Subchapter F. REQUESTS FOR RECONSIDERATION OR CONTESTED CASE HEARING

The Texas Natural Resource Conservation Commission (commission) proposes amendments to §116.110 and §116.730; new §116.773 and §116.915; and the repeal of §§116.11, 116.120 - 116.123, 116.125, and 116.126. The commission proposes these revisions to Chapter 116, Control of Air Pollution by Permits for New Construction or Modification, to implement certain requirements of House Bill (HB) 2912 (an act relating to the continuation and functions of the Texas Natural Resource Conservation Commission; providing penalties), 77th Legislature, 2001, regarding compliance history.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES AND REPEALS

HB 2912, §4.01, amended Texas Water Code (TWC), Chapter 5, Texas Natural Resource Conservation Commission, by adding Subchapter Q, Performance-Based Regulation. New Subchapter Q of TWC, §5.753, Standard For Evaluating Compliance History, requires the commission to "develop a uniform standard for evaluating compliance history." Section 5.754, Classification and Use of Compliance History, goes on to require the commission to "establish a set of standards for the classification of a person's compliance history."

The commission currently has procedures for preparation of compliance summaries for new source review (NSR) permit applications for air emissions under the authority of the Texas Health and Safety Code (THSC), Texas Clean Air Act, Chapter 382, and these components are specified in existing §116.122. These requirements are also referred to in existing §116.730 and §116.311. The associated procedures specify that a compliance summary shall cover five years and shall include the following compliance events and associated information involving the Texas facility that is the subject of the permit application: criminal convictions known to the commission and civil orders, judgments, and decrees; administrative enforcement orders; and compliance proceedings. For facilities with sites outside the State of Texas, the compliance summary shall include criminal convictions and civil judgments, administrative enforcement orders, and notices of violation issued by the United States Environmental Protection Agency (EPA). Furthermore, §116.122 specifies that violations of fugitive emission monitoring and recordkeeping requirements meeting certain criteria shall not be included in the compliance history.

30 TAC Chapter 60, Compliance History, §60.1, was adopted December 19, 2001 and published in the January 4, 2002 issue of the Texas Register (27 TexReg 191). Section 60.1 specifies the components to be considered in evaluating compliance history for permit decisions, as well as other specified types of authorizations, including licenses, certificates, registrations, approvals, permits by rule, standard permits, or other forms of authorization requiring agency approval, to implement the requirement of HB 2912, §4.01 to "develop a uniform standard for evaluating compliance history." New sections to Chapter 60 are being proposed concurrently in this issue of the Texas Register as part of this rulemaking to implement further requirements of HB 2912, §4.01 to establish rules for the classification and use of compliance history. HB 2912 limits the use of compliance history to programs under the jurisdiction of the commission under TWC, Chapters 26 and 27, and THSC, Chapters 361, 382, and 401. The commission proposes that Chapter 60 would be the one location in commission rules for compliance history requirements pertaining to programs under the jurisdiction of these chapters, and further that compliance history specifics currently provided for elsewhere in commission rules be deleted. For this reason, amendments to §116.110 and §116.730, the addition of new §116.773 and §116.915, and the repeal of §§116.11, 116.120 - 116.123, 116.125, and 116.126 are proposed. Other chapters of existing regulations (30 TAC Chapters 50, 55, 122, and 281) are being proposed concurrently in this issue of the Texas Register for modification as part of this rulemaking for similar reasoning.

The commission adopted a compliance period of five years in §60.1. The period of time will be based on the five-year period preceding the date the permit application is received by the executive director. According to HB 2912, §18.05, the agency must begin using the new components of compliance history for actions taken by the agency on or after February 1, 2002. Additionally, §18.05 specifies that classification and use rules, which are currently being proposed in Chapter 60, will apply in the consideration of compliance history for decisions by the agency relating to the issuance, amendment, modification, or renewal of permits under TWC, §§5.754, 26.028, 26.0281, 26.040, and 27.018, and THSC, §§361.084, 361.088, 361.089, 382.0518, 382.055, 382.056, 401.110, and 401.112, only to applications submitted on or after September 1, 2002; in the consideration of compliance history for actions taken by the agency relating to inspections and flexible permitting, effective September 1, 2002; and in the consideration of compliance history in decisions of the commission relating to the suspension or revocation of a permit or the imposition of a penalty in a matter under the jurisdiction of the commission, only to a proceeding that is initiated or an action that is brought on or after September 1, 2002. Use of compliance history for innovative programs (except flexible permits) and other forms of authorization will begin September 1, 2002. These applicability dates are specified in §60.1.

SECTION BY SECTION DISCUSSION

The proposed changes to this chapter would remove all references to compliance summaries and the components of compliance history as currently specified in this chapter, and would, where applicable, provide references to Chapter 60. The commission proposes these modifications because, in implementing certain requirements of HB 2912, it has created a new chapter to contain the regulations pertaining to compliance history. In order to avoid redundancy or confusion, the commission proposes to remove the compliance history discussion from this chapter.

The commission proposes to repeal existing §116.11, Compliance History Definitions. The definitions in this section, which apply to NSR permit applications submitted under THSC, Chapter 382, have been superceded by the components specified in §60.1, as well as the proposed new sections to Chapter 60 regarding classification and use of compliance history included in concurrent rulemaking. Therefore, it is appropriate to repeal §116.11 because it will no longer be relevant or applicable with the (previous) adoption of §60.1, coupled with the proposal of new §60.2 and §60.3, as part of this rulemaking.

The commission proposes to amend §116.110, Applicability. The proposed modification would add new §116.110(c) to reflect that compliance history reviews are required under Chapter 60 for certain authorizations listed in §116.110(a) and (b), or in §116.116 (relating to Changes to Facilities). This is a new requirement that must be added in response to implementation of HB 2912, §4.01 and is consistent with §60.1(a). As a result of this addition, existing subsections (c) - (f) of this section are lettered as subsections (d) - (g). No changes to the text of these subsections are proposed except for a minor formatting change in relettered subsection (d).

The commission proposes to repeal all sections in Division 2, Compliance History which are: §116.120, Applicability; §116.121, Exemptions; §116.122, Contents of Compliance History; §116.123, Effective Dates; §116.125, Preservation of Existing Rights and Procedures; and §116.126, Voidance of Permit Applications. The components of compliance history as identified in these existing sections, and which apply to permit applications submitted under THSC, Chapter 382, have been superceded by the components specified in §60.1, coupled with the proposed new sections of Chapter 60 regarding classification and use of compliance history included in concurrent rulemaking.

The commission proposes to amend §116.730, Compliance History. The proposed modification would change the reference to compliance history requirements in "§§116.120 - 116.126" which are proposed to be repealed through this rulemaking, to "Chapter 60" in order to accurately reflect the location of applicable compliance history requirements for flexible permit applications.

The commission proposes new §116.773, Compliance History, to reflect that compliance history evaluations are required under Chapter 60 for all permit reviews conducted under Subchapter H of this chapter. This is a new requirement that must be added in response to implementation of HB 2912, §4.01.

The commission proposes new §116.915, Compliance History, to reflect that compliance history evaluations are required under Chapter 60 for all permit reviews conducted under Subchapter I of this chapter. This is a new requirement that must be added in response to implementation of HB 2912, §4.01.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

John Davis, Technical Specialist with Strategic Planning and Appropriations, has determined that for each year of the first five-year period the proposed amendments are in effect, there may be significant fiscal implications to units of state and local government that renew or apply for NSR permits due to implementation of the proposed amendments. The proposed amendments require the commission to factor compliance history into decisions concerning NSR permits. Only those units of government that own or operate an affected site that receives a compliance history classification of poor, or sites that violate commission regulations on multiple occasions during the compliance history period, would potentially be fiscally impacted by the provisions in this rulemaking. Fiscal implications are not anticipated for all other units of state and local government due to implementation of the proposed amendments.

The proposed rulemaking is intended to make changes to the commission's NSR permit program rules in order to implement certain provisions of HB 2912. The bill requires the commission to develop a uniform standard for evaluating compliance history, to establish a set of standards for the classification of a person's compliance history, and to use compliance history classifications in certain commission decisions. In a concurrent rulemaking, the commission is proposing to establish the classification and use of the components of compliance history. The proposed amendments in this rulemaking are intended to replace existing compliance history provisions specified in the commission's NSR rules, and would, where applicable, provide references to compliance history requirements proposed in the concurrent Chapter 60 rulemaking.

A previous rulemaking established that the time period analyzed for compliance will be the five years prior to the date the permit application is received by the executive director; the five-year period preceding the date of initiating an enforcement action with an initial enforcement settlement offer or the filing date of an Executive Director's Preliminary Report, whichever occurs first; for purposes of determining whether an announced investigation is appropriate, the five-year period preceding an investigation; or the five years prior to the date the application for participation in an innovative program is received by the executive director. The compliance history period may be extended beyond the date the application for the permit or participation in an innovative program is received by the executive director, up through completion of review of the application.

The proposed amendments would require the commission to use the compliance history classification in commission decisions concerning new NSR permit applications, renewals, and amendments. Only those sites classified as poor would be potentially fiscally impacted by the proposed amendments. The overall effect on sites classified as poor performers is anticipated to vary widely, depending on the site and the overall compliance with commission regulations.

The commission anticipates that the number of units of state and local government that will be impacted economically due to implementation of the proposed amendments will be very small, if any. The commission already reviews compliance history for many NSR permits. The total number of sites with existing NSR permits is unknown. The commission currently processes approximately 900 new NSR permits, 350 NSR permit amendments, and 150 NSR permit renewals annually, some of which are submitted by units of state and local government. The commission estimates that only a very small number of NSR permit applicants are anticipated to be classified as poor performers. Of these, very few, if any, will be units of state and local government. For those units of government with sites classified as poor, the overall costs resulting from implementation of the proposed amendments are expected to vary for each site, depending on additional permit provisions required by the commission.

The following costs are only provided as examples, because there are so many variables which could affect the costs, including: the type of site and the statutes and regulations it is regulated under; the size of the site; whether more stringent permit provisions are specified or the permit is denied, suspended, or revoked; and what costs may be reduced at the same time other costs are incurred as a result of modifications to, or denial, suspension, or revocation of permits. For units of government that are required to convene a permit hearing, the commission estimates the cost to affected units of government would be approximately $30,000 per permit. If the commission requires a site to renew its permit every two years instead of every five years, the affected site would have to pay an extra $10,000 in permit renewal fees. If the commission decides to revoke a permit, the revocation proceeding will cost the affected site approximately $50,000 for each revoked permit. If the commission decides to require additional monitoring systems for a large combustion source for sulfur dioxide (SO ₂ ), nitrogen oxides (NOx ), and oxygen (O ₂ ), the cost is estimated to range between $100,000 to $150,000. If the commission denies approval of a permit application, the applicant may have to resubmit the permit with additional information. All of these examples are worst-case scenarios. The commission intends to work closely with each site rated as a poor performer to try to raise the classification of the site utilizing options intended to minimize compliance costs.

In addition to permit-related costs, the proposed amendments may result in increased costs from enforcement penalties for sites with multiple regulatory violations during the compliance period. The proposed amendments would double the administrative penalty enhancement based on compliance history for a repeat violator, although the statutory maximums, which range from $2,500 to $10,000 per day per violation, would not be exceeded.

PUBLIC BENEFITS AND COSTS

Mr. Davis has also determined for each of the first five years the proposed amendments are in effect, the public benefit anticipated as a result of implementing the proposed amendments will be potentially increased environmental protection by linking a site's historical environmental performance with future authorizations provided by the commission.

The proposed rulemaking is intended to make changes to the commission's NSR permit program rules in order to implement certain provisions of HB 2912. The bill requires the commission to develop a uniform standard for evaluating compliance history, to establish a set of standards for the classification of a person's compliance history, and to use compliance history classifications in certain commission decisions. In a concurrent rulemaking, the commission is proposing to establish the classification and use of the components of compliance history. The proposed amendments in this rulemaking are intended to replace existing compliance history provisions specified in the commission's NSR rules, and would, where applicable, provide references to compliance history requirements proposed in the concurrent Chapter 60 rulemaking.

The proposed amendments would require the commission to use the compliance history classification in commission decisions concerning new NSR permit applications, renewals, and amendments. Only those sites classified as poor would be potentially fiscally impacted by the proposed amendments. The overall effect on sites classified as poor performers is anticipated to vary widely, depending on the site and the overall compliance with commission regulations.

The commission anticipates that the number of individuals and businesses that will be impacted economically due to implementation of the proposed amendments will be very small. The commission already reviews compliance history for many NSR permits. The total number of sites with existing NSR permits is unknown. The commission currently processes approximately 900 new NSR permits, 350 NSR permit amendments, and 150 NSR permit renewals annually, some of which are submitted by individuals and businesses. The commission estimates that only a very small number of NSR permit applicants are anticipated to be classified as poor performers. For those sites classified as poor, the overall costs resulting from implementation of the proposed amendments are expected to vary for each site, depending on additional permit provisions required by the commission.

The following costs are only provided as examples, because there are so many variables which could affect the costs, including: the type of site and the statutes and regulations it is regulated under; the size of the site; whether more stringent permit provisions are specified or the permit is denied, suspended, or revoked; and what costs may be reduced at the same time other costs are incurred as a result of modifications to, or denial, suspension, or revocation of permits. For businesses that are required to convene a permit hearing, the commission estimates the cost to affected businesses would be approximately $30,000 per permit. If the commission requires a site to renew its permit every two years instead of every five years, the affected site would have to pay an extra $10,000 in permit renewal fees. If the commission decides to revoke a permit, the revocation proceeding will cost the affected site approximately $50,000 for each revoked permit. If the commission decides to require additional monitoring systems for a large combustion source for SO ₂ , NO _x , and O2 , the cost is estimated to range between $100,000 to $150,000. If the commission denies approval of a permit application, the applicant may have to resubmit the permit with additional information. All of these examples are worst-case scenarios. The commission intends to work closely with each site rated as a poor performer to try to raise the classification of the site utilizing options intended to minimize compliance costs.

In addition to permit-related costs, the proposed amendments may result in increased costs from enforcement penalties for sites with multiple regulatory violations during the compliance period. The proposed amendments would double the administrative penalty enhancement based on compliance history for a repeat violator, although the statutory maximums, which range from $2,500 to $10,000 per day per violation, would not be exceeded.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

There may be adverse fiscal implications, which could be significant, for small or micro- businesses due to implementation of the proposed amendments, which are intended to make changes to the commission's NSR permit program rules in order to implement certain provisions of HB 2912. The bill requires the commission to develop a uniform standard for evaluating compliance history, to establish a set of standards for the classification of a person's compliance history, and to use compliance history classifications in certain commission decisions. In a concurrent rulemaking, the commission is proposing to establish the classification and use of the components of compliance history. The proposed amendments in this rulemaking are intended to replace existing compliance history provisions specified in the commission's NSR rules, and would, where applicable, provide references to compliance history requirements proposed in the concurrent Chapter 60 rulemaking.

The proposed amendments would require the commission to use the compliance history classification in commission decisions concerning new NSR permit applications, renewals, and amendments. Only those sites classified as poor would be potentially fiscally impacted by the proposed amendments. The overall effect on sites classified as poor performers is anticipated to vary widely, depending on the site and the overall compliance with commission regulations.

The commission anticipates that the number of small and micro-businesses that will be impacted economically due to implementation of the proposed amendments will be very small. The commission already reviews compliance history for many NSR permits. The total number of sites with existing NSR permits is unknown. The commission currently processes approximately 900 new NSR permits, 350 NSR permit amendments, and 150 NSR permit renewals annually, some of which are submitted by small and micro-businesses. The commission estimates that only a very small number of NSR permit applicants are anticipated to be classified as poor performers. For those sites classified as poor, the overall costs resulting from implementation of the proposed amendments are expected to vary for each site, depending on additional permit provisions required by the commission.

The following costs are only provided as examples, because there are so many variables which could affect the costs, including: the type of site and the statutes and regulations it is regulated under; the size of the site; whether more stringent permit provisions are specified or the permit is denied, suspended, or revoked; and what costs may be reduced at the same time other costs are incurred as a result of modifications to, or denial, suspension, or revocation of permits. For businesses that are required to convene a permit hearing, the commission estimates the cost to affected units of government would be approximately $30,000 per permit. If the commission requires a site to renew its permit every two years instead of every five years, the affected site would have to pay an extra $10,000 in permit renewal fees. If the commission decides to revoke a permit, the revocation proceeding will cost the affected site approximately $50,000 for each revoked permit. If the commission decides to require additional monitoring systems for a large combustion source for SO ₂ , NO _x , and O2 , the cost is estimated to range between $100,000 to $150,000. If the commission denies approval of a permit application, the applicant may have to resubmit the permit with additional information. All of these examples are worst-case scenarios. The commission intends to work closely with each site rated as a poor performer to try to raise the classification of the site utilizing options intended to minimize compliance costs.

In addition to permit-related costs, the proposed amendments may result in increased costs from enforcement penalties for sites with multiple regulatory violations during the compliance period. The proposed amendments would double the administrative penalty enhancement based on compliance history for a repeat violator, although the statutory maximums, which range from $2,500 to $10,000 per day per violation, would not be exceeded.

The following is an analysis of the costs per employee for small and micro-businesses that are required to install additional monitoring systems at a large combustion source to comply with the proposed amendments. Small and micro-businesses are defined as having fewer than 100 or 20 employees respectively. A small business that is required by the commission to install additional monitoring systems would have to pay up to an additional $1,500 per employee to comply with the proposed amendments. A micro-business that is required by the commission to install additional monitoring systems would have to pay up to an additional $7,500 per employee to comply with the proposed amendments. Since the proposed amendments could result in a number of different potential costs for affected small and micro-businesses, this example was chosen because it is one of the most costly.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission has reviewed this proposed rulemaking and determined that a local employment impact statement is not required because the proposed amendments do not adversely affect a local economy in a material way for the first five years that the proposed amendments are in effect.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission has reviewed the proposed rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking is not subject to §2001.0225 because the proposed rules do not meet the definition of a "major environmental rule" as defined in that statute. Although the intent of these rules is to protect the environment and reduce the risk to human health from environmental exposure, they are not "major environmental rules" because they do not adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The rules will not adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state because the proposed rules merely establish the standards for the classification and use of a person's compliance history. The requirements of establishing standards for the classification and use of a person's compliance history are contained in TWC, §5.754. The reason there is no adverse effect in a material way on the environment, or the public health and safety of the state or a sector of the state is because the proposed rules are designed to protect the environment, the public health, and the public safety of the state and all sectors of the state. Furthermore, the proposed rules do not meet any of the four applicability requirements listed in §2001.0225(a). The proposed rules do not exceed a standard set by federal law, because there is no comparable federal law. The proposed rules do not exceed an express requirement of state law, because they are consistent with the requirements of TWC, §5.754. The proposed rules do not exceed the requirements of a delegation agreement because there is no applicable delegation agreement. The rules are not proposed to be adopted solely under the general powers of the agency, but will be adopted under the express requirements of TWC, §5.754.

The commission invites public comment on the draft regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

The commission has prepared a takings impact assessment for these proposed rules in accordance with Texas Government Code, §2007.043. The specific purpose of the proposed rules is to establish a set of standards for the classification and use of a person's compliance history, as required by TWC, §5.754. Promulgation and enforcement of these proposed rules would not affect private real property which is the subject of the rules because the proposed rules set forth the standards for the classification and use of a person's compliance history, as required by TWC, §5.754. The subject proposed rules do not affect a landowner's rights in private real property.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that this proposed rulemaking is identified in, or will affect an action/authorization identified in, the Coastal Coordination Act Implementation Rules, 31 TAC §505.11 and will, therefore, require that applicable goals and policies of the Texas Coastal Management Program (CMP) be considered during the rulemaking process.

The commission prepared a preliminary consistency determination for the proposed rulemaking under 31 TAC §505.22 and found the proposed rulemaking is consistent with the applicable CMP goals and policies. The CMP goal applicable to the proposed rulemaking is §501.12(1), the goal to protect, preserve, restore, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas. No new sources of air contaminants will be authorized and the proposed revisions will maintain the same level of emissions control as the existing rules. The CMP policy applicable to this rulemaking action is §501.14(q), the policy that commission rules comply with regulations in 40 Code of Federal Regulations, to protect and enhance air quality in the coastal areas. This rulemaking action has been conducted consistent with THSC, Chapter 382.

The commission solicits comment on the consistency of the proposed rulemaking with applicable CMP goals and policies.

ANNOUNCEMENT OF HEARING

A public hearing on this proposal will be held in Austin on May 1, 2002, at 2:00 p.m. at the commission's central office, Building E, Room 201S, located at 12100 Park 35 Circle. The hearing will be structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order of registration. There will be no open discussion during the hearing; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearing and will answer questions before and after the hearing.

Persons with disabilities who have special communication or other accommodation needs, who are planning to attend a hearing, should contact the Office of Environmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as far in advance as possible.

SUBMITTAL OF COMMENTS

Comments may be submitted to Lola Brown, Office of Environmental Policy, Analysis, and Assessment, MC 205, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512) 239-4808. Comments must be received by 5:00 p.m., May 2, 2002, and should reference Rule Log Number 2001-071-060-AD. For further information, please contact Debra Barber, Policy and Regulations Division, at (512) 239-0412.

Subchapter A. DEFINITIONS

Subchapter B. PERMIT REQUIREMENTS

Subchapter A. GENERAL PERMITS FOR WASTE DISCHARGES

Subchapter A. APPLICATIONS PROCESSING

Subchapter A. WATER CONSERVATION PLANS

The Texas Natural Resource Conservation Commission (commission) proposes amendments to Subchapter A, General Provisions , §291.8; Subchapter B, Rates, Rate Making, and Rates/Tariff Changes , §§291.21, 291.22, 291.24, 291.26, 291.28, 291.29, 291.31, 291.32, and 291.34; Subchapter E, Customer Service and Protection , §§291.81, 291.82, 291.85, 291.87, and 291.88; Subchapter G, Certificates of Convenience and Necessity , §291.113; and Subchapter H, Utility Submetering and Allocation , §291.122 and §291.127.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES

The commission proposes these revisions to Chapter 291 in order to implement legislation from the 77th Legislature, 2001.

