Relating to certain proceedings by the Public Utility Commission of Texas regarding water or sewer service, the official text

S.B. No. 740

AN ACT

relating to certain proceedings by the Public Utility Commission of

Texas regarding water or sewer service.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Sections 12.013(b) and (d), Water Code, are

amended to read as follows:

(b) In this section, "political subdivision" means

municipalities [incorporated cities, towns or villages], counties,

river authorities, water districts, and other special purpose

districts.

(d) The utility commission's jurisdiction under this

section relating to a municipality [incorporated cities, towns, or

villages] shall be limited to water furnished by the municipality

[such city, town, or village] to another political subdivision,

other than another municipality, on a wholesale basis.

SECTION 2. Section 13.002, Water Code, is amended by adding

Subdivision (16-a) to read as follows:

(16-a) "Public utility agency" means a public utility

agency created under Chapter 572, Local Government Code.

SECTION 3. Section 13.043, Water Code, is amended by adding

Subsection (f-1) and amending Subsection (j) to read as follows:

(f-1) Subsection (f) does not apply to a decision of a

municipality regarding wholesale water or sewer service provided to

another municipality.

(j) In an appeal under this section, the utility commission

shall ensure that every appealed rate is just and reasonable. Rates

shall not be unreasonably preferential, prejudicial, or

discriminatory but shall be sufficient, equitable, and consistent

in application to each class of customers. The utility commission

shall use a methodology that preserves the financial integrity of

the retail public utility. [For agreements between municipalities

the utility commission shall consider the terms of any wholesale

water or sewer service agreement in an appellate rate proceeding.]

SECTION 4. Section 13.183, Water Code, is amended by

amending Subsection (c) and adding Subsections (c-1), (c-2), (c-3),

and (c-4) to read as follows:

(c) To ensure that retail customers receive a higher

quality, more affordable, or more reliable water or sewer service,

to encourage regionalization, or to maintain financially stable and

technically sound utilities, the regulatory authority, by rule or

ordinance, as appropriate, may adopt specific alternative

ratemaking methodologies for water or sewer rates to allow for more

timely and efficient cost recovery. Appropriate alternative

ratemaking methodologies are the introduction of new customer

classes, the cash needs method, and phased and multi-step rate

changes. The regulatory authority may also adopt system

improvement charges that may be periodically adjusted to ensure

timely recovery of infrastructure investment. If the utility

commission is the appropriate regulatory authority, the utility

commission shall enter a final order on a request for a system

improvement charge under this subsection not later than the 60th

day after the date the utility commission determines that a

complete application for a system improvement charge has been

filed. The utility commission may extend the deadline for not more

than 15 days for good cause. The utility commission by rule shall

establish a schedule that requires all utilities that have

implemented a system improvement charge approved by the utility

commission to make periodic filings with the utility commission to

modify or review base rates charged by the utility. Overall

revenues determined according to an alternative ratemaking

methodology adopted under this section must provide revenues to the

utility that satisfy the requirements of Subsection (a). The

regulatory authority may not approve rates under an alternative

ratemaking methodology unless the regulatory authority adopts the

methodology before the date the rate application was

administratively complete.

(c-1) The utility commission shall by rule:

(1) establish the information required for an

application for a system improvement charge to be considered

complete by the utility commission under this section, which must

include the documentation listed in Subsection (c-2); and

(2) prescribe a standard form for an application to

the utility commission for a system improvement charge under

Subsection (c).

(c-2) An application for a system improvement charge under

Subsection (c) may not be considered complete by the utility

commission unless, to substantiate each claimed eligible cost of a

utility's eligible plant that is not already included in the

applying utility's rates, the application includes:

(1) receipts;

(2) invoices;

(3) contracts; or

(4) other documentation of eligible costs.

(c-3) An application for a system improvement charge under

Subsection (c) may not be considered complete by the utility

commission before the 30th day after the date the application is

filed with the utility commission.

(c-4) At the time an applicant files an application for a

system improvement charge under Subsection (c) with the utility

commission, the applicant shall provide a copy of the application

to the Office of Public Utility Counsel. The utility commission

shall allow the office to comment on the application not later than

the 30th day after the date the application is filed. The utility

commission shall provide to the office, at no cost and in electronic

form, any data related to the application held by the commission.

Information provided to the office under this subsection that is

confidential and not subject to disclosure by the utility

commission under Chapter 552, Government Code, or other law is

confidential and not subject to disclosure by the office.

SECTION 5. Section 13.301(l), Water Code, is amended to

read as follows:

(l) Notwithstanding any other provision of this section or

Section 13.302, the utility commission by rule shall adopt a [an

expedited] process to expedite an application for the acquisition

of the stock or ownership interest under Section 13.302, or of

assets under this section, of a utility in receivership under

Section 13.412, a utility in supervision under Section 13.4131, or

a utility in temporary management under Section 13.4132, and, if

applicable, its certificated service area, by a Class A or Class B

utility. The applicant must have been appointed as a temporary

manager or supervisor for the utility by the utility commission or

commission or have been appointed as a receiver for the utility at

the request of the utility commission or commission before filing

the application [that allows a person appointed by the utility

commission or commission under Section 13.4132 as a temporary

manager of a utility, utility in receivership, or utility in

supervision, who is also an operator of a Class A or Class B utility

to apply for utility commission approval of the person's

acquisition of the stock, ownership interest, or assets of the

temporarily managed and operated utility, utility in receivership,

or utility in supervision, its facilities, and, if applicable, its

certificated service area]. The [expedited] process must:

(1) waive public notice requirements regardless of

whether the applicant [person] elects to charge initial rates in

accordance with Section 13.3011 or use a voluntary valuation

determined under Section 13.305;

(2) require approval of the acquisition transaction if

the transaction is considered to be in the public interest; and

(3) provide that:

(A) the applicant's [person's] appointment is

considered sufficient to demonstrate adequate financial,

managerial, and technical capability for providing continuous and

adequate service to the service area to be acquired and any areas

currently certificated to the applicant [person]; and

(B) all used and useful invested capital and just

and reasonable operations and maintenance costs incurred by the

applicant [person] during the applicant's [person's] appointment as

temporary manager and operator of the utility, utility in

receivership, or utility in supervision to be acquired are

considered to be a regulatory asset for the applicant [person] and

are recoverable in the applicant's [person's] next comprehensive

rate proceeding or system improvement charge application.

