87R13157 BRG-F

By: Larson H.B. No. 4147

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of rates for water sales and the provision of wholesale water or sewer service.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 11.041(a), Water Code, is amended to read as follows:

(a) Any person entitled to receive or use water from any canal, ditch, flume, lateral, dam, reservoir, or lake or from any conserved or stored supply may present to the commission a written petition showing:

(1) that the person [he] is entitled to receive or use the water;

(2) that the person [he] is willing and able to pay the price demanded for the water [a just and reasonable price for the water];

(3) that the party owning or controlling the water supply has water not contracted to others and available for the petitioner's use; and

(4) that the party owning or controlling the water supply fails or refuses to supply the available water to the petitioner[, or that the price or rental demanded for the available water is not reasonable and just or is discriminatory].

SECTION 2. Section 13.043(h), Water Code, is amended to read as follows:

(h) The utility commission may, on a motion by the utility commission or by the appellant under Subsection (a) or [,] (b) [, or (f)], establish interim rates to be in effect until a final decision is made.

SECTION 3. Subtitle B, Title 2, Water Code, is amended by adding Chapter 14 to read as follows:

CHAPTER 14. REGULATION OF RATES FOR RAW WATER SALES AND WHOLESALE

WATER OR SEWER SERVICE

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 14.0101. PURPOSE. The purpose of this chapter is to establish policies and procedures for regulating rates for raw water sales and wholesale water and sewer service.

Sec. 14.0102. DEFINITIONS. In this chapter:

(1) "Commission" means the Texas Commission on Environmental Quality.

(2) "Debt service and public security requirements" means revenue or income sufficient to:

(A) meet all debt service requirements on a public security;

(B) pay or repay any amounts required to be deposited in any special or reserve fund required to be established and maintained by the public security authorization for the public security; and

(C) achieve and maintain compliance with all revenue and income requirements set forth in the public security authorization for the public security.

(3) "Facilities" means all the plant and equipment of a seller required to accomplish a sale and purchase of water or the provision of wholesale water or sewer service, including all tangible and intangible real and personal property without limitation, and any and all means and instrumentalities in any manner owned, operated, leased, licensed, used, controlled, furnished, or supplied for, by, or in connection with the business of the seller.

(4) "Person" includes natural persons, partnerships of two or more persons having a joint or common interest, mutual or cooperative associations, water supply or sewer service corporations, and corporations.

(5) "Political subdivision" includes a river authority.

(6) "Purchaser" means a person who pays compensation to another person for supply of raw water or a retail public utility that pays compensation to a political subdivision or other retail public utility for wholesale water or sewer service.

(7) "Public security" means an instrument, including a bond, certificate, note, or other type of obligation issued or authorized to be issued by a political subdivision under a statute, a municipal home-rule charter, or the constitution of this state, for the purpose or purposes of financing or refinancing the acquisition, construction, or improvement of facilities and payable wholly or partly from revenue or income derived from the operation of the facilities.

(8) "Public security authorization" means a resolution, order, or ordinance that is approved or adopted, or any other action taken in a proceeding, by the governing body of a political subdivision in authorizing the issuance of a public security.

(9) "Rate" means the cost fixed, charged, or paid in connection with the sale and purchase of water or the provision of wholesale water or sewer service.

(10) "Raw water" means untreated surface water or groundwater.

(11) "Retail public utility" means any person, corporation, public utility, water supply or sewer service corporation, municipality, political subdivision, or agency operating, maintaining, or controlling in this state facilities for providing potable water service or sewer service, or both, for compensation.

(12) "Retail water or sewer utility service" means potable water service or sewer service, or both, provided by a retail public utility to the ultimate consumer for compensation.

(13) "Sale and purchase of water" means the provision of raw water for compensation.

(14) "Seller" means a retail public utility or political subdivision that sells raw water or provides wholesale water or sewer service.

(15) "Utility commission" means the Public Utility Commission of Texas.

(16) "Weather emergencies" means severe local storms, winter storms, drought, flooding, coastal hazards including tropical cyclones, and non-precipitation hazards, including extreme hot or cold conditions and high winds.

(17) "Wholesale water or sewer service" means potable water or sewer service, or both, provided for compensation to a person or political subdivision who is not the ultimate consumer of the service.

