Texas House bill by Rep. Darby modifies water and sewer rate-setting procedures

Newly passed bill authored by State Rep. Drew Darby seeks to revise rate-setting methods for water and sewer utilities, aiming to ensure financial integrity and reasonable returns while updating calculation criteria, according to the Texas Legislature website.

In the House, 47 Democrats and 54 Republicans voted in favor of the bill, while seven Democrats and 31 Republicans opposed it.

Meanwhile, in the Senate, 10 Democrats and 16 Republicans voted in favor, while one Democrat and four Republicans voted against it.

Drew Darby introduced the bill in the Texas House on Wednesday, Feb. 12, during the 89th regular legislative session.

Darby, a Republican, was elected to the Texas State House in 2007 to represent the state’s 72nd House district, replacing previous state representative Scott Edward Campbell.

According to the Texas Legislature, the bill’s official text was summarized as follows: ‘Relating to test years used for ratemaking purposes by certain water and sewer utilities’.

The following is our breakdown, based on the actual bill text, and may include interpretation to clarify its provisions.

In essence, this bill modifies the procedures for setting rates for water and sewer services by allowing utilities to select a test year for calculating rates based on historic, future, or combined data. The selected test year must begin on the first day of a quarter and span a consecutive 12 months, starting no later than 18 months after the utility files for a rate change, and ending no earlier than 18 months before this filing. The bill requires rate calculations to ensure utilities can earn a reasonable return on investment, consider necessary operating expenses, and maintain financial integrity. Utility rates are to be based on the original cost of property used during the test year, with construction work in progress included only if demonstrably necessary for financial integrity. The bill also stipulates the exclusion of customer-funded property from invested capital and mandates that facilities expected to be in service by the end of the test year be accounted for. The bill takes effect Sept. 1, 2025, and applies to rate proceedings initiated on or after this date.

The bill received its final legislative approval on Wednesday, May 28, and was filed without the Governor’s signature on Friday, June 20.

Bills in Texas go through a multi-step legislative process, including committee review, debates, and votes in both chambers before reaching a final decision. Each session, there are typically thousands of bills introduced, but only a portion successfully navigate the process to become law.

You can read more about the bills and other measures here.