H.B. No. 3542
AN ACT
relating to the provision of water and sewer services by certain
retail public utilities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter E, Chapter 13, Water Code, is amended
by adding Section 13.150 to read as follows:
Sec. 13.150. REPORTS REQUIRED FOR WATER AND SEWER
UTILITIES. (a) This section applies only to a utility that
provides retail water or sewer utility service through fewer than
10,000 taps or connections.
(b) Except as provided by Subsection (c), a utility shall
deliver to the utility commission a report of the utility's
financial, managerial, and technical capacity to provide
continuous and adequate service to its customers not later than the
third anniversary of the date that the utility violates a final
order of the commission by failing to:
(1) provide system capacity that is greater than the
required raw water or groundwater production rate or the
anticipated daily demand of the system;
(2) provide a minimum pressure of 35 pounds per square
inch throughout the distribution system under normal operating
conditions; or
(3) maintain accurate or properly calibrated testing
equipment or other means of monitoring the effectiveness of a
chemical treatment or pathogen inactivation or removal process.
(c) A utility that has an existing obligation to deliver a
report under Subsection (b) is not required to deliver another
report as a result of the occurrence of an event described by
Subsection (b) if the event occurs before the date that the utility
delivers the report required by Subsection (b).
(d) On receiving notice that a utility has violated an order
described by Subsection (b), the commission shall provide written
notice of the violation to the utility commission.
(e) The utility commission shall deliver a copy of a report
received under Subsection (b) to:
(1) each state senator representing a district that
contains a portion of the service area of the utility that submitted
the report; and
(2) each state representative representing a district
that contains a portion of the service area of the utility that
submitted the report.
(f) If a utility fails to deliver a report in accordance
with Subsection (b), the utility commission shall report the
failure to:
(1) the commission;
(2) each state senator representing a district that
contains a portion of the utility's service area; and
(3) each state representative representing a district
that contains a portion of the utility's service area.
SECTION 2. Subchapter H, Chapter 13, Water Code, is amended
by adding Section 13.305 to read as follows:
Sec. 13.305. VOLUNTARY VALUATION OF ACQUIRED UTILITY OR
FACILITIES. (a) In this section:
(1) "Acquiring utility" means a Class A or Class B
utility that is acquiring a selling utility, or facilities of a
selling utility, as the result of a voluntary arm's-length
transaction.
(2) "Ratemaking rate base" means the dollar value of a
selling utility that is incorporated into the rate base of the
acquiring utility for postacquisition ratemaking purposes.
(3) "Selling utility" means a retail public utility
that is being purchased by an acquiring utility, or is selling
facilities to an acquiring utility, as the result of a voluntary
arm's-length transaction.
(b) The utility commission shall maintain a list of experts
qualified to conduct economic valuations of utilities for the
purposes of this section.
(c) An acquiring utility and a selling utility may agree to
determine by the following process the fair market value of the
selling utility or the facilities to be sold, as applicable:
(1) the acquiring utility and the selling utility
shall notify the utility commission of their intent to determine
the fair market value under this section;
(2) not later than the 30th day after the date the
utility commission receives notice under Subdivision (1), the
utility commission shall select three utility valuation experts
from the list maintained under Subsection (b);
(3) each utility valuation expert shall perform an
appraisal in compliance with Uniform Standards of Professional
Appraisal Practice, employing the cost, market, and income
approaches, to determine the fair market value; and
(4) the three utility valuation experts selected under
Subdivision (2) jointly shall retain a licensed engineer to conduct
an assessment of the tangible assets of the selling utility, or the
facilities to be sold, as applicable, and each utility valuation
expert shall:
(A) incorporate the assessment into the
appraisal under the cost approach required under Subdivision (3);
and
(B) provide the completed appraisal to the
acquiring utility and the selling utility in a reasonable and
timely manner.
(d) A utility valuation expert described by Subsection (b)
may not:
(1) derive any material financial benefit from the
sale other than fees for services rendered; or
(2) be or have been within the year preceding the date
the service contract is executed an immediate family member of a
director, officer, or employee of the acquiring utility or the
selling utility.
(e) A fee paid to a utility valuation expert may be included
in the transaction and closing costs associated with the
acquisition by the acquiring utility. A fee may not exceed the
lesser of:
(1) five percent of the fair market value; or
(2) a fee amount approved by the utility commission.
