[54 Pa.B. 4208]
[Saturday, July 20, 2024]

[Continued from previous Web Page]

Appendix A

 Pennsylvania Public Utility Commission
66 Pa.C.S. § 1329 Application Filing Checklist—Water/Wastewater
2024 Final Supplemental Implementation Order

Circle No or Yes for each item. If yes, identify the document, section, and page number containing the item as found within the filing including appropriate cross-reference of duplicate documents. If no, provide a detailed explanation of why the information is not included in the filing.

1.	Transmittal letter with caption and statement that the filing is pursuant to 66 Pa.C.S. § 1329.	No	Yes	Page No.
2.	Verification form that is signed by an officer or authorized employee of the company, is dated, and accurately references the case.	No	Yes	Page No.
3.	Certificate of Service indicating that a complete copy of the application with exhibits was served by registered or certified mail, return receipt requested, or by hand delivery, upon the statutory advocates (OCA, OSBA) and the Bureau of Investigation and Enforcement.
No	Yes	Page No.
4.	Provide responses to Section 1329 Application Standard Data Requests, including electronic working documents (i.e., Excel spreadsheets) for all the filing's schedules, studies, and working papers to the extent practicable.	No	Yes	Page No.
5.	Provide copies of two independent appraisals by separate utility valuation experts for use in establishing the fair market value of the Selling Utility.	No	Yes	Page No.
6.	State the purchase price of the seller as agreed to by the buyer and seller.13
No	Yes	Page No.
7.	State the total fees paid to the utility valuation experts for providing the completed appraisals for the acquisition and provide documentation, i.e., the valuation service agreement and all associated invoices, supporting the subject fee amounts.	No	Yes	Page No.
8.	Buyer and Seller Verification Statements:
	a. Provide a verification statement of the Buyer that its utility valuation expert was selected by the Buyer.	No	Yes	Page No.
	b. Provide a verification statement of the Seller that its utility valuation expert was selected by the Seller.	No	Yes	Page No.
9.	Utility Valuation Expert Verification Statements:
	a. Buyer Utility Valuation Expert has no affiliation with the buyer or seller.	No	Yes	Page No.
	b. Buyer Utility Valuation Expert determined fair market value in compliance with the most recent edition of the Uniform Standards of Professional Appraisal Practice as of the date of the report employing the cost, market, and income approaches.	No	Yes	Page No.
	c. Buyer Utility Valuation Expert applied applicable jurisdictional exceptions to the submitted appraisal.	No	Yes	Page No.
	d. Seller Utility Valuation Expert has no affiliation with the buyer or seller.	No	Yes	Page No.
	e. Seller Utility Valuation Expert determined fair market value in compliance with the most recent edition of the Uniform Standards of Professional Appraisal Practice as of the date of the report employing the cost, market, and income approaches.	No	Yes	Page No.
	f. Seller Utility Valuation Expert applied applicable jurisdictional exceptions to the submitted appraisal.	No	Yes	Page No.
10.	Estimated or, if available, actual transaction and closing costs incurred by the buyer that will be included in its rate base.	No	Yes	Page No.
11.	State the ratemaking rate base as required in 66 Pa.C.S. § 1329 and specify whether it is based on either the fair market value determined by the valuation experts or the asset purchase price.	No	Yes	Page No.
12.	Provide a proposed tariff containing a rate equal to the existing rates of the seller at the time of the acquisition and a rate stabilization plan, if applicable to the acquisition.	No	Yes	Page No.
13.	Seller Testimony:
	a. Provide seller direct testimony supporting the application, if any.	No	Yes	Page No.
	b. Provide seller UVE direct testimony.	No	Yes	Page No.
14.	Buyer Testimony:
	a. Provide buyer direct testimony supporting the application.	No	Yes	Page No.
	b. Provide buyer UVE direct testimony.	No	Yes	Page No.
	c. Identify in Buyer direct testimony the ways in which the buyer has responded to input received at the public hearings referenced in Checklist Item 26, if any.	No	Yes	Page No.
15.	Plant in Service:
	a. Provide an inventory of the used and useful plant assets to be transferred. Identify separately any utility plant that is held for future use.
No	Yes	Page No.
	b. Provide a list of all non-depreciable property such as land and rights-of-way.	No	Yes	Page No.
	c. State the DEP-permitted productive or treatment capacity of sources or treatment facility and the pipe sizes and material used for construction for all transmission and distribution or collection facilities.	No	Yes	Page No.
	d. State the elevations of major facilities and service areas.	No	Yes	Page No.
	e. State the approximate time schedule for installation of the various component facilities.	No	Yes	Page No.
	f. State the tentative journal entries for booking the acquisition.	No	Yes	Page No.
