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

89(R) SB 1891 - Introduced version - Bill Text

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.