SB1891 - Relating to test years used for ratemaking purposes by certain water and sewer utilities.

  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.