Fair Market Value: Benchmarking a Decade of Water Utility Acquisitions

Drinking water and wastewater utilities are facing major infrastructure investment needs, compounded by aging assets, challenges related to regulatory compliance, and the impacts of climate change. Federal funding for water infrastructure has steadily declined since the 1970s, forcing state and local agencies to take on the costs of capital improvements. With nearly 49,000 community water systems and 24,000 wastewater treatment plants across the U.S., states have implemented various acquisition incentives to promote consolidation and address these challenges through alternative ownership.

With a competitive investor-owned utility market driving utility deal flow, many local system owners are opting to divest their assets to investor-owned utilities and other public and private buyers, thereby off-loading financial and regulatory burdens. Fair market value legislation has emerged as a policy solution to facilitate these consolidation efforts. Currently, this legislation is active in 13 states and encourages the acquisitions of distressed water and wastewater systems by regulated water utilities. Meanwhile, West Virginia and Kentucky have passed alternative acquisition incentives that do not leverage the full fair market value appraisal methodology.

Bluefield has tracked approximately 1,531 deals submitted for regulatory approval since 2015, with only 9% executed using fair market value. Historically, fair market value statutes have played a relatively minor role in mergers and acquisitions involving investor-owned utilities; however, their growing utilization is gradually influencing states with active policies. As the pressure to consolidate struggling utilities increases, the volume of fair market value deals has steadily risen over the past decade, alongside growing public opposition and legislative counteractions.