89R7774 JXC-F
By: Perry S.B. No. 1891
A BILL TO BE ENTITLED
AN ACT
relating to test years used for ratemaking purposes by certain
water and sewer utilities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter F, Chapter 13, Water Code, is amended
by adding Section 13.1831 to read as follows:
Sec. 13.1831. TEST YEAR. A regulatory authority shall 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:
(1) includes historic, future, or combined historic
and future data;
(2) begins on the first day of a calendar or fiscal
year quarter; and
(3) is a consecutive 12-month period that:
(A) begins not later than 18 months after the
date the utility files the statement of intent to change rates; and
(B) ends not earlier than 18 months before the
date the utility files the statement of intent to change rates.
SECTION 2. Section 13.183(a), Water Code, is amended to
read as follows:
(a) In fixing the rates for water and sewer services, the
regulatory authority shall fix its overall revenues at a level that
will:
(1) 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; and
(2) preserve the financial integrity of the utility.
SECTION 3. Section 13.184(a), Water Code, is amended to
read as follows:
(a) Unless the utility commission establishes alternate
rate methodologies in accordance with Section 13.183(c), the
utility commission may not prescribe 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. The
governing body of a municipality exercising its original
jurisdiction over rates and services may use alternate ratemaking
methodologies established by ordinance or by utility commission
rule in accordance with Section 13.183(c). Unless the municipal
regulatory authority uses alternate ratemaking methodologies
established by ordinance or by utility commission rule in
accordance with Section 13.183(c), it may not prescribe 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.
SECTION 4. Section 13.185, Water Code, is amended by
amending Subsections (b), (d), and (j) and adding Subsection (k) to
read as follows:
(b) Utility rates shall 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. The inclusion of construction
work in progress is an exceptional form of rate relief to be granted
only on the demonstration by the utility by clear and convincing
evidence that the inclusion is in the ratepayers' best interest and
is necessary to the financial integrity of the utility.
Construction work in progress may not be included in the rate base
for major projects under construction to the extent that those
projects have been inefficiently or imprudently planned or managed.
Original cost is the actual money cost or the actual money value of
any consideration paid, other than money, of the property at the
time it shall have been dedicated to public use, whether by the
utility that is the present owner or by a predecessor, less
depreciation. Utility property funded by explicit customer
agreements or customer contributions in aid of construction such as
surcharges may not be included in invested capital.
(d) Net income is the total revenues of the utility less all
reasonable and necessary expenses as determined by the regulatory
authority. The regulatory authority shall:
(1) base a utility's expenses on [historic] test year
information [adjusted for known and measurable changes], as
determined by utility commission rules; and
(2) determine expenses and revenues in a manner
consistent with Subsections (e) through (h) of this section.
(j) 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
explicit customer agreements or funded by customer contributions in
aid of construction. Depreciation on all [currently used and
useful] developer or governmental entity contributed property
shall be allowed in the cost of service.
(k) Notwithstanding Subsection (b), the regulatory
authority shall allow inclusion in the rate base of facilities
projected to be in service through the end of the test year.
SECTION 5. Section 13.002(22), Water Code, is repealed.
SECTION 6. The changes in law made by this Act apply only to
a rate proceeding that commences on or after the effective date of
this Act. A rate proceeding that commenced before the effective
date of this Act is governed by the law in effect on the date the
proceeding commenced, and that law is continued in effect for that
purpose.
SECTION 7. This Act takes effect September 1, 2025.