Relating to test years used for ratemaking purposes by certain water and sewer utilities.
One significant implication of SB1891 is its potential to enhance the financial stability of utilities by providing clearer guidelines for how rates are set based on the chosen test years. Utilities could potentially have a reasonable opportunity to earn adequate returns on their investments, which critics argue is vital for maintaining operational integrity and service delivery. The bill's provisions on including construction work in progress under certain conditions could also offer additional financial backing for utilities, further improving their capability to service public needs. However, utilities must provide proof that such provisions are in the best interest of ratepayers.
Senate Bill 1891 focuses on establishing regulations for ratemaking protocols used by certain water and sewer utilities in Texas. The bill modifies several sections of the Water Code, particularly by introducing provisions related to 'test years' for these utilities. It mandates that the regulatory authority consider test years that can include historic, future, or combined data when fixing rates, starting from a standard fiscal quarter and extending for a consecutive 12-month period. This shift aims to clarify how utilities can select their rate-fixed periods and ensure consistent regulatory practices across different utility classes, such as Class A, B, C, or D utilities.
Despite the potential advantages, there may be concerns regarding the specific adjustments in rate methodologies. The exclusion of certain costs from being included in the invested capital, such as property funded by customer agreements, could lead to contention among stakeholders about what constitutes fair rate-setting. Additionally, political discussions around the bill highlight varying perspectives on the regulatory authority’s role, with some advocating for more local control over utility regulations and others favoring a centralized approach for consistency across the state.