16.	Map of Service Area. Provide a scalable map or plan of suitable scale highlighting the boundaries of the proposed service area that includes:
	a. The extent of the proposed service area with any existing adjoining service areas identified.	No	Yes	Page No.
	b. A north arrow depicting map orientation.	No	Yes	Page No.
	c. A written description of the boundaries for the service territory utilizing bearing angles and distances.	No	Yes	Page No.
	d. Size of the service territory area in terms of acres or square miles.	No	Yes	Page No.
	e. Identification and depiction of all municipal boundaries relative to the service area.	No	Yes	Page No.
	f. Depiction of the location or route of the waterworks or wastewater collection, treatment, or disposal facilities.	No	Yes	Page No.
17.	Customers:
	a. State the seller's actual number of customers by class and quantify the related consumption or gallons treated in the current calendar year and future number of connections anticipated for the next 5 years and, if available, the next 10 years.	No	Yes	Page No.
	b. Buyer shall demonstrate its ability to provide adequate water supply, treatment, storage and distribution or adequate wastewater collection, treatment or disposal capacity to meet present and future customer demands.	No	Yes	Page No.
	c. For water system acquisitions, quantify the number of public and private fire hydrants.	No	Yes	Page No.
18.	Rates:
	a. State the current rates of the seller.	No	Yes	Page No.
	b. Provide a copy of the seller's current rules and regulations for service.	No	Yes	Page No.
	c. Provide a proposed tariff or tariff supplement showing the rates, proposed rules, and conditions of service.	No	Yes	Page No.
	d. Provide a copy of the notification which will be sent by the Buyer to affected customers describing the filing and the anticipated effect on rates, including:	No	Yes	Page No.
	i. For the Seller's customers, the overall dollar and percentage rate impacts implicated from stand-alone rates that recover the Buyer's estimated annual gross revenue requirement for the acquired system from the Seller's customers.	No	Yes	Page No.
	ii. For the Buyer's customers, the overall dollar and percentage rate impacts implicated from the following rates: (1) for water applications, rates that recover the Buyer's estimated annual net revenue requirement for the acquired system from the Buyer's existing water customers, or (2) for wastewater applications, both water and wastewater rates that recover the Buyer's estimated annual net revenue requirement for the acquired system from the Buyer's existing water and wastewater customer, respectively.	No	Yes	Page No.
	iii. Clear, plain language information about rate impacts.	No	Yes	Page No.
	iv. A statement that any promise to freeze rates may be unenforceable.	No	Yes	Page No.
	e. Provide a verification statement addressing whether the Buyer provided the Seller with estimates and supporting working papers, including the potential rate impacts that the transaction may have on the Seller's customers, assuming the Buyer's highest proposed purchase price and stand-alone rates that recovery the Buyer's estimated gross revenue requirements for the acquired system from the Seller's customers, prior to execution of the APA.	No	Yes	Page No.
19.	Cost of Service:
	a. Provide a copy of the seller's two most recent audited financial statements.	No	Yes	Page No.
	b. Provide a copy of the seller's two most recent adopted budgets.	No	Yes	Page No.
	c. Provide a copy of the seller's most recent annual report filed with the Commonwealth's Department of Community and Economic Development.	No	Yes	Page No.
	d. Provide calculations quantifying the projected revenues and expenses for the acquisition.	No	Yes	Page No.
	e. State whether the seller has any outstanding loans on the utility plant and identify the nature, terms, and payment history.	No	Yes	Page No.
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:
	a. For water system acquisitions, provide copies of the public water supply/water quality management permits for the utility plant.	No	Yes	Page No.
	b. For wastewater system acquisitions, provide copies of the water quality management and National Pollution Discharge Elimination System (NPDES) permits for the utility plant.	No	Yes	Page No.
	c. For wastewater system acquisitions, provide a copy of the Chapter 94 Municipal Wasteload Management Report that was most recently submitted to DEP.	No	Yes	Page No.
	d. Valid buyer's certified operators' certificates appropriate to the facilities being acquired.	No	Yes	Page No.
	e. Provide documentation evidencing a 5-year compliance history with DEP with an explanation of each violation for the seller's utilities that have been providing service as well as provide a copy of any DEP-approved corrective action plans.	No	Yes	Page No.
	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.	No	Yes	Page No.
	g. Provide documentation evidencing a 5-year compliance history with DEP of other utilities owned or operated, or both, by the buyer, including affiliates, and their officers and parent corporations with regard to the provision of utility service.
