COA: $475k purchase price reasonable for Hamilton County utility acquisition

Two Hamilton County wastewater companies can move forward with their acquisition deal costing the significantly larger entity hundreds of thousands of dollars, the Indiana Court of Appeals has affirmed.

In 2019, Citizens Wastewater of Westfield, LLC and JLB Development, Inc. shook hands in a deal that would permit Citizens to purchase most of JLB’s wastewater collection system assets for $475,000.

Citizens offers services to more than 14,700 customers in and around Westfield, while JLB served six customers, including two mobile home parks and two multifamily housing properties.

In order to seal the deal, the Indiana Utility Regulatory Commission needed to authorize the inclusion of the full purchase price in the net original cost rate base.

Citizens and JLB eventually filed a joint petition with the commission requesting authorization pursuant to Indiana Code Section 8-1-30.3-5. Although it found no issues with the acquisition, the Indiana Office of Utility Consumer Counselor contended that the actual purchase price of the utility property would be reasonable up to $80,022, rather than Citizens’ suggestion.

However, the commission ultimately authorized Citizens’ acquisition of JLB’s system on the terms described in the asset purchase agreement, ruling that Citizens “may record, for ratemaking purposes, as net original cost rate base of the assets being acquired, the purchase price of $475,000, its actual incidental expenses, and other costs of acquisition, allocated among utility plant in service accounts[.]”

The OUCC in Indiana Office of Utility Consumer Counselor v. Citizens Wastewater of Westfield, LLC, et al., 20A-EX-02199, appealed, arguing that because the purchase price was based on factors other than the value of JLB’s tangible property, the commission erred in concluding it was reasonable. More specifically, whether it was reasonable for the commission to conclude that Section 8-1-2-6(b) permits the valuation of a public utility to be based on factors other than tangible property in cases filed pursuant to Section 8-1-30.3-5.

In affirming the commission’s decision, the Court of Appeals found no fault with its assessment that its interpretation of the sections was both “consistent with the plain language of the statutes at issue” and “consistent with the history and purpose of the Offered Utility Statute — to encourage regionalization and the acquisition of small and distressed utilities.”

“In sum, we conclude that the Commission’s interpretation of Sections 8-1-2-6 and 8-1-30.3-5 is reasonable, and therefore we stop our analysis,” Judge Terry Crone wrote for the appellate court. “Because the OUCC’s objection to the reasonableness of the purchase price is based solely on its unsuccessful argument that only the value of JLB’s tangible property could be considered, we affirm the Commission’s order.”