The Indiana Utility Regulatory Commission (URC) has adopted a new ratemaking policy for mergers involving water utilities: The URC will first look at the fair value of the acquired utility, as determined in its most recent rate case, to determine the reasonableness of the purchase price. In the past, it did not permit utilities to earn a return on the excess of the purchase price over book value or to add acquisition expense adjustments to rates except in special cases (i.e, the acquisition of a small or troubled utility).
According to the URC, when 100 percent of the investment in a new utility is allowed in fair-value rate base, additional above-the-line expense adjustments are unnecessary. The URC said it had failed in the past to develop a policy that could recognize the benefits of a merger "where no unusual circumstances are extant." Re Indiana-American Water Co., Cause No. 40103, May 30, 1996 (Ind.U.R.C.).
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