C.S.H.B. 1014 78 (R)

C.S.H.B. 1014
By: Cook, Robby
Natural Resources
Committee Report (Substituted)


Special utility districts ("SUDs") are created by converting an existing,
nonprofit water supply or sewer service corporation into a political
subdivision under Chapter 65,Texas Water Code. Over the years, water
supply companies ("WSCs") have applied to the Texas Commission on
Environmental Quality (TCEQ) for authorization to convert to SUDs.
Generally, these applications have not required contested case hearings
under the Texas Administrative Procedure Act because "protests" have not
identified any harmful change to customers or neighboring utilities.  TCEQ
recently has determined that a WSC providing only retail water service
seeking to convert to a SUD, which would provide the same retail water
service, can be forced to go through a contested case hearing if a
neighboring utility protests because of concerns over the SUD competing
with sewer service, even though the WSC testifies that it has no plans to
provide sewer service and does not seek the authority to provide sewer
service as a SUD. This is because the TCEQ has determined that it has no
legal authority to authorize a WSC to convert to a SUD with less than the
full powers authorized under Section 65.012, Texas Water Code.
Accordingly, WSCs are being forced to go through unnecessary contested
case hearings in order to convert to SUDs. 

The only appreciable difference between a SUD form and a WSC form of water
or sewer service is that the SUD form enjoys greater efficiencies through
an exemption from sales taxes under state law and tax exempt bond
financing under federal law, which are cost efficiencies that ultimately
benefit the customers. Other differences between a SUD and a WSC exist
such as the requirement that a SUD must comply with the Texas Election
Code, and a SUD, as a political subdivision, can participate in
cooperative purchasing programs provided by the General Services
Commission, which is another cost savings.  However, these differences are
not valid reasons for the TCEQ to refuse a WSC request for approval to
convert to a SUD.  


It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or


C.S.H.B. 1014 amends Chapter 65, Texas Water Code, by clarifying that a
SUD should be created to perform all of the purposes authorized under
Section 65.012, Texas Water Code, and by providing that a WSC seeking to
convert to a SUD must specify one or more of the authorized purposes the
proposed SUD is to perform. 

It should be noted that this change in the law will not preclude a SUD
created with only water service authority from providing sewer service if
circumstances warrant in the future. Any service not included in the
original order creating a SUD can be added at a later date by petitioning
the TCEQ to amend the order. This amendment procedure will require notice
to, and an opportunity for a contested case hearing on behalf of, any
neighboring utility affected by the new authority requested in the


On passage, or if the Act does not receive the necessary vote, the Act
takes effect September 1, 2003. 


C.S.H.B. 1014 modifies the original bill in SECTION 3 by removing the
words "pending on or" and "the effective date of this Act," and adding
"September 1, 2001."  The effect of C.S.H.B. 1014 is to provide for
certain pending applications at the agency.