House Bill (HB) 924 and Senate Bill (SB) 1444, 77th Legislature, 2001, amended Texas Water Code (TWC), §49.218, Acquisition of Property, by adding subsection (d) specifying the conditions under which a water district or water supply corporation may require the grant of an easement as a precondition of service.

HB 2404, 77th Legislature, 2001, amended TWC, §13.502, Submetering, by adding subsections (b) - (e). The new provisions require the installation of submeters owned by the property owner or manager, or individual meters owned by the retail public utility, for any construction of an apartment house, a manufactured home rental community, a multiple use facility, or a condominium (referred to jointly as "facilities") which begins after January 1, 2003. This section requires that if an owner or manager chooses to charge for water, the owner or manager must do so in the form of submetering or metering in facilities constructed after January 1, 2003. The section provides an exception for government assisted or subsidized housing facilities for low or very low income residents by only requiring them to install a plumbing system that is compatible with the installation of submeters as opposed to requiring that they install submeters or charge for water on a submetered or metered basis. The section also requires a retail public utility, upon the request of an owner or manager of a facility, to install individual meters owned by the retail public utility unless the utility determines that the installation of meters is not feasible, in which case the owner or manager is required to install a plumbing system that is compatible with the installation of submeters or individual meters. The section allows the owner of any of these facilities to change from submetered to allocated billing only in certain situations. This legislation also amended TWC, Chapter 13, Subchapter M, Submetering and Nonsubmetering for Apartments and Manufactured Home Rental Communities and Other Multiple Use Facilities, by adding §13.506, Plumbing Fixtures, to require the owner of an apartment house, a manufactured home rental community, a multiple use facility, or a condominium which begins construction after January 1, 2003, to meet standards prescribed by Texas Health and Safety Code (THSC), §372.002, before billing tenants for submetered or allocated water service.

HB 2912, §3.10, 77th Legislature, 2001, amended TWC, §13.187, Statement of Intent to Change Rates; Hearing; Determination of Rate Level, by amending subsection (a) to increase the number of days required for a notice involving a Statement of Intent to Change Rates (SICR).

HB 2912, §20.01, 77th Legislature, 2001, amended TWC, Chapter 13, Subchapter K, Violations and Enforcement, by adding §13.4115, Action to Require Adjustment to Consumer Charge; Penalty, to allow the commission to issue an order and assess penalties if a public utility fails to make an adjustment to a customer's bill.

SB 2, §2.53, 77th Legislature, 2001, provides, in part, groundwater conservation districts (GWCDs) with the authority to collect production fees based on the amount of water withdrawn from a well, not to exceed $10 per acre foot of water used for any purpose (not including agricultural uses).

SB 2, Article 9, 77th Legislature, 2001, amended TWC, Chapter 13, Subchapter G, Certificates of Convenience and Necessity, by adding §13.2541, to allow a municipality with a population of more than 1.3 million to request that the commission revoke a public utility's certificate of convenience and necessity under certain situations.

SB 2, §10.01, 77th Legislature, 2001, amended TWC, §13.137(a), Office and Other Business Locations of Utility; Records; Removal from State, to require every utility to have a business location where customers can make payment to prevent disconnection or restore service in every county in which the utility provides service or not more than 20 miles from the residence of any residential customer; or to increase the number of days before a bill can be considered overdue if the executive director has granted an exception to this requirement.

SB 2, §10.03, 77th Legislature, 2001, amended TWC, Subchapter E, Records, Reports, Inspections, Rate, and Schedules, by adding §13.145, Multiple Systems Consolidated Under Tariff, to allow a utility to consolidate multiple systems under a single tariff only if the utility meets certain requirements.

SB 2, §10.04, 77th Legislature, 2001, amended TWC, §13.182, Just and Reasonable Rates, by adding subsection (d), which requires the commission to establish, by rule, a preference that rates under a consolidated tariff be consolidated by region. These regions are to be determined on a case-by-case basis.

SB 2, §10.05, 77th Legislature, 2001, amended TWC, §13.183, Fixing Overall Revenues, by adding affordability as a factor for the commission to consider in adopting alternative ratemaking methodologies.

SB 2, §10.06, 77th Legislature, 2001, amended TWC, §13.187, Statement of Intent to Change Rates; Hearing; Determination of Rate Level, to increase the number of days required for a notice involving an SICR and by adding information that must be included on the SICR; to increase the number of days after the effective date of the rate change for customer protest; to allow the regulatory authority to suspend the date of the rate change if the regulatory authority receives the number of complaints necessary to set a hearing; and to allow the regulatory authority to require the utility to refund money collected under the proposed rate.

SB 2, §10.07, 77th Legislature, 2001, amended TWC, Subchapter I, Relations with Affiliated Interests, by adding §13.343, Wholesale Water Contracts between Certain Affiliates, to restrict the purchase of wholesale water service from an affiliated supplier except in certain cases and to restrict the purchase of groundwater from any provider in a priority groundwater management area where a wholesale supply of surface water is available.

SB 352, 77th Legislature, 2001, amended THSC, §364.034, to allow fee collection for solid waste disposal services by an entity other than the public agency or county providing the services and to allow the termination of other utility services provided by the collecting entity if bills are not paid. A provision excluding anyone who has solid waste disposed by another service provider from being covered by the section (including the requirement to use the services of the public agency or county for solid waste disposal) is also included.

SECTION BY SECTION DISCUSSION

Section 291.8, Administrative Completeness

The proposed amendment to subsection (b) would increase from 30 days to 60 days the time lapse for a rate change to become effective after proper public notice is made of the rate change. This amendment is proposed in accordance with HB 2912, §3.10, and SB 2, §10.06.

Section 291.21, Form and Filing of Tariffs

The proposed amendment to §291.21 encompasses several changes. Per SB 352 provisions, subsection (a) is proposed to be amended both to allow a utility to enter into a contract with a county or other public agency to collect fees for solid waste disposal services provided by the county or public agency and to allow the fees to be included on the bills to customers for the water service provided by the utility. Subsection (b)(2)(A)(viii) is proposed to facilitate the collection from customers of production fees charged by a GWCD to utilities. Subsection (h)(1) is also proposed to be amended by removing language which requires a utility to submit a rate change application in order to pass on GWCD production fees to its customers. Subsection (k)(2) is proposed to be replaced with new language to clarify the existing types of cost increases that can be passed on to customers as surcharges without being specifically listed in the tariff and to add GWCD production fees as another type of cost that may be recovered through a surcharge. This proposed amendment provides regulatory consistency because the executive director may already allow a utility to recover other types of regulatory assessment fees either through a minor tariff change or surcharge. Requiring a utility to submit a rate/tariff change application in order to recover a GWCD production fee from its customers would be overly burdensome because the utility does not have any control over the amount of the fee or whether to pay the fee.

Section 291.22, Notice of Intent to Change Rates

The proposed amendment to §291.22(a) adds new paragraphs (3) and (4) to describe additional information needed on public notices for rate changes, and the subsequent paragraph is renumbered to paragraph (5). Per SB 2, §10.06 provisions, the proposed amendments to subsections (a) and (c) - (e) would change the number of days by which a utility must provide notice of a proposed rate change from 30 to 60 days prior to the proposed effective date.

Section 291.24, Jurisdiction Over Affiliated Interests

The proposed amendment to §291.24 would designate the existing language as subsection (a) and propose a new subsection (b) to incorporate provisions from SB 2, §10.07(a), which cover restrictions on any contract to purchase water that is made between a water utility and an affiliated wholesaler.

Section 291.26, Suspension of Rates

Per SB 2, §10.06(k) provisions, new subsection (c) is proposed to be added to §291.26. The new subsection would allow the commission to suspend the effective date of a rate change for up to 150 days if the required number of complaints from customers for a contested case hearing are received.

Section 291.28, Action on Notice of Rate Change by Ratepayers Pursuant to Texas Water Code, §13.187(b)

Per SB 2, §10.06(e) provisions, the time in §291.28(1) for customers to file complaints about rate changes is proposed to be increased from 60 days to 90 days.

Section 291.29, Interim Rates

Per SB 2, §10.06(n) provisions, a new subsection (c) is proposed, and the subsequent subsections are relettered. New §291.29(c) would allow the commission to require for good cause a utility to refund money to customers in cases where rate changes were delayed. Per SB 2, §10.06(o) provisions, existing subsection (i) is proposed to be deleted so as to remove the requirement that the commission make a final rate determination within 335 days after the effective date of setting interim rates or escrowed rates.

Section 291.31, Cost of Service

Per SB 2, §10.07(b) provisions, subsection (b)(2)(J) is proposed to be added to show that costs of purchasing groundwater from any source in a priority groundwater management area are not allowed as a component of cost of service if a wholesale supply of surface water is available.

Section 291.32, Rate Design

Per SB 2, §10.03 provisions, new subsections (e) and (f) are proposed to be added to §291.32 to provide for consolidating multiple water systems under one tariff and rate design.

Section 291.34, Alternative Rate Methods

Per SB 2, §10.05 provisions, subsection (a) is proposed to be amended to allow the commission to consider the affordability of rates when adopting alternative ratemaking methodologies.

Section 291.81, Customer Relations

Per SB 2, §10.01 provisions, the proposed amendment to subsection (d) requires that an office for customers to pay bills must be in each county where water service is provided or no more than 20 miles from any residential customer served if there is not an office in the same county. This requirement may be waived by the executive director upon request by the utility if such request demonstrates that the requirement would cause a rate increase or otherwise harm or inconvenience customers.

Section 291.82, Resolution of Disputes

The proposed amendment to §291.82 would place the existing language into proposed new subsection (a) and add a new subsection (b) to implement changes from HB 2912, §20.01 provisions. These amendments allow the commission to issue orders requiring utilities to make adjustments if the executive director, in response to a customer complaint arising out of a charge made by a utility, finds that a utility has failed to make the proper adjustment to a customer's bill after completion of the complaint process.

Section 291.85, Response to Requests for Service by a Retail Public Utility Within Its Certificated Area

The proposed amendment to subsection (d), concerning easements, divides the existing language into paragraphs (1) and (2) for clarity. Amendments to this section are also proposed to limit its applicability to retail public utilities other than districts and water supply corporations. Texas Water Code, §49.218 establishes the conditions under which districts and water supply corporations may require easements. For clarity, the term "and/or" is being replaced with "or" in paragraphs (1) and (2).

Section 291.87, Billing

The proposed amendment to §291.87(b), places the existing rule language into proposed new paragraph (1) and proposes a new paragraph (2) with new rule language to implement SB 2, §10.01(b). The proposed new language provides that if a utility has been granted an exemption from having a local office in part of its service area, the due date of bills for service must be at least 30 days after issuance. Based on SB 352, a new provision is proposed to be added to subsection (e)(3) to allow solid waste disposal fees collected under contract with a county or other public agency to be included on bills for water service.