No	Yes	Page No.
	h. Provide a statement clarifying whether the acquired plant will be physically interconnected to the buyer's system or be operated as a standalone system.	No	Yes	Page No.
	i. Provide a statement that explains how the acquisition will fit into the current operations of the buyer.	No	Yes	Page No.
	j. Provide a statement that identifies the staff, district or division of the buyer that will operate and manage the acquisition.	No	Yes	Page No.
	k. Provide a statement quantifying the distance in miles the acquisition is from the buyer's existing system or facilities.	No	Yes	Page No.
	l. Provide a statement that identifies all planned physical, operational and managerial changes of the buyer that will occur after closing and state the timeframe and cost for each.	No	Yes	Page No.
21.	Affected Persons. State the identity of all public utilities, municipalities, municipal authorities, cooperatives and associations which provide public water service or wastewater collection, treatment or disposal service within each municipality, or a municipality directly adjacent to the municipality(ies), in which the applicant seeks to provide service that abuts or is situated within one mile of the applicant's proposed facilities.	No	Yes	Page No.
22.	Other requirements. Demonstrate compliance with the following:
	a. For wastewater system acquisitions, demonstrate compliance with the DEP-approved Act 537 Official Sewage Facilities Plans for the affected municipalities (including the extent of the requested service territory).	No	Yes	Page No.
	b. For wastewater system acquisitions, provide a copy of the DEP-approved Act 537 Official Sewage Facilities Plans for the affected municipalities.	No	Yes	Page No.
	c. For wastewater system acquisitions, state the method of water service being provided in the requested wastewater service territory (i.e., public water or private wells) and identify the name of water utility, if applicable.	No	Yes	Page No.
	d. For water system acquisitions, state the method of wastewater service being provided in the requested water service territory (i.e., public wastewater or private on-lot) and identify the name of wastewater utility, if applicable.	No	Yes	Page No.
	e. Provide evidence the filing is consistent with the affected municipality and county comprehensive plans if the filing proposes to expand service beyond the existing plant footprint.	No	Yes	Page No.
23.	Additional Verification Statements:
	a. For water system acquisitions, provide a verification that the water sources and customers are metered in accordance with 52 Pa. Code § 65.7 (relating to metered service). If unmetered water service is currently provided, the applicant shall provide a metering plan to the Commission.	No	Yes	Page No.
	b. Include a statement that there is no affiliation between the buyer and seller.	No	Yes	Page No.
	c. Include a statement that the agreement was conducted at arm's length.	No	Yes	Page No.
	d. Include a statement explaining how the customers will benefit from the Buyer's ownership.	No	Yes	Page No.
	e. Provide a verification statement that the Seller is aware of the potential rate impacts the transaction may have on the Seller's customers, including the overall dollar and percentage rate impacts implicated from stand-alone rates that recover the Buyer's estimated annual gross revenue requirement for the acquired system from the Seller's customers.	No	Yes	Page No.
	f. Provide a verification statement that the Buyer and Seller understand the Commission may shift rate allocations in a manner different from any commitments made in the underlying application.	No	Yes	Page No.
24.	Asset Purchase Agreement (APA):
	a. Provide a copy of the APA that is signed by all parties.	No	Yes	Page No.
	b. APA clearly states the purchase price and terms.	No	Yes	Page No.
	c. APA clearly states whether all assets or only a portion of the assets are to be purchased (e.g., water treatment and distribution or wastewater collection and treatment).	No	Yes	Page No.
	d. APA adequately describes the assets to be acquired.	No	Yes	Page No.
	e. APA adequately describes the assets to be excluded.	No	Yes	Page No.
25.	Provide a copy of all municipal and affiliate contracts to be assumed by buyer as part of the acquisition and a list and annual dollar value of other contracts.	No	Yes	Page No.
26.	Public Hearings. Provide a verification statement that at least two in-person public hearings were scheduled and conducted prior to executing the APA, and that:	No	Yes	Page No.
	a. The public hearings addressed the proposed acquisition, described the potential rate impacts, provided the opportunity for public comment, and were held at venues within the municipal boundaries of the Seller, or at the nearest reasonable venues, with Commission notification.	No	Yes	Page No.
	b. The Buyer or Seller notified the Seller's customers of the public hearings.	No	Yes	Page No.
27.	If seeking a deviation from the default weights established in the 2024 Final Supplemental Implementation Order, provide the request supported by good cause.	No	Yes	Page No.

