Chief Sponsor: Francis D. Gibson

Senate Sponsor: Jerry W. Stevenson


8     General Description:
9          This bill addresses the provision of municipal electric services in relation to an electric
10     service district.
11     Highlighted Provisions:
12          This bill:
13          ▸     prohibits a municipality from certain activities regarding electric services in relation
14     to an electric service district; and
15          ▸     makes technical changes.
16     Money Appropriated in this Bill:
17          None
18     Other Special Clauses:
19          This bill provides a special effective date.
20          This bill provides revisor instructions.
21     Utah Code Sections Affected:
22     AMENDS:
23          10-2-421, as repealed and reenacted by Laws of Utah 2013, Chapter 242
24     Utah Code Sections Affected by Revisor Instructions:
25          10-2-421, as repealed and reenacted by Laws of Utah 2013, Chapter 242

27     Be it enacted by the Legislature of the state of Utah:

28          Section 1. Section 10-2-421 is amended to read:
29          10-2-421. Electric utility service in annexed area -- Reimbursement for value of
30     facilities -- Liability -- Arbitration.
31          (1) As used in this section:
32          (a) "Commission" means the Public Service Commission established in Section
33     54-1-1.
34          (b) "Current replacement cost" means the cost the transferring party would incur to
35     construct the facility at the time of transfer using the transferring party's:
36          (i) standard estimating rates and standard construction methodologies for the facility;
37     and
38          (ii) standard estimating process.
39          (c) "Depreciation" means an amount calculated:
40          (i) based on:
41          (A) the life and depreciation mortality curve most recently set for the type of facility in
42     the depreciation rates set by the commission or other governing regulatory authority for the
43     electrical corporation; or
44          (B) a straight-line depreciation rate that represents the expended life if agreed to by the
45     transferring and receiving parties; and
46          (ii) to include the gross salvage value of the type of facility based on the latest
47     depreciation life approved by the commission or other governing regulatory authority for the
48     electrical corporation, with a floor at the gross salvage value of the asset and in no case less
49     than zero.
50          (d) "Electric improvement district" means an improvement district that provides
51     electric service in accordance with Subsection 17B-2a-403(1)(a)(iv).
52          [(d)] (e) "Electrical corporation" means[:(i) an entity as] the same as that term is
53     defined in Section 54-2-1[; and].
54          [(ii) an improvement district system described in Subsection 17B-2a-403(1)(a)(iv).]
55          [(e)] (f) "Facility" means electric equipment or infrastructure used to serve an electric
56     customer, above ground or underground, including:
57          (i) a power line, transformer, switch gear, pole, wire, guy anchor, conductor, cable, or
58     other related equipment; or

59          (ii) a right-of-way, easement, or any other real property interest or legal right or interest
60     used to operate and maintain the electric equipment or infrastructure.
61          [(f)] (g) "Facility transfer" means the transfer of a facility from a transferring party to a
62     receiving party in accordance with Subsection (3).
63          [(g)] (h) "Lost or stranded facility" means a facility that is currently used by a
64     transferring party that will no longer be used, whether in whole or in part, as a result of a
65     facility transfer.
66          [(h)] (i) "Receiving party" means a municipality or electrical corporation to whom a
67     facility is transferred.
68          [(i)] (j) "Transferring party" means a municipality or electrical corporation that
69     transfers a facility.
70          (2) Beginning on this bill's effective date, without a written agreement that an electric
71     improvement district executes on or after this bill's effective date, a municipality may not:
72          (a) provide municipal electric service to any customer in an area that:
73          (i) the municipality did not annex before this bill's effective date; and
74          (ii) is part of an electric improvement district described in Subsection 17B-2a-406(3);
75          (b) provide municipal electric service to a customer that an electric improvement
76     district serves; or
77          (c) construct facilities within the boundary of an electric improvement district.
78          [(2)] (3) If an electric customer in an area being annexed by a municipality receives
79     electric service from an electrical corporation, the municipality may not, without the agreement
80     of the electrical corporation, furnish municipal electric service to the electric customer in the
81     annexed area until the municipality has reimbursed the electrical corporation for the value of
82     each facility used to serve each electric customer within the annexed area, including the value
83     of any facility owned by a wholesale electric cooperative affiliated with the electrical
84     corporation, dedicated to provide service to the annexed area.
85          [(3)] (4) The following procedures shall apply if a municipality transfers a facility to an
86     electrical corporation in accordance with Section 10-8-14 or if an electrical corporation
87     transfers a facility to a municipality in accordance with Subsection [(2)] (3), Section 54-3-30,
88     or 54-3-31:
89          (a) The transferring party shall provide a written estimate of the transferring party's