Section 291.88, Discontinuance of Service

Based on SB 352 provisions, two changes are proposed in §291.88. The proposed amendment to subsection (a)(2)(F) is added to allow disconnection of water service if payment is not made after a utility sends a bill for solid waste disposal fees charged by a county or other public agency. Subsection (h)(2)(D) is proposed as new language to specify that a fee cannot be charged for reconnecting water service after disconnection solely for failure to pay for solid waste disposal fees collected by the utility.

Section 291.113, Revocation or Amendment of Certificate

Based on SB 2, §9.01 provisions, new subsections (i) - (m) are proposed to be added to §291.113 These cover the potential for certain municipalities to request that the commission revoke a certificate of public convenience and necessity if a utility has failed to provide continuous and adequate service, has been grossly or continuously mismanaged, or has grossly or continuously not complied with applicable laws, rules, or orders. If the certificate is revoked, the municipality must operate the decertified utility during an interim period while waiting for the commission to transfer the certificate of public convenience and necessity and to approve the municipality's acquisition of the decertified utility's facilities. The monetary amount to be paid for the facilities will be determined by a qualified individual or firm acting as an independent appraiser who is agreed upon by the utility and municipality. The appraiser's fee must be paid by the municipality. The appraiser must refer to Texas Property Code, Chapter 21 to determine the value of real property. The commission must determine if the compensation to the utility from the municipality will be in a lump sum or paid over a specified period of time.

Section 291.122, Owner Registration and Records

The proposed amendment to §291.122 adds new subsections (b) - (d), and the subsequent subsections are relettered. New subsection (b) would require the manager of condominiums and the owners of apartment houses, manufactured home rental communities, or multiple use facilities, on which construction begins after January 1, 2003, to provide individual meters or submeters to measure the amount of water used in each unit. New subsection (c) requires the owners of apartment houses constructed on or after January 1, 2003, which provide government assisted or subsidized rental housing, to install plumbing systems that are compatible with the installation of submeters. New subsection (d) would require that, upon request of the property owner or manager, a public utility install at a reasonable charge individual meters in the types of multi-family residences above, unless this action is not feasible. If the installation is not feasible for the utility, the owner or manager must install a plumbing system that is compatible with the installation of submeters or individual meters.

Section 291.127, Submeters

Section 291.127 is proposed to be renamed as "Submeters and Plumbing Fixtures" and the new requirements for plumbing fixtures in HB 2404 are proposed within this section. The existing requirements for submeters are grouped in proposed new subsection (a), and the plumbing fixture requirements are in proposed new subsection (b). The proposed new plumbing fixture subsection would require that after January 1, 2003, prior to billing tenants for water service, an owner or manager must: 1.) meet the standards for all sink and lavatory faucets, faucet aerators and showerheads prescribed in THSC, §372.002; 2.) perform water leak audits on all dwelling units and common areas and repair all leaks; and 3.) within one year of the date that the billing starts, replace toilets exceeding the maximum flow rate of 3.5 gallons per flush (gpf) with 1.6-gallon toilets meeting the standards in THSC, §372.002. These requirements would not apply to manufactured home rental community owners who do not own the manufactured homes on the property.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

Jeffrey Horvath, Analyst with Strategic Planning and Appropriations, determined that for the first five-year period the proposed amendments are in effect, no significant fiscal implications are expected for the agency or other units of state and local government. However, there may be fiscal implications, which may be significant, for owners of apartment houses, manufactured home rental communities, multiple use facilities, managers of condominiums, and renters of these facilities due to the implementation of the proposed amendments.

The proposed amendments implement certain provisions of several bills, including: HBs 924, 2404, and 2912; SBs 2 and 352, 77th Legislature, 2001.

The proposed amendments which implement certain provisions of HB 2912 increase the number of days required for a rate change proposed by a water or sewer utility to become effective after proper public notice from 30 to 60 days. They also allow the commission to issue orders requiring utilities to make adjustments to customers' bills if, in response to a customer complaint regarding charges made by a water or sewer utility, the agency finds that the utility has failed to make the proper adjustment to a customer's bill after completion of the complaint process. These changes are designed to allow additional time for customers to become aware of proposed rate changes and provide incentives for water and sewer utilities to address customer billing complaints in order to avoid potential administrative penalties. These proposed amendments are not expected to result in significant fiscal implications for the agency or for affected water or sewer utilities as the utilities are anticipated to begin the rate change process earlier to accommodate the additional 30-day period, and a consumer billing complaint process is currently in place at the agency.

The proposed amendments would implement certain provisions of HB 2404 by doing the following things. First, for apartment houses, manufactured home rental communities, multiple use facilities, or condominiums (facilities) that begin construction on or after January 1, 2003, the owner or manager must provide for the measurement of the quantity of water consumed by the occupants of each unit through either the use of submeters owned by the property owner or manager; or individual meters owned by the retail public utility. Second, after January 1, 2003, before the owner or manager of one of these facilities may implement a program to bill tenants for submetered or allocated water use, the owner or manager must install plumbing fixtures which meet certain water saving performance standards and have a water leak audit performed and repair any leaks.

Under the proposed amendments, a retail public utility, upon the request of an owner or manager of a facility, would be required to install individual meters owned by the retail public utility unless the utility determines that the installation of meters is not feasible, in which case the owner or manager is required to install a plumbing system that is compatible with the installation of submeters or individual meters. A retail public utility would be allowed to charge reasonable costs to install the meters. The proposed submetering requirements would provide an exception for government assisted or subsidized housing to low or very low income residents in that facilities would only be required to install a plumbing system that is compatible with the installation of submeters, but not required to install submeters or charge for water on a submetered or metered basis.

Managers or owners of affected facilities would incur costs for the installation of submeters with compatible plumbing systems. According to recent estimates from the Comptroller's Office, there will be an estimated 48,000 multi-family housing starts in the year 2003, rising to approximately 61,000 in 2008. It is not known how many of these projected housing starts will be subject to the proposed amendments, but it could be assumed that most, if not all of them, would be. It is estimated that the cost of installing a meter ranges from $175 to $200. If an individual meter is installed by the retail public utility, the estimated cost of a meter is also estimated to be between $175 and $200. There would also be costs for the additional plumbing that would be necessary to accommodate the submetering or metering system in the newly constructed buildings. Costs would vary depending upon the size and types of dwellings and the additional pipe and other plumbing necessary for the installation of the meters. It has been estimated that submetered water service could reduce water consumption in multi-family housing units by an estimated 10% to 30%. Assuming there are 48,000 new multi-family housing units constructed in the year 2003, and an estimated cost of $200 for installing each meter, costs would be estimated at $9.6 million for the year. It is estimated that these costs would increase each year for the first five years. Assuming 61,000 new multi-family housing units were constructed in the year 2008, costs would be estimated to rise to $12.2 million for that year.

After January 1, 2003, those owners of apartment houses, manufactured home rental communities, multiple use facilities, or managers of condominiums who implement submetered or allocated water use billing for their tenants, must have water efficient plumbing fixtures installed. The proposed amendments would include the required removal of toilets that exceed 3.5 gpf and replacing them with a maximum 1.6 gpf toilet. The proposed amendments would also require the replacement or installation of water saving sink or lavatory faucets, faucet aerators, and shower heads. It is assumed that most facilities would not implement a submetered or allocated water use billing system after January 1, 2003 unless they had the required plumbing fixtures in place. Newly constructed facilities with metered or submetered systems would have to install water saving fixtures, but the difference in costs between these fixtures and others is not anticipated to be significant. For those facilities that do implement a submetered or allocated water use billing system after the deadline, they will have to ensure that the required plumbing fixtures are in place. Excluding installation costs, the toilets are estimated to cost between $75 and $150 with the faucets, aerators, and shower heads also estimated to cost between $75 and $150. The commission anticipates that renters will be required to pay for the cost of water use as a result of this rulemaking in new apartments constructed after 2003. However, the commission has made no estimate of the cost to renters as a result of this rulemaking because it is not known how these provisions may affect the rents charged by apartment owners and managers.

The proposed amendments which implement certain provisions of SB 2 also do several things. First, the amendments provide authority for public utilities to add production fees charged to them by the recently created GWCDs to consumer's bills. The fee is calculated by multiplying the customer's total consumption by the actual production fee per thousand gallons. The proposed amendments also allow these required fees charged by GWCDs to be passed on to consumers without the utility applying for a rate change and allow the utility to pass on these fees as surcharges without being specifically listed in the tariff, if the surcharge is approved by the commission or the municipality exercising jurisdiction over the utility. These changes will allow certain water and sewer utilities to recoup any production fees charged to them by the newly created GWCDs and to avoid applying for a rate change to bill for these costs. There are approximately 87 GWCDs in the state, but some of these have not been confirmed by elections in their districts and have not set fee structures. Some districts do not have production fees, but may have other types of fees which are charged to utilities. These fees may range from $.10 to $.25 per 1,000 gallons of water. It is not known how many utilities would pass through GWCD production fees, but for those that do, they could expect to avoid rate application fees, consultant fees, and a potential contested case hearing with savings anywhere from $10,000 to $50,000 and perhaps more. It is anticipated that consumers obtaining service from utilities in GWCDs could realize fee increases of an estimated $.10 to $.25 per 1,000 gallons used.

Next, the proposed amendments increase the number of days required for a notice involving an SICR from 30 to 60 days to allow consumers more time to review the proposed rate change. The proposed amendments also add information that must be included on the SICR to include a billing comparison to demonstrate the effect of the proposed rate change. These proposed amendments are not expected to have significant fiscal implications as the utilities are expected to begin the rate change process one month earlier to allow for the additional 30-day time period and add a billing comparison on the statement of intent.

The proposed amendments would restrict the owner of a utility that supplies retail water service from contracting to purchase water from an affiliated supplier of wholesale water service unless there has been a serious impairment in providing service or the agency has determined that the utility cannot obtain wholesale water at a lower cost than from the affiliate. The proposed amendments would also prohibit water and wastewater utilities from including as part of their cost of service, the costs of purchasing water from a priority groundwater management area if wholesale surface water is available. These provisions are anticipated to conserve groundwater especially in priority groundwater management areas and to encourage the use of surface water. However, because surface water tends to be more expensive than groundwater due to additional treatment costs, some utilities are expected to pay more for water as this provision would move utilities from using groundwater to surface water if they are in priority groundwater management areas. It is not known to what extent additional costs will affect some utilities, but over time as more surface water is purchased, costs are expected to increase.

The proposed amendments allow a utility to consolidate multiple water systems under a single tariff, if the utility meets certain conditions. In addition, the proposed amendments require the commission to establish by rule, a preference that consolidated tariff rates be consolidated by region. These provisions will allow a utility that owns several systems which may have different costs of service for each to combine all of the systems under one pricing tariff. The single tariff could result in more efficient, simplified bookkeeping for the utility when billing for service. Multiple systems under a single tariff are expected to result in some consumers paying more for service and some paying less than they were under multiple tariffs. However, the overall cost for service is not expected to change.

