BILL ANALYSIS

C.S.H.B. 1307

By: Geren

Natural Resources

Committee Report (Substituted)

BACKGROUND AND PURPOSE

The Sunset Advisory Commission has noted that the state could benefit from transferring certain economic regulatory functions related to water and wastewater utilities to the Public Utility Commission of Texas (PUC) and this recommendation was included in the recent PUC sunset bill. The bill, however, was not enacted and the sunset commission continues to recommend the transfer of the water and wastewater utility ratemaking functions to the PUC and notes that the Office of Public Utility Counsel should intervene in water rate cases on behalf of residential and small commercial customers. In addition, interested parties report that testimony at recent legislative committee hearings indicates support for ending the one-size-fits-all treatment for investor-owned utility ratemaking and, instead, establishing utility classifications based on connection count. Under these proposed classes, a proposed rate would not automatically go into effect until finally approved.

C.S.H.B. 1307 addresses these concerns by transferring ratemaking and certificates of public convenience and necessity functions of water and sewer utilities from the Texas Commission on Environmental Quality to the PUC; giving the Office of Public Utility Counsel authority to intervene in water rate cases on behalf of residential and small commercial customers; and establishing water investor-owned utility classifications based on number of connections.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority previously granted to the Texas Commission on Environmental Quality is transferred to the Public Utility Commission of Texas in SECTIONS 17, 22, 27, 29, 32, 33, 39, 40, 41, 53, 54, 60, 79, and 80 of this bill.

It is the committee's opinion that rulemaking authority is expressly granted to the Public Utility Commission of Texas in SECTIONS 13, 26, 36, 37, 38, 63, and 92 of this bill.

It is the committee's opinion that rulemaking authority is expressly granted to the Texas Commission on Environmental Quality and the Public Utility Commission of Texas in SECTION 92 of this bill.

It is the committee's opinion that rulemaking authority is expressly granted to the applicable regulatory authority in SECTION 38 of this bill.

ANALYSIS

C.S.H.B. 1307 amends the Water Code to transfer on September 1, 2014, from the Texas Commission on Environmental Quality (TCEQ) to the Public Utility Commission of Texas (PUC) the following:

· the powers, duties, functions, programs, and activities of TCEQ relating to the economic regulation of water and sewer service, including the issuance and transfer of certificates of convenience and necessity, the determination of rates, and the administration of hearings and proceedings involving those matters;

· any obligations and contracts of TCEQ that are directly related to implementing a power, duty, function, program, or activity transferred under the bill's provisions; and

· all property and records in the custody of TCEQ that are related to a power, duty, function, program, or activity transferred under the bill's provisions and all funds appropriated by the legislature for that power, duty, function, program, or activity.

C.S.H.B. 1307 requires TCEQ to continue to carry out its duties related to the economic regulation of water and sewer service under the law as it existed before the bill's effective date until September 1, 2014. The bill authorizes the PUC to regulate and supervise the business of each water and sewer utility within its jurisdiction, including ratemaking and other economic regulation and clarifies that TCEQ retains the authority to regulate water and sewer utilities within its jurisdiction to ensure safe drinking water and environmental protection. The bill authorizes the PUC and TCEQ to do all things, whether specifically designated or implied, necessary and convenient to the exercise of such powers and jurisdiction. The bill authorizes the PUC to consult with TCEQ as necessary in carrying out its duties related to the regulation of water and sewer utilities. The bill makes changes to the Water Code to conform to this transfer of jurisdiction over the economic regulation of water and sewer service.

C.S.H.B. 1307 requires TCEQ and the PUC to enter into a memorandum of understanding that must be completed by August 1, 2014, that identifies in detail the applicable powers and duties that are transferred by the bill's provisions; establishes a plan for the identification and transfer of the records, personnel, property, and unspent appropriations of TCEQ that are used for purposes of the commission's powers and duties directly related to the economic regulation of water and sewer service; and establishes a plan for the transfer of all pending applications, hearings, rulemaking proceedings, and orders relating to the economic regulation of water and sewer service from TCEQ to the PUC. The bill specifies that it does not require such a memorandum to be adopted by rule.

C.S.H.B. 1307 authorizes the executive directors of TCEQ and the PUC to agree in the memorandum of understanding to transfer to the PUC any TCEQ personnel whose functions predominantly involve powers, duties, obligations, functions, and activities related to the economic regulation of water and sewer service. The bill requires TCEQ and the PUC to periodically update the Office of Public Utility Counsel on the anticipated contents of the memorandum of understanding during the development of the memorandum. The bill authorizes the office, on or after September 1, 2013, to initiate or intervene in a contested case before TCEQ that the office would be entitled to intervene in if the case were before the PUC.

C.S.H.B. 1307 requires TCEQ and the PUC to appoint a transition team to accomplish the purposes specified in provisions of the bill setting out the procedures relating to the transfer of power and authorizes the transition team to consult with the Office of Public Utility Counsel to accomplish those purposes. The bill requires the transition team to establish guidelines on how the two agencies will cooperate regarding meeting federal drinking water standards, maintaining adequate supplies of water, meeting established design criteria for wastewater treatment plants, demonstrating the economic feasibility of regionalization, and serving the needs of economically distressed areas. The bill requires the transition team to provide monthly updates to the executive directors of TCEQ and the PUC on the implementation of the bill's provisions and provide a final report on the implementation to the executive directors not later than September 1, 2014. The bill specifies that a rule, form, policy, procedure, or decision of TCEQ related to a power, duty, function, program, or activity transferred under the bill's provisions continues in effect as a rule, form, policy, procedure, or decision of the PUC and remains in effect until amended or replaced by the PUC. The bill authorizes the PUC, beginning September 1, 2013, and notwithstanding any other law, to propose rules, forms, policies, and procedures related to a function to be transferred to the PUC under the bill's provisions.

C.S.H.B. 1307 prohibits an affiliate of a Class A utility from filing an application for a rate change on or after the bill's effective date unless the affiliated Class A utility has filed for a rate change on or after that date. The bill prohibits the PUC, in relation to such an application, from approving the rate change application until the PUC approves the rate change application filed by the affiliated Class A utility. The bill authorizes the PUC, in relation to such an application, to require the affiliate to comply with the Class A utility rate change process regardless of whether the affiliate is classified as a Class A, B, or C utility.

C.S.H.B. 1307 transfers the following rulemaking authority from TCEQ to the PUC. The bill:

· requires the PUC to adopt rules establishing a procedure that allows a retail public utility that takes over the provision of services for a nonfunctioning retail water or sewer utility service provider to charge a reasonable rate for the service provided to the customers of the nonfunctioning system and to bill the customers for the services at that rate immediately to recover service costs

· requires the PUC to adopt rules relating to a utility depreciation account

· authorizes the PUC by rule to provide for waiving under certain circumstances a utility's requirement to make available and notify customers about locations where payments to avoid disconnection and to restore service can be made

· requires the PUC to adopt rules concerning payment of utility bills that are consistent with provisions relating to the payment of goods and services

· authorizes the PUC to adopt rules that authorize a utility that is permitted to provide service without a certificate of public convenience and necessity to request or implement a rate increase and operate according to rules, regulations, and standards of service other than those otherwise required under provisions relating to water rates and services, provided that rates are just and reasonable for customers and the utility and that service is safe, adequate, efficient, and reasonable

· requires the PUC to adopt rules establishing a preference that rates under a consolidated tariff be consolidated by regions determined on a case-by-case basis

· requires the PUC to adopt rules relating to utility rate adjustments for changes in energy costs

· requires the PUC to adopt rules to develop a standardized method for determining which of two or more retail public utilities or water supply or sewer service corporations that apply for a certificate of public convenience and necessity to provide water or sewer utility service to an uncertified area located in an economically distressed area is more capable financially, managerially, and technically of providing continuous and adequate service

· authorizes the PUC to adopt rules to allow a municipality or utility or water supply corporation to render retail water service without a certificate of public convenience and necessity if the municipality has given notice that it intends to provide retail water service to an area or if the utility or water supply corporation has less than 15 potential connections and is not within the certificated area of another retail public utility

· requires the PUC to adopt rules governing factors used to ensure that a retail public utility's compensation for personal property rendered useless or valueless to the utility as a result of decertification is just and adequate

· requires the PUC, under provisions establishing procedures relating to compensating a retail public utility for real personal property owned and utilized by a retail public utility for its facilities in relation to a single certification in incorporated or annexed areas and setting out factors by which the value of the personal property is determined, to adopt rules governing the evaluation of those factors

· requires the PUC to adopt rules relating to the interim period a financial institution may operate a utility under foreclosure

· requires the PUC to adopt rules and standards under which an owner, operator, or manager of an apartment house, manufactured home rental community, or multiple use facility that is not individually metered for water for each rental or dwelling unit may install submetering equipment for each individual rental or dwelling unit for the purpose of fairly allocating the cost of each individual rental or dwelling unit's water consumption, including wastewater charges based on water consumption

· requires the PUC to adopt rules and standards governing billing systems or methods used by manufactured home rental community owners, apartment house owners, condominium managers, or owners of other multiple use facilities for prorating or allocating among tenants nonsubmetered master metered utility service costs.

C.S.H.B. 1307 requires the PUC:

· to adopt and enforce rules reasonably required in the exercise of the PUC's powers and jurisdiction, including rules governing practice and procedure before TCEQ and the PUC

· to require by rule each utility to annually file a service and normalized earnings report, the requirements of which are established in the bill's provisions, in a form and at times specified by PUC rule

· to adopt rules relating to Class B and Class C utilities

· to adopt rules, in a provision prohibiting the owner of a utility that supplies retail water service from contracting to purchase from an affiliated supplier wholesale water service for any of that owner's systems unless certain conditions are met, defining in one of those conditions an emergency condition.

