also decline to adopt the OCA's proposed additional data requests. We agree with Aqua and PAWC that the fair market valuations submitted with the Section 1329 application are the relevant valuations. Pursuant to Section 1329, two UVEs shall perform appraisals for the purpose of establishing fair market value and each UVE shall determine fair market value in accordance with the USPAP. 66 Pa.C.S. §§ 1329(a)(2)-(3). Valuations that the Buyer and Seller made independently of the Section 1329 requirements are not pertinent to the Commission's inquiry in Section 1329 proceedings and may not have been conducted in compliance with the USPAP. Although not included in the Standard Data Request, the OCA (and other parties) remain free to request such data in Section 1329 application proceedings as appropriate.
As to the TUS data requests, we agree with BIE that applicants should answer TUS data requests even after the matter is assigned to OALJ. We set forth the Standard Data Requests to make the process of investigating and analyzing Section 1329 applications more efficient in light of the six-month consideration period. We find that requiring applicants to answer TUS data requests will likewise make this process more efficient. Requiring applicants to answer TUS data requests will avoid the need for parties to serve the same or similar interrogatories in discovery after the parties agree to discovery protocols.
Answering TUS's data requests will also streamline the process for applicants, who would otherwise begin preparing answers to TUS data requests, abandon those answers upon assignment to OALJ, and soon after being asked the same or similar questions by the parties. We also agree with BIE that, for complete transparency, TUS should serve its data requests on BIE, OCA, and OSBA to ensure that the parties are aware of the data requests to avoid duplication. If applicants respond to TUS data requests, they are free to object to duplicate inquires pursuant to our discovery regulations.
Regarding the role of TUS in requests for Section 1329 valuation, we clarify that Section 1329 provides for consideration of a fair market rate base valuation of certain acquired municipal utilities and a short clock for decisions on those valuations. Section 1329 does not repeal Chapter 11 of the Public Utility Code and Commission obligations under that Chapter. Applications subject to Section 1329 valuation require the Commission to exercise its public interest examination of all acquisition and transfer of control applications submitted for its approval. Point being that while the TUS role in establishing whether an acquisition application qualifies for accelerated Section 1329 consideration is limited, its authority to consider and examine these applications pursuant to Chapter 11 remains undiminished.
Lastly, we decline to establish universal discovery rule modifications applicable to all Section 1329 proceedings. However, we strongly encourage applicants to propose discovery rule modifications appropriate for Section 1329 proceedings. As Aqua suggested, parties should work to establish mutually agreeable discovery schedules once an application is accepted and enter a stipulated discovery schedule agreement to avoid waiting until the issuance of a prehearing order after a prehearing conference. We encourage the use of this approach. If applicants or parties do not propose discovery rule modifications, we encourage the OALJ to impose appropriate modifications to aid in the efficient disposition of the application.
Standard Data Request No. 1
In the TSIO, we proposed that Standard Data Request No. 1 seek to obtain the following information:
1. Estimate the potential range of monthly cost impact on existing and acquired customers following the Buyer's next base rate case, utilizing (a) a scenario in which the acquired system's cost of service is fully allocated to the acquired customers and (b) a scenario in which any anticipated cost of service revenue deficiency associated with the acquired system is shared equally by acquired customers and existing customers. In the case of a wastewater acquisition, assume no combined water and wastewater revenue requirement.TSIO Appendix B at 3.
Comments
Aqua stated that it does not oppose Standard Data Request No. 1 under the condition that the Commission is very clear that the estimates in the application are only estimates. Aqua Comments at 14. Aqua claimed that this question has the potential to turn each Section 1329 proceeding into a full base rate inquiry. Id. Aqua further claimed that it cannot be held to these estimates in the next base rate case. Id. Aqua requested that the Commission clearly state that the answers to No. 1 are simply to provide transparency and data points to the parties on what rates could be. Id.
