HB2712 - Relating to test years used for ratemaking purposes by certain water and sewer utilities.

      H.B. No. 2712         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, Water Code, is amended by   amending Subsection (a) and adding Subsection (d) 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 .           (d)     For a utility that uses a future or combined historic   and future test year in a rate proceeding, if the regulatory   authority determines in the next rate proceeding for that utility   that the test year information used for the utility resulted in the   utility's rates yielding more than a fair return on the utility's   invested capital used and useful in rendering service to the   public, the regulatory authority shall require the utility to   refund to customers money collected in excess of a rate that would   have yielded a fair return during the period in which the excessive   rate was collected.          SECTION 4.  Section 13.185, Water Code, is amended by   amending Subsections (b), (d), and (j) and adding Subsections (k),   (l), and (m) 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.           (l)     A utility that selects a fully projected future test   year that meets the requirements of Section 13.1831(3)(A) shall:                 (1)     not later than the 30th day after the last day of   the last quarter of the test year, file with the regulatory   authority a statement that:                       (A)     describes the utility's actual results   experienced in the test year; and                       (B)     provides appropriate data to demonstrate the   accuracy of the estimates used for the test year; and                 (2)     serve a copy of the filing made under Subdivision   (1) on the parties of record in the rate proceeding in which the   final rate determination using the test year was entered.           (m)     A utility that does not have the results or data   required to be filed under Subsection (l) before the required   filing date shall:                 (1)     file a written notice with the regulatory   authority stating the date on which the results or data will be   available;                 (2)     serve a copy of the filing made under Subdivision   (1) on the parties described by Subsection (l)(2); and                 (3)     make the filing required under Subsection (l) as   soon as possible after the results or data are available.          SECTION 5.  Section 13.002(22), Water Code, is repealed.          SECTION 6.  (a) Not later than September 1, 2026, the Public   Utility Commission of Texas shall adopt rules necessary to   implement the changes in law made by this Act.          (b)  The changes in law made by this Act apply only to a rate   proceeding that commences on or after the effective date of the   rules described by Subsection (a) of this section. A rate   proceeding that commences before the effective date of the rules   described by Subsection (a) of this section 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.       ______________________________ ______________________________      President of the Senate Speaker of the House                   I certify that H.B. No. 2712 was passed by the House on May 6,   2025, by the following vote:  Yeas 135, Nays 13, 1 present, not   voting; and that the House concurred in Senate amendments to H.B.   No. 2712 on May 28, 2025, by the following vote:  Yeas 101, Nays 38,   1 present, not voting.     ______________________________   Chief Clerk of the House               I certify that H.B. No. 2712 was passed by the Senate, with   amendments, on May 23, 2025, by the following vote:  Yeas 26, Nays   5.     ______________________________   Secretary of the Senate      APPROVED: __________________                   Date                       __________________                 Governor