C.S.H.B. 1307 requires the applicable regulatory authority to adopt rules relating to Class B and Class C utilities.

C.S.H.B. 1307 requires the PUC and TCEQ to adopt rules not later than September 1, 2015, to implement the changes in law made by the bill relating to the PUC's authority to participate in a hearing on a denial of water complaint, rate fixing, and water rates and services.

C.S.H.B. 1307 classifies public utilities that provide retail water or sewer utility service according to the number of taps or connections through which the utility provides such service as follows: a Class A utility provides retail water or sewer service through 10,000 or more taps or connections; a Class B utility provides retail water or sewer service through 500 or more taps or connections but fewer than 10,000 taps or connections; and a Class C utility is a public utility that provides retail or sewer utility service through fewer than 500 taps or connections. The bill sets out requirements and procedures for Class A and Class B utilities relating to rate changes, notice and hearing of complaints about a rate change, and the determination of a final rate. The bill sets out requirements and procedures for Class C utilities relating to the adjustment of rates.

C.S.H.B. 1307 specifies that the attorney general is required to represent the PUC, in addition to TCEQ, before the state courts or any court in the United States under provisions relating to water rates and services. The bill specifies that the independent Office of the Public Utility Counsel represents the interests of residential and small commercial consumers in regard to water rates and services and sets out the powers and duties of the office in representing those consumers. The bill specifies that such powers and duties do not affect a duty the office is required to perform under other law, or limit the authority of the PUC to represent residential or small commercial consumers. The bill specifies that the appearance of the public utility counsellor in a proceeding does not preclude the appearance of other parties on behalf of residential or small commercial consumers. The bill prohibits the public utility counsellor from being grouped with any other party.

C.S.H.B. 1307 requires the PUC, in addition to the executive director of TCEQ, subject to approval as applicable by the PUC or TCEQ, to employ any engineering, accounting, and administrative personnel necessary to carry out each agency's powers and duties relating to water rates and services. The bill specifies that the PUC and the PUC's staff are responsible for the gathering of information relating to all matters within the PUC's jurisdiction under provisions relating to the administration of water rates and services. The bill specifies that the PUC, in addition to TCEQ, is authorized to call and hold hearings, administer oaths, receive evidence at hearings, issue subpoenas to compel the attendance of witnesses and the production of papers and documents, and make findings of fact and decisions with respect to administering water rates and services or the rules orders, or other actions of TCEQ or the PUC. The bill authorizes the PUC to delegate to an administrative law judge of the State Office of Administrative Hearings the responsibility and authority to issue interlocutory orders related to interim water rates. The bill specifies that the PUC, rather than TCEQ, is authorized to issue emergency orders with or without a hearing for certain reasons.

C.S.H.B. 1307 authorizes the PUC, in addition to TCEQ, to issue an emergency order appointing a willing person to temporarily manage and operate a utility that has discontinued or abandoned operations or the provision of services, or has been or is being referred to the attorney general for the appointment of a receiver. The bill requires the PUC to consult with TCEQ as needed to carry out an emergency rate increase for a utility for which a temporary manager and operator or for which a receiver has been appointed. The bill specifies that the additional revenues collected under such an increase are subject to refund if the PUC, rather than TCEQ, finds that the rate increase was larger than necessary to ensure continuous and adequate service. The bill authorizes the PUC to participate in a hearing on a complaint relating to the denial of water if necessary to present evidence on the price or rental demanded for the available water requested by the complaining petitioner. The bill authorizes the PUC to require water and sewer utilities to report to the PUC any information relating to themselves and affiliated interests both inside and outside this state that it considers useful in the administration of water rates and services, including any information relating to a transaction between the utility and an affiliated interest inside or outside this state, to the extent that the transaction is subject to the PUC's jurisdiction. The bill requires the PUC to provide, among other options, at a reasonable cost, Internet access to all information provided to the PUC in the form of records of proceedings before the regulatory authority to the extent that the information is available and is not confidential.

C.S.H.B. 1307 requires the regulatory authority over water rates and services to base a utility's expenses on historic test year information adjusted for known and measurable changes as determined by PUC rules, in addition to other criteria. The bill specifies that the PUC is not required under certain conditions, in a matter filed with the PUC or TCEQ relating to certain valid and enforceable contracts, to cause notice of an application for a certificate of public convenience and necessity to be given to affected parties. The bill requires a utility, not later than the 48th hour after the hour in which a utility files a bankruptcy petition, to report this fact to the PUC, in addition to TCEQ, in writing. The bill authorizes the PUC, as an alternative to TCEQ, to perform specified actions relating to improvements in water service and interconnecting service.

C.S.H.B. 1307 requires the PUC, before the expiration of the 120-day notification period of a sale acquisition, lease, or rental of a water or sewer system that is required by law to possess a certificate of public convenience and necessity or before the effective date of a merger or consolidation with such a utility or water supply or sewer service corporation, to notify the Office of Public Utility Counsel whether the PUC will hold a public hearing to determine if the transaction will serve the public interest. The bill requires a financial institution that forecloses on a utility or any part of the utility's facilities or property that are used to provide utility services to provide written notice to the PUC, in addition to TCEQ, before the 30th day preceding the date on which the foreclosure is completed. The bill entitles any party to a proceeding before the PUC, in addition to TCEQ, to judicial review under the substantial evidence rule.

C.S.H.B. 1307 vests comparable authority in the PUC as is vested in TCEQ in applicable general provisions relating to violations and enforcement. The bill removes statutory provisions specifying that fines and penalties collected from a public utility in other than criminal proceedings and a retail public utility that is not a public utility in other than criminal proceedings are to be paid to TCEQ.

C.S.H.B. 1307 amends the Local Government Code to make a technical correction.

C.S.H.B. 1307 amends the Special District Local Laws Code to make statutory provisions relating to regulatory conflicts with a municipality in the Agua Special Utility District inapplicable to the PUC, in addition to TCEQ. The bill, in statutory provisions relating to the modification of the district's boundaries and requiring the boundaries to include all territory in an area included under a certificate of convenience and necessity issued by TCEQ, to include in this requirement any area included under a certificate of convenience and necessity issued by the PUC. The bill requires the district at all times to operate and construct necessary improvements within the certificated areas establish by the PUC, in addition to areas established by TCEQ, to provide uninterrupted, continuous, and adequate service to existing and future customers for water, sewer, and contract services.

C.S.H.B. 1307 requires the PUC, rather than TCEQ, to grant single certification as to the city in the event that the Bearpen Creek Municipal Utility District of Hunt County applies for the certification on the city's behalf. The bill, in statutory provisions authorizing a city to dissolve the district if certain actions do not occur, to specify in one of those actions that the PUC instead of TCEQ issues an order by a certain date approving the sale and transfer of a certificate of public convenience and necessity authorizing the city to provide retail water service to territory in the district.

C.S.H.B. 1307 specifies that the PUC, rather than TCEQ, hears an appeal of surface water rates in provisions relating to the Harris-Galveston Subsidence District.

EFFECTIVE DATE

September 1, 2013.

COMPARISON OF ORIGINAL AND SUBSTITUTE

While C.S.H.B. 1307 may differ from the original in minor or nonsubstantive ways, the following comparison is organized and highlighted in a manner that indicates the substantial differences between the introduced and committee substitute versions of the bill.

INTRODUCED

HOUSE COMMITTEE SUBSTITUTE

SECTION 1. Section 5.013(a), Water Code, is amended.

SECTION 1. Same as introduced version.

SECTION 2. Section 5.311(a), Water Code, is amended.

SECTION 2. Same as introduced version.

SECTION 3. Section 5.507, Water Code, is amended.

SECTION 3. Same as introduced version.

SECTION 4. Sections 5.508(a) and (c), Water Code, are amended to read as follows:

(a) Notwithstanding the requirements of Subchapter F, Chapter 13 [~~Section 13.187~~], the Public Utility Commission of Texas [~~commission~~] may authorize an emergency rate increase for a utility for which a person has been appointed under Section 5.507 or 13.4132 [~~13.412~~] or for which a receiver has been appointed under Section 13.412 [~~13.4132~~] if the increase is necessary to ensure the provision of continuous and adequate services to the utility's customers. The Public Utility Commission of Texas shall consult with the commission as needed to carry out this section.

(c) Notwithstanding Section 5.505, an order may be issued under this section for a term not to exceed 15 months. The Public Utility Commission of Texas [~~commission~~] shall schedule a hearing to establish a final rate within 15 months after the date on which an emergency rate increase takes effect. The additional revenues collected under an emergency rate increase are subject to refund if the commission finds that the rate increase was larger than necessary to ensure continuous and adequate service.

SECTION 4. Sections 5.508(a) and (c), Water Code, are amended to read as follows:

(c) Notwithstanding Section 5.505, an order may be issued under this section for a term not to exceed 15 months. The Public Utility Commission of Texas [~~commission~~] shall schedule a hearing to establish a final rate within 15 months after the date on which an emergency rate increase takes effect. The additional revenues collected under an emergency rate increase are subject to refund if the utility commission finds that the rate increase was larger than necessary to ensure continuous and adequate service.

SECTION 5. Section 11.002, Water Code, is amended.

SECTION 5. Same as introduced version.

SECTION 6. Section 11.041, Water Code, is amended to read as follows:

Sec. 11.041. DENIAL OF WATER: COMPLAINT. (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 utility 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 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.

(b) If the petition is accompanied by a deposit of $25, the executive director of the utility commission shall have a preliminary investigation of the complaint made and determine whether or not there are probable grounds for the complaint.

(c) If, after preliminary investigation, the executive director of the utility commission determines that probable grounds exist for the complaint, the utility commission shall enter an order setting a time and place for a hearing on the petition.

(d) The utility commission may require the complainant to make an additional deposit or execute a bond satisfactory to the utility commission in an amount fixed by the utility commission conditioned on the payment of all costs of the proceeding.