(f) For the purposes of the acquisition, the fair market
value is the average of the three utility valuation expert
appraisals conducted under Subsection (c).
(g) For an acquisition of a selling utility, the ratemaking
rate base of the selling utility is the lesser of the purchase price
negotiated by the acquiring utility and the selling utility or the
fair market value. The ratemaking rate base of the selling utility
shall be incorporated into the rate base of the acquiring utility
during the utility's next rate base case under Subchapter F.
(h) If the acquiring utility and the selling utility use the
process for establishing fair market value in Subsection (c), the
acquiring utility shall submit as attachments to an application
required under Section 13.301:
(1) copies of the three appraisals performed by the
utility valuation experts under Subsection (c);
(2) the purchase price agreed to by the acquiring
utility and the selling utility;
(3) if applicable, the ratemaking rate base determined
under Subsection (g);
(4) if applicable, the transaction and closing costs
incurred by the acquiring utility that will be included in the
utility's rate base; and
(5) if applicable, a tariff containing a rate equal to
the existing rates of the selling utility at the time of the
acquisition.
(i) If the utility commission approves the application for
acquisition under Section 13.301, the utility commission shall
issue an order that includes:
(1) the ratemaking rate base of the selling utility as
determined under Subsection (g); and
(2) any additional conditions for the acquisition the
utility commission requires.
(j) A tariff submitted under Subsection (h)(5) shall remain
in effect until the utility commission approves new rates as part of
a rate base case proceeding.
(k) The original sources of funding for any part of the
water or sewer assets of the selling utility are not relevant to
determine the value of the selling utility's assets. The selling
utility's cost of service shall be incorporated into the revenue
requirement of the acquiring utility's next rate base case
proceeding.
(l) In this subsection, "allowance of funds used during
construction" means an accounting practice that recognizes the
capital costs, including debt and equity funds, that are used to
finance the construction costs of an improvement to a selling
utility's assets by an acquiring utility. An acquiring utility's
postacquisition improvements shall accrue an allowance of funds
used during construction after the date the cost was incurred until
the earlier of:
(1) the fourth anniversary of the date the asset
entered into service; or
(2) the inclusion of the asset in the acquiring
utility's next rate base case.
(m) Depreciation on an acquiring utility's postacquisition
improvements shall be deferred for book and ratemaking purposes.
SECTION 3. Section 13.4132(a), Water Code, is amended to
read as follows:
(a) The utility commission or the commission, after
providing to the utility notice and an opportunity to be heard by
the commissioners at a utility commission or commission meeting,
may authorize a willing person to temporarily manage and operate a
utility if the utility:
(1) has discontinued or abandoned operations or the
provision of services; [or]
(2) has been or is being referred to the attorney
general for the appointment of a receiver under Section 13.412; or
(3) provides retail water or sewer utility service
through fewer than 10,000 taps or connections and violates a final
order of the commission by failing to:
(A) provide system capacity that is greater than
the required raw water or groundwater production rate or the
anticipated daily demand of the system;
(B) provide a minimum pressure of 35 pounds per
square inch throughout the distribution system under normal
operating conditions; or
(C) maintain accurate or properly calibrated
testing equipment or other means of monitoring the effectiveness of
a chemical treatment or pathogen inactivation or removal process.
SECTION 4. (a) Except as provided by Subsection (b) of this
section, a utility that provides retail water or sewer utility
service through fewer than 10,000 taps or connections and that, not
more than three years before the effective date of this Act,
violated an order described by Section 13.150(b), Water Code, as
added by this Act, shall submit a report described by Section
13.150(b), Water Code, as added by this Act, not later than the
fifth anniversary of the event.
(b) A utility that provides retail water or sewer utility
service through fewer than 10,000 taps or connections and that has
an existing obligation to deliver a report under Subsection (a) of
this section is not required to deliver another report as a result
of the occurrence of an event described by Section 13.150(b), Water
Code, as added by this Act, if the event occurs before the date that
the utility delivers the report required by Subsection (a) of this
section.
SECTION 5. This Act takes effect September 1, 2019.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 3542 was passed by the House on May 2,
2019, by the following vote: Yeas 141, Nays 0, 2 present, not
voting.
______________________________
Chief Clerk of the House
I certify that H.B. No. 3542 was passed by the Senate on May
22, 2019, by the following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor