ENGROSSED

COMMITTEE SUBSTITUTE

FOR

H. B. 2773

(By Mr. Speaker, Mr. Kiss, and Delegate Staton)


(Originating in the Committee on the Judiciary)


[March 3, 1999]



A BILL to amend and reenact sections one, two and seven, article two, chapter twenty-four of the code of West Virginia, one thousand nine hundred thirty-one, as amended; and to further amend said article by adding thereto a new section, designated section seven-a, all relating to regulation of utilities by the public service commission; expanding jurisdiction over sewer systems servicing ten or more persons or firms other than the owner of the sewer system or one or more commercial or industrial customers in certain circumstances; allowing the commission to exercise over certain water providers; authorizing the commission to require utilities to maintain improvement accounts, submit reports and limit certain earnings requirements; creating the small public utility customer protection act; defining small utility and other terms; allowing the public service commission to order acquisition of small utilities under certain circumstances; allowing the public service commission to require capable public utilities or request governmental units to acquire certain small public utilities; establishing information to be generated and processes to be followed when making the acquisition determination; providing hearings regarding the acquisition process; providing notice to certain entities and the public; providing processes for voluntary acquisitions; requiring certain parties and entities to file reports; directing the commission to make certain findings regarding acquisitions and acquisition plans; providing application requirements conforming with the infrastructure and jobs development council, and establishing certain priorities thereto; requiring approval of acquisition plans and input by the division of environmental protection and the department of health; establishing that certain findings be made by the commission; and providing protections to acquiring utilities and local governmental units regarding certain violations of the acquired small public utility and exceptions thereto.

Be it enacted by the Legislature of West Virginia:
That sections one, two and seven, article two, chapter twenty-four of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted; and that said article be further amended by adding thereto a new section, designated seven-a, all to read as follows:
Be it enacted by the Legislature of West Virginia:
ARTICLE 2. POWERS AND DUTIES OF PUBLIC SERVICE COMMISSION.
§24-2-1. Jurisdiction of commission; waiver of jurisdiction.
The jurisdiction of the commission shall extend to all public utilities in this state, and shall include any utility engaged in any of the following public services:
Common carriage of passengers or goods, whether by air, railroad, street railroad, motor or otherwise, by express or otherwise, by land, water or air, whether wholly or partly by land, water or air; transportation of oil, gas or water by pipeline; transportation of coal and its derivatives and all mixtures and combinations thereof with other substances by pipeline; sleeping car or parlor car services; transmission of messages by telephone, telegraph or radio; generation and transmission of electrical energy by hydroelectric or other utilities for service to the public, whether directly or through a distributing utility; supplying water, gas or electricity, by municipalities or others, including constructing or proposing to construct facilities to supply water service to one or more industrial or commercial customers of another water utility where the rates of the other water utility may be adversely affected thereby; sewer systems servicing twenty-five ten or more persons or firms other than the owner of the sewer systems; any public service district created under the provisions of article thirteen-a, chapter sixteen of this code; toll bridges, wharves, ferries; solid waste facilities; and any other public service: Provided, That natural gas producers who provide natural gas service to not more than twenty-five residential customers are exempt from the jurisdiction of the commission with regard to the provisions of such residential service: Provided, however, That upon request of any of the customers of such the natural gas producers, the commission may, upon good cause being shown, exercise such authority as the commission may deem determine appropriate over the operation, rates and charges of such the producer and for such the length of time as the commission may consider to be proper: Provided further, That the jurisdiction the commission may exercise over the rates and charges of municipally operated public utilities is limited to that authority granted the commission in section four-b of this article: And Provided further, That providers of water service that are otherwise exempt from the jurisdiction of the commission but provide drinking water to any persons, notwithstanding whether the provider holds itself out as a water utility, upon request of any person receiving water from that provider, the commission may, upon good cause being shown, exercise authority as the commission may determine appropriate over the provider: And provided further, That the decision-making authority granted to the commission in sections four and four-a of this article shall, in respect to an application filed by a public service district, be delegated to a single hearing examiner appointed from the commission staff, which hearing examiner shall be authorized to carry out all decision making duties assigned to the commission by said the sections, and to issue orders having the full force and effect of orders of the commission.