Reply Comments
The OCA noted that No. 1 specifically asks for an estimate of the monthly cost impact on existing and acquired customers. OCA Reply Comments at 9. The OCA also noted that the concern raised regarding a full base rate case is unfounded. Id. The OCA argued that the Buyer can calculate a revenue requirement associated with the acquired plant, operation and maintenance expenses, and return, which does not constitute a full-blown rate case. Id. The OCA further argued that this information along with estimates of the rate impact are important in Section 1329 cases because Section 1329 required a ratemaking rate base determination. Id. Additionally, the OCA noted that estimates need to be free of assumptions that could skew the real impact and that the assumption stated in No. 1 (no combined water or wastewater revenue requirement) be followed. Id. The OCA argued that allowing the Buyer to assume that any of the costs can be spread to existing customers would minimize the impact of the ratemaking rate base. Id.
The PMAA stated it generally disagrees with comments opposing a requirement that the acquiring utility provide an estimate of the annual revenue of the municipal system under the acquiring utility's ownership. PMAA Reply Comments at 3.
Conclusion
Regarding Aqua's concerns, it is clear that Standard Data Request No. 1 concerns estimates. Standard Data Request No. 1 requires an estimate of the potential range of monthly cost impact on existing and acquired customers following the Buyer's next base rate case under the scenarios stated therein. This is not intended to turn the Section 1329 proceeding into a full base rate inquiry. Moreover, while we understand that this potential range may change from the time the Buyer files a Section 1329 application to the time of the Buyer's next base rate case, we expect the Buyer to provide good faith estimates in response to Standard Data Request No. 1. These estimates are requested for transparency purposes and are intended to provide data points as to what rates may result from the transaction. We recognized that, between the time of the Section 1329 transaction and the utility's next base rate case, there may be a host of cost factors that may increase or decrease the overall cost of service.
Also, we conclude that in the case of wastewater acquisitions, requiring an assumption that acquisition costs, or some portion of those costs, will not be shared among water and wastewater customers is not realistic. It is now common practice under 66 Pa.C.S. § 1311 for Class A water companies to employ the shared revenue requirement rate mechanism. We therefore revise Standard Data Request No. 1 to read as follows:
1. Estimate the potential [range of] monthly incremental cost impact on existing and acquired customers following the actual results of the Buyer's most recently adjudicated [next] base rate proceeding, whether litigated or settled, [case, utilizing (a) a scenario in which the acquired system's cost of service is fully] allocate[ed]ing [to] the fair market value of the acquired system according to the Buyer's previously approved single-tariff pricing model. [customers and (b) a scenario in which any anticipated cost of service revenue deficiency associated with the acquired system is shared equally by acquired customers and existing customers.]a. In the case of a wastewater acquisition, a Buyer that employs a combined revenue requirement pursuant to 66 Pa.C.S. § 1311 will provide information assum[e]ing [no] a combined water and wastewater revenue requirement consistent with its most recent adjudicated base rate proceeding.b. If a Buyer has filed the thirty-day notice of 52 Pa. Code § 53.45(a), or has filed a rate case, it should calculate the above using data as proposed in its upcoming or filed rate case.See Appendix B at 3. Providing this information, in conjunction with the information requested in Standard Data Request No. 7 below, will provide a more realistic range of possible rate effects of the proposed acquisition and will also inform our review of any rate stabilization plan required pursuant to Section 1329(d)(1)(v).
Standard Data Request No. 4
In the TSIO, we proposed that Standard Data Request No. 4 seek to obtain the following information:
4. Provide an estimate of the annual revenue requirement of the municipal system under the Buyer's ownership. Provide the assumptions for the annual revenue requirement, including expected rate of return, expected depreciation expense, O&M expenses, etc.TSIO Appendix B at 3.
