This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Consider a hypothetical Florida family that has owned a small water and wastewater system for two generations. It serves a few thousand connections in an unincorporated area, the plant needs work, and the second generation has no interest in running it. A regional operator offers a number well above book value. The seller’s accountant is happy. The buyer’s model shows an attractive return. Everyone signs a letter of intent and starts talking about a sixty-day close.
Both sides have made the same mistake, and it is the mistake that defines this asset class: in a regulated water utility deal, the price the parties negotiate is not the number the buyer gets to earn a return on. Those are two separate determinations, made by two different processes, and the second one is made by the Florida Public Service Commission — sometimes months after closing.
You cannot transfer the certificate without the Commission, but you can close before it acts
Section 367.071(1), Florida Statutes, is the gate. No utility may sell, assign, or transfer its certificate of authorization, its facilities or any portion of them, or majority organizational control without a determination and approval by the Commission that the transfer is in the public interest and that the buyer will fulfill the commitments, obligations, and representations of the utility.
Read that scope carefully, because it is broader than people assume. It reaches the certificate, it reaches the facilities or any portion of them, and it reaches majority organizational control. A stock or membership-interest deal does not sidestep the statute — a change in majority organizational control is a covered transfer. Neither does carving out a piece of the system.
The same subsection then supplies the mechanism that makes these deals workable. A transfer may occur prior to Commission approval if the contract for sale, assignment, or transfer is made contingent upon Commission approval. That single clause is the most important sentence in the purchase agreement. It is the difference between a lawful pre-approval closing and an unlawful one, and it has to appear in the contract itself — not in a side letter, not in a closing certificate, not as an understanding between the principals.
The consequence of getting it wrong is spelled out in § 367.071(2): the Commission may impose a penalty under § 367.161 when a transfer occurs before approval. And the transferor remains liable for any outstanding regulatory assessment fees, fines, or refunds of the utility. That last clause deserves its own line in the purchase agreement. A seller who signs a clean-break asset deal and assumes the regulatory tail goes with the system is wrong as a matter of statute. Sellers should expect to negotiate an indemnity, a specific escrow, or both, sized to the assessment-fee and refund exposure — and buyers should run the diligence that quantifies it rather than accepting a general representation.
A governmental buyer is a completely different transaction
Section 367.071(4)(a) creates a structural fork most sellers never consider. The sale of facilities, in whole or in part, to a governmental authority shall be approved as a matter of right. No public-interest determination. No discretionary review.
The trade-offs run in both directions. The governmental authority must, before taking any official action, obtain from the utility or the Commission the most recent available income and expense statement, balance sheet, and statement of rate base for regulatory purposes, and contributions-in-aid-of-construction. Any rate relief request pending before the Commission at the time of sale is deemed withdrawn, previously approved interim rates must be discontinued, and money collected under interim relief must be refunded to customers with interest. No application fee is required of a governmental buyer.
So a seller sitting on a pending rate case has a real decision to make. Selling to a municipality or county eliminates approval risk entirely but kills the rate case and claws back interim collections. Selling to a private operator preserves the rate case but puts the deal in front of a discretionary public-interest review. Those are not equivalent outcomes, and the LOI stage is when the seller should be modeling both — not after exclusivity has been granted to one type of buyer.
The rate base determination is the real valuation event
Here is what makes this asset class genuinely different from every other licensed business in Florida. Section 367.071(5) provides that the Commission by order may establish the rate base for a utility, or its facilities or property, when it approves a sale, assignment, or transfer — except on a sale to a governmental authority.
Rate base drives the buyer’s permitted return. Under the traditional cost method in § 367.081, rate base is built from prudently invested, used-and-useful property, and it is reduced by contributions-in-aid-of-construction. Developer- and customer-funded plant does not earn a return. For a system built out during a growth cycle, the CIAC offset can be very large relative to gross plant, which is exactly why book rate base and market price diverge so sharply. A buyer paying a premium to net book under the cost method absorbs that premium and does not recover it in rates.
The regulatory approval proceeding is therefore not a consent to be obtained. It is a valuation proceeding embedded in the deal, and it can be resolved after the parties have already closed on a contingent basis. A purchase agreement that treats Commission approval as a binary condition — approved or not approved — has failed to allocate the risk that actually matters.