90     cost of preparing the inventory required in Subsection [(3)] (4)(c) to the receiving party no later
91     than 60 days after the date of notice from the receiving party.
92          (b) (i) The receiving party shall pay the estimated cost of preparing the inventory to the
93     transferring party no later than 60 days after the day that the receiving party receives the written
94     estimate.
95          (ii) If the actual cost of preparing the inventory differs from the estimated cost, the
96     transferring party shall include the difference between the actual cost and the estimated cost in
97     the reimbursement described in Subsection [(5)] (6).
98          (c) Except as provided in Subsection [(3)] (4)(f), the transferring party shall prepare, in
99     accordance with Subsection [(4)] (5), and deliver the inventory to the receiving party no later
100     than 180 days after the day that the transferring party receives the payment specified in
101     Subsection [(3)] (4)(b).
102          (d) (i) At any time, the parties may by agreement correct or update the inventory.
103          (ii) If the parties are unable to reach an agreement on an updated inventory, they shall:
104          (A) proceed with the facility transfer and reimbursement based on the inventory as
105     submitted in accordance with Subsection [(3)] (4)(c); and
106          (B) resolve their dispute as provided in Subsection [(6)] (7).
107          (e) Except as provided in Subsection [(3)] (4)(f), the parties shall complete each facility
108     transfer and reimbursement contemplated by this Subsection [(3)] (4) no later than 180 days
109     after the date that the transferring party delivers the inventory to the receiving party in
110     accordance with Subsection [(3)] (4)(c).
111          (f) The periods specified in Subsections [(3)] (4)(c) and (e) may be extended for up to
112     an additional 90 days by agreement of the parties.
113          [(4)] (5) (a) The inventory prepared by a transferring party in accordance with
114     Subsection [(3)] (4)(c) shall include an identification of each facility to be transferred and the
115     amount of reimbursement as provided in Subsection [(5)] (6).
116          (b) The transferring party may not include in the inventory a facility that the
117     transferring party removed from service for at least 36 consecutive months prior to the date of
118     the inventory, unless the facility was taken out of service as a result of an action by the
119     receiving party.
120          [(5)] (6) (a) Unless otherwise agreed by the parties, the reimbursement for the transfer

121     of each facility shall include:
122          (i) the cost of preparing the inventory as provided in Subsection [(3)] (4)(b);
123          (ii) subject to Subsection [(5)] (6)(b)(i), the value of each transferred facility calculated
124     by the current replacement cost of the facility less depreciation based on facility age;
125          (iii) the cost incurred by the transferring party for:
126          (A) the physical separation of each facility from its system, including the cost of any
127     facility constructed or installed that is necessary for the transferring party to continue to provide
128     reliable electric service to its remaining customers;
129          (B) administrative, engineering, and record keeping expenses incurred by the
130     transferring party for the transfer of each facility to the receiving party, including any difference
131     between the actual cost of preparing the inventory and the estimated cost of preparing the
132     inventory; and
133          (C) reimbursement for any tax consequences to the transferring party resulting from
134     each facility transfer;
135          (iv) the value of each lost or stranded facility of the transferring party based on the
136     valuation formula described in Subsection [(5)] (6)(a)(ii) or as otherwise agreed by the parties;
137          (v) the diminished value of each transferring party facility that will not be transferred
138     based on the percentage of the facility that will no longer be used as a result of the facility
139     transfer; and
140          (vi) the transferring party's book value of a right-of-way or easement transferred with
141     each facility.
142          (b) (i) (A) The receiving party may review the estimation of the current replacement
143     costs of each facility, including the wage rates, material costs, overhead assumptions, and other
144     pricing used to establish the estimation of the current replacement costs of the facility.
145          (B) Prior to reviewing the estimation, the receiving party shall enter into a
146     nondisclosure agreement acceptable to the transferring party.
147          (C) The nondisclosure agreement shall restrict the use of the information provided by
148     the transferring party solely for the purpose of reviewing the estimation of the current
149     replacement cost and preserve the confidentiality of the information to prevent any effect on a
150     competitive bid received by either party.
151          (ii) (A) If the age of a facility may be readily determined by the transferring party, the