The proposed amendments would allow the commission to suspend the effective date of a rate change, not to exceed 150 days, if the commission receives the required number of protests that would entitle customers to a contested case hearing. The proposed amendments also extend the time allowed for customers to file complaints about rate changes from 60 to 90 days. In addition, they would allow the commission to require a utility to refund money collected under a proposed rate before the rate was suspended or an interim rate was established, to the extent the proposed rate exceeds the existing rate or interim rate. These provisions are not expected to have significant fiscal implications as the utilities would take into account the new time frames in the rate change process, and it is assumed that final decisions on rate change requests and any associated refunds would fairly reflect costs to the utilities for providing service and costs to the consumer for purchasing that service.

The proposed amendments would require that each utility have an office in each county where utility service is provided or not more than 20 miles from any residential customer if there is no location in that county in which it keeps all books, records, tariffs, and memoranda required by the commission and where it can accept payments or applications for service. To meet current requirements, most utilities have business offices in portions of their immediate service areas, but not necessarily in each county of their service area. In addition, the proposed amendments would require each utility to make available and notify customers of a location in each county where it provides service or not more than 20 miles from any residential customer if there is no location in the county, where payments can be made to restore service after disconnection for nonpayment, nonuse, or other specified reasons.

The proposed amendments would allow the requirement for a local office to be waived if the utility can demonstrate that these requirements would cause a rate increase or otherwise harm customers. The local office requirement could be very costly for those utilities that cover large areas. At this time, there is one known utility that operates in a 20-county area. Another utility is known to operate in 12 to 15 counties, and another in 45 counties. The proposed amendments would require an office in each county or within 20 miles of a residential customer. At this time, the costs to the utilities to implement this provision is not known due to the variability in office rent and overhead in each county, the number and salaries of staff required, office equipment, duplication of records, and other costs. However, it is anticipated that these costs could be significant to utilities who must meet this requirement. According to the program responsible for providing the waivers for this proposed requirement, the agency will work with the utilities on a case-by-case basis to waive this requirement in order to avoid rate increases or otherwise harm consumers.

The proposed amendments provide that on the request of a municipality with a population of more than 1.3 million (the City of Houston), the commission, after notice and public hearing, may revoke a utility's certificate of public convenience and necessity if it finds that a utility has failed to provide continuous service, has been grossly mismanaged, or has continuously not complied with applicable statutes, commission rules, or orders. If the certificate is revoked, the municipality must operate the decertified utility until the certificate is transferred and the commission approves the acquiring of the decertified utility's facilities. The monetary amount to be paid for the facilities will be determined by a qualified independent appraiser agreed upon by the municipality and utility. The appraiser's fee would be paid by the municipality. There would be significant costs to the municipality for operating the decertified utility, and for anyone acquiring the utility's facilities. These costs would depend upon the appraised value of the facilities if and when the municipality chose to take such action. It is not known how much it would cost to acquire such a utility, but it could be estimated to cost between $500 and $1,000 per connection.

The proposed amendments which implement certain provisions of SB 352 allow a water or wastewater utility to contract with a county to collect solid waste disposal fees and include that fee on the same bill with its water charges. The proposed amendments also allow termination of water or wastewater service for failure to pay solid waste disposal fees and would prohibit a utility from collecting a reconnect fee after disconnection for failure to pay solid waste disposal fees collected under a contract with a county or other public agency. For those cases where a water or wastewater utility disconnects service to a customer for nonpayment of a solid waste disposal bill, any costs associated with reconnecting service are assumed to be paid by the solid waste service provider or else absorbed by the utility, but in any event are not considered significant. Water utilities could lose some revenue during the period of time the solid waste disposal bill remains unpaid, though this amount is not anticipated to be significant.

PUBLIC BENEFITS AND COSTS

Mr. Horvath also determined that for each year of the first five years the proposed amendments are in effect, the public benefit anticipated from the enforcement of and compliance with the proposed amendments would include compliance with state law, improved levels of customer service, and increased water conservation.

It is anticipated that there will be costs to businesses and individuals that own, manage, or rent apartment houses, manufactured home rental communities, multiple use facilities, or condominiums, which may be significant. In addition, it is anticipated that occupants or tenants of these facilities will pay for the water that they use which could result in decreased water consumption for the occupants, owners, and managers of these facilities.

The proposed amendments would increase the number of days required for a rate change proposed by a water or sewer utility to become effective after proper public notice from 30 to 60 days. They would also allow the commission to issue orders requiring utilities to make adjustments to customers' bills if, in response to a customer complaint regarding charges made by a water or sewer utility, the agency finds that the utility has failed to make the proper adjustment to a customer's bill after completion of the complaint process. These changes are designed to allow additional time for customers to become aware of proposed rate changes and provide incentives for water and sewer utilities to address customer billing complaints in order to avoid potential administrative penalties. These proposed amendments are not expected to result in significant fiscal implications for the agency or for affected water or sewer utilities as the utilities are anticipated to begin the rate change process earlier to accommodate the additional 30-day period, and a consumer billing complaint process is currently in place at the agency.

The proposed amendments would require that for apartment houses, manufactured home rental communities, multiple use facilities, or condominiums (facilities) that begin construction on or after January 1, 2003, the owner or manager must provide for the measurement of the quantity of water consumed by the occupants of each unit through either the use of submeters owned by the property owner or manager; or individual meters owned by the retail public utility. Second, after January 1, 2003, before the owner or manager of one of these facilities may implement a program to bill tenants for submetered or allocated water use, the owner or manager must install plumbing fixtures which meet certain water saving performance standards and have a water leak audit performed and repair any leaks.

Under the proposed amendments, a retail public utility, upon the request of an owner or manager of a facility, would be required to install individual meters owned by the retail public utility unless the utility determines that the installation of meters is not feasible, in which case the owner or manager is required to install a plumbing system that is compatible with the installation of submeters or individual meters. A retail public utility would be allowed to charge reasonable costs to install the meters. The proposed submetering requirements would provide an exception for government assisted or subsidized housing to low or very low income residents in that facilities would only be required to install a plumbing system that is compatible with the installation of submeters, but not required to install submeters or charge for water on a submetered or metered basis.

Managers or owners of affected facilities would incur costs for the installation of submeters with compatible plumbing systems. According to recent estimates from the Comptroller's Office, there will be an estimated 48,000 multi-family housing starts in the year 2003, rising to approximately 61,000 in 2008. It is not known how many of these projected housing starts will be subject to the proposed amendments, but it could be assumed that most, if not all of them, would be. It is estimated that the cost of installing a meter ranges from $175 to $200. If an individual meter is installed by the retail public utility, the estimated cost of a meter is also estimated to be between $175 and $200. There would also be costs for the additional plumbing that would be necessary to accommodate the submetering or metering system in the newly constructed buildings. Costs would vary depending upon the size and types of dwellings and the additional pipe and other plumbing necessary for the installation of the meters. It has been estimated that submetered water service could reduce water consumption in multi-family housing units by an estimated 10% to 30%. Assuming there are 48,000 new multi-family housing units constructed in the year 2003, and an estimated cost of $200 for installing each meter, costs would be estimated at $9.6 million for the year. It is estimated that these costs would increase each year for the first five years. Assuming 61,000 new multi-family housing units were constructed in the year 2008, costs would be estimated to rise to $12.2 million for that year.

After January 1, 2003, those owners of apartment houses, manufactured home rental communities, multiple use facilities, or managers of condominiums who implement submetered or allocated water use billing for their tenants, must have water efficient plumbing fixtures installed. The proposed amendments would include the required removal of toilets that exceed 3.5 gpf and replacing them with a maximum 1.6 gpf toilet. The proposed amendments would also require the replacement or installation of water saving sink or lavatory faucets, faucet aerators, and shower heads. It is assumed that most facilities would not implement a submetered or allocated water use billing system after January 1, 2003 unless they had the required plumbing fixtures in place. Newly constructed facilities with metered or submetered systems would have to install water saving fixtures, but the difference in costs between these fixtures and others is not anticipated to be significant. For those facilities that do implement a submetered or allocated water use billing system after the deadline, they will have to ensure that the required plumbing fixtures are in place. Excluding installation costs, the toilets are estimated to cost between $75 and $150 with the faucets, aerators, and shower heads also estimated to cost between $75 and $150. The commission anticipates that renters will be required to pay for the cost of water use as a result of this rulemaking in new apartments constructed after 2003. However, the commission has made no estimate of the cost to renters as a result of this rulemaking because it is not known how these provisions may affect the rents charged by apartment owners and managers.

The proposed amendments would provide authority for public utilities to add production fees charged to them by the recently created GWCDs to consumer's bills. The fee is calculated by multiplying the customer's total consumption by the actual production fee per thousand gallons. The proposed amendments also allow these required fees charged by GWCDs to be passed on to consumers without the utility applying for a rate change and allow the utility to pass on these fees as surcharges without being specifically listed in the tariff, if the surcharge is approved by the commission or the municipality exercising jurisdiction over the utility. These changes will allow certain water and sewer utilities to recoup any production fees charged to them by the newly created GWCDs and to avoid applying for a rate change to bill for these costs. There are approximately 87 GWCDs in the state, but many of these have not been confirmed by elections in their districts and have not set fee structures. Some districts do not have production fees, but may have other types of fees which are charged to utilities. These fees may range from $.10 to $.25 per 1,000 gallons of water. It is not known how many utilities would pass through GWCD production fees, but for those that do, they could expect to avoid rate application fees, consultant fees, and a potential contested case hearing with savings anywhere from $10,000 to $50,000 and perhaps more. It is anticipated that consumers obtaining service from utilities in GWCDs could realize fee increases of an estimated $.10 to $.25 per 1,000 gallons used.

Next, the proposed amendments increase the number of days required for a notice involving a SICR from 30 to 60 days to allow consumers more time to review the proposed rate change. The proposed amendments also add information that must be included on the SICR to include a billing comparison to demonstrate the effect of the proposed rate change. These proposed amendments are not expected to have significant fiscal implications as the utilities are expected to begin the rate change process one month earlier to allow for the additional 30-day time period and add a billing comparison on the statement of intent.

The proposed amendments would restrict the owner of a utility that supplies retail water service from contracting to purchase water from an affiliated supplier of wholesale water service unless there has been a serious impairment in providing service or the agency has determined that the utility cannot obtain wholesale water at a lower cost than from the affiliate. The proposed amendments would also prohibit water and wastewater utilities from including as part of their cost of service, the costs of purchasing water from a priority groundwater management area if wholesale surface water is available. These provisions are anticipated to conserve groundwater especially in priority groundwater management areas and to encourage the use of surface water. However, because surface water tends to be more expensive than groundwater due to additional treatment costs, some utilities are expected to pay more for water as this provision would move utilities from using groundwater to surface water if they are in priority groundwater management areas. It is not known to what extent additional costs will affect some utilities, but over time as more surface water is purchased, costs are expected to increase.

