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Senate
File
2304
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Enrolled
Senate
File
2304
AN
ACT
RELATING
TO
CERTAIN
PUBLIC
UTILITIES,
INCLUDING
THE
DEVELOPMENT
OF
RATEMAKING
PRINCIPLES
PERMITTED
FOR
RECOVERY
COSTS
OF
CERTAIN
INVESTMENTS
IN
INFRASTRUCTURE
BY
WATER
AND
WASTEWATER
UTILITIES
AND
COST
CONSIDERATIONS
FOR
ACQUISITIONS
OF
WATER,
SANITARY
SEWER,
OR
STORM
WATER
UTILITIES.
BE
IT
ENACTED
BY
THE
GENERAL
ASSEMBLY
OF
THE
STATE
OF
IOWA:
Section
1.
NEW
SECTION
.
476.59
System
enhancement
infrastructure.
1.
It
is
the
intent
of
the
general
assembly
to
authorize
alternative
ratemaking
mechanisms
to
develop
and
sustain
adequate
water
and
wastewater
treatment
facilities
within
the
state
to
ensure
resilient
water
supply
and
sanitation
services
for
Iowa
consumers.
The
commission
shall
not
be
bound
by
traditional
ratemaking
principles
or
traditional
cost
recovery
mechanisms
with
respect
to
system
enhancement
infrastructure.
2.
For
purposes
of
this
section:
a.
“Blanket-type
work
project
order”
means
an
agreement
between
an
eligible
utility
and
a
supplier
to
deliver
goods
or
services
at
a
set
price
on
a
recurring
basis
over
a
specified
time
period.
b.
“Eligible
utility”
means
an
investor-owned
public
utility
providing
water
or
wastewater
service
subject
to
rate
regulation
by
the
commission
pursuant
to
section
476.1.
Senate
File
2304,
p.
2
c.
“Plan”
means
a
multiyear
plan
to
implement
system
enhancement
improvements.
d.
“Pretax
return”
means
the
revenues
necessary
to
accomplish
all
of
the
following:
(1)
Producing
net
operating
income
equal
to
the
utility’s
weighted
cost
of
capital
approved
in
the
utility’s
most
recent
rate
case
and
the
actual
embedded
cost
of
debt
at
the
time
the
filing
is
made
multiplied
by
investments
in
system
enhancement
improvements.
(2)
Paying
state
and
federal
income
taxes
applicable
to
income
under
subparagraph
(1).
e.
“Requirement”
means
any
decision
or
regulation
imposed
on
an
eligible
utility
by
a
local
government
unit,
a
state,
or
the
federal
government
in
connection
with
any
of
the
following:
(1)
The
federal
Water
Pollution
Control
Act,
33
U.S.C.
§1251
et
seq.
(2)
The
federal
Safe
Drinking
Water
Act,
42
U.S.C.
§300f
et
seq.
(3)
Any
other
law,
order,
or
regulation
administered
by
the
United
States
environmental
protection
agency,
the
United
States
army
corps
of
engineers,
the
United
States
department
of
transportation,
the
Iowa
department
of
transportation,
or
the
Iowa
department
of
natural
resources.
(4)
Regulations
imposed
by
a
local
government
unit.
f.
“System
enhancement
charge”
means
a
charge
assessed
by
an
eligible
utility
to
recover
system
enhancement
costs.
g.
(1)
“System
enhancement
costs”
means
the
following
costs
associated
with
any
of
the
following
system
enhancement
improvements:
(a)
Depreciation
expenses,
including
any
such
expenses
incurred
prior
to
the
approval
of
a
plan
containing
the
applicable
system
enhancement
improvement.
(b)
Restoration
costs
incurred
to
restore
property
to
its
preconstruction
condition
other
than
those
already
capitalized
and
included
in
depreciation
expenses.
(c)
Property
taxes
to
be
paid
by
the
utility
based
upon
the
first
assessment
date
following
placement
in
service.
(d)
Pretax
return.
(2)
“System
enhancement
costs”
does
not
include
fines
Senate
File
2304,
p.
