Maryland American Water merger with Maryland Water Service taken under advisement after OPC raises rate-base concerns

Maryland American Water Co.27s proposed acquisition of Maryland Water Service (MWS) and related franchise transfers was taken under advisement by the Public Service Commission on Oct. 29 after the Office of People27s Counsel (OPC) said the transaction risks placing the negotiated purchase price into the selling utility27s rate-making base.

Staff told commissioners the applicants satisfied statutory requirements and recommended approval, saying Maryland American possesses the financial and managerial qualifications to operate the MWS systems and that customers would see no immediate change in rates. "Maryland American Water's retention of Maryland Water Service employees will help provide expertise, continuity of management, and institutional knowledge of the Maryland Water Service systems," staff said. Staff also said the acquiring company does not plan to seek recovery of acquisition costs from customers.

OPC argued the Public Utilities Article subtitle governing small water-company acquisitions (the PUA 6-3-0 series) applies here and that, absent the fair-market valuation process in the statute, the negotiated purchase price could become the rate-making rate base. "As we read the statute ... the purchase price becomes the rate base following the transaction," Mark Sheebas, representing the Office of People27s Counsel, told the commission, citing statute language that makes the post-closing rate base the lesser of the purchase price or a fair-market value derived through the appraisal process. OPC noted the applicants27 publicly filed purchase price of about $39,000,000 and the firms' stated goodwill component of about $17,800,000 and said the resulting gap raised risks for ratepayers.

Company counsel David Bugleman said the parties did not elect the fair-market valuation process and therefore the PUA 6-3-0 appraisal procedure should not apply. He said Maryland American intends to record the depreciated original cost of MWS's utility plant as the rate base following the transaction and that neither goodwill nor transaction costs will be recovered through rates. "For the avoidance of all doubt ... the company also supports including language that clarifies the purchase price will not become the rate-making rate base of the former MWS systems," Bugleman said.

Commissioners asked for more concrete assurances about rate outcomes. Several asked whether the company would support a post-closing compliance filing and clearer consumer notice plans; staff said draft customer notices already were provided and that additional documentation could be included in a compliance filing. Commissioners pressed both sides about the statutory reading and the potential long-term rate effects of the goodwill entry on company books.

Faced with the dispute over statutory interpretation and OPC27s request for further analysis and conditions, the commission did not vote on the transfer application. Instead it asked the applicants to work with staff and OPC to draft conditioning language and return proposed order language within two weeks. The commission27s action places the application in a short holding period while the parties attempt to resolve whether and how specific rate-base and goodwill protections should be memorialized in the approval order.

The record on Oct. 29 included staff27s detailed "bucksheet" analysis, OPC27s letter raising legal and rate-impact concerns, company responses filed Oct. 2829, and a Harford County executive letter filed in support of the transaction. Staff and company witnesses answered commissioners27 questions about the accounting treatment of assets, the projected $21,516,849 approximate depreciated original cost that the company cited as the amount to be recorded in rate base after the acquisition, and the planned non-recovery of transaction costs through rates.

The commission set a two-week schedule for the parties to confer and provide proposed conditioning language. If the applicants and OPC reach agreement, the commission said it would consider adopting the agreed language as a condition of approval; otherwise, the commission may revisit the matter at a later session.