HRG Named a Utility Valuation Expert by the Public Utility Commission

Many municipalities are considering selling their water and wastewater systems in order to address long-term budget and debt obligations. As one of PA’s first Utility Valuation Experts, HRG is ready to help municipalities attain fair market value for these assets.

Herbert, Rowland & Grubic, Inc. (HRG) was recently recognized by the Pennsylvania Public Utility Commission as a Utility Valuation Expert. Under legislation signed by Governor Tom Wolfe in 2016, municipalities wishing to sell their utility assets to a PUC-regulated utility can engage the services of a registered Utility Valuation Expert to determine fair market value of their system.

The program is voluntary, but it benefits both the municipality and the potential buyer by presenting a more accurate picture of a utility’s value than the traditional method.

In Pennsylvania, the purchase of water and wastewater systems by a regulated utility must be approved by the Public Utility Commission. Traditionally, the commission has considered the value of a system to be equal to its depreciated original cost (construction cost minus grants and depreciation). This approach did not consider the potential income that could be generated from the assets and frequently resulted in valuations so low that municipalities couldn’t benefit from a sale.

At the same time, with no consideration to the market or revenue, potential buyers could not be sure whether they would achieve an adequate return on their investment with the purchase.

To remedy these problems, Act 12 of 2016 created a new, voluntary approach to utility valuation based on fair market value. Under this system, the buyer and the seller each retain a registered Utility Valuation Expert to conduct independent appraisals of the utility using industry standards: cost, market, and income approaches. These appraisals use data on the physical system assets that was assessed by a professional engineer retained by both parties.

After both appraisals are submitted, an average of the fair market value calculated in each one is used as the final valuation.

HRG was one of the first firms to be listed on the PUC’s official Registry of Utility Valuation Experts. The firm specializes in providing financial services to the water and wastewater industry and has conducted numerous system reviews and valuation studies for municipalities throughout the state. Vice President Russ McIntosh has published dozens of articles on water and wastewater system financing and was honored by the Pennsylvania Municipal Authority Association for outstanding contributions and exceptional service to the industry in 2014. McIntosh has also served as an expert witness on matters of utility financing in several court cases.

“Our goal at HRG is to provide a fair and honest accounting of a utility’s value, so that the municipality can decide what is best for the long-term health and financial stability of its community,” McIntosh says. “We can go beyond mere valuation to help communities weigh all of their options for generating the money they seek to address budget needs while protecting the value of their most important assets.”

For more information about the utility valuation process defined in Act 12 of 2016, please contact Russ McIntosh at (717) 564-1121 or rmcintosh@hrg-inc.com.