The commission may, upon application, waive its jurisdiction and allow a utility operating in an adjoining state to provide service in West Virginia when:
(1) An area of West Virginia cannot be practicably and economically served by a utility licensed to operate within the state of West Virginia;
(2) Said The area can be provided with utility service by a utility which operates in a state adjoining West Virginia;
(3) The utility operating in the adjoining state is regulated by a regulatory agency or commission of the adjoining state; and
(4) The number of customers to be served is not substantial.
The rates the out-of-state utility charges West Virginia customers shall be the same as the rate the utility is duly authorized to charge in the adjoining jurisdiction.
The commission, in the case of any such utility, may revoke its waiver of jurisdiction for good cause.
§24-2-2. General power of commission to regulate public utilities.
(a) The commission is hereby given power to investigate all rates, methods and practices of public utilities subject to the provisions of this chapter; to require them to conform to the laws of this state and to all rules, regulations and orders of the commission not contrary to law; and to require copies of all reports, rates, classifications, schedules and timetables in effect and used by the public utility or other person, to be filed with the commission, and all other information desired by the commission relating to the investigation and requirements, including inventories of all property in such form and detail as the commission may prescribe. The commission may compel obedience to its lawful orders by mandamus or injunction or other proper proceedings in the name of the state in any circuit court having jurisdiction of the parties or of the subject matter, or the supreme court of appeals direct, and the proceedings shall have priority over all pending cases. The commission may change any intrastate rate, charge or toll which is unjust or unreasonable or any interstate charge with respect to matters of a purely local nature which have not been regulated by or pursuant to an act of Congress and may prescribe a rate, charge or toll that is just and reasonable, and change or prohibit any practice, device or method of service in order to prevent undue discrimination or favoritism between persons and between localities and between commodities for a like and contemporaneous service. But in no case shall the rate, toll or charge be more than the service is reasonably worth, considering the cost of the service. Every order entered by the commission shall continue in force until the expiration of the time, if any, named by the commission in the order, or until revoked or modified by the commission, unless the order is suspended, modified or revoked by order or decree of a court of competent jurisdiction: Provided, That in the case of utilities used by emergency shelter providers, the commission shall prescribe such rates, charges or tolls that are the lowest available. "Emergency shelter provider" means any nonprofit entity which provides temporary emergency housing and services to the homeless or to victims of domestic violence or other abuse.
(b) Notwithstanding any other provision of this code to the contrary, rates are not discriminatory if, when considering the debt costs associated with a future water or sewer project which would not benefit existing customers, the commission establishes rates which ensure that the future customers to be served by the new project are solely responsible for the debt costs associated with the project.
(c) The commission shall promulgate rules to establish requirements and guidelines for capital expenditure accounts for regulated utilities. As required by the commission, utilities shall submit on an annual basis, a report to the commission outlining the utility's plans for maintaining and improving the provision of services. The commission shall direct each utility to deposit an appropriate amount of money related to capital improvement needs into the account sufficient to fund capital improvements necessary to bring or maintain compliance with applicable state and federal laws, regulatory standards or directives. The rule shall stipulate the contents of annual plans and general considerations for making determinations for setting rate increases for deposit into the capital expenditure account. No utility not in compliance with all federal and state laws, regulatory standards or directives is eligible for any rate increase that includes additional compensation of officers or return to shareholders until the improvements are completed and sufficient to bring the utility into compliance. The commission may require a continuing balance in capital expenditure accounts sufficient to meet any future expenses that will be needed. Appropriations from the capital improvement account shall be reported to the commission at least annually. As needed, the commission may require prior approval before expenditures are made from this account.
§24-2-7. Unreasonable, etc., regulations, practices and services; receivership; procedures respecting receivership; appointment and compensation of receiver; liquidation.
(a) Whenever, under the provisions of this chapter, the commission shall find any regulations, measurements, practices, acts or services to be unjust, unreasonable, insufficient or unjustly discriminatory, or otherwise in violation of any provisions of this chapter, or shall find that any service is inadequate, or that any service which is demanded cannot be reasonably obtained, the commission shall determine and declare, and by order fix reasonable measurements, regulations, acts, practices or services, to be furnished, imposed, observed and followed in the state in lieu of those found to be unjust, unreasonable, insufficient, or unjustly discriminatory, inadequate or otherwise in violation of this chapter, and shall make such the other order respecting the same as shall be just and reasonable.