The proposed amendments allow a utility to consolidate multiple water systems under a single tariff, if the utility meets certain conditions. In addition, the proposed amendments require the commission to establish by rule, a preference that consolidated tariff rates be consolidated by region. These provisions will allow a utility that owns several systems which may have different costs of service for each to combine all of the systems under one pricing tariff. The single tariff could result in more efficient, simplified bookkeeping for the utility when billing for service. Multiple systems under a single tariff are expected to result in some consumers paying more for service and some paying less than they were under multiple tariffs. However, the overall cost for service is not expected to change.

The proposed amendments would allow the commission to suspend the effective date of a rate change, not to exceed 150 days, if the commission receives the required number of protests that would entitle customers to a contested case hearing. The proposed amendments also extend the time allowed for customers to file complaints about rate changes from 60 to 90 days. In addition, they would allow the commission to require a utility to refund money collected under a proposed rate before the rate was suspended or an interim rate was established, to the extent the proposed rate exceeds the existing rate or interim rate. These provisions are not expected to have significant fiscal implications as the utilities would take into account the new time frames in the rate change process, and it is assumed that final decisions on rate change requests and any associated refunds would fairly reflect costs to the utilities for providing service and costs to the consumer for purchasing that service.

The proposed amendments would require that each utility have an office in each county where utility service is provided or not more than 20 miles from any residential customer if there is no location in that county in which it keeps all books, records, tariffs, and memoranda required by the commission and where it can accept payments or applications for service. To meet current requirements, most utilities have business offices in portions of their immediate service areas, but not necessarily in each county of their service area. In addition, the proposed amendments would require each utility to make available and notify customers of a location in each county where it provides service or not more than 20 miles from any residential customer if there is no location in the county, where payments can be made to restore service after disconnection for nonpayment, nonuse, or other specified reasons.

The proposed amendments would allow the requirement for a local office to be waived if the utility can demonstrate that these requirements would cause a rate increase or otherwise harm customers. The local office requirement could be very costly for those utilities that cover large areas. At this time, there is one known utility that operates in a 20-county area. Another utility is known to operate in 12 to 15 counties, and another in 45 counties. The proposed amendments would require an office in each county or within 20 miles of a residential customer. At this time, the costs to the utilities to implement this provision are not known due to the variability in office rent and overhead in each county, the number and salaries of staff required, office equipment, duplication of records, and other costs. However, it is anticipated that these costs could be significant to utilities who must meet this requirement. According to the program responsible for providing the waivers for this proposed requirement, the agency will work with the utilities on a case-by-case basis to waive this requirement in order to avoid rate increases or otherwise harm consumers.

The proposed amendments provide that on the request of a municipality with a population of more than 1.3 million (the City of Houston), the commission, after notice and public hearing, may revoke a utility's certificate of public convenience and necessity if it finds that a utility has failed to provide continuous service, has been grossly mismanaged, or has continuously not complied with applicable statutes, commission rules, or orders. If the certificate is revoked, the municipality must operate the decertified utility until the certificate is transferred and the commission approves the acquiring of the decertified utility's facilities. The monetary amount to be paid for the facilities will be determined by a qualified independent appraiser agreed upon by the municipality and utility. The appraiser's fee would be paid by the municipality. There would be significant costs to the municipality for operating the decertified utility, and for anyone acquiring the utility's facilities. These costs would depend upon the appraised value of the facilities if and when the municipality chose to take such action. It is not known how much it would cost to acquire such a utility, but it could be estimated to cost between $500 and $1,000 per connection.

The proposed amendments would allow a water or wastewater utility to contract with a county to collect solid waste disposal fees and include that fee on the same bill with its water charges. The proposed amendments also allow termination of water or wastewater service for failure to pay solid waste disposal fees and would prohibit a utility from collecting a reconnect fee after disconnection for failure to pay solid waste disposal fees collected under a contract with a county or other public agency. For those cases where a water or wastewater utility disconnects service to a customer for nonpayment of a solid waste disposal bill, any costs associated with reconnecting service are assumed to be paid by the solid waste service provider or else absorbed by the utility, but in any event are not considered significant. Water utilities could lose some revenue during the period of time the solid waste disposal bill remains unpaid, though this amount is not anticipated to be significant.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

There are adverse fiscal implications as a result of the implementation and enforcement of the proposed amendments for small and micro-businesses that own or manage apartments, condominiums, manufactured home rental communities, or multiple use facilities which begin construction on or after January 1, 2003. There may also be costs for these same small or micro-businesses if they implement a submetered or allocated water use billing system after January 1, 2003 and have to install certain water saving plumbing appliances.

Managers or owners of affected facilities would incur costs for the installation of submeters with compatible plumbing systems. According to recent data from Apartment Market Data Research Services, as of November 2000, there were an estimated 1,277,439 apartment units in 28 major metropolitan areas in Texas. Other data indicate that of this total 198,933 or about 15.6% of the total number of apartments are owned by Real Estate Investment Trusts. This leaves a rather large percentage of units that are owned by other types of businesses and it could be assumed that many of them would be small businesses. According to recent estimates from the Comptroller's Office, there will be an estimated 48,000 multi-family housing starts in the year 2003, rising to approximately 61,000 in 2008. It is not known how many of these projected housing starts will be subject to the proposed amendments, or how many of them would be small or micro-businesses.

It is estimated that the cost of installing a meter ranges from $175 to $200. If an individual meter is installed by the retail public utility, the estimated cost of installing a meter is also estimated to be between $175 and $200. There would also be costs for the additional plumbing that would be necessary to accommodate the submetering or metering system in the newly constructed buildings. Costs would vary depending upon the size and types of dwellings and the additional pipe and other plumbing necessary for the installation of the meters. It has been estimated that submetered water service could reduce water consumption in multifamily housing units by an estimated 10% to 30%. Assuming that a small or micro-business owner has 50 apartment units, at $200 per meter installation, costs are estimated to be $10,000 plus the costs of additional plumbing necessary to accommodate the submetering system.

After January 1, 2003, those owners of apartment houses, manufactured home rental communities, multiple use facilities, or managers of condominiums who implement submetered or allocated water use billing for their tenants, must have water efficient plumbing fixtures installed. The proposed amendments would include the required removal of toilets that exceed 3.5 gpf and replacing them with a maximum 1.6 gpf toilet. Most of the apartments in Texas were built in the 1980's when 3.5-gallon toilets were used extensively. The proposed amendments would also require the replacement or installation of water saving sink or lavatory faucets, faucet aerators, and shower heads. It is assumed that most facilities would not implement a submetered or allocated water use billing system after January 1, 2003 unless they had the required plumbing fixtures in place. Newly constructed facilities with metered or submetered systems would have to install water saving fixtures, but the difference in costs between these fixtures and others would not be significant. For those facilities that do implement a submetered or allocated water use billing system after the deadline, they will have to ensure that the required plumbing fixtures are in place. Excluding installation costs, the toilets are estimated to cost between $75 and $150 with the faucets, aerators, and shower heads also estimated to cost between $75 and $150. If a small or micro-business owner implements a submetering or allocated water use system after the deadline and does not have water saving appliances in place, there will be costs to install the fixtures. For a 50-unit complex, assuming $300 for the fixtures, total costs are estimated at $15,000 excluding installation costs. It is assumed that the water saving plumbing fixtures will save water over the long run for the occupants of the dwellings.

The following is an analysis of the cost per employee for small or micro-businesses affected by the proposed amendments. Small and micro-businesses are defined as having fewer than 100 or 20 employees respectively. A small business with 50 apartment units that opts to construct a new facility after January 1, 2003, would incur additional costs for the installation of a submetering system of approximately $100 per employee. A small business that implements a submetering or allocated water use system after the deadline and does not have water saving appliances in place, will incur additional costs of $150 per employee. A micro-business with 50 apartment units that opts to construct a new facility after January 1, 2003, would incur additional costs for the installation of a submetering system of approximately $500 per employee. A micro-business that implements a submetering or allocated water use system after the deadline and does not have water saving appliances in place, will incur additional costs of $750 per employee. The projected costs for affected facilities are the same for small businesses as for larger businesses.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission reviewed this proposed rulemaking and determined that a local employment impact statement is not required because the proposed rules do not adversely affect a local economy in a material way for the first five years that the proposed rules are in effect.

DRAFT REGULATORY IMPACT ANALYSIS

The commission reviewed the rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225 and determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in the Texas Government Code. "Major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The proposed rules concern the regulation of utility rates and services. The proposed rules incorporate new legislative requirements and provide for regulatory consistency. The proposed amendments will not affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. Further, this rulemaking does not meet the applicability criteria of a "major environmental rule" because the amendments do not exceed a standard set by federal law, exceed an express requirement of state law, or exceed a requirement of a delegation agreement. The proposed amendments are not adopted solely under the general rulemaking authority of the commission but also under TWC, §§13.041(b), 13.137(b), 13.182(d), and 13.183.

TAKINGS IMPACT ASSESSMENT

The commission prepared a takings impact assessment for these proposed amendments in accordance with Texas Government Code, §2007.043. The specific purpose of the proposed amendments is to implement applicable requirements of SB 2, SB 352, HB 2912, and HB 2404, 77th Legislature, 2001, relating to utility regulations; and for regulatory consistency, to amend rules to provide the executive director with the authority to allow utilities to pass through to their customers the cost of a GWCD production fee either by a minor tariff change or by surcharge. The proposed rule amendments substantially advance the stated purpose by incorporating the applicable requirements of SB 2, SB 352, HB 2912, and HB 2404 and by amending the applicable provisions regarding the recovery of GWCD production fees. Promulgation and enforcement of these amendments will not burden private real property because the actions that are required by the amendments relate primarily to the relationships between water utility operators and their customers, concerning establishment of rates, procedures for providing services, and billing for the services. The proposed rules will provide protection to both the utility operators and their customers. Therefore, this rulemaking will not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that the proposed rulemaking does not relate to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Management Act of 1991, as amended (Texas Natural Resources Code, §§33.201 et seq. ) and the commission's rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the Texas Coastal Management Program. Therefore, the proposed amendments to Chapter 291 are not subject to the CMP.

ANNOUNCEMENT OF HEARING

A public hearing on this proposal will be held in Austin on May 6, 2001 at 10:00 a.m., in Building F, Room 2210 at the commission's central office located at 12100 Park 35 Circle. The hearing will be structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order of registration. There will be no open discussion during the hearing; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearing and will answer questions before and after the hearing.

Persons with disabilities who have special communication or other accommodation needs who are planning to attend the hearing should contact the Office of Environmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as far in advance as possible.

SUBMITTAL OF COMMENTS

Comments may be submitted to Patricia Durón Office of Environmental Policy, Analysis, and Assessment, Texas Natural Resource Conservation Commission, MC 205, P.O. Box 13087, Austin, Texas 78711-3087, or faxed to (512) 239-4808. All comments should reference Rule Log Number 2001-061-291-WT. Comments must be received by 5:00 p.m., April 29, 2002. For further information, please contact Joe Thomas, Policy and Regulations Division, at (512) 239-4580.

