Subcommittee pauses House Bill 4,386 after testimony on appraisal rules and customer impacts

Columbia, S.C. — The Public Utility Subcommittee paused work on House Bill 4,386, the Fair Market Value Act, after testimony Wednesday that highlighted competing goals: creating a clear valuation process for municipal water and wastewater assets while protecting customers from elevated costs.

Nanette Edwards, an attorney with Burr and Foreman representing South Carolina Water Utilities Inc., told the committee she supports the bill and called it “a framework to value those government-owned utility assets,” saying the measure would require appraisals conforming to professional standards and use the lesser of the average appraisals or the purchase price to set the value that could enter an investor-owned utility’s rate base. “I represent the South Carolina Water Utilities Inc, and I'm here to testify in favor of House Bill 4,386, the Fair Market Value Act,” Edwards said.

Andrew Bateman of the Office of Regulatory Staff (ORS) agreed the bill’s central aim is regulatory certainty for acquisitions by investor-owned utilities but urged caution on several technical points. Bateman warned the bill’s 60–90 day appraisal window is short compared with other states and recommended specifying appraiser qualifications, such as MAI certification, and requiring front-end engineering analysis when municipal records are incomplete. He said those steps would reduce the risk that different appraisers evaluate inconsistent asset scopes and arrive at divergent values.

Committee members focused on how the bill would affect customers. Bateman explained that if a purchase is approved as in the public interest, “the value that you acquired that system or the fair market value, the lesser of the two, becomes part of rate base,” which is later considered in rate cases and can result in cost recovery from customers. He also said appraisal and transaction costs “borne by the public utility shall be treated as capital costs and may be recovered by the acquiring public utility,” meaning customers could ultimately pay for those appraisals.

Representative Guffey raised a concrete concern about municipal condemnation: if a local government acquires facilities through condemnation, could it later sell them to a private utility under this bill? Edwards confirmed that a sale could occur but emphasized the PSC would have to find that any acquisition is in the public interest; she and Bateman said ORS and consumer advocates serve as checks in that review. “Am I incorrect in saying that?” Guffey asked; Edwards replied, “You're correct,” and added that the PSC could find a proposed acquisition not in the public interest.

Several members urged language to prevent unintended “arbitrage” — situations where a municipality might acquire assets and quickly resell them for profit that would then be shifted into rate base. Edwards offered to work on draft language to address that risk, and Bateman urged careful thought about the weighting of buyer, seller and ORS appraisals so the process does not systematically favor higher values.

Representative Kirby and others said they support the bill’s intent but want clearer drafting on appraisal assignments and longer windows for completing valuations. The Municipal Association told the committee it supports the bill as written but committee leaders said revisions are needed before the measure goes to the full committee.

At the end of the session, Chairman Gatch moved to adjourn debate so staff can draft changes and circulate amendments — including anti-arbitrage language — and bring the bill back to the subcommittee. The motion was seconded and approved by voice; debate was postponed pending those revisions.

What’s next: The subcommittee will reconvene after staff and sponsors prepare amendments addressing appraisal timeframes, appraiser qualifications, and proposed anti-arbitrage safeguards. No formal votes on the underlying bill were taken at this meeting.