| 1 | 1 | | 88R8719 JXC-F |
|---|
| 2 | 2 | | By: Nichols S.B. No. 1865 |
|---|
| 3 | 3 | | |
|---|
| 4 | 4 | | |
|---|
| 5 | 5 | | A BILL TO BE ENTITLED |
|---|
| 6 | 6 | | AN ACT |
|---|
| 7 | 7 | | relating to the treatment of income tax expenses in rate |
|---|
| 8 | 8 | | proceedings for water and sewer utilities. |
|---|
| 9 | 9 | | BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
|---|
| 10 | 10 | | SECTION 1. Section 13.185(f), Water Code, is amended to |
|---|
| 11 | 11 | | read as follows: |
|---|
| 12 | 12 | | (f) If an expense is allowed to be included in utility rates |
|---|
| 13 | 13 | | or an investment is included in the utility rate base, the related |
|---|
| 14 | 14 | | income tax benefit must be included in the computation of income tax |
|---|
| 15 | 15 | | expense to reduce the rates. If an expense is not allowed to be |
|---|
| 16 | 16 | | included in utility rates or an investment is not included in the |
|---|
| 17 | 17 | | utility rate base, the related income tax benefit may not be |
|---|
| 18 | 18 | | included in the computation of income tax expense to reduce the |
|---|
| 19 | 19 | | rates. The income tax expense shall be computed using the statutory |
|---|
| 20 | 20 | | income tax rates. The amount of income tax that a consolidated |
|---|
| 21 | 21 | | group of which a utility is a member saves, because the consolidated |
|---|
| 22 | 22 | | return eliminates the intercompany profit on purchases by the |
|---|
| 23 | 23 | | utility from an affiliate, shall be applied to reduce the cost of |
|---|
| 24 | 24 | | the property or service purchased from the affiliate. [If the |
|---|
| 25 | 25 | | utility is a member of an affiliated group that is eligible to file |
|---|
| 26 | 26 | | a consolidated income tax return and if it is advantageous to the |
|---|
| 27 | 27 | | utility to do so, income taxes shall be computed as though a |
|---|
| 28 | 28 | | consolidated return had been filed and the utility had realized its |
|---|
| 29 | 29 | | fair share of the savings resulting from the consolidated return, |
|---|
| 30 | 30 | | unless it is shown to the satisfaction of the regulatory authority |
|---|
| 31 | 31 | | that it was reasonable to choose not to consolidate returns. The |
|---|
| 32 | 32 | | amounts of income taxes saved by a consolidated group of which a |
|---|
| 33 | 33 | | utility is a member due to the elimination in the consolidated |
|---|
| 34 | 34 | | return of the intercompany profit on purchases by the utility from |
|---|
| 35 | 35 | | an affiliate shall be applied to reduce the cost of those |
|---|
| 36 | 36 | | purchases.] The investment tax credit allowed against federal |
|---|
| 37 | 37 | | income taxes to the extent retained by the utility shall be applied |
|---|
| 38 | 38 | | as a reduction in the rate-based contribution of the assets to which |
|---|
| 39 | 39 | | the credit applies to the extent and at the rate as allowed by the |
|---|
| 40 | 40 | | Internal Revenue Code. |
|---|
| 41 | 41 | | SECTION 2. The changes in law made by this Act apply only to |
|---|
| 42 | 42 | | a rate proceeding under Chapter 13, Water Code, that begins on or |
|---|
| 43 | 43 | | after the effective date of this Act. A rate proceeding that begins |
|---|
| 44 | 44 | | before the effective date of this Act is governed by the law in |
|---|
| 45 | 45 | | effect on the date the rate proceeding began, and the former law is |
|---|
| 46 | 46 | | continued in effect for that purpose. |
|---|
| 47 | 47 | | SECTION 3. This Act takes effect September 1, 2023. |
|---|