Appraisal Requirements for Acquisition of a Small Water or Sewer Utility to be Used by a Large Water or Sewer Public Utility

PURPOSE: This rule establishes the requirements for using an appraisal to set the ratemaking rate base in an acquisition of a small water and/or sewer utility by a large water public utility in accordance with section 393.320, RSMo. (1) Appraisals/Engineering Reports or Evaluations. (A) An appraiser or consulting engineer appointed for the purposes of this rule shall not be associated with a creditor, equity security holder, or a shareholder of the utilities subject to the acquisition, including but not limited to being a creditor, equity security holder, or a shareholder, and shall not have any material interest in either utility, or other large water or sewer public utilities. (B) The appointed appraisers shall jointly prepare a fair and independent appraisal in accordance with section 393.320.3, RSMo. (C) Appraisals that do not include supporting rationale in accordance with section 393.320.3, RSMo, shall not be accepted as evidence supporting an application for acquisition. (D) For the purposes of this rule, supporting rationale in cludes detailed and/or itemized information and calculations used to derive the appraised value listed in the appraisal, in cluding studies or documents produced by other specialists, such as an engineer. (E) If resources are referenced which are not publicly avail able, the appraisers shall provide copies of the referenced resource materials with the appraisal. (F) All documents, evaluations, or reports prepared by, or under the direct supervision of, a registered professional engineer shall be signed, sealed, and dated by a professional engineer licensed in the state of Missouri. (2) If a large water public utility determines to utilize the procedures under section 393.320, RSMo, for the acquisition of a small utility, then the large water or sewer public utility shall submit an application for the acquisition of the small water utility in accordance with the requirements established under section 393.320, RSMo, the requirements established in 20 CSR 4240-2.060, 20 CSR 4240-50.060, and 20 CSR 4240-60.050, and shall file with its application for each utility system to be acquired— (A) A general description of the acquisition; (B) The date the appraisal was received; (C) A statement as to whether any corrected reports were received, as provided for in section 393.320.3(2)(b), RSMo, in cluding the date the corrected report was received and a de scription of any and all changes made in the corrected report; (D) The number of current customer connections of the large water public utility; (E) The utility type and number of current customer connec tions of the small water or sewer utility; (F) A request to utilize the procedures in this rule and section 393.320, RSMo; (G) If an effective purchase agreement has been executed, a statement stating such with a complete copy of the agreement AND INSURANCE attached; (H) If a purchase agreement has not been executed but has been prepared, a statement stating such and a date when the purchase agreement will be finalized and available for request; (I) A description with values and supporting calculations detailing current and proposed rates of the small utility cus tomers with the supporting documentation for these calcula tions made available upon request by parties to the case or the commission, if such documentation exists; (J) An explanation of how the acquisition is considered to be in the public interest; (K) Documentation of customer integration which includes, but is not limited to, the following: 1. Current customer contact practices for the small utility regarding hours of operation, office locations, names, addresses, phone numbers, email addresses, and websites for customer use to contact the small utility; 2. Proposed practice for the small utility’s customer contact with hours of operation, office locations, names, addresses, phone numbers, email addresses, and websites the small utility’s customers will be using to contact or find information regarding the large public utility; 3. Current and proposed payment options for customers; 4. Current and proposed billing processes for customers including when meters are read, when bills are mailed, and when bills are considered late; 5. Sample customer welcome letter(s) and customer rights and responsibilities notices the large public utility will send to the new customers; 6. Sample customer discontinuance notice, final notice, and overdue payment notice the large public utility will send customers subject to these actions if the acquisition is approved; and 7. Sample customer bill the large water public utility will send customers if the acquisition is approved; (L) An engineering evaluation of the proposed small utility to be acquired which includes, but is not limited to, the following items: 1. A statement listing the assets the large public utility is requesting to acquire from the small utility, which includes, if applicable, a description for the following: A. Information and due-diligence determinations, in compliance with section (3) of this rule, including field notes, made by the large water public utility after conducting sitevisit(s) of the small utility’s wastewater treatment facility or drinking water treatment facility or both; B. Description of water supply source; C. Description of drinking water hydraulics and pressure zones; D. Description of drinking water tank mixing systems; E. Description of drinking water controls and measure ment systems; F. Most recent Missouri Department of Natural Resources inspection reports for either the wastewater treatment facility