Notes:

All information disclosed within this application is considered public information unless specifically labeled confidential. Applicants are responsible for disclosing to the Secretary's Bureau that which is privileged or confidential information and not otherwise available to the public. Submit one copy of all confidential information, on documents stamped CONFIDENTIAL at the top in clear and conspicuous letters, in a separate envelope (but still attached to the application) to the Secretary's Office along with the Application.

If you e-file your application, separately mail any confidential information specifically identifying that you have e-filed the application. Be sure to specify the Applicant's name, and provide the e-filing confirmation page.

Once the application is reviewed and accepted as filed, the Commission will issue a secretarial letter instructing the Applicant to publish notice in local newspapers of general circulation and to serve (electronically if acceptable to recipient) the following:

 • each city, borough, town, township, county and related planning office which is included whole or in part in the proposed service area;

 • a water or wastewater utility, municipal corporation or authority which provides water or wastewater collection, treatment or disposal service to the public and whose service area abuts or is within 1 mile of the service area proposed in the application; and

 • the Department of Environmental Protection's central and regional offices.

Appendix B

Section 1329 Application Standard Data Requests 2024 Final Supplemental Implementation Order

INSTRUCTIONS FOR STANDARD DATA REQUESTS

 Pursuant to the Commission directives in the February 28, 2019, Final Supplemental Implementation Order at Docket No. M-2016-2543193, and in accordance with 66 Pa.C.S. §§ 503—505, the Commission directs that an Applicant(s) requesting fair market valuation of acquired utility assets pursuant to 66 Pa.C.S. § 1329 shall answer the Section 1329 Application Standard Data Requests in writing and shall verify the same on behalf of the Applicant(s).

 1) These Standard Data Requests shall be construed as a continuing request. The Applicant(s) is obliged to change, supplement and correct all answers to data requests to conform to available information; including such information as first becomes available to the Applicant(s) after the answers hereto are filed.

 2) Restate the data request immediately preceding each response.

 3) Identify the name, title, and business address of each person(s) providing each response.

 4) Provide the date on which the response was created.

 5) Divulge all information that is within the knowledge, possession, control, or custody of Applicant(s) or may be reasonably ascertained thereby. The term ''Applicant,'' ''Applicants,'' ''Company,'' whether used generically or by name, or ''you,'' as used herein includes the Applicant(s), its agents, employees, contractors, or other representatives who will provide data in support of the Application.

 6) As used herein the word ''document'' or ''workpaper'' includes, but is not limited to, the original and all copies in whatever form, stored or contained in or on whatever media or medium including computerized memory, magnetic, electronic, or optical media, regardless of origin and whether or not including additional writing thereon or attached thereto, and may consist of:

 a)  notations of any sort concerning conversations, telephone calls, meetings or other communications;

 b) bulletins, transcripts, diaries, analyses, summaries, correspondence and enclosures, circulars, opinions, studies, investigations, questionnaires and surveys;

 c) worksheets, and all drafts, preliminary versions, alterations, modifications, revisions, changes, amendments and written comments concerning the foregoing.

 7) Documents may be submitted under proprietary or confidential seal, but a claim of confidentiality does not excuse Applicant(s) from providing timely responses.

 8) Responses must be provided along with the Application.

 9) Pursuant to 52 Pa. Code § 1.36, if persons other than those submitting a verification in support of the Application sponsor responses to these Standard Data Requests each must sign and date a copy of a verification.

Rates/Ratemaking

 1. Estimate the potential monthly incremental cost impact on existing and acquired customers following the actual results of the Buyer's most recently adjudicated base rate proceeding, whether litigated or settled, allocating the fair market value of the acquired system according to the Buyer's previously approved single-tariff pricing model.

 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 assuming 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.

 2. If the Buyer has a present intention to increase the acquired system's rates to a certain level, please state the basis for the targeted rate.

 3. Provide the annual depreciation expense using the purchase price/proposed rate base. If the exact depreciation expense is not available, provide the best estimate of the annual depreciation expense. Show how the depreciation expense is calculated.

 4. Provide an estimate of the annual gross 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.

 5. Provide an estimate of the annual revenues of the municipal system under the Buyer's ownership. Provide the assumptions for the annual revenues, including both operating revenues and non-operating revenues.