(e) At least 20 days before the date set for the hearing, the utility commission shall transmit by registered mail a certified copy of the petition and a certified copy of the hearing order to the person against whom the complaint is made.

(f) The utility commission shall hold a hearing on the complaint at the time and place stated in the order. It may hear evidence orally or by affidavit in support of or against the complaint, and it may hear arguments. The commission may participate in the hearing for the purpose of presenting evidence on the availability of the water requested by the petitioner. On completion of the hearing, the utility commission shall render a written decision.

(g) If, after the preliminary investigation, the executive director of the utility commission determines that no probable grounds exist for the complaint, the executive director of the utility commission shall dismiss the complaint. The utility commission may either return the deposit or pay it into the State Treasury.

SECTION 6. Section 11.041(f), Water Code, is amended to read as follows:

(f) The commission shall hold a hearing on the complaint at the time and place stated in the order. It may hear evidence orally or by affidavit in support of or against the complaint, and it may hear arguments. The utility commission may participate in the hearing if necessary to present evidence on the price or rental demanded for the available water. On completion of the hearing, the commission shall render a written decision.

SECTION 7. Section 12.013, Water Code, is amended.

SECTION 7. Same as introduced version.

SECTION 8. Section 13.002, Water Code, is amended by amending Subdivisions (2) and (18) and adding Subdivisions (4-a), (4-b), (4-c), and (22-a) to read as follows:

(2) "Affiliated interest" or "affiliate" means:

(A) any person or corporation owning or holding directly or indirectly five percent or more of the voting securities of a utility;

(B) any person or corporation in any chain of successive ownership of five percent or more of the voting securities of a utility;

(C) any corporation five percent or more of the voting securities of which is owned or controlled directly or indirectly by a utility;

(D) any corporation five percent or more of the voting securities of which is owned or controlled directly or indirectly by any person or corporation that owns or controls directly or indirectly five percent or more of the voting securities of any utility or by any person or corporation in any chain of successive ownership of five percent of those utility securities;

(E) any person who is an officer or director of a utility or of any corporation in any chain of successive ownership of five percent or more of voting securities of a public utility;

(F) any person or corporation that the utility commission, after notice and hearing, determines actually exercises any substantial influence or control over the policies and actions of a utility or over which a utility exercises such control or that is under common control with a utility, such control being the possession directly or indirectly of the power to direct or cause the direction of the management and policies of another, whether that power is established through ownership or voting of securities or by any other direct or indirect means; or

(G) any person or corporation that the utility commission, after notice and hearing, determines is exercising substantial influence over the policies and actions of the utility in conjunction with one or more persons or corporations with which they are related by ownership or blood relationship, or by action in concert, that together they are affiliated within the meaning of this section, even though no one of them alone is so affiliated.

(4-a) "Class A utility" means:

(A) a public utility that provides retail water or sewer utility service through 10,000 or more taps or connections; or

(B) an affiliate of a public utility described by Paragraph (A).

(4-b) "Class B utility" means a public utility that provides retail water or sewer utility service through 500 or more taps or connections but fewer than 10,000 taps or connections.

(4-c) "Class C utility" means a public utility that provides retail water or sewer utility service through fewer than 500 taps or connections.

(18) "Regulatory authority" means, in accordance with the context in which it is found, [~~either~~] the commission, the utility commission, or the governing body of a municipality.

(22-a) "Utility commission" means the Public Utility Commission of Texas.

SECTION 8. Section 13.002, Water Code, is amended by amending Subdivisions (2), (18), and (22) and adding Subdivisions (4-a), (4-b), (4-c), and (22-a) to read as follows:

(2) "Affiliated interest" or "affiliate" means:

(A) any person or corporation owning or holding directly or indirectly five percent or more of the voting securities of a utility;

(B) any person or corporation in any chain of successive ownership of five percent or more of the voting securities of a utility;

(C) any corporation five percent or more of the voting securities of which is owned or controlled directly or indirectly by a utility;

(E) any person who is an officer or director of a utility or of any corporation in any chain of successive ownership of five percent or more of voting securities of a public utility;

(4-a) "Class A utility" means a public utility that provides retail water or sewer utility service through 10,000 or more taps or connections.

(4-b) "Class B utility" means a public utility that provides retail water or sewer utility service through 500 or more taps or connections but fewer than 10,000 taps or connections.

(4-c) "Class C utility" means a public utility that provides retail water or sewer utility service through fewer than 500 taps or connections.

(18) "Regulatory authority" means, in accordance with the context in which it is found, [~~either~~] the commission, the utility commission, or the governing body of a municipality.

(22) "Test year" means the most recent 12-month period, beginning on the first day of a calendar or fiscal year quarter, for which [~~representative~~] operating data for a retail public utility are available. [~~A utility rate filing must be based on a test year that ended less than 12 months before the date on which the utility made the rate filing.~~]

(22-a) "Utility commission" means the Public Utility Commission of Texas.

SECTION 9. Section 13.004, Water Code, is amended.

SECTION 9. Same as introduced version.

SECTION 10. Section 13.011, Water Code, is amended.

SECTION 10. Substantially the same as the introduced version.

SECTION 11. Section 13.014, Water Code, is amended.

SECTION 11. Same as introduced version.

SECTION 12. Subchapter B, Chapter 13, Water Code, is amended

SECTION 12. Substantially the same as the introduced version.

SECTION 13. Section 13.041, Water Code, is amended to read as follows:

Sec. 13.041. GENERAL POWERS OF UTILITY COMMISSION AND COMMISSION [~~POWER~~]; RULES; HEARINGS. (a) The utility commission may regulate and supervise the business of each [~~every~~] water and sewer utility within its jurisdiction, including ratemaking and other economic regulation. The commission may regulate water and sewer utilities within its jurisdiction to ensure safe drinking water and environmental protection. The utility commission and the commission [~~and~~] may do all things, whether specifically designated in this chapter or implied in this chapter, necessary and convenient to the exercise of these powers [~~this power~~] and jurisdiction. The utility commission may consult with the commission as necessary in carrying out its duties related to the regulation of water and sewer utilities.

(b) The commission and the utility commission shall adopt and enforce rules reasonably required in the exercise of [~~its~~] powers and jurisdiction of each agency, including rules governing practice and procedure before the commission and the utility commission.

(c) The commission and the utility commission may call and hold hearings, administer oaths, receive evidence at hearings, issue subpoenas to compel the attendance of witnesses and the production of papers and documents, and make findings of fact and decisions with respect to administering this chapter or the rules, orders, or other actions of the commission or the utility commission.

(d) The utility commission may issue emergency orders, with or without a hearing:

(1) to compel a water or sewer service provider that has obtained or is required to obtain a certificate of public convenience and necessity to provide continuous and adequate water service, sewer service, or both, if the discontinuance of the service is imminent or has occurred because of the service provider's actions or failure to act; and

(2) to compel a retail public utility to provide an emergency interconnection with a neighboring retail public utility for the provision of temporary water or sewer service, or both, for not more than 90 days if service discontinuance or serious impairment in service is imminent or has occurred.

(e) The utility commission may establish reasonable compensation for the temporary service required under Subsection (d)(2) [~~of this section~~] and may allow the retail public utility receiving the service to make a temporary adjustment to its rate structure to ensure proper payment.

(f) If an order is issued under Subsection (d) without a hearing, the order shall fix a time, as soon after the emergency order is issued as is practicable, and place for a hearing to be held before the utility commission.

(g) The regulatory assessment required by Section 5.701(n) [~~5.235(n) of this code~~] is not a rate and is not reviewable by the utility commission under Section 13.043 [~~of this code~~]. The commission has the authority to enforce payment and collection of the regulatory assessment.

SECTION 13. Section 13.041, Water Code, is amended to read as follows:

(c-1) In addition to the powers and duties of the State Office of Administrative Hearings under Title 2, Utilities Code, the utility commission may delegate to an administrative law judge of the State Office of Administrative Hearings the responsibility and authority to issue interlocutory orders related to interim rates under this chapter.

(d) The utility commission may issue emergency orders, with or without a hearing:

SECTION 14. Section 13.042, Water Code, is amended.

SECTION 14. Same as introduced version.

SECTION 15. Sections 13.043(a), (b), (c), (e), (f), (g), (h), and (j), Water Code, are amended.

SECTION 15. Same as introduced version.

SECTION 16. Section 13.044(b), Water Code, is amended.

SECTION 16. Same as introduced version.

SECTION 17. Section 13.046, Water Code, is amended.

SECTION 17. Same as introduced version.

SECTION 18. Section 13.081, Water Code, is amended to.

SECTION 18. Same as introduced version.

SECTION 19. Section 13.082, Water Code, is amended.

SECTION 19. Same as introduced version.

SECTION 20. Section 13.085, Water Code, is amended.

SECTION 20. Same as introduced version.

SECTION 21. Section 13.087(c), Water Code, is amended.

SECTION 21. Same as introduced version.

SECTION 22. Sections 13.131(a), (b), (c), and (e), Water Code, are amended.

SECTION 22. Same as introduced version.

SECTION 23. Section 13.132, Water Code, is amended.

SECTION 23. Same as introduced version.

SECTION 24. Section 13.1325, Water Code, is amended.

SECTION 24. Same as introduced version.

SECTION 25. Section 13.133(b), Water Code, is amended.

SECTION 25. Same as introduced version.

SECTION 26. Section 13.136, Water Code, is amended by amending Subsections (b) and (c) and adding Subsection (b-1) to read as follows:

(b) The utility commission by rule shall require each [~~Each~~] utility to annually [~~shall~~] file a service, [~~and~~] financial, and earnings report in a form and at times specified by utility commission rule. The report must include information sufficient to enable the utility commission to properly monitor utilities in this state. The report is a public document, to the extent that the information in the report is not confidential. The utility commission shall redact any confidential information before making the report available to the public.