SECTION 6. Subchapter H, Chapter 13, Water Code, is amended

by adding Section 13.3021 to read as follows:

Sec. 13.3021. SALES, TRANSFERS, AND MERGERS FOR CERTAIN

RETAIL PUBLIC UTILITIES. (a) The utility commission by rule shall

adopt an expedited process to authorize a municipally owned

utility, a county, a water supply or sewer service corporation, a

public utility agency, or a district or authority created under

Section 52, Article III, or Section 59, Article XVI, Texas

Constitution, to acquire the stock or ownership interest under

Section 13.302, or assets under Section 13.301, of a utility in

receivership under Section 13.412, a utility in supervision under

Section 13.4131, or a utility in temporary management under Section

13.4132, and, if applicable, its certificated service area, in the

manner provided by Sections 13.301 and 13.302.

(b) The municipally owned utility, county, water supply or

sewer service corporation, public utility agency, district, or

authority must have been appointed as a temporary manager or

supervisor for the utility by the utility commission or commission

or as a receiver for the utility at the request of the utility

commission or commission before filing an acquisition application

under this section.

(c) The process must:

(1) be based on the expedited process adopted under

Section 13.301(l), except for any aspects of the process that

cannot be applied to an entity over which the utility commission

does not have original rate jurisdiction;

(2) waive public notice requirements;

(3) require approval of the acquisition transaction if

the transaction is considered to be in the public interest; and

(4) provide that the municipally owned utility's,

county's, water supply or sewer service corporation's, public

utility agency's, district's, or authority's appointment is

considered sufficient to demonstrate adequate financial,

managerial, and technical capability for providing continuous and

adequate service to the service area to be acquired and any areas

currently certificated to the municipally owned utility, county,

corporation, public utility agency, district, or authority.

SECTION 7. Section 13.412(g), Water Code, is amended to

read as follows:

(g) Notwithstanding Section 64.021, Civil Practice and

Remedies Code, a receiver appointed under this section may be a

person, a municipally owned utility, a county, a water supply or

sewer service corporation, a public utility agency, or a district

or authority created under Section 52, Article III, or Section 59,

Article XVI, Texas Constitution, and may seek approval from the

utility commission and the commission to acquire the water or sewer

utility's facilities and transfer the utility's certificate of

convenience and necessity. The receiver must apply in accordance

with Subchapter H.

SECTION 8. Section 13.4132, Water Code, is amended by

amending Subsection (a) and adding Subsection (a-1) to read as

follows:

(a) The utility commission or the commission, after

providing to the utility notice and an opportunity to be heard by

the commissioners at a utility commission or commission meeting,

may authorize a willing person, municipally owned utility, county,

water supply or sewer service corporation, public utility agency,

or district or authority created under Section 52, Article III, or

Section 59, Article XVI, Texas Constitution, to temporarily manage

and operate a utility if the utility:

(1) has discontinued or abandoned operations or the

provision of services;

(2) has been or is being referred to the attorney

general for the appointment of a receiver under Section 13.412; or

(3) provides retail water or sewer utility service

through fewer than 10,000 taps or connections and violates a final

order of the commission by failing to:

(A) provide system capacity that is greater than

the required raw water or groundwater production rate or the

anticipated daily demand of the system;

(B) provide a minimum pressure of 35 pounds per

square inch throughout the distribution system under normal

operating conditions; or

(C) maintain accurate or properly calibrated

testing equipment or other means of monitoring the effectiveness of

a chemical treatment or pathogen inactivation or removal process.

(a-1) For the purposes of this section, a reference to a

person includes a municipally owned utility, county, water supply

or sewer service corporation, public utility agency, or district or

authority created under Section 52, Article III, or Section 59,

Article XVI, Texas Constitution.

SECTION 9. (a) The Public Utility Commission of Texas shall

adopt the rules required by Section 13.183(c-1), Water Code, as

added by this Act, not later than September 1, 2026.

(b) Section 13.183(c), Water Code, as amended by this Act,

and Section 13.183(c-2), Water Code, as added by this Act, apply

only to an application for system improvement charges received by

the Public Utility Commission of Texas on or after September 1,

2026. An application for system improvement charges received

before September 1, 2026, is governed by the law in effect on the

date the application is filed, and the former law is continued in

effect for that purpose.

SECTION 10. This Act takes effect September 1, 2025.

______________________________
______________________________

President of the Senate
Speaker of the House

I hereby certify that S.B. No. 740 passed the Senate on

March 24, 2025, by the following vote: Yeas 30, Nays 0; and that

the Senate concurred in House amendments on May 26, 2025, by the

following vote: Yeas 31, Nays 0.

______________________________

Secretary of the Senate

I hereby certify that S.B. No. 740 passed the House, with

amendments, on May 22, 2025, by the following vote: Yeas 144,

Nays 0, three present not voting.

______________________________

Chief Clerk of the House

Approved:

______________________________

Date

______________________________

Governor