 6. Provide an estimate of the overall dollar and percentage rate impacts implicated from stand-alone rates that recover the Buyer's estimated annual gross revenue requirement for the acquired system from the Seller's customers.

 7. Provide an estimate of the overall dollar and percentage rate impacts implicated from the following rates:

 a. For water applications, rates that recover the Buyer's estimated annual net revenue requirement for the acquired system from the Buyer's existing water customers.

 b. For wastewater applications, both water and wastewater rates that recover the Buyer's estimated annual net revenue requirement for the acquired system from the Buyer's existing water and wastewater customers, respectively.

 8. Other than the STAS, does Buyer's current water/wastewater tariff include any provisions that would fall under ''pass-through costs or charges imposed by the Commonwealth of Pennsylvania''?

 9. Provide a listing of any entities that currently receive free service from the Seller.

 10. In the next rate case, does buyer anticipate including the acquired system in a combined revenue requirement?

 11. If Seller has increased rates in the last year, please state the date of the increase and provide a copy of the new rate schedule and the total annual revenues produced under the new rates.

 12. 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.

Costs/Benefits

 13. Provide a breakdown of the estimated transaction and closing costs. Provide invoices to support any transaction and closing costs that have already been incurred.

 14. 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.

 15. Please provide a copy of the Seller's request for proposals (if there was one) and any accompanying exhibits with respect to the proposed sale of the system.

 16. Please provide a copy of the proposal and exhibits of the Buyer for the purchase of Seller's system.

 17. Provide a copy of the Buyer's offer to purchase the Seller's system and the Seller's response to that offer.

Appraisals

 18. For each UVE in this case, please provide the following, if not already provided:

 a. A list of valuations of utility property performed by the UVE;

 b. A list of appraisals of utility property performed by the UVE; and, ;

 c. A list of all dockets in which the UVE submitted testimony to a public utility commission related to the appraisal of utility property; and

 d. An electronic copy of or electronic link to testimony in which the UVE testified on public utility fair value acquisitions in the past two years.

 19. Please explain each discount rate used in the appraisals, including explanations of the capital structure, cost of equity and cost of debt. State the basis for each input. Provide all sources, documentation, calculations and/or workpapers used in determining the inputs.

 20. Please explain whether the UVE used replacement cost or reproduction cost and why that methodology was chosen.

 21. Please provide a copy of the source for the purchase price and number of customers for each comparable acquisition used in the appraisals.

 22. Have Buyer's and Seller's UVE corresponded with regard to their respective fair market value appraisals of the assets at issue in this case? If yes, provide the following information:

 a. Identify the nature and date(s) of correspondence;

 b. Identify the type(s) of correspondence (i.e. written, verbal, etc); and,

 c. Provide copies of any written correspondence exchanged between the UVEs.

Miscellaneous

 20. 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 anticipated or actual plan for remediation;

 d. Provide Buyer's estimated costs for remediation; and,

 e. Indicate whether the cost of remediation was or is anticipated to be factored into either or both fair market valuation appraisals offered in this proceeding.

 21. 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 anticipated or actual plan for remediation;

 d. Provide Buyer's estimated costs for remediation; and

 e. Indicate whether the cost of remediation was or is anticipated to be factored into either or both fair market valuation appraisals offered in this proceeding.

Appendix C

Pennsylvania Public Utility Commission
Additional Guidelines for Utility Valuation Experts
2024 Final Supplemental Implementation Order

General

 1. 66 Pa.C.S. § 1329(a) requires the use of the current biennial edition of the Uniform Standards for Processional Appraisal Practice (USPAP) to develop cost, market, and income valuations of the Selling Utility. Valuations developed from outdated or expired editions of the USPAP do not constitute competent evidence and will not be accepted by the Commission as satisfying the Application Checklist.

 2. By Order, the Commission recognizes the use of the Jurisdictional Exception Rule of the USPAP. Materials submitted in support of a request for Section 1329 fair market valuation pursuant to the USPAP must conform to applicable Pennsylvania law even if in conflict with USPAP. For purposes of Section 1329, Pennsylvania law includes the Pennsylvania Constitution, statutes, regulations, court precedent, and administrative rules and orders issued by administrative agencies.