(b-1) The utility commission shall provide unredacted copies of a report described by Subsection (b) to the Office of Public Utility Counsel on request, at no cost to the office.

(c) Every water supply or sewer service corporation shall file with the utility commission tariffs showing all rates that are subject to the appellate jurisdiction of the utility commission and that are in force at the time for any utility service, product, or commodity offered. Every water supply or sewer service corporation shall file with and as a part of those tariffs all rules and regulations relating to or affecting the rates, utility service, product, or commodity furnished. The filing required under this subsection shall be for informational purposes only.

SECTION 26. Section 13.136, Water Code, is amended by amending Subsections (b) and (c) and adding Subsection (b-1) to read as follows:

(b) The utility commission by rule shall require each [~~Each~~] utility to annually [~~shall~~] file a service, [~~and~~] financial, and normalized earnings report in a form and at times specified by utility commission rule. The report must include information sufficient to enable the utility commission to properly monitor utilities in this state.

The utility commission shall make available to the public information in the report the utility does not file as confidential.

(b-1) The utility commission shall provide copies of a report described by Subsection (b) that include information filed as confidential to the Office of Public Utility Counsel on request, at no cost to the office.

SECTION 27. Section 13.137, Water Code, is amended.

SECTION 27. Same as introduced version.

SECTION 28. Sections 13.1396(b), (c), and (f), Water Code, are amended.

SECTION 28. Same as introduced version.

SECTION 29. Section 13.142(b), Water Code, is amended.

SECTION 29. Same as introduced version.

SECTION 30. Section 13.144, Water Code, is amended.

SECTION 30. Same as introduced version.

SECTION 31. Section 13.147(a), Water Code, is amended.

SECTION 31. Same as introduced version.

SECTION 32. Section 13.181(b), Water Code, is amended.

SECTION 32. Same as introduced version.

SECTION 33. Sections 13.182(c) and (d), Water Code, are amended.

SECTION 33. Same as introduced version.

SECTION 34. Section 13.183(d), Water Code, is amended.

SECTION 34. Same as introduced version.

SECTION 35. Section 13.184(a), Water Code, is amended.

SECTION 35. Same as introduced version.

SECTION 36. Sections 13.185(d) and (h), Water Code, are amended to read as follows:

(d) Net income is the total revenues of the utility less all reasonable and necessary expenses as determined by the regulatory authority. The regulatory authority shall:

(1) base a utility's expenses on test year information; and

(2) determine expenses and revenues in a manner consistent with Subsections (e) through (h) of this section.

(h) The regulatory authority may not include for ratemaking purposes:

(1) legislative advocacy expenses, whether made directly or indirectly, including legislative advocacy expenses included in trade association dues;

(2) costs of processing a refund or credit under this subchapter [~~Section 13.187 of this chapter~~]; or

(3) any expenditure found by the regulatory authority to be unreasonable, unnecessary, or not in the public interest, including executive salaries, advertising expenses, legal expenses, and civil penalties or fines.

SECTION 36. Sections 13.185(d) and (h), Water Code, are amended to read as follows:

(d) Net income is the total revenues of the utility less all reasonable and necessary expenses as determined by the regulatory authority. The regulatory authority shall:

(1) base a utility's expenses on historic test year information adjusted for known and measurable changes, as determined by utility commission rules; and

(2) determine expenses and revenues in a manner consistent with Subsections (e) through (h) of this section.

(h) The regulatory authority may not include for ratemaking purposes:

(1) legislative advocacy expenses, whether made directly or indirectly, including legislative advocacy expenses included in trade association dues;

(2) costs of processing a refund or credit under this subchapter [~~Section 13.187 of this chapter~~]; or

SECTION 37. Section 13.187, Water Code, is amended to read as follows:

Sec. 13.187. CLASS A UTILITIES: STATEMENT OF INTENT TO CHANGE RATES; HEARING; DETERMINATION OF RATE LEVEL. (a) This section applies only to a Class A utility.

(a-1) A utility may not make changes in its rates except by delivering a statement of intent to each ratepayer and with the regulatory authority having original jurisdiction at least 35 [60] days before the effective date of the proposed change.

The effective date of the new rates must be the first day of a billing period, and the new rates may not apply to service received before the effective date of the new rates. The statement of intent must include:

(1) the information required by the regulatory authority's rules;

(2) a billing comparison regarding the existing water rate and the new water rate computed for the use of:

(A) 10,000 gallons of water; and

(B) 30,000 gallons of water; [~~and~~]

(3) a billing comparison regarding the existing sewer rate and the new sewer rate computed for the use of 10,000 gallons, unless the utility proposes a flat rate for sewer services; and

(4) a description of the process by which a ratepayer may intervene in the ratemaking proceeding.

(b) The utility shall mail, send by e-mail, or deliver a [A] copy of the statement of intent [~~shall be mailed, sent by e-mail, or delivered~~] to the Office of Public Utility Counsel, appropriate offices of each affected municipality, and [to] any other affected persons as required by the regulatory authority's rules.

(c) When the statement of intent is delivered, the utility shall file with the regulatory authority an application to change rates. The application must include information the regulatory authority requires by rule and any appropriate cost and rate schedules supporting the requested rate increase.

If the utility fails to provide within a reasonable time after the application is filed the necessary documentation or other evidence that supports the costs and expenses that are shown in the application, the regulatory authority may disallow the nonsupported costs or expenses.

(d) Except as provided by Subsections [~~Subsection~~] (d-1) and (e), if the application or the statement of intent is not substantially complete or does not comply with the regulatory authority's rules, it may be rejected and the effective date of the rate change may be suspended until a properly completed application is accepted by the regulatory authority and a proper statement of intent is provided. The utility commission may also suspend the effective date of any rate change if the utility does not have a certificate of public convenience and necessity or a completed application for a certificate or to transfer a certificate pending before the utility commission or if the utility is delinquent in paying the assessment and any applicable penalties or interest required by Section 5.701(n) [~~of this code~~].

(d-1) After written notice to the utility, a local regulatory authority may suspend the effective date of a rate change for not more than 90 days from the proposed effective date, except that the suspension shall be extended by two days for each day a hearing exceeds 15 days. If the local regulatory authority does not make a final determination on the proposed rate before the expiration of the applicable suspension period, the proposed rate shall be considered approved. The approval is subject to the local regulatory authority's continuation of a hearing in progress.

(e) After written notice to the utility, the utility commission may suspend the effective date of a rate change for not more than 150 days from the proposed effective date, except that the suspension shall be extended by two days for each day a hearing exceeds 15 days.

If the utility commission does not make a final determination on the proposed rate before the expiration of the applicable suspension period, the proposed rate shall be considered approved.

The approval is subject to the utility commission's continuation of a hearing in progress

[If, before the 91st day after the effective date of the rate change, the regulatory authority receives a complaint from any affected municipality, or from the lesser of 1,000 or 10 percent of the ratepayers of the utility over whose rates the regulatory authority has original jurisdiction, the regulatory authority shall set the matter for hearing].

(f) The regulatory authority shall, not later than the 30th day after the effective date of the change, begin a hearing to determine the propriety of the change [~~may set the matter for hearing on its own motion at any time within 120 days after the effective date of the rate change~~]. If the regulatory authority is the utility commission, the utility commission may refer the matter to the State Office of Administrative Hearings as provided by utility commission rules. [~~If more than half of the ratepayers of the utility receive service in a county with a population of more than 3.3 million, the hearing must be held at a location in that county.~~]

(g) A local regulatory authority [~~The~~] hearing described by this section may be informal.

(g-1) The regulatory authority shall give reasonable notice of the hearing, including notice to the governing body of each affected municipality and county.

The utility is not required to provide a formal answer or file any other formal pleading in response to the notice, and the absence of an answer does not affect an order for a hearing.

(h) If, after hearing, the regulatory authority finds the rates currently being charged or those proposed to be charged are unreasonable or in violation of law, the regulatory authority shall determine the rates to be charged by the utility and shall fix the rates by order served on the utility.

(i) A utility may put a changed rate into effect throughout the area in which the utility sought to change its rates, including an area over which the utility commission is exercising appellate or original jurisdiction, by filing a bond with the utility commission if:

(1) the suspension period has been extended under Subsection (d-1) and the local regulatory authority fails to make a final determination before the 91st day after the date the rate change would otherwise be effective; or

(2) the suspension period has been extended under Subsection (e) and the utility commission fails to make a final determination before the 151st day after the date the rate change would otherwise be effective.

(j) The bonded rate may not exceed the proposed rate. The bond must be payable to the utility commission in an amount, in a form, and with a surety approved by the utility commission and conditioned on refund [The regulatory authority, pending final action in a rate proceeding, may order the utility to deposit all or part of the rate increase received or to be received into an escrow account with a financial institution approved by the regulatory authority].

(k) Unless otherwise agreed to by the parties to the rate proceeding, the utility shall refund or credit against future bills:

(1) all sums collected under the bonded rates [~~during the pendency of the rate proceeding~~] in excess of the rate finally ordered; and

(2) [~~plus~~] interest on those sums at the current interest rate as determined by the regulatory authority.

[~~(j) For good cause shown, the regulatory authority may authorize the release of funds to the utility from the escrow account during the pendency of the proceeding.~~

[(k) If the regulatory authority receives at least the number of complaints from ratepayers required for the regulatory authority to set a hearing under Subsection (e), the regulatory authority may, pending the hearing and a decision, suspend the date the rate change would otherwise be effective. Except as provided by Subsection (d-1), the proposed rate may not be suspended for longer than:

[~~(1) 90 days by a local regulatory authority; or~~

[~~(2) 150 days by the commission.~~]

(l) At any time during the pendency of the rate proceeding the regulatory authority may fix interim rates to remain in effect during the applicable suspension period under Subsection (d-1) or (e) or until a final determination is made on the proposed rate.

