In this subtitle the following words have the meanings indicated. “Acquiring entity” means: a water company or a sewage company that is acquiring a selling utility as the result of a voluntary arm’s length transaction between the buyer and seller; or another person that: is acquiring a selling utility as the result of a voluntary arm’s length transaction between the buyer and seller; and has applied to the Commission, directly or through an affiliate, for authority to operate as a public service company in the State. “Affiliate” has the meaning stated in § 7–501 of this article. “Construction allowance” means an accounting practice that recognizes the capital costs, including debt and equity funds that are used to finance the construction costs of an improvement to a selling utility’s assets by an acquiring entity. “Fair market value” means the average of the two utility valuation expert appraisals conducted under § 6–304 of this subtitle. “Selling utility” means a water company or a sewage disposal company or any other water service or sewage disposal service provider in the State, including any State, county, or municipal water service provider or sewage disposal service provider that is being purchased by an acquiring entity as the result of a voluntary arm’s length transaction between the buyer and seller. “Utility valuation expert” or “expert” means a person hired by an acquiring public utility and selling utility for the purpose of conducting an economic valuation of the selling utility to determine its fair market value.

This subtitle applies to the sale and acquisition, including all tangible assets, of public and private water service providers and sewage disposal service providers with fewer than 400,000 customers.

Without prior authorization of the Commission, a person may not acquire a controlling interest in any State, county, municipal, or similar not–for–profit water service or sewage disposal service provider, for the purpose of converting the provider into a water company or sewage disposal company. The Commission may authorize an acquisition under subsection (a) of this section if the Commission finds that the acquisition is consistent with the public convenience and necessity.

On agreement by both the acquiring entity and the selling utility, the fair market value of the selling utility shall be determined in accordance with this section. The acquiring entity and the selling utility shall each be responsible for hiring a utility valuation expert to conduct an appraisal of the selling utility to determine the fair market value of the selling utility. Each utility valuation appraisal shall be completed in accordance with the Uniform Standards of Professional Appraisal Practice. The acquiring entity and the selling utility shall engage the services of the same licensed engineer to conduct an assessment of the tangible assets of the selling utility. The assessment shall be incorporated into the appraisals under subsection (c) of this section.

A utility valuation expert may not: derive any material financial benefit from the sale of the selling utility other than fees for services rendered; or be an immediate family member of a director, an officer, or an employee of either the acquiring entity or the selling utility within 12 months before the date of hiring to perform an appraisal under this subtitle.

Reasonable transaction and closing costs incurred by the acquiring entity shall be included in the rate making rate base of the acquiring entity. Fees paid to utility valuation experts may be included in the transaction and closing costs associated with acquisition by the acquiring entity. Unless the Commission finds just cause to authorize additional fees, fees eligible for inclusion may not exceed 5% of the fair market value of the selling utility or $50,000 if the actual fees paid exceed 5% of the fair market value. As of the closing date of the acquisition, the rate making rate base of the selling utility, including additions under subsection (a) of this section, shall be the lesser of: the purchase price negotiated by the acquiring entity and selling utility; or the fair market value of the selling utility.

If an acquiring entity and the selling utility agree to use the process outlined in § 6–304 of this subtitle, the acquiring entity shall include in its application for Commission approval of the acquisition: copies of the two appraisals performed by the utility valuation experts under § 6–304 of this subtitle; the purchase price of the selling utility as agreed to by the acquiring entity and the selling utility; the rate making rate base of the selling utility determined in accordance with this subtitle; the transaction and closing costs incurred by the acquiring entity that will be included in its rate base; and a tariff containing a schedule of rates, service charges, and any additional fees to be incurred by the customers of the selling utility at or immediately after the closing date of acquisition. Subject to paragraph (2) of this subsection, the Commission shall issue a final order on an application submitted under this subtitle within 180 days after the filing date of a complete application under subsection (a) of this section. The Commission may extend a proceeding under this subtitle for an additional 30 days if the Commission finds that the proceedings cannot be completed within the initial suspension period. After the expiration of 180 days under paragraph (1) of this subsection and any extension under paragraph (2) of this subsection, if the Commission has not entered a final order, the application shall be deemed approved. If the Commission issues an order approving the application for acquisition, the order shall include: the rate making rate base of the selling utility, as determined under this subtitle; and any conditions of approval that the Commission requires. The tariff submitted under subsection (a)(5) of this section shall remain in effect until new rates are approved for the acquiring entity in a base rate case proceeding. An appraisal conducted under this subtitle is presumed to be valid unless substantial evidence demonstrates a failure to adhere to the requirements of § 6–304 or § 6–305 of this subtitle.

The cost of an improvement that an acquiring entity places in service after the acquisition shall accrue a construction allowance after the date the cost was incurred until the earlier of: 3 years after the improvement is placed in service; or the date the improvement is included in the acquiring entity’s next base rate case. Depreciation on an acquiring entity’s improvements after the acquisition shall be deferred for book and rate making purposes.