W. Va. Code R. § 150-7-11

Current through Register Vol. XLI, No. 38, September 20, 2024

Section 150-7-11 - Distressed and Failing Water or Wastewater Utilities

11.1. Definitions -- These definitions are specific to Section 11 of this rule.

11.1.1. "Distressed Utility" -- a water or wastewater utility that for financial, operational or managerial reasons:

(1)

(a) Is in continual violation of statutory or regulatory standards of the Bureau for Public Health, the Department of Environmental Protection, or the Commission, which affect the water quality, safety, adequacy, efficiency or reasonableness of the service provided by the water or wastewater utility;

(b) Fails to comply within a reasonable period of time with any final, nonappealable order of the Department of Environmental Protection, Bureau for Public Health or the Commission concerning the safety, adequacy, efficiency or reasonableness of service, including, but not limited to, the availability of water, the potability of water, the palatability of water or the provision of water at adequate volume and pressure and the collection and treatment of wastewater;

(2) Is no longer able to provide adequate, efficient, safe and reasonable utility services; or

(3) Fails to timely pay some or all of its financial obligations, including, but not limited to, its federal and state tax obligations and its bond payments to the West Virginia Water Development Authority, the United States Department of Agriculture (USDA) or other bondholders; fails to maintain its debt service reserve; or fails to submit an audit as required by its bond or loan documents or state law.

11.1.2. "Failing water or wastewater utility" -- a public utility that:

(a) Meets the definition of a distressed water or wastewater utility; and either:

(b) Has not, after a reasonable time period, been stabilized and improved by corrective measures put in place under W. Va. Code § 24-2H-7; or

(c) Has had the corrective measures suspended for good cause shown by an order of the Commission.

11.1.3. "Capable proximate water or wastewater utility" -- a public utility that regularly provides adequate, safe and reasonable service of the same type as the distressed utility and is situated close enough to the facilities of a distressed utility that operational management is reasonable, financially viable, and not adverse to the interests of the current customers of the non-distressed utility.

11.2. Potentially unstable water and wastewater utilities.

11.2.1. Commission Staff will review annual reports, rate case filings and other financial data available from public information or from the utility directly and prepare a list of water and wastewater utilities that appear to be financially unstable. This list will be updated annually. Commission Staff will provide the list to the Commission by interoffice memorandum by November 1^st of each year.

11.2.1.a. After receipt of the list, the Commission may request from any water and wastewater utility current financial information, including bank statements, detail of accounts payable, detail of current and delinquent taxes payable, detail of pension funds, current debt payment and reserve fund status, and any other pertinent information that the Commission requires.

11.2.2. After the Commission finalizes the list, Commission Staff will contact each utility placed on the list to discuss the stability of the utility.

11.2.3. Each utility contacted shall respond to staff contacts in a timely manner, but in no less than 60 days. The utility shall indicate measures it plans to undertake to address the concerns of the Commission Staff regarding the potential instability of the utility.

11.2.4. Commission Staff will offer to provide advice and assistance to resolve any financial, managerial or operational issues that are contributing to the utility's potential instability.

11.2.5. Commission Staff shall periodically report as directed by the Commission regarding the status of the unstable utility and any measures undertaken by the utility to address the potential instability.

11.3. Determination of whether a utility qualifies is a distressed or failing utility and the identification of one or more capable proximate public or private utilities.

11.3.1. The Commission may on its own motion, or upon a petition by Commission Staff or any other person or entity having a legal interest in the financial, managerial or operational condition of the utility, open a General Investigation proceeding to investigate whether a utility is distressed or failing and to identify any capable proximate public or private utilities that may be able to acquire the utility.

11.3.1.a. The Commission will name as respondents the utility under investigation and any public or private utilities that may be a capable proximate utility.

11.3.2. The Commission will provide notice to named respondents by Order.

11.3.3. The Commission may, by Order, require any named respondent to file specific information in the form of documents, affidavits or prepared testimony.

11.3.4. The Commission will provide Commission Staff and other interested parties the opportunity to file testimony, participate in evidentiary hearings and file briefs in the proceeding.

11.3.5. To determine if a utility is a distressed or failing utility, the Commission will consider:

(1) The financial, managerial and technical ability of the utility;

(2) The level of expenditures necessary to make improvements to the water or wastewater utility to assure compliance with applicable statutory and regulatory standards concerning the adequacy, efficiency, safety or reasonableness of utility service and the impact of those expenditures on customer rates;

(3) The opinion and advice, if any, of the Department of Environmental Protection and the Bureau for Public Health as to steps that may be necessary to assure compliance with applicable statutory or regulatory standards concerning the adequacy, efficiency, safety or reasonableness of utility service;

(4) The status of the utility's bond payments and other financial obligations;

(5) The status and result of any corrective measures previously put into place; and

(6) Any other relevant matter presented by the respondent utilities, Commission Staff or other interested party.