If the regulatory authority does not establish interim rates, the rates in effect when the application described by Subsection (c) was filed continue in effect during the suspension period.

(m) If the regulatory authority sets a final rate that is higher than the interim rate, the utility shall be allowed to collect the difference between the interim rate and final rate unless otherwise agreed to by the parties to the rate proceeding.

(n) For good cause shown, the regulatory authority may at any time during the proceeding require the utility to refund money collected under a proposed rate before the rate was suspended or an interim rate was established to the extent the proposed rate exceeds the existing rate or the interim rate.

(o) If a regulatory authority other than the utility commission establishes interim rates or bonded rates [~~an escrow account~~], the regulatory authority must make a final determination on the rates not later than the first anniversary of the effective date of the interim rates or bonded [~~escrowed~~] rates or the rates are automatically approved as requested by the utility.

(p) Except to implement a rate adjustment provision approved by the regulatory authority by rule or ordinance, as applicable, or to adjust the rates of a newly acquired utility system, a utility or two or more utilities under common control and ownership may not file a statement of intent to increase its rates more than once in a 12-month period, unless the regulatory authority determines that a financial hardship exists. If the regulatory authority requires the utility to deliver a corrected statement of intent, the utility is not considered to be in violation of the 12-month filing requirement.

SECTION 37. Section 13.187, Water Code, is amended to read as follows:

Sec. 13.187. CLASS A UTILITIES: STATEMENT OF INTENT TO CHANGE RATES; HEARING; DETERMINATION OF RATE LEVEL. (a) This section applies only to a Class A utility.

(a-1) A utility may not make changes in its rates except by sending by mail or e-mail [~~delivering~~] a statement of intent to each ratepayer and to [~~with~~] the regulatory authority having original jurisdiction at least 35 [60] days before the effective date of the proposed change. The utility may send the statement of intent to a ratepayer by e-mail only if the ratepayer has agreed to receive communications electronically.

(1) the information required by the regulatory authority's rules;

(2) a billing comparison regarding the existing water rate and the new water rate computed for the use of:

(A) 10,000 gallons of water; and

(B) 30,000 gallons of water; [~~and~~]

(3) a billing comparison regarding the existing sewer rate and the new sewer rate computed for the use of 10,000 gallons, unless the utility proposes a flat rate for sewer services; and

(4) a description of the process by which a ratepayer may intervene in the ratemaking proceeding.

(d-1) After written notice to the utility, a local regulatory authority may suspend the effective date of a rate change for not more than 90 days from the proposed effective date[~~, except that the suspension shall be extended by two days for each day a hearing exceeds 15 days~~]. If the local regulatory authority does not make a final determination on the proposed rate before the expiration of the [~~applicable~~] suspension period, the proposed rate shall be considered approved. This [~~The~~] approval is subject to the authority of the local regulatory authority thereafter to continue [~~authority's continuation of~~] a hearing in progress.

(e) After written notice to the utility, the utility commission may suspend the effective date of a rate change for not more than 150 days from the proposed effective date.

If the utility commission does not make a final determination on the proposed rate before the expiration of the suspension period, the proposed rate shall be considered approved.

This approval is subject to the authority of the utility commission thereafter to continue a hearing in progress

(e-1) The 150-day period described by Subsection (e) shall be extended two days for each day a hearing exceeds 15 days.

(g) A local regulatory authority [~~The~~] hearing described by this section may be informal.

(g-1) If the regulatory authority is the utility commission, the utility commission shall give reasonable notice of the hearing, including notice to the governing body of each affected municipality and county.

The utility is not required to provide a formal answer or file any other formal pleading in response to the notice, and the absence of an answer does not affect an order for a hearing.

the suspension period has been extended under Subsection (e-1) and the utility commission fails to make a final determination before the 151st day after the date the rate change would otherwise be effective.

(k) Unless otherwise agreed to by the parties to the rate proceeding, the utility shall refund or credit against future bills:

(1) all sums collected under the bonded rates [~~during the pendency of the rate proceeding~~] in excess of the rate finally ordered; and

(2) [~~plus~~] interest on those sums at the current interest rate as determined by the regulatory authority.

[~~(j) For good cause shown, the regulatory authority may authorize the release of funds to the utility from the escrow account during the pendency of the proceeding.~~

[~~(1) 90 days by a local regulatory authority; or~~

[~~(2) 150 days by the commission.~~]

(l) At any time during the pendency of the rate proceeding the regulatory authority may fix interim rates to remain in effect during the applicable suspension period under Subsection (d-1) or Subsections (e) and (e-1) or until a final determination is made on the proposed rate.

If the regulatory authority does not establish interim rates, the rates in effect when the application described by Subsection (c) was filed continue in effect during the suspension period.

SECTION 38. Subchapter F, Chapter 13, Water Code, is amended by adding Sections 13.1871 and 13.1872 to read as follows:

Sec. 13.1871. CLASS B UTILITIES: STATEMENT OF INTENT TO CHANGE RATES; HEARING; DETERMINATION OF RATE LEVEL. (a) Except as provided by Section 13.1872, this section applies only to a Class B utility.

(b) A utility may not make changes in its rates except by delivering a statement of intent to each ratepayer and with the regulatory authority having original jurisdiction at least 35 days before the effective date of the proposed change.

(1) the information required by the regulatory authority's rules;

(2) a billing comparison regarding the existing water rate and the new water rate computed for the use of:

(A) 10,000 gallons of water; and

(B) 30,000 gallons of water;

(3) a billing comparison regarding the existing sewer rate and the new sewer rate computed for the use of 10,000 gallons, unless the utility proposes a flat rate for sewer services; and

(4) a description of the process by which a ratepayer may file a complaint under Subsection (h).

(c) The utility shall mail, send by e-mail, or deliver a copy of the statement of intent to the appropriate offices of each affected municipality and to any other affected persons as required by the regulatory authority's rules.

(d) When the statement of intent is delivered, the utility shall file with the regulatory authority an application to change rates. The application must include information the regulatory authority requires by rule and any appropriate cost and rate schedules supporting the requested rate increase. In adopting rules relating to the information required in the application, the utility commission shall ensure that a utility can file a less burdensome and complex application than is required of a Class A utility. If the utility fails to provide within a reasonable time after the application is filed the necessary documentation or other evidence that supports the costs and expenses that are shown in the application, the regulatory authority may disallow the nonsupported costs or expenses.

(e) Except as provided by Subsection (f) or (g), if the application or the statement of intent is not substantially complete or does not comply with the regulatory authority's rules, it may be rejected and the effective date of the rate change may be suspended until a properly completed application is accepted by the regulatory authority and a proper statement of intent is provided. The utility commission may also suspend the effective date of any rate change if the utility does not have a certificate of public convenience and necessity or a completed application for a certificate or to transfer a certificate pending before the utility commission or if the utility is delinquent in paying the assessment and any applicable penalties or interest required by Section 5.701(n).

(f) After written notice to the utility, a local regulatory authority may suspend the effective date of a rate change for not more than 90 days from the proposed effective date, except that the suspension shall be extended by two days for each day a hearing exceeds 15 days.

If the local regulatory authority does not make a final determination on the proposed rate before the expiration of the applicable suspension period, the proposed rate shall be considered approved.

The approval is subject to the local regulatory authority's continuation of a hearing in progress.

(g) After written notice to the utility, the utility commission may suspend the effective date of a rate change for not more than 205 days from the proposed effective date, except that the suspension shall be extended by two days for each day a hearing exceeds 15 days.

If the utility commission does not make a final determination on the proposed rate before the expiration of the applicable suspension period, the proposed rate shall be considered approved.

The approval is subject to the utility commission's continuation of a hearing in progress.

(h) If, before the 91st day after the effective date of the rate change, the regulatory authority receives a complaint from any affected municipality, or from the lesser of 1,000 or 10 percent of the ratepayers of the utility over whose rates the regulatory authority has original jurisdiction, the regulatory authority shall set the matter for hearing.

(i) If the regulatory authority receives at least the number of complaints from ratepayers required for the regulatory authority to set a hearing under Subsection (h), the regulatory authority may, pending the hearing and a decision, suspend the date the rate change would otherwise be effective. Except as provided by Subsection (f) or (g), the proposed rate may not be suspended for longer than:

(1) 90 days by a local regulatory authority; or

(2) 205 days by the utility commission.

(j) The regulatory authority may set the matter for hearing on its own motion at any time within 120 days after the effective date of the rate change.

(k) The hearing may be informal.

(l) The regulatory authority shall give reasonable notice of the hearing, including notice to the governing body of each affected municipality and county. The utility is not required to provide a formal answer or file any other formal pleading in response to the notice, and the absence of an answer does not affect an order for a hearing.

(m) The utility shall mail notice of the hearing to each ratepayer before the hearing. The notice must include a description of the process by which a ratepayer may intervene in the ratemaking proceeding.

(n) If, after hearing, the regulatory authority finds the rates currently being charged or those proposed to be charged are unreasonable or in violation of law, the regulatory authority shall determine the rates to be charged by the utility and shall fix the rates by order served on the utility.

(o) A utility may put a changed rate into effect throughout the area in which the utility sought to change its rates, including an area over which the utility commission is exercising appellate or original jurisdiction, by filing a bond with the utility commission if:

(1) the suspension period has been extended under Subsection (f) and the local regulatory authority fails to make a final determination before the 91st day after the date the rate change would otherwise be effective; or

(2) the suspension period has been extended under Subsection (g) and the utility commission fails to make a final determination before the 206th day after the date the rate change would otherwise be effective.

(p) The bonded rate may not exceed the proposed rate. The bond must be payable to the utility commission in an amount, in a form, and with a surety approved by the utility commission and conditioned on refund.