Subchapter A. GENERAL PROVISIONS

The Texas Natural Resource Conservation Commission (commission) proposes amendments to Subchapter A, General Provisions , §293.1; Subchapter B, Creation of Water Districts , §293.11; Subchapter E, Issuance of Bonds , §§293.42, 293.44, 293.46, 293.47, 293.51, 293.56, and 293.59; Subchapter G, Other Actions Requiring Commission Consideration for Approval , §293.81 and §293.89; Subchapter I, District Name Changes and Posting Signs , §293.103; Subchapter K, Fire Department Projects , §293.123; Subchapter N, Petition for Approval of Impact Fees , §293.171; and Subchapter P, Acquisition of Road Utility District Powers by Municipal Utility District , §293.201 and §293.202. The commission also proposes in Subchapter G, the re-adoption of §293.87, in Subchapter J, Utility System Rules and Regulations , new §293.113, and in Subchapter K the repeal of §293.121.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES

The commission has the statutory duty and responsibility to create, supervise, and dissolve certain water and water-related districts and to approve the issuance and sale of bonds for district improvements in accordance with the Texas Water Code (TWC). There are approximately 1,000 active water districts in Texas which are overseen by the commission. Chapter 293 governs the creation, supervision, and dissolution of all general and special law districts and the conversion of districts into municipal utility districts. Further, Chapter 293 provides the rules which govern the review of bonds for engineering standards and economic feasibility of applications in order to assure that construction projects are designed and completed with the proper approvals, thereby ensuring quality service. The chapter is also important because it ensures that bond funds are used for the benefit of the residents of the districts and that proceeds from bond issues are used to promote a district's intended purpose. The commission also has certain jurisdiction over approximately 55 water supply or sewer service corporations operating under TWC, Chapter 67, that provide sewer service.

The proposed rulemaking would establish new or revise existing requirements relating to the administration of water districts and the commission's supervision over their actions under TWC, Chapters 36, 49, 51, 54, 55, 58, 59, and 65, as amended by Senate Bill (SB) 1444; House Bill (HB) 2994; HB 2912 (§20.02 and §18.01); and a portion of SB 2, 77th Legislature, 2001. SB 1444 amends provisions in TWC, Chapter 49 relating to the administration, management, operation, and authority of water districts and authorities, and in Chapter 54, concerning municipal utility districts. HB 2994 and SB 1444 both amend TWC, §49.108 to exempt from commission review district contract tax obligations for bonds issued by a municipality. HB 2912, §20.02, and SB 2, §2.58, also address contract taxes by amending TWC, §51.149. The proposed rules also implement HB 2912, §18.01, which changes the name of the commission to the Texas Commission on Environmental Quality, to be effective September 1, 2002.

Specifically, the proposed rules would allow a fire plan to be approved at the time of district creation; require certificates of land ownership and value to be provided by a central appraisal district (CAD) in lieu of the county tax assessor; modify requirements for when an expedited bond application can be submitted; add provisions to allow districts to fund costs related to recreational facilities; modify provisions for allowable change orders; provide additional exemptions from having to obtain commission approval of contract tax obligations and impact fees; add provisions regarding districts and water supply corporations' (WSCs') requiring connection to their wastewater collection systems; delete the requirement that a district provide evidence that it has held a hearing when seeking approval of a fire plan; re-adopt requirements for applications for extension of time to sell bonds; repeal or delete unnecessary rules; and correct and clarify the rules.

Further, because this rulemaking will be the lead rulemaking to amend §293.11 (concerning information required to accompany applications for creation of districts), it will accommodate a separate rulemaking involving groundwater conservation districts (GCDs) under SB 2, Rule Log Number 2001-094-294-WT (SB 2, Article 2, §§2.22 - 2.57: Groundwater Conservation Districts), by proposing to amend §293.11 to exclude GCDs from the scope of §293.11. The separate rulemaking, which the commission is in the process of convening, will consolidate virtually all aspects of Chapter 293 affecting GCDs into Subchapter C and rename that subchapter as "Groundwater Conservation Districts."

SECTION BY SECTION DISCUSSION

Section 293.1, Objective and Scope of Rules; Meaning of Certain Words

Section 293.1 is proposed to be amended to reflect the agency name change from Texas Natural Resource Conservation Commission to the Texas Commission on Environmental Quality, effective September 1, 2002.

Section 293.11, Information Required to Accompany Applications for Creation of Districts

Section 293.11 is proposed to be amended for those districts that are authorized to provide water services to specify that a petition for creation may include a request for approval of a fire plan, in accordance with SB 1444, Article 23, which amends TWC, §49.351, and to specify associated additional application requirements. Section 293.11 is also proposed to be amended to reflect that a certificate indicating the owners and tax valuation of land within a proposed district is to be provided by the CAD and not the county tax assessor to reflect the actual practice that this information is provided by the CAD. Section 293.11 is also proposed to be amended to exclude GCDs from its scope. In separate rulemaking, which the commission is in the process of convening, the commission will consolidate virtually all aspects of Chapter 293 affecting GCDs into Subchapter C and rename that subchapter as "Groundwater Conservation Districts." Section 293.11(h)(11) is also proposed to be amended to correct cross references. Other changes to §293.11 are proposed to conform to Texas Register style requirements.

Section 293.42, Submitting of Documents and Order of Review

Section 293.42(e) is proposed to be amended to delete the reference to bond applications on file at the time of the effective date of the rules as sufficient time has passed for all such bond applications to have been processed, and to add requirements that must be met in order for a district to submit an expedited review bond application. The added requirements are intended to allow better management of workload and more accurately reflect bond applications targeted for expedited review by deleting certain complicated bond applications from the expedited process.

Section 293.44, Special Considerations; §293.46, Construction Prior to Commission Approval; and §293.47, Thirty Percent of District Construction Costs to be Paid by Developer

An amendment to §293.44(a)(1) is proposed to conform a statutory reference to Texas Register style requirements. Sections 293.44(b), 293.46, 293.47(a) and (d) are proposed to be amended to reference district funding of recreational facilities in addition to water, wastewater, and drainage facilities, and include provisions under which a district could fund 70% or 100% of the costs. The amendments implement SB 1444, Article 24, which establishes in TWC, Chapter 49, new Subchapter N, which allows all districts to fund recreational facilities. Section 293.47(g) is proposed to be amended to clarify the financial guarantee requirement to be consistent with the different types and applicability of financial guarantees.

Section 293.51, Land and Easement Acquisition

Section 293.51(e) is proposed to be amended to correct a reference to the applicable subsection that was changed in a previous rule revision.

Section 293.56, Requirements for Letters of Credit (LOC)

The figure in §293.56(e) is proposed to be amended to reflect the agency name change from Texas Natural Resource Conservation Commission to the Texas Commission on Environmental Quality, effective September 1, 2002.

Section 293.59, Economic Feasibility of Project

Section 293.59(k) is proposed to be amended to reflect that a certificate indicating the valuation of land within a proposed district is to be provided by the CAD and not the tax assessor. The amendment reflects actual current practice that the certificates are provided by the CAD. Section 293.59(l), concerning feasibility requirements for second and subsequent bond issues, would be clarified for ease of interpretation without changing the intent.

Section 293.81, Change Orders

Section 293.81(1)(A) is proposed to be amended to allow change orders to construction projects to be issued, in aggregate, up to 10% of the original contract amount, in addition to current provisions. The amendment implements SB 1444, Article 17, which amends TWC, §49.273, to allow districts greater flexibility in issuance of change orders.

Section 293.87, Application for Extension of Time to Sell Bonds

The commission proposes to re-adopt §293.87, which establishes the requirements for an application to extend the effective period of the commission's approval of a bond issue. Under §293.45(a), a district must sell bonds within one year of the effective date of the commission's order approving the bonds, unless the executive director grants an extension of the time to sell bonds. The commission originally adopted §293.87 in 1993. Due to an oversight, however, the text of the rule was not filed with the Secretary of State. To correct that omission, the commission proposes to re-adopt the rule with the same text as was adopted in 1993.

Section 293.89, Contract Tax Obligations

Section 293.89(a) is proposed to be amended to reflect that a district is not required to obtain commission approval of contract taxes levied by a district to pay for its share of bonds issued by a municipality. The amendment implements HB 2994 and SB 1444, Article 7, which amends TWC, §49.108, and HB 2912, §20.02 and SB 2, §2.58, which amend TWC, §51.149, to allow for certain contract tax obligations to be exempt from commission review. Additional amendments to subsections (a) and (b) are proposed to conform the rules to Texas Register style requirements. Subsection (c), relating to contract tax obligations, is proposed to be amended to clarify the applicability of the commission's feasibility rules in §293.59.

Section 293.103, Form of Notice for Name Change

The figure in §293.103 is proposed to be amended to reflect the agency name change from Texas Natural Resource Conservation Commission to the Texas Commission on Environmental Quality, effective September 1, 2002.

Section 293.113, District and Water Supply Corporations Authority Over Wastewater Facilities

Proposed new §293.113 is added to describe when a district or WSC can prohibit on-site wastewater facilities, what a district or WSC is required to do if it prohibits such facilities, and to establish requirements concerning reimbursement of wastewater collection facility costs to connect to a district or WSC's system. The new section implements SB 1444, Article 15, which amends TWC, §49.234 to grant districts and WSCs authority over installation of private on-site wastewater facilities and requires districts and WSCs to reimburse certain centralized wastewater collection system costs if private on-site facilities are prohibited.

Section 293. 121, Approval of Fire Department Projects

Section 293.121 is proposed to be repealed. In a concurrent rulemaking that appears in this issue of the Texas Register, the commission is proposing an amendment to §50.131 to delegate to the executive director (ED) authority to approve fire plans on behalf of the commission. That amendment is being proposed to implement SB 1444, Article 8, which amended TWC, §49.351 to delete the requirement that the commission hold a hearing on an application for approval of a fire plan. An effect of eliminating the hearing requirement in TWC, §49.351 is to enable the commission to delegate approval of fire department plans to the ED. As a result of the proposed amendment to §50.131, the provisions in §293.121 concerning the responsibilities of the commission and the ED with respect to fire plans are no longer needed.

Section 293.123, Application Requirements for Fire Department Plan Approval

Section 293.123 is proposed to be amended to delete the requirement that a district provide evidence of a hearing, in which any person residing in a district could present testimony for or against the proposed fire plan and/or any associated contract, with other application materials. The amendment implements SB 1444, Article 8, which amended TWC, §49.351 to delete the requirement to hold a hearing.

Section 293.171, Definitions of Terms

Section 293.171 is proposed to be amended by adding paragraph (1)(C) to reflect that a district is not required to obtain commission approval of charges or fees for retail or wholesale service on land that at the time of platting was not being provided with water or wastewater service by the district. The amendment implements SB 1444, Article 12, which amends TWC, §49.212 to exempt certain fees charged by a district from commission review. Other changes to §293.171 are proposed to clarify the rule.

Section 293.201, District Acquisition of Road Utility District Powers

Section 293.201(a) is proposed to be amended to change the name of the agency from Texas Natural Resource Conservation Commission to the Texas Commission on Environmental Quality, effective September 1, 2002.