Comments
Aqua stated that it opposes Standard Data Request No. 4 because it asks for a cost of service study provided up front with the application. Aqua Comments at 15. Aqua noted that, in previous applications, it agreed to provide cost of service information in the Company's next rate case. Id. Aqua further noted that the rate estimates in Standard Data Request No. 1 and revenue requirement estimates are linked; estimates as to the annual revenue requirement are only estimates. Id. Aqua claimed that the estimated revenue requirement is subject to change and may be affected by factors not known at the time of the filing. Id. Moreover, Aqua argued that a Section 1329 proceeding is not a base rate case and that the Company cannot be held to these estimates in the next base rate case. Id. Aqua requested that the Commission clearly state that the answers to Standard Data Request No. 4 are simply to provide transparency and data points to the parties on what rates could be. Id.
Reply Comments
The OCA noted that Aqua's interpretation is not supported. OCA Reply Comments at 10. The OCA argued that asking the Buyer to provide an estimate of the annual revenue requirement and the assumptions used in calculation that revenue requirement is not the same as a cost of service study. Id. The OCA also argued that calculating the revenue requirement for the Buyer to serve the municipal system is something that is based on information the Buyer already has. Id.
As noted above, the PMAA stated generally that it disagrees with comments opposing a requirement that the acquiring utility provide an estimate of the annual revenue of the municipal system under the acquiring utility's ownership. PMAA Reply Comments at 3. The PMAA argued that a ''cost of service study,'' which includes an estimate of the annual revenue requirement of the municipal system under the acquiring utility's ownership, provides relevant information. Id.
PAWC stated that it agrees with Aqua that No. 4 is unnecessary because of other information that an applicant must provide. PAWC Reply Comments at 4. PAWC noted that the cost to develop all the information required by the Standard Data Requests is borne by ratepayers. Id. PAWC argued that the benefits from No. 4 are minimal and that the Commission can consider the rate impact of the acquisition without this information. PAWC also argued that every Order approving a Section 1329 application has included a requirement that the Buyer submit a cost of service study in its next base rate case. Id.
Conclusion
Standard Data Request No. 4 requests only estimates; an estimate of the annual revenue requirement of the municipal system under the Buyer's ownership. A cost of service study is a requirement under 52 Pa. Code § 53.53, regarding rate cases in excess of $1 million. We do not require Section 1329 applicants to prepare and file a cost of service study with each application. Moreover, while we understand that the estimate may change from the time the Buyer files a Section 1329 application to the time of the Buyer's next base rate case, we expect the Buyer to provide a good faith estimate in response to No. 4. This estimate is requested for transparency purposes and is intended to point to what rates may result from the transaction.
Standard Data Request No. 7
In the TSIO, we proposed that Standard Data Request No. 7 seek to obtain the following information:
7. In the next rate case, does buyer anticipate includ[ing] the acquired system in a combined revenue requirement?TSIO Appendix B at 3.
Comments
Aqua indicated that it opposes Standard Data Request No. 7. Aqua Comments at 16. Aqua argued that No. 7 requires forward-looking statements in the application concerning whether the Company would propose to operate the acquired system as a stand-alone system or include it with a combined revenue requirement. Id. Aqua further argued that requiring this determination at the time of filing is speculative because the development of the Company's future rate design will not occur at that time. Id.
PAWC argued that answers to data requests regarding future events will be speculative. PAWC Comments at 10. With regard to No. 7, PAWC noted that the Buyer's next base rate case may be years away. Id. PAWC argued that No. 7 is premature at the time an application is filed.
Reply Comments
In response, the OCA argued that the question asks what the Buyer anticipates and does not lock in any particular response. OCA Reply Comments at 10. The OCA noted that it is important to understand what the Buyer anticipates, especially if the rate impact of the transaction is reasonable only if the buyer used the combined revenue requirement option. Id.