(q) Unless otherwise agreed to by the parties to the rate proceeding, the utility shall refund or credit against future bills:

(1) all sums collected under the bonded rates in excess of the rate finally ordered; and

(2) interest on those sums at the current interest rate as determined by the regulatory authority.

(r) At any time during the pendency of the rate proceeding the regulatory authority may fix interim rates to remain in effect during the applicable suspension period under Subsection (f) or (g) or until a final determination is made on the proposed rate.

If the regulatory authority does not establish interim rates, the rates in effect when the application described by Subsection (e) was filed continue in effect during the suspension period.

(s) If the regulatory authority sets a final rate that is higher than the interim rate, the utility shall be allowed to collect the difference between the interim rate and final rate unless otherwise agreed to by the parties to the rate proceeding.

(t) For good cause shown, the regulatory authority may at any time during the proceeding require the utility to refund money collected under a proposed rate before the rate was suspended or an interim rate was established to the extent the proposed rate exceeds the existing rate or the interim rate.

(u) If a regulatory authority other than the utility commission establishes interim rates or bonded rates, the regulatory authority must make a final determination on the rates not later than the first anniversary of the effective date of the interim rates or bonded rates or the rates are automatically approved as requested by the utility.

(v) Except to implement a rate adjustment provision approved by the regulatory authority by rule or ordinance, as applicable, or to adjust the rates of a newly acquired utility system, a utility or two or more utilities under common control and ownership may not file a statement of intent to increase its rates more than once in a 12-month period, unless the regulatory authority determines that a financial hardship exists. If the regulatory authority requires the utility to deliver a corrected statement of intent, the utility is not considered to be in violation of the 12-month filing requirement.

SECTION 38. Subchapter F, Chapter 13, Water Code, is amended by adding Sections 13.1871 and 13.1872 to read as follows:

Sec. 13.1871. CLASS B UTILITIES: STATEMENT OF INTENT TO CHANGE RATES; HEARING; DETERMINATION OF RATE LEVEL. (a) Except as provided by Section 13.1872, this section applies only to a Class B utility.

(b) A utility may not make changes in its rates except by sending by mail or e-mail a statement of intent to each ratepayer and to the regulatory authority having original jurisdiction at least 35 days before the effective date of the proposed change. The utility may send the statement of intent to a ratepayer by e-mail only if the ratepayer has agreed to receive communications electronically.

(1) the information required by the regulatory authority's rules;

(2) a billing comparison regarding the existing water rate and the new water rate computed for the use of:

(A) 10,000 gallons of water; and

(B) 30,000 gallons of water;

(3) a billing comparison regarding the existing sewer rate and the new sewer rate computed for the use of 10,000 gallons, unless the utility proposes a flat rate for sewer services; and

(4) a description of the process by which a ratepayer may file a complaint under Subsection (i).

(f) After written notice to the utility, a local regulatory authority may suspend the effective date of a rate change for not more than 90 days from the proposed effective date.

If the local regulatory authority does not make a final determination on the proposed rate before the expiration of the suspension period, the proposed rate shall be considered approved.

This approval is subject to the authority of the local regulatory authority thereafter to continue a hearing in progress.

(g) After written notice to the utility, the utility commission may suspend the effective date of a rate change for not more than 205 days from the proposed effective date.

If the utility commission does not make a final determination on the proposed rate before the expiration of the suspension period, the proposed rate shall be considered approved.

This approval is subject to the authority of the utility commission thereafter to continue a hearing in progress.

(h) The 205-day period described by Subsection (g) shall be extended by two days for each day a hearing exceeds 15 days.

(i) If, before the 91st day after the effective date of the rate change, the regulatory authority receives a complaint from any affected municipality, or from the lesser of 1,000 or 10 percent of the ratepayers of the utility over whose rates the regulatory authority has original jurisdiction, the regulatory authority shall set the matter for hearing.

(j) If the regulatory authority receives at least the number of complaints from ratepayers required for the regulatory authority to set a hearing under Subsection (i), the regulatory authority may, pending the hearing and a decision, suspend the date the rate change would otherwise be effective. Except as provided by Subsection (h), the proposed rate may not be suspended for longer than:

(1) 90 days by a local regulatory authority; or

(2) 205 days by the utility commission.

(k) The regulatory authority may set the matter for hearing on its own motion at any time within 120 days after the effective date of the rate change.

(l) The hearing may be informal.

(m) The regulatory authority shall give reasonable notice of the hearing, including notice to the governing body of each affected municipality and county. The utility is not required to provide a formal answer or file any other formal pleading in response to the notice, and the absence of an answer does not affect an order for a hearing.

(n) The utility shall mail notice of the hearing to each ratepayer before the hearing. The notice must include a description of the process by which a ratepayer may intervene in the ratemaking proceeding.

(o) If, after hearing, the regulatory authority finds the rates currently being charged or those proposed to be charged are unreasonable or in violation of law, the regulatory authority shall determine the rates to be charged by the utility and shall fix the rates by order served on the utility.

(p) A utility may put a changed rate into effect throughout the area in which the utility sought to change its rates, including an area over which the utility commission is exercising appellate or original jurisdiction, by filing a bond with the utility commission if

the suspension period has been extended under Subsection (h) and the utility commission fails to make a final determination before the 206th day after the date the rate change would otherwise be effective.

(q) The bonded rate may not exceed the proposed rate. The bond must be payable to the utility commission in an amount, in a form, and with a surety approved by the utility commission and conditioned on refund.

(r) Unless otherwise agreed to by the parties to the rate proceeding, the utility shall refund or credit against future bills:

(1) all sums collected under the bonded rates in excess of the rate finally ordered; and

(2) interest on those sums at the current interest rate as determined by the regulatory authority.

(s) At any time during the pendency of the rate proceeding the regulatory authority may fix interim rates to remain in effect during the applicable suspension period under Subsection (f) or Subsections (g) and (h) or until a final determination is made on the proposed rate.

If the regulatory authority does not establish interim rates, the rates in effect when the application described by Subsection (e) was filed continue in effect during the suspension period.

(t) If the regulatory authority sets a final rate that is higher than the interim rate, the utility shall be allowed to collect the difference between the interim rate and final rate unless otherwise agreed to by the parties to the rate proceeding.

(u) For good cause shown, the regulatory authority may at any time during the proceeding require the utility to refund money collected under a proposed rate before the rate was suspended or an interim rate was established to the extent the proposed rate exceeds the existing rate or the interim rate.

(v) If a regulatory authority other than the utility commission establishes interim rates or bonded rates, the regulatory authority must make a final determination on the rates not later than the first anniversary of the effective date of the interim rates or bonded rates or the rates are automatically approved as requested by the utility.

(w) Except to implement a rate adjustment provision approved by the regulatory authority by rule or ordinance, as applicable, or to adjust the rates of a newly acquired utility system, a utility or two or more utilities under common control and ownership may not file a statement of intent to increase its rates more than once in a 12-month period, unless the regulatory authority determines that a financial hardship exists. If the regulatory authority requires the utility to deliver a corrected statement of intent, the utility is not considered to be in violation of the 12-month filing requirement.

Sec. 13.1872. CLASS C UTILITIES: RATE ADJUSTMENT. (a) This section applies only to a Class C utility.

(b) For purposes of this section, "price index" means an appropriate price index designated annually by the utility commission for the purposes of this section.

(1) filing an application for a rate adjustment under the procedures described by Subsection (e) and delivering a notice to each ratepayer describing the proposed rate adjustment at least 30 days before the effective date of the proposed change; or

(2) complying with the procedures to change rates described by Section 13.1871.

(d) The utility shall mail, send by e-mail, or deliver a copy of the application to the appropriate offices of each affected municipality and to any other affected persons as required by the regulatory authority's rules.

(e) The utility commission by rule shall adopt procedures to allow a utility to receive without a hearing an annual rate adjustment based on changes in the price index. The rules must:

(1) include standard language to be included in the notice described by Subsection (c)(1) describing the rate adjustment process; and

(2) provide that an annual rate adjustment described by this section may not result in a rate increase to any class or category of ratepayer of more than the lesser of:

(A) five percent; or

(B) the percentage increase in the price index between the year preceding the year in which the utility requests the adjustment and the year in which the utility requests the adjustment.

(f) A utility may adjust the utility's rates using the procedures adopted under Subsection (e) not more than once each year and not more than four times between rate proceedings described by Section 13.1871.

Sec. 13.1872. CLASS C UTILITIES: RATE ADJUSTMENT. (a) This section applies only to a Class C utility.

(b) For purposes of this section, "price index" means an appropriate price index designated annually by the utility commission for the purposes of this section.

(1) filing an application for a rate adjustment under the procedures described by Subsection (e) and sending by mail, or by e-mail if the ratepayer has agreed to receive communications electronically, a notice to each ratepayer describing the proposed rate adjustment at least 30 days before the effective date of the proposed change; or

(2) complying with the procedures to change rates described by Section 13.1871.

(e) The utility commission by rule shall adopt procedures to allow a utility to receive without a hearing an annual rate adjustment based on changes in the price index. The rules must:

(1) include standard language to be included in the notice described by Subsection (c)(1) describing the rate adjustment process; and

(2) provide that an annual rate adjustment described by this section may not result in a rate increase to any class or category of ratepayer of more than the lesser of:

(A) five percent; or

(B) the percentage increase in the price index between the year preceding the year in which the utility requests the adjustment and the year in which the utility requests the adjustment.

SECTION 39. Sections 13.188(a) and (c), Water Code, are amended to read as follows:

(a) Notwithstanding any other provision in this chapter, the utility commission by rule shall adopt a procedure allowing a utility to file with the utility commission an application to timely adjust the utility's rates to reflect an increase or decrease in documented energy costs in a pass through clause. The utility commission, by rule, shall require the pass through of documented decreases in energy costs within a reasonable time. The pass through, whether a decrease or increase, shall be implemented on no later than an annual basis, unless the utility commission determines a special circumstance applies.