3
or
penalties
assessed
against
or
imposed
on
a
utility
for
violating
laws,
regulations,
or
consent
decrees.
h.
(1)
“System
enhancement
improvement”
means
a
water
or
wastewater
utility
plant
project
incurred
pursuant
to
a
plan
that
does
any
of
the
following:
(a)
Installs
new
utility
infrastructure
required
by
federal,
state,
or
local
requirements
pertaining
to
resilience,
health,
safety,
or
environmental
protection.
(b)
Relocates
utility
infrastructure
necessary
to
accommodate
public
improvement
projects
required
by
a
federal,
state,
or
local
jurisdiction
to
the
extent
the
relocation
costs
are
not
otherwise
reimbursed
through
the
public
improvement
project.
(c)
Is
nonrevenue
producing
and
is
required
to
maintain
resilience,
public
health,
safety,
or
environmental
protection.
(2)
“System
enhancement
improvement”
does
not
include
a
water
or
wastewater
utility
plant
included
in
the
eligible
utility’s
rate
base
in
its
most
recent
general
rate
case.
3.
a.
Before
an
eligible
utility
may
seek
recovery
of
its
system
enhancement
costs
through
a
system
enhancement
charge
under
this
section,
it
must
first
obtain
approval
from
the
commission
of
a
plan
including
the
proposed
system
enhancement
improvements.
The
eligible
utility
must
file
with
the
commission
an
application
and
supporting
evidence
for
the
plan.
An
eligible
utility
may
only
file
one
plan
every
twelve
months
for
water
and
wastewater
system
enhancement
improvements.
The
commission
shall
dismiss
an
application
to
approve
a
plan
if
the
commission
has
not
issued
a
final
order
in
a
general
rate
case
proceeding
under
section
476.6
involving
the
eligible
utility
for
the
same
type
of
utility
service
within
the
past
five
years.
b.
Evidence
supporting
an
application
to
approve
a
plan
shall
include
all
of
the
following:
(1)
Projected
annual
capital
expenditures
including
a
contingency
identified
by
major
categories
of
expenditures
of
system
enhancement
improvements
included
in
the
plan.
(2)
A
description
of
the
age,
condition,
or
other
similar
and
reasonably
available
information
about
the
existing
infrastructure
and
any
deficiencies
in
resilience,
public
Senate
File
2304,
p.
4
health,
safety,
or
environmental
protection,
if
applicable.
(3)
The
applicable
requirements,
including
any
consent
decrees
and
conditions,
including
but
not
limited
to
completion
deadlines,
related
to
the
requirements.
(4)
A
narrative
describing
how
the
system
enhancement
improvements
enable
compliance
with
the
requirements.
(5)
Alternative
plans
for
compliance
considered
by
the
eligible
utility.
(6)
An
engineering
evaluation
and
report
identifying
the
system
enhancement
improvements
included
in
the
plan,
with
descriptions
of
project
objectives,
detailed
cost
estimates,
and
the
estimated
in-service
dates
for
each
system
enhancement
improvement.
(7)
Any
blanket-type
work
order
and
its
associated
costs
proposed
to
implement
the
improvements.
(8)
Proposed
rate
schedules
establishing
a
system
enhancement
charge.
(9)
The
estimated
rate
impact
of
the
proposed
system
enhancement
charge.
(10)
A
financial
impact
analysis
demonstrating
that
the
total
projected
costs
of
the
improvements
included
in
the
plan
will
not
result
in
aggregate
system
enhancement
charge
revenues
exceeding
the
ten
percent
limit
established
under
subsection
4,
paragraph
“c”
.
c.
An
application
for
approval
of
a
plan
shall
be
a
contested
case.
The
commission
shall
issue
its
final
order
on
the
application
not
more
than
eight
months
after
the
filing
of
the
application.
However,
upon
good
cause
shown,
the
commission
may
extend
the
time
for
issuing
the
order.
When
reviewing
the
plan
and
corresponding
system
enhancement
charge,
the
commission
shall
make
reasonable
efforts
to
ensure
the
utility
is
in
compliance
with
the
requirements
as
supported
by
evidence
in
the
application
and
the
proceeding.