(18) "Written contract" means a written agreement between a purchaser and seller relating to the sale and purchase of water or to the provision of wholesale water or sewer service that is sufficiently definite in its material terms to ascertain the parties' intent. The term includes the following:

(A) a contract that obligates the seller to make available and the purchaser to pay for a minimum volume of raw or potable water, or sewer treatment capacity, regardless of the amount actually delivered or used by the purchaser;

(B) a contract for the sale and purchase of water or for wholesale water or sewer service in which the exact amount of raw water purchased and sold or the volume of wholesale water or sewer service required by the purchaser is not specifically determined and under which the seller guarantees to meet the needs of the purchaser;

(C) a contract that provides for the price to be initially fixed and adjusted by the seller over time;

(D) a contract that extends for any period for which the parties agree or provide that such contracts will continue in effect until bonds specified by the contract and any refunding bonds issued to pay those bonds are paid;

(E) a contract that provides that the purchaser may not obtain water or services from a source other than the seller except as provided by the written contract; and

(F) a contract entered into under Section 791.026, Government Code.

Sec. 14.0103. APPLICABILITY. This chapter applies to the rates fixed, charged, or paid for the sale and purchase of water or the provision of wholesale water or sewer service that are subject to the jurisdiction of the utility commission under any provision of Chapters 11 and 12. This chapter does not apply to rates, agreements, or contracts subject to regulation under Subchapter F, Chapter 13, or rates for retail water or sewer utility service charged under a tariff, a rate order, or ordinance.

Sec. 14.0104. APPLICABILITY OF ADMINISTRATIVE PROCEDURE ACT. Chapter 2001, Government Code, applies to all proceedings under this chapter except to the extent inconsistent with this chapter.

SUBCHAPTER B. JURISDICTION

Sec. 14.0151. RATES. (a) The utility commission shall fix reasonable rates for the sale and purchase of water for any purpose mentioned in Chapter 11 or 12 and for wholesale water and sewer service.

(b) The utility commission in reviewing and fixing reasonable rates for the sale and purchase of water or for wholesale water or sewer service under this chapter may use any reasonable basis for fixing rates as may be determined by the utility commission to be appropriate under the circumstances of the case being reviewed. The utility commission may not fix a rate which a political subdivision may charge that is less than the amount required to meet:

(1) the debt service and public security requirements of that political subdivision or that impairs the political subdivision's financial integrity; and

(2) the costs of preparedness for weather emergencies.

(c) The utility commission's jurisdiction under this section relating to a municipality is limited to water furnished by the municipality to another political subdivision on a wholesale basis.

(d) In a proceeding under Section 14.0204, the utility commission may establish interim rates and compel continuing service during the pendency of a rate proceeding under this chapter. The utility commission may not fix an interim rate for a political subdivision which is less than the amount required to meet:

(1) the debt service and public security requirements of that political subdivision or that impairs the political subdivision's financial integrity; and

(2) the costs of preparedness for weather emergencies.

(e) The utility commission may order a refund or assess additional charges from the date a petition for rate review is received by the utility commission of the difference between the rate actually charged and the rate fixed by the utility commission, plus interest at the statutory rate.

Sec. 14.0152. REGULATION AND REVIEW OF RATES. (a) The utility commission shall review rates charged for the sale and purchase of water or the provision of wholesale water or sewer service under this chapter.

(b) The utility commission may consult with the commission as necessary in carrying out its duties related to the regulation of the sale and purchase of water or the provision of wholesale water or sewer service.

Sec. 14.0153. APPELLATE JURISDICTION. (a) A retail public utility that receives wholesale water or sewer service from another retail public utility or political subdivision of the state, including an affected county, may appeal to the utility commission a rate change.

(b) An appeal of a rate change under this section must be initiated not later than the 91st day after the date of notice of the rate change by the filing of a petition by the retail public utility.

SUBCHAPTER C. PROCEEDINGS BEFORE UTILITY COMMISSION ON RATES SET

UNDER WRITTEN CONTRACT

Sec. 14.0201. GENERAL POLICY. (a) This subchapter is adopted to protect the sanctity of written contracts governed by this chapter.

(b) It is the policy of the state that sales under written contracts governed by this chapter shall be regulated in a fashion that accords deference to a contract's terms unless a contract seriously harms the public interest.

(c) The legislature finds that the use of cost of service evidence to determine whether a rate seriously harms the public interest does not give sufficient deference to contractual agreements.

Sec. 14.0202. PRESUMPTION OF REASONABLENESS. Notwithstanding any other provision of law, written contracts, and their requirements regarding the rates paid, including cost-allocation terms, shall be presumed to be just and reasonable and without discrimination, unless the utility commission finds, after hearing, that public necessity or extraordinary circumstances require the rate to be set aside as seriously harming the public interest. A rate may seriously harm the public interest if the rate:

(1) significantly impairs the ability of the seller or purchaser to continue its service;

(2) casts on other consumers an excessive burden;

(3) constitutes an abuse of monopoly power; or

(4) is unduly discriminatory.