(b) If the public service commission shall determine that any utility is unable or unwilling to adequately serve its customers or has been actually or effectively abandoned by its owners, or that its management is grossly and willfully inefficient, irresponsible or unresponsive to the needs of its customers, the commission may petition to the circuit court of any county wherein the utility does business for an order attaching the assets of the utility and placing such the utility under the sole control and responsibility of a receiver: Provided, That nothing contained in this section may be construed to prevent the public service commission from exercising the powers provided to it in section seven-a of this article. If the court determines that the petition is proper in all respects and finds, after a hearing thereon, that the allegations contained in the petition are true, it shall grant the same and shall order that the utility be placed in receivership. The court, in its discretion and in consideration of the recommendation of the commission, shall appoint a receiver who shall be a responsible individual, partnership or corporation knowledgeable in public utility affairs and who shall maintain control and responsibility for the running and management of the affairs of such the utility. In so doing, the receiver shall operate the utility so as to preserve the assets of the utility and to serve the best interests of its customers. The receiver shall be compensated from the assets of said the utility in an amount to be determined by the court.
Control of and responsibility for said the utility shall remain in the receiver until the same can, in the best interest of the customers, be returned to the owners, transferred to other owners or assumed by another utility or public service corporation: Provided, That if the court after hearing, determines that control of and responsibility for the affairs of the utility should not, in the best interests of its customers, be returned to the legal owners thereof, the receiver shall proceed to liquidate the assets of such the utility in the manner provided by law.
The laws generally applicable to receivership shall govern receiverships created pursuant to this section.
§24-2-7a. Small public utility customer protection act; definitions; acquisition of small public utilities.
(a) As used in this section, the following words and phrases have the following meanings:
(1) "Capable public utility" means a public utility which regularly provides the same type of service as the small water utility, the small sewer utility or the small gas utility, which is not an affiliate of the small water utility, the small sewer utility or the small gas utility and which provides adequate, efficient, safe and reasonable service.
(2) "Local governmental unit" means a county, a municipality, or a public service district.
(3) "Small sewer utility" means a public utility which regularly provides sewer service to one thousand two hundred or fewer customer connections.
(4) "Small water utility" means a public utility which regularly provides water service to one thousand two hundred or fewer customer connections.
(5) "Small gas utility" means a public utility which regularly provides gas service to one thousand two hundred or fewer customers.
(6) "Small public utility" means, as appropriate, a small sewer utility, a small water utility or a small gas utility.
(b) The commission may order a capable public utility or request a local governmental unit to acquire a small public utility only in accordance with the procedures established in this section.
(c) The commission may consider the acquisition of a small public utility on the occurrence of one of the following events:
(1) The commission receives a petition signed by at least ten percent of the residential customers of the small public utility that sets forth the reasons the petitioners believe the small public utility should be acquired by a capable public utility or local governmental unit. These reasons may include a representation that the small public utility is in violation of applicable state or federal laws, regulatory standards or directives affecting or relating to the health, safety, adequacy, efficiency or reasonableness of the service provided by the small public utility;
(2) The division of environmental protection, the department of health, or the consumer advocate division files a petition with the commission requesting that the commission authorizing the acquisition of a small public utility and setting forth the reasons that such an acquisition should take place.
(d) Upon receipt of a petition pursuant to subsection (c) of this section, the commission shall conduct a preliminary investigation of the matters set forth in the petition. In connection with this preliminary investigation, the commission may request such additional information from the small public utility, the identified capable public utility, if any, any other public utility in the same general area as the small public utility, appropriate local governmental units, the division of environmental protection, the department of health, or the consumer advocate division. If the commission makes a preliminary determination based upon the petition and any subsequent investigation that an acquisition of the small public utility may be warranted, the commission may initiate a general investigation proceeding to determine whether to issue an acquisition order. The commission may also initiate a general investigation proceeding on its own motion.