The
commission
may
also
consider
the
following
criteria:
(1)
The
plan
consists
of
projects
that
are
system
enhancement
improvements,
except
any
removed
pursuant
to
paragraph
“d”
.
(2)
The
plan
includes
cost
estimates
that
enable
a
reasonable
assessment
of
the
costs
of
the
plan.
Senate
File
2304,
p.
5
(3)
The
plan
will
result
in
rates
that
are
just
and
reasonable.
d.
The
commission
shall
not
disapprove
the
plan
on
the
basis
that
one
or
more
system
enhancement
improvements
within
the
plan
do
not
satisfy
paragraph
“e”
.
The
commission
may
approve
the
plan
subject
to
the
removal
of
the
system
enhancement
improvements
found
not
to
satisfy
paragraph
“e”
.
e.
An
eligible
utility
that
operates
both
a
water
and
wastewater
utility
shall
establish
separate
plans
for
water
and
wastewater
system
enhancement
improvements
and
such
plans
shall
be
presented
to
the
commission
through
different
applications.
f.
(1)
The
commission
shall
not
approve
a
system
enhancement
plan,
or
an
update
to
an
existing
plan,
if
the
commission
finds
that
the
projected
annualized
revenue
required
to
recover
the
costs
of
the
improvements
included
in
the
plan
would
exceed
ten
percent
of
the
utility’s
revenue
requirement
as
authorized
in
its
most
recent
general
rate
case.
(2)
In
making
the
determination
under
subparagraph
(1),
the
commission
shall
consider
the
cumulative
impact
of
all
existing
and
proposed
system
enhancement
improvements
for
both
water
and
wastewater
service.
4.
a.
An
eligible
utility
with
one
or
more
plans
approved
under
subsection
3
shall
file
with
the
commission
an
application
annually
setting
forth
rate
schedules
establishing
a
system
enhancement
charge,
which
may
thereafter
be
automatically
adjusted
and
include
a
reconciliation
of
revenues
collected
under
previous
system
enhancement
charges.
A
revenue
reconciliation
filing
shall
be
filed
on
an
annual
basis
no
later
than
ninety
days
following
the
expiration
of
the
charge.
Revenues
collected
from
a
system
enhancement
charge
for
water
service
shall
not
be
used
to
offset
costs
associated
with
a
wastewater
enhancement
plan,
and
the
commission
shall
ensure
no
cross-subsidization
occurs
between
the
two
distinct
services.
The
commission
shall
review
the
filing
to
ensure
compliance
with
previously
approved
filings.
b.
The
system
enhancement
charge
shall
do
all
of
the
following:
(1)
Be
calculated
as
a
monthly
fixed
charge
based
upon
meter
size.
Senate
File
2304,
p.
6
(2)
Not
include
recovery
of
any
system
enhancement
costs
recovered
by
the
eligible
utility
through
contributions
in
aid
of
construction.
(3)
Recover
eighty
percent
of
the
revenue
requirement
necessary
to
recover
system
enhancement
costs
incurred
prior
to
the
date
of
the
application
and
not
previously
recovered
through
a
system
enhancement
charge.
(4)
Reflect
system
enhancement
costs
for
system
enhancement
improvements
placed
in
service
prior
to
the
date
the
application
is
filed.
(5)
Include
the
pretax
return
associated
with
the
accrued
asset
value
reflected
on
the
eligible
utility’s
books
and
records
as
of
the
date
of
the
application
for
system
enhancement
improvements.
c.
(1)
The
aggregate
total
annualized
revenue
produced
by
all
system
enhancement
charges,
including
those
for
water
and
wastewater
service,
shall
not
exceed
ten
percent
of
the
utility’s
total
revenue
requirement
authorized
in
its
most
recent
general
rate
case.
(2)
Costs
incurred
in
excess
of
the
limit
established
in
subparagraph
(1)
that
are
not
otherwise
exempt
under
paragraph
“b”
shall
be
deferred
for
consideration
in
the
utility’s
next
general
rate
case.
d.