 3. UVEs, along with Seller and Buyer, must establish that a UVE:

 a. is a Commission registered UVE

 b. has no conflict of interest pursuant to the USPAP

 c. fee is limited to 2.5% of fair market value

 d. incorporated the licensed engineer's assessment of the tangible assets of the Selling Utility into the UVE appraisal as required by Section 1329(a)(4)

 e. has verified that valuation methods used (cost, income and market) comply with the current edition of the USPAP

 4. UVE materials submitted in support of a request for Section 1329 fair market valuation must:

 a. Weigh each valuation result evenly: one-third for cost, one-third for market, and one-third for income, calculated as follows: Valuation Result = (Cost Approach Result + Income Approach Result + Market Approach Result) / 3. The Valuation Result is rounded to the nearest dollar.

 b. If the UVE deviates from the default weights, the UVE must show good cause and explain the basis of the individual weight given to the cost, market, and income approach.

 c. Use the Commission's quarterly earnings report for capital structure, cost of debt, cost of equity and weighted average cost of capital. The quarterly earnings report used must be contemporaneous with the production of the valuation.

 5. Both the Seller and Buyer UVE will support their respective appraisals with data and written direct testimony at the time a request for Section 1329 valuation is filed with the Commission. The Commission will not accept untimely direct testimony, or untimely testimony in the nature of direct, regarding a UVE appraisal.

Jurisdictional Exceptions

 As a general matter, going concern, overhead, and erosion of cash flow or return add-ons shall not be included in appraisals under the cost, income, or market approaches.

Cost Approach

 1. Cost approach may measure value by:

 a. determining investment required to replace or reproduce future service capability

 b. developing total cost less accrued depreciation for Selling Utility assets

 c. determining the original cost of the system

 2. Cost approach materials shall:

 a. explain choice of reproduction cost vs. replacement cost

 i. If the reproduction cost methodology is used, valuation of the collection mains will not be treated differently or as special circumstance, unless reasonably justified.

 b. not adjust the cost of land by the ENR index

 c. exclude overhead costs, future capital improvements, and going concern value

 d. use consistent rate of inflation for all classes of assets, unless reasonably justified

 e. include the original cost of the system and the original cost less depreciation, even if original cost was not the chosen measure of value

Income Approach

 1. Income approach may measure value by:

 a. Capitalization of earnings or cash flow

 b. Discounted cash flow (DCF) method

 2. Income approach materials shall exclude:

 a. Going concern value

 b. Future capital improvements

 c. Erosion of cash flow or erosion on return

 d. Rate base/rate of return methodology

 3. Calculations done under the income approach will clearly describe the basis for discount rate(s) in the report rather than only in the exhibits. The following information should be provided about the discount rate(s) used:

 a. the capital structure used in the analysis with an explanation as to why the capital structure was selected

 i. If Company's actual capital structure was not used, explain why.

 b. the cost of equity used in the analysis, and the basis for the cost of equity

 c. the cost of debt used in the analysis

 1. If the Company's actual cost of debt was not used, explain why not.

 4. If a capitalization rate is used, the calculation of the capitalization rate and the basis for the growth rate will be disclosed and fully explained.

Market Approach

 1. Market approach shall use the current customer count of the Selling Utility

 2. Market approach shall exclude:

 a. Future capital improvements

 b. Any type of adjustment or adder in the nature of goodwill

 3. Speculative growth adjustments will not be used. U.S. Census Data and relevant and applicable regional planning commission reports may be used as a basis to determine growth in a subject area.

 4. The proxy group used for calculating market value should not be limited to only companies which engage in Pennsylvania fair market value acquisitions.

 5. Net book financials multiplier shall not be used.

 6. Comparable sales used to establish the valuation should not be limited to those that the UVE previously appraised.

 7. Comparable sales used to establish the valuation should use the current customers.

 8. Comparable sales used to establish the valuation should not include the value of future capital improvement projects.

Appendix D

2024 Final Supplemental Implementation Order

SELLING/BUYING UTILITY STATEMENT NO. __

BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION

Application of ______ to Obtain a Fair	:
Market Valuation for the Acquisition of the	:
Water/Wastewater Assets of the Borough of	:	A-20 __-_____
______ in ______ County,	:
Pennsylvania	:

DIRECT TESTIMONY

OF

IMA UVE

UTILITY VALUATION EXPERT

SELLING/BUYING UTILITY

Month/Day/Year

 Q. Please state your name, business address, and occupation.

 A. My name is ______ . My business address is ______ . I am an associate/principal/owner/president of ______ . This testimony was prepared with the assistance of ______ an employee of ______ under my direction.

 Q. Please describe your qualifications and indicate if you are registered as a Utility Valuation Expert with the Pennsylvania Public Utility Commission.