(c) A proceeding under this section is not a rate case and Sections [~~Section~~] 13.187, 13.1871, and 13.1872 do [~~does~~] not apply.

SECTION 39. Section 13.188, Water Code, is amended to read as follows:

Sec. 13.188. ADJUSTMENT FOR CHANGE IN ENERGY COSTS.

(b) Notwithstanding any other provision to the contrary, this adjustment is an uncontested matter not subject to a contested case hearing. However, the utility commission [~~executive director~~] shall hold an uncontested public meeting:

(1) on the request of a member of the legislature who represents the area served by the water and sewer utility; or

(2) if the utility commission [~~executive director~~] determines that there is substantial public interest in the matter.

(c) A proceeding under this section is not a rate case and Sections [~~Section~~] 13.187, 13.1871, and 13.1872 do [~~does~~] not apply.

SECTION 40. Sections 13.241(a), (d), and (e), Water Code, are amended.

SECTION 40. Same as introduced version.

SECTION 41. Sections 13.242(a) and (c), Water Code, are amended.

SECTION 41. Same as introduced version.

SECTION 42. Section 13.244, Water Code, is amended.

SECTION 42. Same as introduced version.

SECTION 43. Sections 13.245(b), (c), (c-1), (c-2), (c-3), and (e), Water Code, are amended.

SECTION 43. Same as introduced version.

SECTION 44. Sections 13.2451(b) and (c), Water Code, are amended.

SECTION 44. Same as introduced version.

SECTION 45. Section 13.246, Water Code, is amended.

SECTION 45. Same as introduced version.

SECTION 46. Section 13.247(a), Water Code, is amended.

SECTION 46. Same as introduced version.

SECTION 47. Section 13.248, Water Code, is amended.

SECTION 47. Same as introduced version.

SECTION 48. Sections 13.250(b), (c), and (e), Water Code, are amended.

SECTION 48. Same as introduced version.

SECTION 49. Section 13.2502(d), Water Code, is amended.

SECTION 49. Same as introduced version.

SECTION 50. Section 13.251, Water Code, is amended.

SECTION 50. Same as introduced version.

SECTION 51. Section 13.252, Water Code, is amended.

SECTION 51. Same as introduced version.

SECTION 52. Section 13.253, Water Code, is amended.

SECTION 52. Same as introduced version.

SECTION 53. Sections 13.254(a), (a-1), (a-2), (a-3), (a-4), (a-6), (a-8), (b), (c), (d), (e), (f), (g), (g-1), and (h), Water Code, are amended.

SECTION 53. Same as introduced version.

SECTION 54. Sections 13.255(a), (b), (c), (d), (e), (g-1), (k), (l), and (m), Water Code, are amended.

SECTION 54. Same as introduced version.

SECTION 55. Section 13.2551, Water Code, is amended.

SECTION 55. Same as introduced version.

SECTION 56. Sections 13.257(e), (i), (r), and (s), Water Code, are amended.

SECTION 56. Same as introduced version.

SECTION 57. Sections 13.301(a), (b), (c), (d), (e), (f), and (g), Water Code, are amended to read as follows:

(a) A utility or a water supply or sewer service corporation, on or before the 120th day before the effective date of a sale, acquisition, lease, or rental of a water or sewer system that is required by law to possess a certificate of public convenience and necessity or the effective date of a merger or consolidation with such a utility or water supply or sewer service corporation, shall:

(1) file a written application with the utility commission; and

(2) unless public notice is waived by the utility commission [~~executive director~~] for good cause shown, give public notice of the action.

(b) The utility commission may require that the person purchasing or acquiring the water or sewer system demonstrate adequate financial, managerial, and technical capability for providing continuous and adequate service to the requested area and any areas currently certificated to the person.

(c) If the person purchasing or acquiring the water or sewer system cannot demonstrate adequate financial capability, the utility commission may require that the person provide a bond or other financial assurance in a form and amount specified by the utility commission to ensure continuous and adequate utility service is provided.

(d) The utility commission shall, with or without a public hearing, investigate the sale, acquisition, lease, or rental to determine whether the transaction will serve the public interest.

(e) Before the expiration of the 120-day notification period, the utility commission [~~executive director~~] shall notify all known parties to the transaction and the Office of Public Utility Counsel whether [of] the utility commission will [~~executive director's decision whether to request that the commission~~] hold a public hearing to determine if the transaction will serve the public interest. The utility commission shall hold [~~executive director may request~~] a hearing if:

(1) the application filed with the utility commission or the public notice was improper;

(2) the person purchasing or acquiring the water or sewer system has not demonstrated adequate financial, managerial, and technical capability for providing continuous and adequate service to the service area being acquired and to any areas currently certificated to the person;

(3) the person or an affiliated interest of the person purchasing or acquiring the water or sewer system has a history of:

(A) noncompliance with the requirements of the utility commission, the commission, or the [~~Texas~~] Department of State Health Services; or

(B) continuing mismanagement or misuse of revenues as a utility service provider;

(4) the person purchasing or acquiring the water or sewer system cannot demonstrate the financial ability to provide the necessary capital investment to ensure the provision of continuous and adequate service to the customers of the water or sewer system; or

(5) there are concerns that the transaction may not serve the public interest, after the application of the considerations provided by Section 13.246(c) for determining whether to grant a certificate of convenience and necessity.

(f) Unless the utility commission holds [~~executive director requests that~~] a public hearing [~~be held~~], the sale, acquisition, lease, or rental may be completed as proposed:

(1) at the end of the 120-day period; or

(2) at any time after the utility commission [~~executive director~~] notifies the utility or water supply or sewer service corporation that a hearing will not be requested.

(g) If a hearing is requested or if the utility or water supply or sewer service corporation fails to make the application as required or to provide public notice, the sale, acquisition, lease, or rental may not be completed unless the utility commission determines that the proposed transaction serves the public interest.

SECTION 57. Sections 13.301(a), (b), (c), (d), (e), (f), and (g), Water Code, are amended to read as follows:

(1) file a written application with the utility commission; and

(2) unless public notice is waived by the utility commission [~~executive director~~] for good cause shown, give public notice of the action.

(d) The utility commission shall, with or without a public hearing, investigate the sale, acquisition, lease, or rental to determine whether the transaction will serve the public interest.

(e) Before the expiration of the 120-day notification period, the utility commission [~~executive director~~] shall notify all known parties to the transaction and the Office of Public Utility Counsel whether [of] the utility commission will [~~executive director's decision whether to request that the commission~~] hold a public hearing to determine if the transaction will serve the public interest. The utility commission may hold [~~executive director may request~~] a hearing if:

(1) the application filed with the utility commission or the public notice was improper;

(3) the person or an affiliated interest of the person purchasing or acquiring the water or sewer system has a history of:

(A) noncompliance with the requirements of the utility commission, the commission, or the [~~Texas~~] Department of State Health Services; or

(B) continuing mismanagement or misuse of revenues as a utility service provider;

(f) Unless the utility commission holds [~~executive director requests that~~] a public hearing [~~be held~~], the sale, acquisition, lease, or rental may be completed as proposed:

(1) at the end of the 120-day period; or

(2) at any time after the utility commission [~~executive director~~] notifies the utility or water supply or sewer service corporation that a hearing will not be held [~~requested~~].

(g) If the utility commission decides to hold a hearing [~~is requested~~] or if the utility or water supply or sewer service corporation fails to make the application as required or to provide public notice, the sale, acquisition, lease, or rental may not be completed unless the utility commission determines that the proposed transaction serves the public interest.

SECTION 58. Section 13.302, Water Code, is amended.

SECTION 58. Substantially the same as the introduced version.

SECTION 59. Section 13.303, Water Code, is amended.

SECTION 59. Same as introduced version.

SECTION 60. Section 13.304, Water Code, is amended.

SECTION 60. Same as introduced version.

SECTION 61. Section 13.341, Water Code, is amended.

SECTION 61. Same as introduced version.

SECTION 62. Section 13.342, Water Code, is amended.

SECTION 62. Same as introduced version.

SECTION 63. Section 13.343(a), Water Code, is amended.

SECTION 63. Same as introduced version.

SECTION 64. Section 13.381, Water Code, is amended.

SECTION 64. Same as introduced version.

SECTION 65. Section 13.382(a), Water Code, is amended.

SECTION 65. Same as introduced version.

SECTION 66. Section 13.411, Water Code, is amended.

SECTION 66. Same as introduced version.

SECTION 67. Section 13.4115, Water Code, is amended.

SECTION 67. Same as introduced version.

SECTION 68. Sections 13.412(a), (f), and (g), Water Code, are amended.

SECTION 68. Same as introduced version.

SECTION 69. Section 13.413, Water Code, is amended.

SECTION 69. Same as introduced version.

SECTION 70. Section 13.4131, Water Code, is amended.

SECTION 70. Same as introduced version.

SECTION 71. Sections 13.4132(a), (b), and (d), Water Code, are amended.

SECTION 71. Same as introduced version.

SECTION 72. Sections 13.4133(a) and (c), Water Code, are amended.

SECTION 72. Same as introduced version.

SECTION 73. Sections 13.414(a) and (c), Water Code, are amended.

SECTION 73. Same as introduced version.

SECTION 74. Sections 13.4151(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), and (m), Water Code, are amended.

SECTION 74. Substantially the same as the introduced version.

SECTION 75. Section 13.417, Water Code, is amended.

SECTION 75. Same as introduced version.

SECTION 76. Section 13.418, Water Code, is amended.

SECTION 76. Same as introduced version.

SECTION 77. Section 13.501(7), Water Code, is amended.