Sec. 14.0203. LIMITATION ON CONSIDERATION OF COST OF SERVICE. (a) The public interest does not require that rates collected from a purchaser under a written contract equal the seller's cost of providing service to the purchaser.

(b) The utility commission may not determine whether a rate subject to the provisions of this subchapter seriously harms the public interest based on an analysis of the seller's cost of service. Cost-of-service evidence is not relevant to determine whether a rate seriously harms the public interest in a proceeding under this section.

Sec. 14.0204. PROCEDURE TO CHALLENGE REASONABLENESS. (a) In any proceeding in which a rate charged under a written contract is challenged, the utility commission must determine that the rate seriously harms the public interest before holding a hearing on or otherwise determining or prescribing just and reasonable rates. A finding by the commission that the rate charged under a written contract harms the public interest is final for purposes of appeal in accordance with Section 2001.144, Government Code.

(b) A party adversely affected by a determination of the utility commission that a rate charged under a written contract seriously harms the public interest may seek judicial review of the utility commission's determination before any utility commission proceeding to determine or prescribe just and reasonable rates.

(c) Appeals under Subsection (b) shall be governed by the procedures specified by Chapter 2001, Government Code, including the requirement that a timely motion for rehearing is a prerequisite to an appeal. Judicial review of an agency determination regarding whether a rate seriously harms the public interest shall be by trial de novo.

(d) The utility commission shall abate proceedings in the event of an appeal under Subsection (b) until the entry of a final judicial determination that a rate that is charged under a written contract harms the public interest.

(e) After a final judicial determination that affirms a determination by the utility commission that a rate charged under a written contract seriously harms the public interest under Subsection (b), or if no judicial review under Subsection (b) is sought, the utility commission shall, before holding a hearing on, or otherwise determining or prescribing a just and reasonable rate, provide the contracting parties at least 60 days to amend the contract. If the parties amend their contract, no challenge of the contract may be brought before the utility commission by the parties for five years from the effective date of the amended contract.

(f) In a proceeding under this chapter, if the seller and purchaser do not agree that the protested rate is charged under a written contract, or if the purchaser alleges that the seller failed to comply with any terms of a written contract, the utility commission shall abate the proceeding until the contract dispute has been resolved by a court of proper jurisdiction.

Sec. 14.0205. FIXING RATES. (a) On the expiration of the 60-day period required by Section 14.0204(e) or where the sale and purchase of water or the provision of wholesale water or sewer service is not under a written contract, the utility commission shall, after hearing, fix just and reasonable rates to be charged.

(b) In fixing the rates under this chapter for the sale and purchase of water and for the provision of wholesale water or sewer service provided by a seller that is a political subdivision, the utility commission shall fix rates that will be sufficient:

(1) to meet the political subdivision's debt service and public security requirements or that do not impair the political subdivision's financial integrity; and

(2) to permit the political subdivision to provide continuity of service in weather emergencies.

(c) In determining the sufficiency of rates under Subsection (b), the utility commission shall consider any testimony or evidence provided by the political subdivision concerning the political subdivision's debt service and public security requirements or regarding impairment of the political subdivision's financial integrity.

(d) The utility commission may not disallow the recovery of a seller's costs or debt service and public security requirements associated with facilities related to the provision of service on the basis that the facilities are not used and useful in rendering service to the purchaser or on the basis that the costs or debt service and public security requirements were imprudently incurred.

(e) The utility commission may, on a showing that the seller acted arbitrarily or capriciously in including costs in a rate, other than debt service and public security requirements, disallow the recovery of the costs.

(f) The utility commission may not disallow costs associated with a facility:

(1) incurred in a manner consistent with a state or a regional water plan approved or adopted under Chapter 16; and

(2) incurred to permit the political subdivision to provide continuity of service in weather emergencies.

Sec. 14.0206. SYSTEM RATES. A seller may charge a single consolidated system rate for providing service to geographically separate and distinct areas served by one or more separate facilities. The reasonableness of the decision to charge a consolidated system rate is not subject to review under this chapter absent a showing that the seller acted arbitrarily or capriciously.

Sec. 14.0207. COST ALLOCATION. In fixing the rates for sale and purchase of water and for the provision of wholesale water or sewer service under this chapter, the utility commission may not allocate costs among purchasers in a manner inconsistent with the allocation of costs contained in any contract between the seller and another purchaser or purchasers, absent a showing that the seller acted arbitrarily or capriciously.

SECTION 4. Sections 12.013 and 13.043(f), Water Code, are repealed.

SECTION 5. This Act takes effect September 1, 2021.