(e) On the initiation of a general investigation proceeding pursuant to subsection (d) of this section, the commission shall provide written notice to the following persons and entities:
(1) The small public utility;
(2) The capable public utility identified in the petition filed pursuant to subsection (c), if any;
(3) The capable public utility that the commission's preliminary investigation revealed to be the most likely public utility to be directed to acquire the small public utility, if different from any utility identified in the preceding subdivision;
(4) All public utilities within a reasonable proximity to the small public utility;
(5) The division of environmental protection;
(6) The department of health;
(7) The local governmental unit that the commission's preliminary investigation revealed to be the most likely to be authorized to acquire the small public utility;
(8) The local governmental unit and the county commission in which the small public utility is located;
(9) The consumer advocate division; and
(10) Any designated attorney or representative of the residential petitioners identified in a petition filed pursuant to subdivision (1), subsection (c) of this section.
The written notice shall set forth the due dates of the reports identified in subsections (g) through (l), inclusive, of this section.
(f) On the initiation of a general investigation proceeding pursuant to subsection (d) of this section, the commission shall order the small public utility to provide notice to its customers of the initiation of the general investigation proceeding by publication of a Class II legal advertisement in accordance with chapter fifty-nine, article three, section one of this code. The publication area shall be the service boundaries of the small public utility.
(g) Within one hundred twenty days of the date of the notice identified in subsection (e) of this section, the small public utility shall file with the commission and serve on the entities set forth in subsection (e) of this section a report setting forth its position on whether it should be acquired by a capable public utility or a local governmental unit. The report of the small public utility shall contain at least the following information:
(1) Whether it has violated an applicable state or federal law, regulatory standards or directives affecting or relating to the health, safety, adequacy, efficiency or reasonableness of the service it provides, and if so, the time period in which the violations have continued;
(2) The amount of outstanding long-term indebtedness of the small public utility and the amount of grants received by the small public utility used in the construction or maintenance of the system;
(3) A description of the capital improvements needed to be made to the facilities of the small public utility in order to bring it into compliance with applicable state or federal laws, regulatory standards or directives affecting or relating to the health, safety, adequacy, efficiency or reasonableness of service, and an estimate of the cost of such improvements;
(4) The depreciated cost of the small public utility's plant in service and other assets;
(5) Any reasonable alternatives to acquisition by a capable public utility or local governmental unit proposed by the small public utility, including any of the following:
(A) Reorganization of the small public utility under new management;
(B) Entering into an operation and maintenance or similar contract with another public utility or service company to operate the small public utility;
(C) Appointment of a receiver to operate the small public utility; or
(D) Merger of the small public utility with one or more other public utilities, and the identity of such public utilities; and
(6) A plan for the acquisition of the small public utility by an identified capable public utility or local governmental unit that is the subject on a voluntary agreement between the small public utility and the identified capable public utility or governmental unit, including the agreed price for the transfer of the small public utility's facilities, the rate structure to be applied to the transferred customers of the small public utility, and other salient terms of the proposed transaction.
(h) Within one hundred twenty days of the date of the notice identified in subsection (e) of this section, any capable public utility or local governmental unit that desires to acquire the small public utility, including any capable public utility or local governmental unit identified by the small public utility pursuant to subdivision (6), subsection (g) of this section, shall file with the commission and serve on the other entities set forth in subsection (e) of this section a report setting forth its qualifications and plan for acquiring the small public utility. The report shall contain at least the following information:
(1) Evidence that the capable public utility or local governmental unit is financially and technically capable of acquiring and operating the small public utility in compliance with federal and state laws, regulatory standards and directives or;
(2) A proposed price for the acquisition of the assets of the small public utility;
(3) An estimate of the expenditures that will be necessary to make improvements to the facilities of the small public utility to bring those facilities into compliance with federal and state laws, regulatory standards and directives;
(4) Any special ratemaking treatment that the capable public utility or local governmental unit may seek from the commission to compensate it for expenses incurred in the acquisition of the small public utility; and
(5) The proposed rates and rate structure to apply to the customers of the small public utility and to the pre-acquisition customers of the capable public utility or local governmental unit, taking into account the factors stated in the preceding three subdivisions of this subsection.