Conclusion
Contrary to Aqua's argument, Standard Data Request No. 7 does not require a determination as to whether a Buyer will include the acquired system in a combined revenue requirement in its next rate case. This data request asks only what the Buyer anticipates in the next base rate case. We note that a Buyer will not be penalized for answering that it has made no prediction regarding whether the acquired system will be included in a combined revenue requirement. However, where the Buyer anticipates that the acquired system will be included in a combined revenue requirement in the Buyer's next rate case, we expect the Buyer to answer accordingly. In addition, as discussed above, this information will inform our review of filing materials required pursuant to Section 1329(d)(1).
Standard Data Request No. 9
In the TSIO, we proposed that Standard Data Request No. 9 seek to obtain the following information:
9. Are there any leases, easements, and access to public rights-of-way that Buyer will need in order to provide service which will not be conveyed at closing? If yes, identify when the conveyance will take place and whether there will be additional costs involved.TSIO Appendix B at 3.
Comments
Aqua indicated that it opposes Standard Data Request No. 9 to the extent that the Buyer may not have received a completed title report from its title agent by the application date. Aqua Comments at 16. Aqua proposed to remove No. 9 from the list and that this question be issued in discovery by the parties. Id.
Reply Comments
The OCA argued that, if the Buyer has not received all of the information at the time of filing, the Buyer can list the information it has and indicate that it awaits additional information. OCA Reply Comments at 10-11. The OCA noted that the information requested in No. 9 is important because it is helpful to know what rights of way the Buyer needs to be able to provide service. Id. at 11.
PAWC stated that it agrees with Aqua that No. 9 should be removed from the Standard Data Requests and address at a later date during discovery. PAWC Reply Comments at 4. PAWC noted that the concern is that an application will be rejected for failing to provide information that is unavailable at the time the application is filed. Id.
Conclusion
As a threshold matter, the Commission wishes to know whether Buyers will have adequate control or access to facilities needed to provide safe, adequate, and reasonably reliable service in the acquired territory. This is an essential consideration related to the Commission's public safety mandate under the Public Utility Code. If a buyer has not yet received a completed title report from its title agent by the filing date, the Buyer should indicate the same in response to Standard Data Request No. 9 and provide the information when it becomes available to the Buyer. The goal of the Standard Data Requests is to make the investigation an analysis of Section 1329 proceedings more efficient not only for parties, but also for the Commission itself. When the information requested in No. 9 is available at the time of filing, it should be provided at the outset of the proceeding. When this information is not available at the time of filing, the applicant must indicate as much.
Standard Data Request No. 10
In the TSIO, we proposed that Standard Data Request No. 10 seek to obtain the following information:
10. Provide a breakdown of the estimated transaction and closing costs. Provide invoices to support any transaction and closing costs that have already been incurred.TSIO Appendix B at 4.
Comments
Aqua requested clarification that the breakdown referred to in Standard Data Request No. 10 will be provided in general categories, i.e., legal expense incurred and projected, UVE fees incurred and projected, and projected settlement costs to close the transaction. Aqua Comments at 17. Aqua also reiterated that final costs may vary from what is stated in the Standard Data Requests at the time of filing. Id.
PAWC noted that a claim for transaction and closing costs incurred during the acquisition may be included in the Buyer's next rate case, but the amount of the transaction and closing costs are determined in the subsequent rate proceeding, rather than the application proceeding. PAWC Comments at 10. PAWC argued that the request for documentation of the transaction and closing costs in No. 10 is premature.
Reply Comments
Citing Section 1329(d)(1)(iv), the OCA argued that an applicant is required to include the transaction and closing costs incurred by the acquiring public utility that will be included in its rate base. OCA Reply Comments at 11. The OCA argued that No. 10 simply asks for a breakdown of the costs that are required to be included with the application and invoices for any costs that have already been incurred. Id. The OCA claimed that No. 10 is reasonable and consistent with statutory requirements. Id.