11.3.6. To determine if a utility is a capable proximate utility, the Commission will consider:

(1) The financial, managerial and technical ability of all proximate public utilities providing the same type of service;

(2) Expansion of the franchise or operating area of a potential acquiring utility to include the service area of the distressed utility;

(3) The financial, managerial, operational and rate demands that may result from the current proceeding and the cumulative impact of other demands where the utility has been identified as a capable proximate utility; and

(4) Any other relevant matter presented by the respondent utilities, Commission Staff or other interested party.

11.4. Hearings and public notice.

11.4.1. The Commission will hold evidentiary and public comment hearing(s) in the service area of the utility under investigation as a potential distressed or failing utility.

11.4.1.a. The Commission will conduct the public comment hearing(s) to receive public comments, including, but not limited to, comments regarding possible options available to bring the potential distressed or failing utility into compliance with appropriate statutory and regulatory standards.

11.4.1.b. The Commission will conduct the evidentiary hearing to receive evidence to determine if the utility is a distressed or failing utility and whether a capable proximate utility should acquire the utility. If there is more than one proximate utility the Commission will also receive evidence to allow the Commission to determine the appropriate capable proximate utility.

11.4.2. The Commission will give notice of the time, place and subject matter of the hearing as follows by:

(a) placing a Class I legal publication in a qualified newspaper pursuant to W. Va. Code § 59-3-2(a) in the county or counties where the utility is located no more than 10 days before the date of the hearing;

(b) issuance of a press release; and

(c) providing written notice by certified mail or registered mail to the utility under investigation; the Consumer Advocate Division; any proximate utility that was made a party to the proceeding; the county commission if the utility under investigation is a public service district; and the municipality if the utility is owned and operated by a municipality.

11.4.3. The Commission will, by Order, direct the utility under investigation to give notice to its customers of the time, place and subject matter of the hearing either as a bill insert or in print on its monthly bill statement or, if neither form of notice is reasonably possible, by a separate mailing.

11.4.4. Following the evidentiary hearing, the Commission shall enter an order stating whether the utility is a distressed or failing utility and identifying the capable proximate utilities, if any.

11.5. Alternative, intermediate remedies for distressed or failing utilities.

11.5.1. Before designating a utility as failing, the Commission must determine if one or more of these alternative remedial actions, is reasonable and cost effective for the distressed utility or the capable proximate utility:

(1) reorganization of the utility under new management or a new board, subject to the approval of the applicable county commission(s) or municipal government;

(2) operation of the distressed utility by another public utility or management or service company under a mutually agreed arms-length contract subject to approval by the Commission pursuant to W. Va. Code § 24-2-12;

(3) appointment of a receiver to manage the operations of the utility;

(4) immediate merger of utility with one or more other public utilities, subject to the approval of the applicable county commission(s) or municipal government;

(5) acquisition of the distressed utility through a mutual agreement made at arms-length subject to Commission approval pursuant to W. Va. Code § 24-2-12; and

(6) any viable alternative other than an ordered acquisition by a capable proximate utility.

11.5.2. The alternative remedial action or actions that may be ordered by the Commission are not mutually exclusive. The Commission may order an interim remedial action or actions pending subsequent final actions. The Commission may also order intermediate objectives within set time limits for certain actions and a time limit for achieving final objectives to remedy financial, managerial, or operating problems that are contributing to the utility being distressed or failing.

11.6. Commission ordered acquisition of a failing utility.

11.6.1. If the goals and objectives set by the Commission pursuant to Water Rule 11.5. are not met, the Commission may, without further hearing, determine that the utility is failing and direct an acquisition.

11.6.2. If the Commission determines that the utility is a failing utility and decides that it is in the public interest to forego any alternative remedial action, then the Commission may order the acquisition of the failing utility by the most suitable capable proximate utility, if there is more than one proximate utility.

11.6.2.a. If the distressed or failing utility is a public service district the Commission shall notify the respective county commission(s) with regard to the acquisition of the distressed or failing utility as provided in W. Va. Code § 16-13A-2(a)(2).

11.6.2.b. If the distressed or failing utility is a municipal corporation, then the Commission shall notify the respective municipal council with regard to the acquisition of the distressed or failing utility as provided in W. Va. Code § 8-12-17.