 A. A Curriculum Vitae for ______ and ______ is attached to this testimony. I am a registered Utility Valuation Expert with the Pennsylvania Public Utility Commission. I obtained that registration in MONTH of YEAR.

 Q. What is the purpose of your testimony?

 A. This direct testimony provides clarification and explanation of the appraisal I provided to the Selling/Buying Utility pursuant to 66 Pa.C.S. § 1329(a)(5) and in accordance with Uniform Standards of Professional Appraisal Practice YEAR Edition.

 Q: Are you advocating for any party or outcome?

 A: No. The Ethics Rule of the USPAP, applicable here pursuant to 66 Pa.C.S. § 1329(a)(3), requires that I perform the appraisal with impartiality, objectivity, and independence, and without accommodation of personal interests. In addition, the USPAP Ethics Rule requires that I not perform the assignment with bias, that I must not advocate the cause or interest of any party or issue and that I must not accept an assignment that includes the reporting of predetermined opinions and conclusions.

 Q. Do you have any affiliation with either the Selling Utility or the Acquiring Public Utility or Entity?

 A. No. Other than the current assignment to provide the subject appraisal, I have no business or personal relationships with any party to the proposed acquisition.

 Q. What is your fee arrangement to deliver the appraisal?

 A. A copy of the fee arrangement is attached as Appendix ______ . In summary, I am to receive $______ in compensation, which represents _____ % of the proposed valuation.

 Q. Will you receive that fee regardless of whether the Commission approves the proposed transaction or whether it closes?

 A. Yes. 66 Pa.C.S. § 1329(a)(3) mandates that I comply with the USPAP when developing my appraisal. Under the USPAP I cannot perform the appraisal with bias and acceptance of a fee contingent on a particular outcome like closing or Commission approval would violate that Ethics Rule.

 Q. Have you prepared any exhibits, schedules, or appendices to accompany your direct testimony?

 A. Yes. Schedules _____ and _____ are included herein, and Appendix ____ and ____ are attached. The appraisal I submitted to the Seller/Buyer pursuant to Section 1329(a)(5) is attached as well. All were prepared under my supervision and control.

 Q. Please summarize your results of the application of the cost, market, and income approaches to valuation.

 A. The summary the cost, market, and income approach is included below as Seller/Buyer UVE Schedule No. 1.

Approach	Indicated Value	Weight	Weighted Value
Cost Approach	$	%	$
Market Approach	$	%	$
Income Approach	$	%	$
		100%	$
Conclusion			$

 Q. Describe any assumptions, extraordinary assumptions, hypothetical conditions, and/or limiting conditions that you applied to the valuation

 A. I employed an assumption regarding. . .

 Q. How was each assumption used and what was its result?

 A. I used the assumption about ______ to account for ______ . The result was that ______ . I also used an assumption regarding ______ because of the ______ . The result there was to ______ .

 Q. Did you use the default valuation weights of one-third each for cost, market, and income?

 A. Yes/No.

 Q. If you did not use the default weights of one-third each for cost, market, and income, explain how you developed the weighting applied to each approach in your appraisal and why the individual weights you chose are appropriate for this proposed transaction?

 A. For the cost approach I chose a weighting of ____ %. It is my opinion that this weighting is appropriate for the cost approach because. . .
For the market approach I chose a weighting of ____ %. It is my opinion that this weighting is appropriate for the cost approach because. . .
For the income approach I chose a weighting of ____ %. It is my opinion that this weighting is appropriate for the cost approach because. . .
Or, N/A.

 Q. Did you conduct an on-site inspection of the Selling Utility assets, and if so, what was its result on the appraisal?

 A. I inspected the Selling Utility assets on DATE, accompanied by Selling Utility employee ______ . I inspected the ______ , distribution/collection system in and around ______ , and the ______ . As a result, I determined that ______ . This influenced my appraisal to the effect that ______ .

 Q. What Utility Earnings Report was used to create the capital structure used in your appraisal?

 A. I used the QUARTER, YEAR Earnings Report of COMPANY.

 Q. What capital structure was used in your appraisal?

 A. The capital structure used in my appraisal is included below as Seller/Buyer UVE Schedule No. 2.

Type of Capital	Capital Ratio	Cost Rate	Weighted Cost
Debt	%	%	%
Preferred	%	%	%
Common Equity	%	%	%
Total	100%		%

Cost Approach

 Q. Regarding your application of the cost approach, what method did you use to determine the cost approach result (e.g. original cost, replacement cost, reproduction cost)?