Conclusion
Section 1329 provides that, as an attachment to its application, the Buyer shall include an estimate of the transaction and closing costs incurred by the Buyer that will be included in its rate base. 66 Pa.C.S. § 1329(d)(iv). As to format, we believe that it is acceptable for the breakdown of transaction and closing costs referred to in Standard Data Request No. 10 to be provided in general categories. We recognize that the final transaction and closing costs may vary from the time of filing to the time of closing and note that the applicant should advise the Commission and the parties of any changes to its prior estimates. In addition, the language of Section 1329(d)(1)(iv) is mandatory, not permissive. As such, these estimated costs and expenses must be identified and disclosed as part of the Section 1329 application.
Standard Data Request No. 11
In the TSIO, we proposed that Standard Data Request No. 11 seek to obtain the following information:
11. Please describe general expense savings and efficiencies under Buyer's ownership. State the basis for all assumptions used in developing these costs and provide all supporting documentation for the assumptions, if available.TSIO Appendix B at 4.
Comments
Aqua indicated that it opposes Standard Data Request No. 11. Aqua Comments at 17. Aqua argued that No. 11 requests speculative information and that many efficiencies are realized through operation of the system. Id.
Reply Comments
The OCA argued that, if the Buyer projects any expense savings or efficiencies as part of the acquisition, the Buyer should be able to identify, describe, and support these efficiencies. OCA Reply Comments at 11. The OCA argued that No. 11 would require the Buyer to support its position and provide more than general statements that there are efficiencies as part of the transaction. Id.
The PMAA stated that it supports the TSIO to the extent that it required certain information regarding the transaction, including a description of general expense savings and efficiencies under the acquiring utility's ownership, with which the Commission and customers of the acquiring utility can evaluate and analyze the costs and benefits of the transaction. PMAA Reply Comments at 3.
Conclusion
As it pertains to Aqua's concerns regarding Standard Data Request No. 11, we direct that applicants describe the known and anticipated general expense savings and efficiencies under the Buyer's ownership of the acquired system. Therefore, we modify the language of Standard Data Request No. 11 as follows:
11. Please describe known and anticipated general expense savings and efficiencies under Buyer's ownership. State the basis for all assumptions used in developing these costs and provide all supporting documentation for the assumptions, if available.See Appendix B at 4. Where there are no known general expense savings and efficiencies, the applicant should state that and describe anticipated general expense savings and efficiencies, if any. For both known and anticipated general expense savings and efficiencies, the applicant should provide the basis for all assumptions used in developing the costs and supporting documentation for the assumptions, if available.
Standard Data Requests No. 13, 14 and 15
In the TSIO, we proposed that Standard Data Requests No. 13, 14, and 15 seek to obtain the following information:
13. Please provide a copy of all proposals received by the Seller and any accompanying exhibits with respect to the proposed sale of the system.14. Please provide a copy of any proposals or exhibits made by Buyer for the purchase of Seller that have not already been provided.15. Has Buyer made any previous offer to purchase the Seller wastewater system? If yes, provide a copy of the offer and relevant communications.TSIO Appendix B at 4.
Comments
Aqua stated that it opposes Standard Data Requests No. 13, 14, and 15. Aqua Comment at 17-18. With regard to No. 13, Aqua argued that the proposals received by the Seller may not be public information, protected by confidentiality, and could create competitive disadvantage between competing utilities. Id. Aqua further argued that these documents are in the possession of the Seller and may not be available to the buyer at the time of filing. Id. With regard to No. 14, Aqua noted that it has agreed to provide its request for proposal and that the request for proposal is the document that was considered by the Seller for the sale of the system. Id. Aqua argued that No. 14 as written is overly broad and could encompass a number of documents that are highly confidential, protected by attorney client privilege, or competitive in nature. Id. at 18. Similarly, Aqua argued that No. 15 as written is overly broad. Id. Aqua proposed that No. 15 be limited to the offer of the Buyer and the response of the Seller to that offer. Id.