Section 367.0811 changes the math, for buyers large enough to use it
Chapter 2023-291 added § 367.0811, an alternative procedure for establishing the rate base value of an acquired system, and it is the provision that should drive structuring in any Florida water deal today. The Legislature’s stated finding is that consolidation of water and wastewater systems serves the public interest by producing economies of scale, better access to capital and lower supply costs, and improved infrastructure and service quality.
Mechanically, an acquiring utility may petition the Commission to establish rate base value using this section’s valuation process instead of the cost method. The established value is used for ratemaking in the acquiring utility’s next general rate case — not immediately. It may not exceed the lesser of the negotiated purchase price or the average of three appraisals, and, critically, it may not be adjusted for contribution-in-aid-of-construction or for used-and-useful. It may include reasonable transaction and closing costs incurred by the acquirer and reasonable appraiser fees.
Switching off the CIAC and used-and-useful adjustments is the entire point. That is what allows a buyer to earn on something approaching what it actually paid. The appraisal process is prescribed: three licensed appraisers drawn from a Commission-established list, paid by the buyer, each producing a USPAP-consistent appraisal, working from a tangible-asset assessment prepared by a licensed engineer jointly retained by buyer and seller.
The petition itself must include the requested rate base value, the three appraisals and their average, the engineer’s assessment, a three-year plan addressing each identified deficiency and its effect on service quality and water quality, a five-year projected rate impact on the acquired system’s customers, the contract of sale, the estimated fees and transaction costs, and a tariff with rates equal to the acquired system’s existing rates — plus a rate stabilization plan if the acquisition would produce a significant individual rate increase. The Commission must issue a final order within eight months after a complete petition is filed. It may grant the petition in whole, in part, or with modifications, or deny it, and it may not approve a value higher than the amount requested.
Now the constraint that reorganizes the buyer universe. Section 367.0811(8) makes the section available only to acquiring utilities engaged in an arms-length acquisition that either serve more than 10,000 water or wastewater customers or are permitted to produce at least three million gallons per day of drinking water. A small operator buying its neighbor’s system does not qualify. It is left with the cost method, and it eats the acquisition adjustment.
That threshold is not an accident — it is a consolidation-forcing design, and it means the same system is worth materially more to a large acquirer than to a small one. Sellers who understand this run their process differently. Buyers who do not qualify should be pricing to the cost-method rate base rather than to what a qualifying strategic can pay.
Drafting to the eight-month clock
Deal documents should track the two proceedings separately. The § 367.071 transfer approval and the § 367.0811 rate base petition are different filings with different standards and different timelines, and the eight-month statutory clock on the rate base petition runs from a complete filing — which means the three appraisals and the engineering assessment have to be finished before the clock starts.
Several allocation points follow. The buyer should control the appraisal and petition process but owe the seller reporting obligations, because outcome affects any earnout or contingent consideration. Because § 367.0811(3)(b) caps rate base value at the lesser of purchase price or appraisal average, a purchase price set above the appraisals is money the buyer will never rate-base — which argues for obtaining at least indicative appraisal work before the price is fixed rather than after. The engineer is jointly retained, so the agreement should say who selects, who pays, and what happens if the assessment surfaces deficiencies material enough to reprice. And because the required tariff must carry the acquired system’s existing rates, with a rate stabilization plan if increases would be significant, a buyer’s model that assumes prompt rate harmonization is wrong on the face of the statute.
Two smaller provisions round out the picture. Section 367.0811(7) preserves the Commission’s authority to set rates in future cases and to classify the acquired system as a separate entity for ratemaking if that serves the public interest — so consolidated pricing is a goal, not a guarantee. And § 367.071(6) provides that anyone obtaining ownership or control of a system through foreclosure of a mortgage or other encumbrance must continue service without interruption and may not remove or dismantle any portion previously dedicated to public use in a way that impairs service, absent express Commission approval, enforceable by injunction. Lenders taking security in Florida water assets should understand that a foreclosure delivers an operating obligation, not merely a collateral pool.
The pattern here is familiar to anyone who has worked on Florida deals where the operating authority is the asset. As with an ambulance company’s certificate of public convenience and necessity or a marina’s sovereignty submerged lands lease, the entity is easy to transfer and the authority is not. What makes water and wastewater distinctive is that the regulator does not merely approve the transfer — it sets the number that determines what the buyer earns. That is worth building into the diligence list at the LOI stage rather than discovering it in month seven.
The full text of chapter 367, including §§ 367.071, 367.081, and 367.0811, is available from the Florida Senate.
If you are buying or selling a Florida water or wastewater utility, feel free to reach out to our firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