152     transferring party shall use that age to determine the facility's depreciation.
153          (B) If the age of a facility cannot be readily determined, the transferring party shall
154     estimate the age of the facility based on the average remaining life approved for the same type
155     of facility in the most current depreciation rates set by the commission or other governing
156     regulatory authority for the electrical corporation.
157          (c) (i) (A) A transferring party that transfers a facility in accordance with this section
158     shall, upon delivery of a document conveying title to the receiving party, transfer the facility
159     without any express or implied warranties.
160          (B) A receiving party that receives a facility in accordance with this section shall, upon
161     receipt of a document conveying title, accept the facility in its existing condition and assume
162     any and all liability, fault, risk, or potential loss arising from or related to the facility.
163          (ii) Notwithstanding Subsection [(5)] (6)(c)(i), if, within six months after the date that
164     any oil filled equipment is transferred, the receiving party discovers that a transferred oil filled
165     equipment contains polychlorinated biphenyl, the transferring party shall reimburse the
166     receiving party for the cost of testing and disposal of that oil filled equipment.
167          [(6)] (7) (a) If the parties cannot agree on each facility to be transferred or the
168     respective reimbursement amount, the parties shall:
169          (i) proceed with the facility transfer and the reimbursement based on the inventory as
170     submitted by the transferring party in accordance with Subsection [(3)] (4)(c) and in
171     accordance with the schedule provided in Subsection [(3)] (4)(e); and
172          (ii) submit the dispute for mediation or arbitration.
173          (b) The parties shall share equally in the costs of mediation or arbitration.
174          (c) If the parties are unable to resolve the dispute through mediation or arbitration,
175     either party may bring an action in the state court of jurisdiction.
176          (d) The arbitrator, or state court if the parties cannot agree on arbitration, shall
177     determine each facility to be transferred and the amount to be reimbursed in accordance with
178     Subsection [(5)] (6).
179          (e) If the arbitrator or state court determines that:
180          (i) a transferring party transferred a facility that should not have been transferred, the
181     receiving party shall return the facility;
182          (ii) a party did not transfer a facility that should have been transferred, the party that

183     should have transferred the facility shall transfer the facility to the party to whom the facility
184     should have been transferred;
185          (iii) the amount reimbursed by the receiving party is insufficient, the receiving party
186     shall pay the difference to the transferring party; or
187          (iv) the amount reimbursed by the receiving party is more than the amount that should
188     have been reimbursed, the transferring party shall pay the difference to the receiving party.
189          [(7)] (8) Unless otherwise agreed upon in writing by the parties:
190          (a) a party shall transfer a facility to be transferred in accordance with Subsection [(6)]
191     (7)(e) no later than 60 days after the day that the arbitrator or court issues a determination
192     unless the parties mutually agree to a longer time to complete the transfer; and
193          (b) a party shall:
194          (i) pay an amount required to be paid in accordance with Subsection [(6)] (7)(e) no
195     later than 30 days after the day that the arbitrator or court issues a determination; and
196          (ii) include interest in the payment at the overall rate of return on the rate base most
197     recently authorized by the commission or other governing regulatory agency for the electrical
198     corporation from the date the reimbursement was originally paid until the difference is paid.
199          [(8)] (9) (a) Nothing in this section limits the availability of other damages under law
200     arising by virtue of an agreement between the municipality and the electrical corporation.
201          (b) Notwithstanding Subsection [(8)] (9)(a), a [party] municipality or electric
202     corporation described in this section is not entitled to an award for:
203          (i) damages that are indirect, incidental, punitive, exemplary, or consequential;
204          (ii) lost profits; or
205          (iii) other business interruption damages.
206          [(9)] (10) Nothing in this section or Section 10-8-14, 54-3-30, or 54-3-31 applies to a
207     transfer of facilities from an electrical corporation or an electric improvement district to a
208     municipality in accordance with a decision by a municipality that did not previously provide
209     electric service and seeks to commence providing electric service to a customer currently
210     served by an electrical corporation or an electric improvement district within the municipal
211     boundary.
212          Section 2. Effective date.
213          If approved by two-thirds of all the members elected to each house, this bill takes effect

214     upon approval by the governor, or the day following the constitutional time limit of Utah
215     Constitution, Article VII, Section 8, without the governor's signature, or in the case of a veto,
216     the date of veto override.
217          Section 3. Revisor instructions.
218          The Legislature intends that the Office of Legislative Research and General Counsel, in
219     preparing the Utah Code database for publication, replace the references in Subsection
220     10-2-421(2) from "this bill's effective date" to the actual effective date of the bill.

Legislative Review Note
Office of Legislative Research and General Counsel