Reply Comments
The OCA noted that No. 13 is directed to the Seller. OCA Reply Comments at 12. The OCA argued that, as a party to the Asset Purchase Agreement (APA), the Seller should be a party to the proceeding and that the Seller has been a party in each of the Section 1329 proceedings to date. Id. The OCA further argued that the Seller would be in the possession of the documents requested in No. 13 and could provide the documents pursuant to a confidentiality agreement. Id. The OCA argued that No. 14 could be clarified to address Aqua's concerns by restricting the question to proposal or exhibits that were provided by the Buyer to the Seller. OCA Reply Comments at 12. With regard to No. 15, the OCA argued that that the question could be clarified to show that it is requesting communications between the Buyer and Seller and is not seeking any internal communications. Id.
PAWC stated generally that it questions the relevance of Standard Data Requests No. 13-15 to the issue before the Commission. PAWC Reply Comments at 5. PAWC argued that the Legislation has not given the Commission the authority to act as a super board of directors with regard to the business decisions of a utility's management or authority to second-guess the judgment of municipal officials when selecting among several offers to purchase its assets. Id. PAWC argued that this information should not be requested in a data request applicable to all applications. Id.
Conclusion
We agree with Aqua and PAWC that Standard Data Request No. 13 should be eliminated. As Aqua noted, the proposals received by the Seller may be confidential between the bidders and the Seller and the bidders are not involved in the particular Section 1329 proceeding. This data request may result in unnecessary confidentiality concerns at this juncture of a Section 1329 proceeding. Therefore, we remove No. 13 from the Standard Data Requests.88 Moreover, the statute provides that the just, reasonable, and lawful amount of rate base shall be based on the lower of the purchase price or the fair market value.
We also agree with Aqua that the more pertinent document is the Buyer's proposal for the purchase of the Seller's system, which is the document that was considered by the Seller for the sale of the system. Accordingly, we modify Standard Data Request No. 14 (now, No. 13) to request only this information. This data request is revised as follows:
13. Please provide a copy of [any] the proposal[s] [or] and exhibits [made by] of the Buyer for the purchase of Seller's system [that have not already been provided].See Appendix B at 4. This information along with the Seller's proposal requested in Standard Data Request No. 12 is relevant to fully understand the nature of the transaction between the Buyer and Seller.
Moreover, we agree with Aqua that Standard Data Request No. 15 (now, No. 14) should be modified to clarify that we are requesting only the offer of the Buyer and the response of the Seller and we agree with the OCA that No. 15 is not requesting internal communications. The more relevant documents are the offer of the Buyer and the Seller's response to that offer. Therefore, we revise this data request as follows:
14. [Has Buyer made any previous offer to purchase the Seller wastewater system? If yes, p]Provide a copy of the Buyer's offer to purchase the Seller's system and [relevant communications] the Seller's response to that offer.See Appendix B at 4. Like Standard Data Requests No. 12 and 14, this information is pertinent to the development of a comprehensive understanding of the transaction for which the applicant is seeking approval under Section 1329.
Lastly, regarding concerns that the information requested in Nos. 14-15 may be confidential or proprietary, we reiterate that, when submitting confidential information, applicants should follow standard procedures for the filing of documents containing confidential information with the Commission. Applicants should also refer to the instructions for submitting confidential information provided in the Section 1329 Application Filing Checklist. See Appendix A at 7. Further, consistent with the Commission's regulations at 52 Pa. Code § 1.32(b)(4), filings containing confidential information may not be filed electronically and the Commission will post only redacted, public versions on the electronic filing system.
Standard Data Request No. 16
In the TSIO, we proposed that Standard Data Request No. 16 seek to obtain the following information:
16. For each UVE in this case, please provide the following:a. A list of valuations of utility property performed by the UVE;b. A list of appraisals of utility property performed by the UVE;c. A list of all dockets in which the UVE submitted testimony to a public utility commission related to the appraisal of utility property; andd. An electronic copy of any testimony in which the UVE testified on fair value acquisitions.TSIO Appendix B at 4.
