88R8719 JXC-F
 
  By: Thompson of Brazoria H.B. No. 2774
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the treatment of income tax expenses in rate
  proceedings for water and sewer utilities.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 13.185(f), Water Code, is amended to
  read as follows:
         (f)  If an expense is allowed to be included in utility rates
  or an investment is included in the utility rate base, the related
  income tax benefit must be included in the computation of income tax
  expense to reduce the rates. If an expense is not allowed to be
  included in utility rates or an investment is not included in the
  utility rate base, the related income tax benefit may not be
  included in the computation of income tax expense to reduce the
  rates. The income tax expense shall be computed using the statutory
  income tax rates. The amount of income tax that a consolidated
  group of which a utility is a member saves, because the consolidated
  return eliminates the intercompany profit on purchases by the
  utility from an affiliate, shall be applied to reduce the cost of
  the property or service purchased from the affiliate. [If the
  utility is a member of an affiliated group that is eligible to file
  a consolidated income tax return and if it is advantageous to the
  utility to do so, income taxes shall be computed as though a
  consolidated return had been filed and the utility had realized its
  fair share of the savings resulting from the consolidated return,
  unless it is shown to the satisfaction of the regulatory authority
  that it was reasonable to choose not to consolidate returns. The
  amounts of income taxes saved by a consolidated group of which a
  utility is a member due to the elimination in the consolidated
  return of the intercompany profit on purchases by the utility from
  an affiliate shall be applied to reduce the cost of those
  purchases.] The investment tax credit allowed against federal
  income taxes to the extent retained by the utility shall be applied
  as a reduction in the rate-based contribution of the assets to which
  the credit applies to the extent and at the rate as allowed by the
  Internal Revenue Code.
         SECTION 2.  The changes in law made by this Act apply only to
  a rate proceeding under Chapter 13, Water Code, that begins on or
  after the effective date of this Act. A rate proceeding that begins
  before the effective date of this Act is governed by the law in
  effect on the date the rate proceeding began, and the former law is
  continued in effect for that purpose.
         SECTION 3.  This Act takes effect September 1, 2023.