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Kim Reynolds
governor
Office of the Governor Chris Cournoyer
LT GOVERNOR
June 01, 2026
The Honorable Paul Pate
Secretary of State of Iowa
State Capitol
Des Moines, Iowa 50319
Dear Mr. Secretary,
I hereby transmit:
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.
The above Senate File is hereby approved on this date.
Ki\i Reynolds \
Governor otlowra
cc: Secretary of the Senate
Clerk of the House
STATE CAPITOL DES MOINES, IOWA 50319 515.281.5211 WWW.GOVERNOR.IOWA.GOV
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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 PAT GRASSLEy
President of the Senate 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
App r o v e _ , 2026
KIM REYNOLDS I
Governor