Comments
Aqua stated that it opposes Standard Data Request Nos. 16.a—d. Aqua Comments at 18. Aqua argued that valuations and appraisals of utility property are private engagements and that public disclosure may not be acceptable. Id. Aqua claimed that, for Section 1329 applications before the Commission, a listing of docket numbers should be sufficient. Id. Aqua further argued that for valuations/appraisals not before the Commission, the Company can provide docket numbers of the relevant proceedings. Id. Aqua also requested clarification that, if testimony is provided orally in a proceeding, the Company and the UVE may not have access to the relevant transcript. Id.
PAWC argued that, with regard to No. 16.d, requesting an electronic copy of any testimony in which the UVE testified on fair value acquisitions, seems unnecessary. PAWC Comments at 11. PAWC argued that it does not see why TUS needs this information. Id. PAWC also argued that listing all dockets in which a UVE submitted testimony to a public utility commission related to the appraisal of utility property is adequate. Id. Further, PAWC argued that the cost of No. 16.d outweighs the benefits.
Reply Comments
In response to Aqua's comments, the OCA suggested that, if the appraisals are private and not part of the public proceeding, the information could be redacted, and a description could be given. OCA Reply Comments at 13. The OCA argued that the docket numbers would not be sufficient because testimony is not posted on the Commission's website. Id. In addition, the OCA noted that electronic links for other jurisdictions where the UVE testified would be acceptable. Id. The OCA also noted that the UVE has this information readily available and providing it would not be burdensome. Id. In response to PAWC's comments, the OCA argued that the information sought by the Standard Data Requests is not only for TUS. Id. The OCA noted that the cost for the UVE to provide the information is minimal given that the UVEs keep this information as a normal part of business and that No. 13 allows electronic submission of this information. Id.
Conclusion
We agree with the OCA that the cost to provide the information requested in Standard Data Request No. 16.a—d is minimal given that UVEs retain this information in the course of business, typically in a curriculum vitae. If the information requested in 16.a—c is already provided with the application, such as in a curriculum vitae attached to the UVE's testimony, the applicant may simply point to the location of that information. To address PAWC's concerns regarding No. 16.d, we believe that limiting copies of testimony to those from only the past two years is reasonable and appropriate. In addition, we agree with the OCA that electronic links in lieu of electronic copies of testimony are acceptable. We revise No. 16.d (now, No. 15.d) as follows:
15. For each UVE in this case, please provide the following, if not already provided:. . .d. An electronic copy of or electronic link to [any] testimony in which the UVE testified on public utility fair value acquisitions in the past two years.See Appendix B at 4. Further, with regard to Aqua's concerns regarding this data request, we note that, if the testimony was provided orally and the applicant and the UVE do not have access to the testimony, the applicant should note the same.
Standard Data Requests No. 26 and 27
In the TSIO, we proposed that Standard Data Requests No. 26 and 27 seek to obtain the following information:
26. Are there any outstanding compliance issues that the Seller's system has pending with the PA Department of Environmental Protection. If yes, provide the following information:a. Identify the compliance issue(s);b. Provide an estimated date of compliance;c. Explain Buyer's plan for remediation;d. Provide Buyer's estimated costs for remediation; and,e. Indicate whether the cost of remediation was factored into either or both fair market valuation appraisals offered in this proceeding.27. Are there any outstanding compliance issues that the Seller's system has pending with the US Environmental Protection Agency. If yes, provide the following information:a. Identify the compliance issue(s);b. Provide an estimated date of compliance;c. Explain Buyer's plan for remediation;d. Provide Buyer's estimated costs for remediation; ande. Indicate whether the cost of remediation was factored into either or both fair market valuation appraisals offered in this proceeding.
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8 The removal of No. 13 affects the numbering of subsequent Standard Data Requests.
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