The
application
filed
to
implement
the
system
enhancement
charge
shall
include
all
of
the
following:
(1)
A
breakdown
of
costs
for
each
system
enhancement
improvement
that
clearly
identifies
the
status
of
completion
of
such
project.
(2)
The
actual
costs
incurred,
the
projected
construction
timeline
for
projects,
and
the
in-service
or
estimated
in-service
dates
or
aggregate
information
capturing
system
enhancement
improvements
constructed
pursuant
to
blanket-type
work
project
orders
and
the
actual
annual
costs
of
the
replacement
programs
performed
pursuant
to
blanket-type
work
project
orders.
e.
The
commission
shall
not
authorize
an
adjustment
to
the
system
enhancement
charge
to
incorporate
system
enhancement
costs
incurred
since
the
date
of
prior
application
filed
under
this
subsection
if
the
commission
has
not
issued
a
final
order
Senate
File
2304,
p.
7
in
a
general
rate
case
proceeding
under
section
476.6
involving
the
eligible
utility
within
the
past
five
years.
f.
An
eligible
utility
that
recovers
system
enhancement
costs
under
this
subsection
shall
defer
the
remaining
twenty
percent
of
revenue
requirement
necessary
to
recover
the
system
enhancement
costs
approved
under
this
subsection
and
shall
recover
the
deferral
as
part
of
its
next
general
rate
case
that
the
eligible
utility
files
with
the
commission.
5.
System
enhancement
costs
may
be
deferred
by
an
eligible
utility
for
recovery
through
the
utility’s
next
approved
system
enhancement
charge.
6.
An
application
to
implement
or
change
a
system
enhancement
charge
may
include
changes
or
updates
to
any
information
provided
in
the
plan,
provided
that
the
eligible
utility
has
a
reasonable
expectation
that
the
changes
or
updates
will
occur
during
the
time
the
plan
is
effective.
The
commission
shall
review
such
changes
in
accordance
with
subsection
3,
paragraph
“c”
.
Project
changes
may
include
but
shall
not
be
limited
to
additions,
replacements,
or
deferral
projects
that
otherwise
qualify
as
system
enhancement
improvements.
7.
Notice
of
an
eligible
utility’s
applications
under
section
476.6,
subsection
2,
must
be
published.
8.
In
its
next
general
rate
case,
the
eligible
utility
with
a
plan
approved
pursuant
to
subsection
3
may
include
the
system
enhancement
improvements
to
its
rate
base
in
its
application.
An
eligible
utility’s
system
enhancement
charge
approved
under
this
section
shall
reset
to
zero
upon
approval
of
new
base
rates.
9.
The
commission
shall
adopt
rules
under
chapter
17A
establishing
procedures
to
implement
this
section.
Sec.
2.
Section
476.84,
subsection
2,
paragraph
b,
Code
2026,
is
amended
to
read
as
follows:
b.
If
a
water,
sanitary
sewer,
or
storm
water
utility
that
is
the
subject
of
an
acquisition
meets
the
requirements
of
paragraph
“a”
,
then
the
acquiring
public
utility
may
apply
to
the
commission,
prior
to
the
completion
of
the
acquisition,
for
advance
approval
of
a
proposed
initial
tariff
for
providing
service
to
customers
of
the
acquired
utility.
If
a
water,
Senate
File
2304,
p.
8
sanitary
sewer,
or
storm
water
utility
that
is
the
subject
of
an
acquisition
does
not
meet
the
requirements
of
paragraph
“a”
,
the
commission
shall
consider
reasonable
and
customary
closing
costs,
the
costs
of
the
appraisals,
and
regulatory
and
legal
expenses
incurred
in
connection
with
the
acquisition
in
the
public
utility’s
next
rate
case.
______________________________
AMY
SINCLAIR
President
of
the
Senate
______________________________
PAT
GRASSLEY
Speaker
of
the
House
I
hereby
certify
that
this
bill
originated
in
the
Senate
and
is
known
as
Senate
File
2304,
Ninety-first
General
Assembly.
______________________________
W.
CHARLES
SMITHSON
Secretary
of
the
Senate
Approved
_______________,
2026
______________________________
KIM
REYNOLDS
Governor