(i) Within one hundred twenty days of the date of the notice identified in subsection (e) of this section, any public utility that desires to avoid being ordered to acquire the small public utility, including any public utility or local governmental unit identified by the commission pursuant to subdivisions (2), (3) or (4), subsection (e) of this section, shall file with the commission and serve on the other entities set forth in subsection (e) of this section a report setting the reasons it desires to avoid being ordered to acquire the small public utility. The report shall contain at least the following information:
(1) Evidence that the public utility or local governmental unit is financially and technically incapable of acquiring and operating the small public utility in compliance with federal and state laws, regulatory standards and directives;
(2) An estimate of the expenditures that will be necessary to make improvements to the facilities of the small public utility to bring those facilities into compliance with federal and state laws, regulatory standards and directives;
(3) Evidence that the acquisition of the small public utility by the capable public utility or local governmental unit would have an undue negative affect on the rates of the preacquisition customers of the public utility, taking into account the expenditures set forth in subdivision (2) of this subsection.
(j) Local governmental units cannot be required to acquire a small public utility. The local governmental unit may be directed to participate in the comment and facts development process required herein to allow the commission to collect all necessary and appropriate information, but in no case may a local governmental unit be required to acquire a small public utility. If the local governmental unit consents to the acquisition plan as set forth herein, it shall comply with all requirements associated with the acquisition as established by the commission. Upon an order for acquisition, the local governmental unit, in addition to all other requirements specified in this section and by the commission, shall immediately take the necessary action to enable a creation or expansion of its service territory as is necessary.
(k) Within thirty days of its receipt of the last of the reports filed pursuant to subsections (g), (h) and (i) of this section, and considering the information contained in those reports and such other information as the commission deems appropriate, the commission shall determine which capable public utility or utilities and local governmental units shall prepare and submit an acquisition plan pursuant to subsection (k) of this section. The commission will notify all entities who received notice pursuant to subsection (e) of this section of its determination.
(l) Within sixty days of receipt of the notice specified in subsection (k) of this section, the capable public utilities or local governmental unit identified by the commission pursuant to subsection (k) of this section shall file an acquisition plan with the commission and serve on the other entities set forth in subsection (e) of this section. The acquisition plan shall incorporate the preliminary application format required by the West Virginia infrastructure and jobs development council and shall include at least the following:
(1) A timetable, not to exceed two years, for acquiring the assets and facilities of the small public utility;
(2) The scope, anticipated cost, projected construction schedule and proposed funding arrangements for the improvements it proposes to undertake to bring the facilities of the small public utility into compliance with federal and state laws, regulatory standards and directives;
(3) The proposed purchase price of the assets and facilities of the small public utility and the basis therefor, including whether the proposed purchase price has been agreed to by the capable public utility and the small public utility;
(4) Any request for an accelerated method for allocating immediate increases in operation and maintenance expenses for the purposes of making immediate and necessary repairs of an interim nature to the facilities of the small public utility;
(5) Any special ratemaking treatment requested by the capable public utility or local governmental unit, including, but not limited to, an incentive rate of return and those considerations set forth in subsection (o) The acquiring capable public utility or the local governmental unit receiving the utility shall receive priority recommendation from the West Virginia infrastructure and jobs development council for infrastructure fund assistance for the purpose of preparing the plan for improvements pursuant to the requirements of this section and applicable state statutes and regulations. Additional acquisitions for capable utility that the public service commission may consider, may include, but are not limited to:
(i) An acquisition or purchase adjustment which would be amortized as an expense over a ten-year period;
(ii) Deferral of acquisition or purchase improvement costs where the costs are of too great a magnitude to be absorbed by ratepayers at one time; and
(iii) A plant improvement surcharge to be imposed on customers of the acquired utility; or
(iv) Use of an operating ratio as an interim measure for setting rates where little or no rate base exists for the acquired utility.
(m) Within thirty days of the filing of each acquisition plan filed pursuant to subsection (l) of this section, the division of environmental protection and the department of health shall file with the commission and serve on the other entities set forth in subsection (e) of this section written comments on the respective acquisition plan.
