Water and Sewer Utility Rate Changes

by David J. Klein and Lauren A. Binger

Chapter 13 of the Texas Water Code (the “TWC”) bestows jurisdiction to the Public Utility Commission (“PUC”) to establish a regulatory system to regulate retail public utilities to assure rates, operations, and services are just and reasonable to the consumers and to the retail public utilities. PUC must also set a rate that maintains the financial integrity of the utility. A water or sewer utility may require a rate change for many different reasons including, but not limited to: imposition of tariffs, regular rate changes, surcharges, rate changes by a Class D utility, introduction of new customer classes, system improvement charges, cash needs method, and phased and multi-step rate changes.

The process with which a utility can change rates depends on the classification of the utility in the TWC. The TWC defines a “Retail Public Utility” as “any person, corporation, public utility, water supply or sewer service corporation, municipality, political subdivision or agency operating, maintaining, or controlling in this state facilities for providing potable water service or sewer service, or both, for compensation.” TWC § 13.002(19). Water service corporations, water districts and cities have elected board of directors or city council members that are responsible for setting the rates and service policies for their customers. PUC has appellate jurisdiction over the retail water, sewer and drainage fees charged by water service corporations, water districts (both inside and outside the water district’s corporate boundaries) and cities (outside the city’s corporate boundaries only). Municipal-owned utilities and political subdivisions do not have to initiate an application process at PUC in order to institute a rate change. Additionally, the TWC and PUC Rules do not have requirements for notice to ratepayers within a water district.

Alternatively, a specific class of Retail Public Utilities are investor-owned utilities (“IOUs”). IOUs provide retail water and sewer service outside the corporate limits of a city and must file with PUC to change their rates and service policies. There are different rate applications and filing requirements varying in complexity based on the number of connections served by the IOU. An IOU providing service inside the corporate limits of a city must file or apply with the city to change its rates and service policies unless the municipality has surrendered its jurisdiction over IOUs to PUC.¹

Ratepayers served by certain types of retail public utilities, including a water service corporation; water districts or river authority; IOU operating inside a city; municipal-owned utilities serving customers outside the city; county; and affected county (within 50 miles of the U.S.-Mexico border), may file an appeal in the form of a petition regarding the decision made by a retail public utility to change the water, sewer or drainage fees. The petition must be signed by the lesser of ten percent or 10,000 of the affected ratepayers (customers) eligible to appeal.

¹The following cities have surrendered jurisdiction over IOUs that serve inside their corporate limits to the PUC:

City of Coffee City ‒ effective 12/4/1993;
City of Nolanville ‒ effective 04/18/1996;
City of Aurora ‒ effective 04/04/1997;
City of Arcola ‒ effective 05/05/1998;
City of Waco ‒ effective 02/07/2012;
City of San Antonio ‒ effective 01/30/2014; and Village of Jones Creek ‒ effective 12/04/2014.

David Klein is a Principal in the Firm’s Districts and Water Practice Groups. Lauren Binger is an Associate in the Firm’s Districts and Water Practice Groups. If you would like additional information or have questions related to this article or other matters, please contact David at 512.322.5818 or dklein@lglawfirm.com, or Lauren at 512.322-5807 or lbinger@lglawfirm.com.