11.6.3. If the Commission orders an acquisition, the Commission will provide a timeframe for the failing utility and acquiring utility to agree on acquisition terms, timing, and acquisition price.

11.6.4. Preceding the final acquisition, the Commission may order the capable proximate utility to assume control of the management and operations of the failing utility under a temporary management and operating agreement subject to Commission approval.

11.6.4.a. The Commission may direct a date for the filing of an agreement for Commission approval.

11.6.4.b. If the agreement is not filed when directed, the Commission may direct the capable proximate utility to file a proposed temporary management and operating agreement.

11.6.4.c. The failing utility may respond to the proposed agreement within the time limits set by the Commission,

11.6.4.d. The Commission may, without further filings or hearing establish the terms of an agreement, direct the capable proximate utility to immediately assume management and operations of the failing utility pending an acquisition and direct the failing utility to turn over its management and operations to the capable proximate utility.

11.6.5. Prior to acquisition, the failing utility shall cooperate with the capable proximate utility in negotiating agreements with state and federal agencies, including, but not limited to, negotiation of hold harmless agreements, consent orders or enforcement moratoria during any period of remediation.

11.6.6. The parties to an acquisition may propose to the Commission such methods of determining the acquisition price as they can support as being reasonable and in the public interest.

11.6.6.a. The acquisition price must, at a minimum, satisfy all outstanding loans, tax obligations, required grant repayment, liens and indebtedness owed by the failing utility or the acquiring utility may agree to assume the indebtedness if legally permitted.

11.6.6.b. The acquiring utility may propose to pay failing utility outstanding obligations directly, as part of the acquisition consideration, and shall consult with the lenders or lienholders regarding payment in full or the assumption, to the extent legally permissible, of such obligations.

11.6.7. If bondholder consent is required to finalize an acquisition, the failing utility must cooperate with the acquiring utility in obtaining the consent of bondholder(s).

11.6.8. The acquiring utility must submit a financing plan that includes documentation on how the failing utility's indebtedness will be paid or assumed.

11.6.9. If the parties are unable to agree on an acquisition price or any other terms related to the acquisition within the time allowed by the Commission, the Commission may, on its own motion, or upon a petition by either the failing or capable proximate utility, conduct an evidentiary hearing to determine the acquisition price and any other issues related to the acquisition.

11.7. Rates pertaining to recovery of costs for acquisition, operation, repairs and improvements to distressed or failing utility facilities.

11.7.1. The acquiring utility shall propose the rates to be charged after acquisition.

11.7.2. Without a separate rate or tariff filing and without further notice to customers, the acquiring utility may adopt the rates of the acquired utility not subject to true-up but subject to adjustment in future rate proceedings.

11.7.3. The Commission may approve an appropriate and reasonable cost recovery mechanism to allow the capable proximate utility to recover its acquisition costs and projected cost of service of operating, maintaining and improving the facilities of the failing water or wastewater utility or its net costs incurred to operate, maintain and improve the distressed utility under a Commission approved operating agreement.

11.7.4. Subject to Commission approval in a separate rate or tariff proceeding, which shall be considered by the Commission on an expedited basis without the need for a full base rate proceeding the acquiring utility may request:

(a) that it be permitted for a reasonable period of time after the date of acquisition to apply a surcharge on the adopted rates or to establish a surcharge on the acquiring utility's tariff applicable only to customers of the acquired utility;

(b) a surcharge or surcharges on acquired customers and existing customers;

(c) that it be allowed to charge the customers of the acquired utility pursuant to a separate tariff which may be higher or lower than the existing tariff of the acquired utility; or

(d) a surcharge on its existing customers related to its costs as a capable proximate utility.

11.7.5. Subject to Commission approval and other rate provisions of this rule, if requested by the acquiring utility, a cost recovery mechanism determined by the Commission to be appropriate, reasonable and in the public interest may include:

(a) A surcharge above existing rates that allows recovery of incremental costs, net of recovery through existing rates necessary to operate, maintain and improve the failing utility's service level to an acceptable level and into compliance with all applicable regulatory standards;

(b) A rate base acquisition adjustment to private for-profit utilities as an incentive to acquire a failing utility;

(c) An increased return on investment as an incentive to acquire a failing utility; or

(d) Any other incentive method proposed by the acquiring utility if the method is determined by the Commission to be appropriate, reasonable and in the public interest.

11.7.6. Rate increments and surcharges, other than adoption of existing rates, approved by the Commission shall be subject to adjustment on an annual basis to reflect changes in costs, additional projected capital and operating costs and true-up of any over or under recoveries of costs.

W. Va. Code R. § 150-7-11