SECTION 77. Same as introduced version.

SECTION 78. Section 13.502(e), Water Code, is amended.

SECTION 78. Same as introduced version.

SECTION 79. Sections 13.503(a), (b), and (e), Water Code, are amended.

SECTION 79. Same as introduced version.

SECTION 80. Section 13.5031, Water Code, is amended.

SECTION 80. Same as introduced version.

SECTION 81. Section 13.505, Water Code, is amended.

SECTION 81. Same as introduced version.

SECTION 82. Section 13.512, Water Code, is amended.

SECTION 82. Same as introduced version.

SECTION 83. Section 13.513, Water Code, is amended.

SECTION 83. Same as introduced version.

SECTION 84. Section 49.352(c), Water Code, is amended.

SECTION 84. Same as introduced version.

SECTION 85. Section 552.047(e), Local Government Code, is amended.

SECTION 85. Same as introduced version.

SECTION 86. Section 7201.004(b), Special District Local Laws Code, is amended.

SECTION 86. Same as introduced version.

SECTION 87. Section 7201.005(c), Special District Local Laws Code, is amended.

SECTION 87. Same as introduced version.

SECTION 88. Section 7201.102, Special District Local Laws Code, is amended.

SECTION 88. Same as introduced version.

SECTION 89. Section 8363.106(b), Special District Local Laws Code, is amended.

SECTION 89. Same as introduced version.

SECTION 90. Section 8363.251(a), Special District Local Laws Code, is amended.

SECTION 90. Same as introduced version.

SECTION 91. Section 8801.201, Special District Local Laws Code, is amended.

SECTION 91. Same as introduced version.

SECTION 92. (a) On September 1, 2014, the following are transferred from the Texas Commission on Environmental Quality to the Public Utility Commission of Texas:

(1) the powers, duties, functions, programs, and activities of the Texas Commission on Environmental Quality relating to the economic regulation of water and sewer service, including the issuance and transfer of certificates of convenience and necessity, the determination of rates, and the administration of hearings and proceedings involving those matters, under Chapters 11, 12, and 13, Water Code, as provided by this Act;

(2) any obligations and contracts of the Texas Commission on Environmental Quality that are directly related to implementing a power, duty, function, program, or activity transferred under this Act; and

(3) all property and records in the custody of the Texas Commission on Environmental Quality that are related to a power, duty, function, program, or activity transferred under this Act and all funds appropriated by the legislature for that power, duty, function, program, or activity.

(b) The Texas Commission on Environmental Quality and the Public Utility Commission of Texas shall enter into a memorandum of understanding that:

(1) identifies in detail the applicable powers and duties that are transferred by this Act;

(2) establishes a plan for the identification and transfer of the records, personnel, property, and unspent appropriations of the Texas Commission on Environmental Quality that are used for purposes of the commission's powers and duties directly related to the economic regulation of water and sewer service under Chapters 11, 12, and 13, Water Code, as amended by this Act; and

(3) establishes a plan for the transfer of all pending applications, hearings, rulemaking proceedings, and orders relating to the economic regulation of water and sewer service under Chapters 11, 12, and 13, Water Code, as amended by this Act, from the Texas Commission on Environmental Quality to the Public Utility Commission of Texas.

(c) The memorandum of understanding under this section is not required to be adopted by rule under Section 5.104, Water Code.

(d) The executive directors of the Texas Commission on Environmental Quality and the Public Utility Commission of Texas may agree in the memorandum of understanding under this section to transfer to the Public Utility Commission of Texas any personnel of the Texas Commission on Environmental Quality whose functions predominantly involve powers, duties, obligations, functions, and activities related to the economic regulation of water and sewer service under Chapters 11, 12, and 13, Water Code, as amended by this Act.

(e) The Texas Commission on Environmental Quality and the Public Utility Commission of Texas shall periodically update the Office of Public Utility Counsel on the anticipated contents of the memorandum of understanding under this section during the development of the memorandum.

(f) The Texas Commission on Environmental Quality and the Public Utility Commission of Texas shall appoint a transition team to accomplish the purposes of this section. The transition team may consult with the Office of Public Utility Counsel to accomplish the purposes of this section. The transition team shall establish guidelines on how the two agencies will cooperate regarding:

(1) meeting federal drinking water standards;

(2) maintaining adequate supplies of water;

(3) meeting established design criteria for wastewater treatment plants;

(4) demonstrating the economic feasibility of regionalization; and

(5) serving the needs of economically distressed areas.

(g) A rule, form, policy, procedure, or decision of the Texas Commission on Environmental Quality related to a power, duty, function, program, or activity transferred under this Act continues in effect as a rule, form, policy, procedure, or decision of the Public Utility Commission of Texas and remains in effect until amended or replaced by that agency.

(h) The memorandum required by this section must be completed by August 1, 2014.

(i) The Public Utility Commission of Texas and the Texas Commission on Environmental Quality shall adopt rules to implement the changes in law made by this Act to Chapters 11, 12, and 13, Water Code, not later than September 1, 2015.

SECTION 92. (a) On September 1, 2014, the following are transferred from the Texas Commission on Environmental Quality to the Public Utility Commission of Texas:

(1) the powers, duties, functions, programs, and activities of the Texas Commission on Environmental Quality relating to the economic regulation of water and sewer service, including the issuance and transfer of certificates of convenience and necessity, the determination of rates, and the administration of hearings and proceedings involving those matters, under Sections 11.041 and 12.013 and Chapter 13, Water Code, as provided by this Act;

(b) The Texas Commission on Environmental Quality shall continue to carry out the commission's duties related to the economic regulation of water and sewer service under the law as it existed immediately before the effective date of this Act until September 1, 2014, and the former law is continued in effect for that purpose.

(c) The Texas Commission on Environmental Quality and the Public Utility Commission of Texas shall enter into a memorandum of understanding that:

(1) identifies in detail the applicable powers and duties that are transferred by this Act;

(2) establishes a plan for the identification and transfer of the records, personnel, property, and unspent appropriations of the Texas Commission on Environmental Quality that are used for purposes of the commission's powers and duties directly related to the economic regulation of water and sewer service under Sections 11.041 and 12.013 and Chapter 13, Water Code, as amended by this Act; and

(3) establishes a plan for the transfer of all pending applications, hearings, rulemaking proceedings, and orders relating to the economic regulation of water and sewer service under Sections 11.041 and 12.013 and Chapter 13, Water Code, as amended by this Act, from the Texas Commission on Environmental Quality to the Public Utility Commission of Texas.

(d) The memorandum of understanding under this section:

(1) is not required to be adopted by rule under Section 5.104, Water Code; and

(2) must be completed by August 1, 2014.

(e) The executive directors of the Texas Commission on Environmental Quality and the Public Utility Commission of Texas may agree in the memorandum of understanding under this section to transfer to the Public Utility Commission of Texas any personnel of the Texas Commission on Environmental Quality whose functions predominantly involve powers, duties, obligations, functions, and activities related to the economic regulation of water and sewer service under Sections 11.041 and 12.013 and Chapter 13, Water Code, as amended by this Act.

(f) The Texas Commission on Environmental Quality and the Public Utility Commission of Texas shall periodically update the Office of Public Utility Counsel on the anticipated contents of the memorandum of understanding under this section during the development of the memorandum.

(g) On or after September 1, 2013, the Office of Public Utility Counsel may initiate or intervene in a contested case before the Texas Commission on Environmental Quality that the office would be entitled to initiate or intervene in if the case were before the Public Utility Commission of Texas, as authorized by Chapter 13, Water Code, as amended by this Act.

(h) The Texas Commission on Environmental Quality and the Public Utility Commission of Texas shall appoint a transition team to accomplish the purposes of this section. The transition team may consult with the Office of Public Utility Counsel to accomplish the purposes of this section. The transition team shall establish guidelines on how the two agencies will cooperate regarding:

(1) meeting federal drinking water standards;

(2) maintaining adequate supplies of water;

(3) meeting established design criteria for wastewater treatment plants;

(4) demonstrating the economic feasibility of regionalization; and

(5) serving the needs of economically distressed areas.

(i) The transition team appointed under Subsection (h) of this section shall provide monthly updates to the executive directors of the Texas Commission on Environmental Quality and the Public Utility Commission of Texas on the implementation of this Act and provide a final report on the implementation to the executive directors not later than September 1, 2014.

(j) A rule, form, policy, procedure, or decision of the Texas Commission on Environmental Quality related to a power, duty, function, program, or activity transferred under this Act continues in effect as a rule, form, policy, procedure, or decision of the Public Utility Commission of Texas and remains in effect until amended or replaced by that agency. Notwithstanding any other law, beginning September 1, 2013, the Public Utility Commission of Texas may propose rules, forms, policies, and procedures related to a function to be transferred to the Public Utility Commission of Texas under this Act.

(k) The Public Utility Commission of Texas and the Texas Commission on Environmental Quality shall adopt rules to implement the changes in law made by this Act to Sections 11.041 and 12.013 and Chapter 13, Water Code, not later than September 1, 2015.

(l) An affiliate of a Class A utility, as those terms are defined by Section 13.002, Water Code, as amended by this Act, may not file an application for a rate change on or after the effective date of this Act unless the affiliated Class A utility has filed for a rate change on or after that date. In relation to the application filed by the affiliate of the Class A utility, the Public Utility Commission of Texas:

(1) may not approve the rate change application until the Public Utility Commission of Texas approves the rate change application filed by the affiliated Class A utility; and

(2) may require the affiliate to comply with the Class A utility rate change process prescribed by Section 13.187, Water Code, regardless of whether the affiliate is classified as a Class A, B, or C utility under Section 13.002, Water Code, as added by this Act.

SECTION 93. This Act takes effect September 1, 2013.

SECTION 93. Same as introduced version.