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Water Utility Escapes Acquisition Adjustment

Fortnightly Magazine - January 15 1997

While approving the transfer of certain water utility assets and certificates between two utility companies, the Florida Public Service Commission (PSC) has decided against applying a negative acquisition adjustment to rate base in setting rates for the acquiring utility, even though the buyer paid "substantially less" than original cost for the facilities ($545,000 versus $2.845 million).

The PSC ruled that without extraordinary circumstances, its policy requires that a purchase of utility assets at a premium or discount should not affect the rate base calculation.

Commissioner J. Terry Deason issued a dissenting opinion, favoring a rule that would "place the burden on the company to justify why the purchaser's actual investment should not be utilized in setting rates." The case had involved Wedgefield Utilities, Inc. (the buyer) and Econ Utilities Corp. (the seller), which in recent years had suffered cost disallowances to reflect findings of excess capacity. Re Econ Utils. Corp., Docket No. 960283-WS, Order No. PSC-96-1241-FOF-WS, Oct. 7, 1996 (Fla.P.S.C.).

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