(n) At any time after the filing of the written comments by the division of environmental protection and the department of health pursuant to subsection (m) of this section, the commission shall hold a hearing to determine whether any capable public utility or local governmental unit should acquire the small public utility, and if so, on what terms the acquisition should take place. The commission shall order the small public utility to provide notice to its customers and the local governmental unit its citizens, of the initiation of the general investigation proceeding by publication of a Class II legal advertisement in accordance with chapter fifty-nine, article three, section one of this code. The publication area shall be the service boundaries of the small public utility or jurisdictional limits of the governmental unit. Any entity identified in subsection (e) of this section and any person or entity granted intervenor status may appear and present evidence and testimony at the hearing. In determining whether to issue an acquisition order, the commission shall consider the written reports, acquisition plans and comments filed pursuant to this section, as well as the following considerations upon consideration of the provisions of subsection (e), and after providing notice and an opportunity to be heard, determines:
(1) That the small public utility is in violation of applicable state or federal law or regulatory standards, which affect the health, safety, adequacy, efficiency or reasonableness of the service provided by the small public utility;
(2) That the small public utility has failed to comply with applicable federal or state laws or directives related to the health, safety, adequacy, efficiency or reasonableness of service within the period of time set forth by the law or directive. A finding that a utility has failed to comply with a law or directive may be based upon, but is 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, the ability to meet established wastewater discharge limitations, unacceptable levels of inflow and infiltration or the availability of natural gas at adequate volume and pressure;
(3) That the small public utility cannot reasonably be expected to furnish and maintain healthy, adequate, efficient, safe and reasonable service and facilities in the future;
(4) That alternatives to acquisition or eminent domain taking have been considered in accordance as considered in this section and have been determined by the public service commission to be impractical or not economically feasible;
(5) That the acquiring capable public utility or local governmental unit is financially, managerially and technically capable of acquiring and operating the small public utility in compliance with applicable federal and state statutory and regulatory standards; and
(6) That the rates charged by the acquiring capable public utility or local governmental unit to its reacquisition customers will not increase unreasonably because of the acquisition.
(o) In making a determination pursuant to subsection (n) of this section, the public service commission shall consider:
(1) The financial, managerial and technical ability of the public utility;
(2) The financial, managerial and technical ability of all proximate public utilities providing the same type of service;
(3) The expenditures which may be necessary to make improvements to the small public utility to assure compliance with applicable federal or state statutory and regulatory standards concerning the health, adequacy, efficiency, safety or reasonableness of utility service;
(4) The expansion of the franchise area of the acquiring capable public utility so as to include the service area of the small public utility to be acquired;
(5) The opinion and advice, if any, of the division of environmental protection and division of health as to what steps may be necessary to assure compliance with applicable federal and state statutory or regulatory standards concerning the health, adequacy, efficiency, safety or reasonableness of utility service;
(6) Any other matters which may be relevant including continued complaints from customers regarding quality of service.
(p) Upon a finding of the commission that an acquisition shall be made, the commission shall set a purchase price to be paid by acquiring capable utility or local governmental unit. Upon approval by the public service commission of a plan for improvements submitted pursuant to the requirements of this section and the acquisition of the small public utility by a capable public utility or local governmental unit, the acquiring public utility or local governmental unit shall own the small public utility. The acquiring capable public utility or local governmental unit shall receive priority for grant and loan programs under the review of the West Virginia infrastructure and jobs development council, including priority for infrastructure fund grants and loans, within the framework of applicable federal and state statutes and regulations, for the purpose of implementation of the plans for improvements.
(q) Upon approval by the public service commission of a plan for improvements submitted pursuant to the requirements of this section and the acquisition or taking of a small public utility by a capable public utility or local governmental unit, the acquiring capable public utility or local governmental unit may not be held liable for any penalties beyond the aggregate amount of fifty thousand dollars, including a maximum amount of five thousand dollars per incident, if the cause of those penalties is proximately related to identified violations of applicable federal or state statutes or regulations by the small public utility prior to acquisition and during the period of time in which the plan for improvements is being developed. The provisions of this subsection do not apply:
(1) Beyond the end of the timetable in the plan for improvements;
(2) Whenever the acquiring capable public utility or local governmental unit is not in compliance with the plan for improvements; or
(3) If, within thirty days of having received notice of the proposed plan for improvements, the division of environmental protection or the division of health submits written objections to the public service commission and those objections are not withdrawn.