or the drinking water system or both; and G. A description of Missouri Department of Natural Resources compliance and enforcement violations and if the small utility is subject to Missouri Department of Natural Resources orders, settlements, or similar litigation, then these effective litigation documents shall be provided; 2. If the small utility is a municipal system, a statement detailing any ordinances, bylaws, public meetings, alderman or similar meetings, and the results of any votes related to the acquisition with supporting documentation; and 3. A description regarding the use of external financing anticipated for the acquisition of the small utility, or subsequent capital improvements to the small utility including, but not limited to, new construction, acquisition of land and equipment for the application of treated wastewater, or biosolids land application; (M) If upgrades or new construction is necessary, an engi neering report which shall contain, at a minimum, the follow ing: 1. A detailed physical description of all features to be upgraded or constructed; 2. A description of why the upgrade or new construction is necessary; 3. The cost of the proposed feature and any available alternative, with cost, examined; 4. If the small utility has either a short or long-term capital plan, the plan can be included as part of the engineering report; and 5. A projected timeline for completion, which shall incorporate permit requirements from the Missouri Department of Natural Resources; (N) The appraisal relied on in determining the fair market value of the small water utility. If one of the appraisers did not join the final appraisal, as provided in section 393.320.3(3), RSMo, a statement indicating such and providing a reason why shall also be included. The appraisal shall include, but is not limited to, the following: 1. A listing of the licensed appraisers separated by and confirming who the appointed appraiser is representing for both the large water public utility and small water utility; 2. If the appraisal references an engineering report, then the following shall be provided: A. The name of the consultant or engineering company; B. The name of the licensed engineer that completed or approved the report; C. A complete and unredacted copy of the report; and D. The engineering report shall be signed, sealed, and dated by a Missouri registered professional engineer; and 3. A fair market value determination shall include, but is not limited to, the following liabilities that reduce the value of the acquisition: A. Closure of obsolete utility structures such as lagoons, settling basins, unused wells, or other treatment structures no longer used or useful but required to be properly closed in accordance with Chapters 640 and 644, RSMo; B. Urgently required repairs or immediate maintenance needed to maintain the usefulness of the current utility structures, such as replacement of failed pumps or blowers, shoring to prevent physical collapse, and other asset inventory items; C. Resolution of safety concerns such as urgently required electrical repairs, elimination of leaks of hazardous or toxic chemicals, and other repairs that have potential to cause harm to system operators or the public; D. Demolition and removal of any derelict utility structures including but not limited to unused buildings, treatment or storage structures, lifts stations, or other similar structures; and E. Known environmental remediation such as removal of solid waste, petroleum contamination, asbestos abatement, lead paint, or other substances known to cause negative impacts to human health; and (O) The requested purchase price as it relates to the appraisal amount that the large public utility proposes to use as the ratemaking rate base for the small water utility. (3) Information and due-diligence determinations shall include— (A) Field notes made by the large water public utility from site-visits of the small utility’s wastewater treatment facility or drinking water treatment facility or both; (B) Facility description, including the customer capacity for which the system(s) was designed; (C) Age of the facility; (D) Description of the distribution or collection system or both; (E) Age of the distribution or collection system or both; (F) Material make-up of the system; (G) Design-life of the system; (H) Description of back-up power; (I) Type of operational controls; (J) Length of sewer collection system or water distribution system or both; and (K) Quantity and types of valves, meters, sensors, pumps, and useful life remaining for each. (4) If the appraised value of the acquisition is $5,000,000 or less, the commission staff shall provide a recommendation within one hundred twenty (120) days after receipt of the application for acquisition. To facilitate this expedited timeline, the deadline to respond to data requests shall be shortened from that identified in 20 CSR 4240-2.090(2)(C), to ten (10) calendar days, with five (5) calendar days to object or notify the requesting party that additional time is needed to respond to the data requests. (5) The commission may grant a variance from specific portions of this rule for good cause. Any request for variance shall cite to specific portions of this rule and shall be included when the application for acquisition is filed. Such a variance, if granted, may not conflict with any mandatory portions of section 393.320, RSMo. AUTHORITY: section 386.250, RSMo 2016, and section 393.320.9, RSMo Supp. 2025.* Original rule filed Oct. 22, 2025, effective June 30, 2026. *Original authority: 386.250, RSMo 1939, amended 1963, 1967, 1977, 1980, 1987, 1988, 1991, 1993, 1995, 1996, and 393.320, RSMo 2010, amended 2013, 2025.