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A BILL TO BE ENTITLED
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AN ACT
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relating to test years used for ratemaking purposes by certain |
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water and sewer utilities. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subchapter F, Chapter 13, Water Code, is amended |
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by adding Section 13.1831 to read as follows: |
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Sec. 13.1831. TEST YEAR. A regulatory authority shall fix |
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rates for water and sewer services for a Class A, B, C, or D utility |
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based on a test year the utility selects that: |
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(1) includes historic, future, or combined historic |
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and future data; |
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(2) begins on the first day of a calendar or fiscal |
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year quarter; and |
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(3) is a consecutive 12-month period that: |
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(A) begins not later than 18 months after the |
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date the utility files the statement of intent to change rates; and |
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(B) ends not earlier than 18 months before the |
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date the utility files the statement of intent to change rates. |
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SECTION 2. Section 13.183(a), Water Code, is amended to |
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read as follows: |
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(a) In fixing the rates for water and sewer services, the |
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regulatory authority shall fix its overall revenues at a level that |
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will: |
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(1) permit the utility a reasonable opportunity to |
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earn a reasonable return on its invested capital used and useful in |
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rendering service to the public, based on test year information, |
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over and above its reasonable and necessary operating expenses; and |
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(2) preserve the financial integrity of the utility. |
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SECTION 3. Section 13.184(a), Water Code, is amended to |
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read as follows: |
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(a) Unless the utility commission establishes alternate |
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rate methodologies in accordance with Section 13.183(c), the |
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utility commission may not prescribe any rate that will yield more |
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than a fair return on the invested capital used and useful in |
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rendering service to the public based on test year information. The |
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governing body of a municipality exercising its original |
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jurisdiction over rates and services may use alternate ratemaking |
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methodologies established by ordinance or by utility commission |
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rule in accordance with Section 13.183(c). Unless the municipal |
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regulatory authority uses alternate ratemaking methodologies |
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established by ordinance or by utility commission rule in |
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accordance with Section 13.183(c), it may not prescribe any rate |
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that will yield more than a fair return on the invested capital used |
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and useful in rendering service to the public based on test year |
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information. |
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SECTION 4. Section 13.185, Water Code, is amended by |
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amending Subsections (b), (d), and (j) and adding Subsection (k) to |
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read as follows: |
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(b) Utility rates shall be based on the original cost of |
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property used by and useful to the utility during the test year in |
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providing service, including, if necessary to the financial |
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integrity of the utility, construction work in progress at cost as |
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recorded on the books of the utility. The inclusion of construction |
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work in progress is an exceptional form of rate relief to be granted |
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only on the demonstration by the utility by clear and convincing |
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evidence that the inclusion is in the ratepayers' best interest and |
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is necessary to the financial integrity of the utility. |
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Construction work in progress may not be included in the rate base |
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for major projects under construction to the extent that those |
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projects have been inefficiently or imprudently planned or managed. |
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Original cost is the actual money cost or the actual money value of |
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any consideration paid, other than money, of the property at the |
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time it shall have been dedicated to public use, whether by the |
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utility that is the present owner or by a predecessor, less |
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depreciation. Utility property funded by explicit customer |
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agreements or customer contributions in aid of construction such as |
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surcharges may not be included in invested capital. |
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(d) Net income is the total revenues of the utility less all |
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reasonable and necessary expenses as determined by the regulatory |
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authority. The regulatory authority shall: |
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(1) base a utility's expenses on [historic] test year |
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information [adjusted for known and measurable changes], as |
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determined by utility commission rules; and |
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(2) determine expenses and revenues in a manner |
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consistent with Subsections (e) through (h) of this section. |
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(j) Depreciation expense included in the cost of service |
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includes depreciation on all [currently used,] depreciable utility |
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property owned by the utility except for property provided by |
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explicit customer agreements or funded by customer contributions in |
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aid of construction. Depreciation on all [currently used and |
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useful] developer or governmental entity contributed property |
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shall be allowed in the cost of service. |
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(k) Notwithstanding Subsection (b), the regulatory |
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authority shall allow inclusion in the rate base of facilities |
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projected to be in service through the end of the test year. |
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SECTION 5. Section 13.002(22), Water Code, is repealed. |
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SECTION 6. The changes in law made by this Act apply only to |
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a rate proceeding that commences on or after the effective date of |
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this Act. A rate proceeding that commenced before the effective |
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date of this Act is governed by the law in effect on the date the |
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proceeding commenced, and that law is continued in effect for that |
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purpose. |
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SECTION 7. This Act takes effect September 1, 2025. |