 A. I used the ______ method.

 Q. What index, if any, did you use for that method?

 A. I used the ______ index.

 Q. Under your application of the cost approach what assets did you value or trend differently from other assets and why was that necessary?

 A. I valued the ______ independently of the ______ . It is my opinion that an accurate appraisal requires this because ______ .

 Q. Under your application of the cost approach, what year-end date did you use for calculating the depreciation reserve?

 A. I used the date of ______ .

 Q. How did you determine the depreciation parameters of survival/retirement characteristics and service lives for the utility property under the cost approach?

 A. I determined those parameters by ______ .

 Q. Why are those parameters appropriate?

 A. Those parameters are appropriate because ______ .

 Q. If you did not use the original cost method, what is the system's original cost and original cost less depreciation?

 A. Those values are ______ and ______ .

Market Approach

 Q. Regarding your application of the market approach, what methods did you use to determine the market approach result?

 A. I used the ______ and ______ methods.

 Q. What assumptions, analyses, and/or adjustments did you make under each method?

 A. Under the ______ method, it is my opinion that ______ must be considered. Under the other method, I believe that an accurate result depends on adjusting ________ to better reflect that _______.

 Q. What were the results of each analysis you performed?

 A. The ______ analysis produced a result of ______ . The other, a result of ______ was obtained.

 Q. Which results were used to determine your market approach result? Please explain why these results were used.

 A. I used the results of ______ because I believe those results represent an accurate assessment of ______ .

 Q. What was the calculation you used to determine your overall market approach results?

 A. The calculation I used consisted of the following. . .

 Q. What comparable transactions or comparable sales, if any, did you evaluate to develop your market approach?

 A. I examined the flowing transactions to develop the result of my market approach. First, I examined the sale of ______ to ______ in YEAR. It is my opinion that this is a valid source of comparison to the transaction here because. . .
I next examined the sale of ______ to ______ in YEAR. I am of the opinion that this too is a valid source of comparison to the transaction here because. . .
Finally, I examined the sale of ______ to ______ in YEAR. This is a valid source of comparison to the instant transaction because. . .

 Income Approach

 Q.  Regarding your application of the income approach, what method did you use to determine the income approach result?

 A. I used the ______ method.

 Q.  What assumptions did you employ to develop your income approach result?

 A. Under the income approach, it is my opinion that _____ must be considered. I believe that an accurate result depends on adjusting _____ to better reflect how _____ .

 Q.  What discount rate did you use to calculate your income approach?

 A. I used a discount rate of ______ .

 Q.  What capital structure inputs differ from those identified in Seller/Buyer UVE Schedule No. 2?

 A. For the income approach I used a different input of _____ for the _____ because it is my opinion that _____ . I believe it necessary to deviate from the Buyer's actual cost of capital because ______ .

 Q.  What is the source and basis of the alternative input you propose in the income approach?

 A. The source of the input may be found at _____ . I have included a copy as Appendix C. The basis of this input is the ______ .

 Q.  If you used a terminal value in your discounted cash flow analysis what is the number of years over which the cash flows are considered?

 A. I considered those cash flows over _____ years.

 Q. What is the basis for using this number of years?

 A. It is my opinion that it is necessary to use _____ years to calculate terminal value because. . .

 Q. What number of Selling Utility customers or equivalent dwelling units did you use to value the Seller's system and how did you develop that number?

 A. I used ______ customers/EDUs. I obtained that number by examining ______ and ______ . I then calculated the total used by ______ .

 Q. Did you make any updates to your appraisal after it was submitted to the Seller/Buyer, and if so, what was the update, when was it made, and why was it necessary?

 A. I did not update or revise my appraisal after it was submitted to the Buyer/Seller.

 Q. Does this conclude your direct testimony?

 A. It does. However, by filing this direct testimony I understand that I may have the opportunity to submit testimony responsive to challenges to my appraisal.

[Pa.B. Doc. No. 24-1038. Filed for public inspection July 19, 2024, 9:00 a.m.]

_______

¹³ See Notes on last page of this Checklist; filers will be instructed to also serve other parties when the application is accepted.

¹⁴ ''Seller'' refers to the selling municipality; ''buyer'' refers to the acquiring entity.

¹⁵ The inventory is to be developed from available records, maps, work orders, debt issue closing documents funding construction projects, and other sources to ensure an accurate listing of utility plant by utility account.

¹⁶ Regarding Checklist Item 20(g), Class A public utilities need only submit compliance history for operations in the neighboring areas or a statement attesting to their compliance with this item.

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