BILL ANALYSIS

Senate Research Center	S.B. 1891
89R7774 JXC-F	By: Perry
	Water, Agriculture and Rural Affairs
	4/23/2025
	As Filed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

Under existing law, the Public Utility Commission (PUC) grants applications for rate increases to investor-owned utilities (IOUs) in part based on past expenses incurred in replacing, repairing, adding to, and upgrading infrastructure. Existing law provides no opportunity for the PUC to consider projected infrastructure needs in setting rates for IOUs. As a result, IOUs must bear the cost of infrastructure repairs, replacements, upgrades, and additions first and then seek to recover those costs through a rate application that may not be approved, discouraging IOUs from proactively addressing their infrastructure needs and, ultimately, limiting their ability to do so.

S.B. 1891 addresses this problem by authorizing IOUs to seek rate increases�and authorizing the PUC to grant them�based on either historic infrastructure expenses, projected infrastructure expenses, or a combination thereof.

As proposed, S.B. 1891 amends current law relating to test years used for ratemaking purposes by certain water and sewer utilities.

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Subchapter F, Chapter 13, Water Code, by adding Section 13.1831, as follows:

Sec. 13.1831. TEST YEAR. Requires a regulatory authority to fix rates for water and sewer services for a Class A, B, C, or D utility based on a test year the utility selects that includes historic, future, or combined historic and future data, begins on the first day of a calendar or fiscal year quarter, and is a consecutive 12-month period that begins not later than 18 months after the date the utility files the statement of intent to change rates and ends not earlier than 18 months before the date the utility files the statement of intent to change rates.

SECTION 2. Amends Section 13.183(a), Water Code, to require the regulatory authority, in fixing the rates for water and sewer services, to fix its overall revenues at a level that will meet certain requirements, including a level that will permit the utility a reasonable opportunity to earn a reasonable return on its invested capital used and useful in rendering service to the public, based on test year information, over and above its reasonable and necessary operating expenses.

SECTION 3. Amends Section 13.184(a), Water Code, as follows:

(a) Prohibits the Public Utility Commission (PUC), unless the PUC establishes alternate rate methodologies in accordance with Section 13.183(c) (relating to adopting specific alternative ratemaking methodologies for water or sewer rates), from prescribing any rate that will yield more than a fair return on the invested capital used and useful in rendering service to the public based on test year information. Makes a conforming change.

SECTION 4. Amends Section 13.185, Water Code, by amending Subsections (b), (d), and (j) and adding Subsection (k), as follows:

(b) Requires that utility rates be based on the original cost of property used by and useful to the utility during the test year in providing service, including, if necessary to the financial integrity of the utility, construction work in progress at cost as recorded on the books of the utility.

(d) Deletes existing text requiring the regulatory authority to base a utility's expenses on historic test year information adjusted for known and measurable changes, as determined by PUC rules.

(j) Deletes existing text providing that depreciation expense included in the cost of service includes depreciation on all currently used, depreciable utility property owned by the utility except for property provided by certain agreements or contributions. Makes a conforming change.

(k) Requires the regulatory authority, notwithstanding Subsection (b), to allow inclusion in the rate base of facilities projected to be in service through the end of the test year.

SECTION 5. Repealer: Section 13.002(22) (relating to defining "test year"), Water Code.

SECTION 6. Makes application of this Act prospective.

SECTION 7. Effective date: September 1, 2025.