(a) Applicability. This section applies to a voluntary arm's length transaction between an acquiring utility and a retail public utility under TWC §13.305 for which approval is required under TWC §13.301. This section does not apply to a transaction between a utility and its affiliate.
(b) Definitions. In this section, the following words and terms have the following meanings, unless the context indicates otherwise.
  (1) Acquiring utility -- A Class A or Class B utility that is acquiring a selling utility, or the facilities of a selling utility.
  (2) Allowance for funds used during construction (AFUDC) -- An accounting practice that recognizes the capital costs, including debt and equity funds, that are used to finance a transferee's construction costs of an improvement to a purchased asset.
  (3) Fair market value -- The average of the three appraisals conducted under subsection (f) of this section.
  (4) Ratemaking rate base -- The dollar value of the selling utility or the sold facilities of a selling utility that is incorporated into the rate base of the acquiring utility for post-acquisition purposes. The ratemaking rate base is the lesser of the purchase price negotiated by an acquiring utility and a selling utility or the fair market value. The ratemaking rate base does not include transaction and closing costs.
  (5) Selling utility -- A retail public utility that is being purchased by an acquiring utility or is selling facilities to an acquiring utility.
(c) List of qualified utility valuation experts. The commission will maintain a list of qualified utility valuation experts to perform appraisals to determine a fair market value of a selling utility or facilities of a selling utility.
  (1) A utility valuation expert may request to be included on the commission's list by submitting, under the control number designated for that purpose, the required information.
  (2) The request filed by the utility valuation expert must include:
    (A) The expert's name, mailing address, telephone number, and email address;
    (B) The name of the company with which the expert is employed or associated, or the name under which the expert conducts business;
    (C) The names of the principal officers of the company with which the expert is employed or associated, if applicable;
    (D) The name and mailing addresses of any affiliates of the company with which the expert is employed or associated, if applicable; and
    (E) A detailed description of the utility valuation expert's qualifications, such as professional licensing, certifications, training or past experience conducting economic evaluations of water and sewer utilities.
  (3) The utility valuation expert must update the information in its request on file with the commission within ten business days of a material change to the information.
  (4) A utility valuation expert who wishes to be removed from the list maintained by the commission under this subsection must file a letter with the commission requesting to be removed from the list. This letter must be filed under the control number designated for that purpose. The commission will acknowledge the removal request in writing.
(d) Notice of intent to determine fair market value.
  (1) A selling utility and an acquiring utility that agree to use the fair market valuation process described in subsection (f) of this section must file a notice of intent to determine fair market value in the control number designated for that purpose.
  (2) The notice of intent must include the following:
    (A) The name and certificate of convenience and necessity (CCN) number of the acquiring utility. If the acquiring utility holds multiple CCN numbers, the acquiring utility must provide all the CCN numbers.
    (B) The name and contact information of the acquiring utility's representative.
    (C) The number of connections served by the acquiring utility.
    (D) The name and CCN number of the selling utility.
    (E) The name and contact information of the selling utility's representative.
    (F) The number of connections served by the selling utility.
    (G) The estimated closing date of the planned acquisition.
    (H) A list of the utility valuation experts on the commission's list of qualified experts who, as of the date of the notice of intent, are precluded under subsection (e)(2)(B) of this section from performing an appraisal of the transaction.
  (3) The notice of intent must not include the purchase price agreed upon by the acquiring utility and the selling utility.
(e) Selection of utility valuation experts.
  (1) The commission's executive director or the executive director's designee will select three utility valuation experts from the list maintained under subsection (c) of this section no later than 30 days after the filing of a notice of intent to determine fair market value that meets the requirements of subsection (d) of this section.
  (2) The utility valuation experts selected under paragraph (1) of this subsection may not:
    (A) derive material or financial benefit from the sale other than fees for services rendered;
    (B) be or have been within the year preceding the date the service contract is executed a director, officer, or employee of the acquiring utility or the selling utility or an immediate family member of a director, officer, or employee of the acquiring utility or the selling utility; or
    (C) have received compensation under a contract for consulting or other services with the acquiring or selling utility, or executed a contract for consulting or other services with the acquiring or selling utility, within the year preceding the date the utility valuation expert is selected.
  (3) The commission's executive director or the executive director's designee will base the selection of utility valuation experts on the following:
    (A) Qualifications of the utility valuation expert.
    (B) Availability of the utility valuation expert during the required time frame.
    (C) Absence of conflicts of interest described in paragraph (2) of this subsection.
    (D) Other factors relevant to a utility valuation expert's ability to perform an appraisal under this section.
  (4) The acquiring utility must contract directly with the selected utility valuation experts and the commission will not be a party to the contract. Subsection (k)(2) of this section, which limits the amount of transaction and closing costs that may be recovered in rates, does not apply to the fees for service agreed to in the contract. If the acquiring utility and any of the utility valuation experts selected under subsection (e)(1) of this subsection are unable to reach agreement on the terms and conditions for performing the appraisal, including the amount of the service fee, the acquiring utility or utility valuation expert may submit a request for selection of a different utility valuation expert under the control number designated for that purpose. If the commission's executive director or the executive director's designee selects a different utility valuation expert, the time period for all utility valuation expert to submit a report under subsection (f)(5) of this section begins when the different utility valuation expert is selected.
(f) Determination of fair market value.
  (1) The three utility valuation experts selected under subsection (e) of this section jointly must retain a licensed engineer to conduct an assessment of the tangible assets of the selling utility or the facilities to be sold to the acquiring utility.
    (A) The engineer may not be or have been within one year preceding the date the service contract is executed a director, officer, or employee of the acquiring utility or the selling utility or an immediate family member of a director, officer, or employee of the acquiring utility or the selling utility.
    (B) The engineer must provide the following information to the valuation experts:
      (i) Qualifications that demonstrate the engineer's ability to provide the requested assessment;
      (ii) The engineer's fees for other similar assessments; and
      (iii) Other relevant information requested by the utility valuation experts.
    (C) The engineer's assessment must include a separate assessment for each type of facility based on the applicable National Association of Regulatory Utility Commissioners (NARUC) account for the facility.
Cont'd...