Section 293.202, Application Requirements for Commission Approval

Section 293.202 is proposed to be amended to change the name of the agency from Texas Natural Resource Conservation Commission to the Texas Commission on Environmental Quality, effective September 1, 2002.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

John Davis, Technical Specialist with Strategic Planning and Appropriations, determined that for each year of the first five-year period the proposed rulemaking is in effect, no significant fiscal implication is expected for the agency or other units of state and local government due to implementation of the proposed rulemaking. The provisions of this rulemaking concern commission administration and oversight of water districts and WSCs and their allowable activities.

The proposed rulemaking implements certain provisions of several bills, including: SB 1444 (an Act relating to the general powers and authority of water districts; providing a penalty), 77th Legislature, 2001; HB 2912 (an Act relating to the continuation and functions of the Texas Natural Resource Conservation Commission; providing penalties), 77th Legislature, 2001; and HB 2994 (an Act relating to the approval of certain contracts of special districts), 77th Legislature, 2001. The proposed rulemaking will apply to all of the approximately 1,000 existing and any new water districts throughout the state regulated by the commission.

The proposed rulemaking allows a fire plan to be approved at the time of creation of a water district; adds provisions to allow water districts to fund costs related to recreational facilities; and adds provisions requiring water districts and WSCs to reimburse the cost of connecting to wastewater collection systems. Allowing a fire plan to be requested and approved during the creation of a water district is anticipated to provide potentially increased fire protection to the customers served by the water district. Typically, fire plans allow a water district to contract with a local fire department and would allow a district to establish fees to provide a stable funding source for fire protection. Fire plans are already utilized by water districts. The proposed rulemaking is intended to allow this plan to be created and approved during the initial creation of the district. The commission does not anticipate significant fiscal implications for units of state or local government due to implementation of the proposed rulemaking.

The provisions allowing water districts to fund costs related to recreational facilities are also not anticipated to result in significant fiscal implications for units of state and local governments. Water districts are already allowed to fund the construction of water, wastewater, and drainage facilities. The proposed rulemaking would add recreational facilities to the types of projects a water district can fund. The types of recreational facilities that could be funded include parks, landscaping, parkways, greenbelts, sidewalks, trails, public right-of-way beautification projects, street and security lighting. The proposed rulemaking does not require a fiscal expenditure by water districts, and the decision to fund recreational projects would be made at the local level. If a water district decides to pursue funding for recreational projects, certain water and wastewater fees paid by the district's customers may be increased; however, the commission does not anticipate the fees would result in significant fiscal implications for affected customers.

The provisions regarding districts and WSCs requiring connection to a wastewater system would require water districts and WSCs to reimburse in certain circumstances the cost to property owners for being required to connect to a wastewater collection system. Previously, only districts and WSCs that received funding under the Economically Distressed Areas Program (EDAP) were allowed to prohibit the installation of private on-site wastewater facilities on land within the district's or corporation's boundaries. The proposed rulemaking would require water districts and WSCs, that prohibit the installation of private on-site wastewater holding or treatment facilities, to reimburse the affected property owner the cost of connecting to the district's or corporation's wastewater collection system. The total cost for reimbursements can not be estimated. The commission estimates the cost will be approximately $10 per foot, depending on how far the affected property is from the collection system and the type of subsurface material the connection will be installed in. Water districts and WSCs that have not received funding under the EDAP would not have the authority to require a property owner who has already installed an on-site wastewater holding or treatment facility to connect to the district's or corporation's wastewater collection system.

The proposed rulemaking would also require certificates of land ownership and value to be provided by a CAD in lieu of the county tax assessor; modify requirements for when an expedited bond application can be submitted; re-adopt requirements for applications for extension of time to sell bonds; modify provisions for allowable change orders; provide additional exemptions from having to obtain commission approval of contract tax obligations and impact fees; repeal or delete unnecessary rules; and correct and clarify the rules. These provisions are procedural in nature and are not anticipated to result in significant fiscal implications for the commission or affected water districts. In particular, the re-adoption of the requirements for applications for extension of time to sell bonds is not anticipated to result in significant fiscal impacts, as the commission has been applying these same requirements since the rule was originally adopted in 1993. Re-adoption of the rule will allow districts to continue to obtain extensions of the time to sell bonds where appropriate.

PUBLIC BENEFITS AND COSTS

Mr. Davis also determined that for each of the first five years the proposed rulemaking is in effect, the public benefit anticipated as a result of implementing the proposed rulemaking will be potentially increased fire protection to districts that avail themselves of the opportunity to seek approval of a fire plan at the time of creation, thereby providing the district and its customers a definitive plan for fire protection from its inception.

The proposed rulemaking implements certain provisions of several bills, including: SB 1444, 77th Legislature, 2001; HB 2912, 77th Legislature, 2001; and HB 2994, 77th Legislature, 2001. The proposed rulemaking will apply to all of the approximately 1,000 existing and any new water districts throughout the state regulated by the commission.

The proposed rulemaking would allow a fire plan to be approved at the time of creation of a water district; add provisions to allow water districts to fund costs related to recreational facilities; and add provisions requiring water districts and WSCs to reimburse the cost of connecting to wastewater collection systems. Allowing a fire plan to be requested and approved during the creation of a water district is anticipated to provide potentially increased fire protection to the customers served by the water district. Typically, fire plans allow a water district to contract with a local fire department and would allow a district to establish fees to provide a stable funding source for fire protection. Fire plans are already utilized by water districts. The proposed rulemaking is intended to allow this plan to be created and approved during the initial creation of the district. The commission does not anticipate significant fiscal implications for individuals and businesses due to implementation of the proposed rulemaking.

The provisions allowing water districts to fund costs related to recreational facilities are also not anticipated to result in significant fiscal implications for individuals and businesses. Water districts are already allowed to fund the construction of water, wastewater, and drainage facilities. The proposed rulemaking would add recreational facilities to the types of projects a water district can fund. The types of recreational facilities that could be funded include parks, landscaping, parkways, greenbelts, sidewalks, trails, public right-of-way beautification projects, street and security lighting. The proposed rulemaking does not require any fiscal expenditures by water districts, and the decision to fund recreational projects would be made at the local level. If a water district decides to pursue funding for recreational projects, certain water and wastewater fees paid by the district's customers may be increased; however, the commission does not anticipate the fees would result in significant fiscal implications for affected customers.

The provisions regarding districts and WSCs requiring connection to a wastewater system would require water districts and WSCs to reimburse in certain circumstances the cost to property owners for being required to connect to a wastewater collection system. Previously, only districts and WSCs that received funding under the EDAP were allowed to prohibit the installation of private on-site wastewater facilities on land within the district's or corporation's boundaries. The proposed rulemaking would require water districts and WSCs, that prohibit the installation of private on-site wastewater holding or treatment facilities, to reimburse the affected property owner the cost of connecting to the district's or corporation's wastewater collection system. Water districts and WSCs that have not received funding under the EDAP would not have the authority to require a property owner who has already installed an on-site wastewater holding or treatment facility to connect to the district's or corporation's wastewater collection system. The commission anticipates these provisions would provide economic benefits to those customers that in the past would not have been reimbursed for having to connect to a district's wastewater collection system.

The proposed rulemaking would also require certificates of land ownership and value to be provided by a CAD in lieu of the county tax assessor; modify requirements when an expedited bond application can be submitted; re-adopt the requirements for applications for extension of time to sell bonds; modify provisions for allowable change orders; provide additional exemptions from having to obtain commission approval of contract tax obligations and impact fees; repeal or delete unnecessary rules; and correct and clarify the rules. These provisions are procedural in nature and only affect water districts; therefore, they are not anticipated to result in significant fiscal implications for individuals and businesses.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

There may be adverse fiscal implications, which are not anticipated to be significant, for small or micro-businesses due to implementation of the proposed rulemaking, which is intended to implement certain provisions of SB 2, SB 1444, HB 2912, and HB 2994. The proposed rulemaking, which concerns commission administration and oversight of water districts and WSCs and their allowable activities, will apply to all of the approximately 1,000 existing and any new water districts throughout the state regulated by the commission.

The proposed rulemaking would allow a fire plan to be approved at the time of creation of a water district; add provisions to allow water districts to fund costs related to recreational facilities; and add provisions requiring water districts to reimburse the cost of connecting to wastewater collection systems. Allowing a fire plan to be requested and approved during the creation of a water district is anticipated to provide potentially increased fire protection to the customers, which can include small and micro-businesses, served by the water district. Typically, fire plans allow a water district to contract with a local fire department and would allow a district to establish fees to provide a stable funding source for fire protection. Fire plans are already utilized by water districts. The proposed rulemaking is intended to allow this plan to be created and approved during the initial creation of the district. The commission does not anticipate significant fiscal implications for small and micro-businesses due to implementation of the proposed rulemaking.

The provisions allowing water districts to fund costs related to recreational facilities are also not anticipated to result in significant fiscal implications for small and micro-businesses. Water districts are already allowed to fund the construction of water, wastewater, and drainage facilities. The proposed rulemaking would add recreational facilities to the types of projects a water district can fund. The types of recreational facilities that could be funded include parks, landscaping, parkways, greenbelts, sidewalks, trails, public right-of-way beautification projects, street and security lighting. The proposed rulemaking does not require any fiscal expenditures by water districts, and the decision to fund recreational projects would be made at the local level. If a water district decides to pursue funding for recreational projects, certain water and wastewater fees paid by the district's customers may be increased; however, the commission does not anticipate the fees would result in significant fiscal implications for affected customers.

The provisions regarding districts and WSCs requiring connection to a wastewater system would require water districts and WSCs to reimburse in certain circumstances the cost to property owners for being required to connect to a wastewater collection system. Previously, only districts and WSCs that received funding under the EDAP were allowed to prohibit the installation of private on-site wastewater facilities on land within the district's or corporation's boundaries. The proposed rulemaking would require water districts and WSCs, that prohibit the installation of private on-site wastewater holding or treatment facilities, to reimburse the affected property owner the cost of connecting to the district's or corporation's wastewater collection system. Water districts and WSCs that have not received funding under the EDAP would not have the authority to require a property owner who has already installed an on-site wastewater holding or treatment facility to connect to the district's or corporation's wastewater collection system. The commission anticipates that these provisions would provide economic benefits to small or micro-businesses that in the past would not have been reimbursed for having to connect to a district's wastewater collection system.

The proposed rulemaking would also require certificates of land ownership and value to be provided by a CAD in lieu of the county tax assessor; modify requirements when an expedited bond application can be submitted; re-adopt requirements for applications for extension of time to sell bonds; modify provisions for allowable change orders; provide additional exemptions from having to obtain commission approval of contract tax obligations and impact fees; repeal or delete unnecessary rules; and correct and clarify the rules. These provisions are procedural in nature and only affect water districts; therefore, they are not anticipated to result in significant fiscal implications for small or micro-businesses.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission reviewed this proposed rulemaking and determined that a local employment impact statement is not required because the proposed rulemaking does not adversely affect a local economy in a material way for the first five years that the proposed rules are in effect.

DRAFT REGULATORY IMPACT ANALYSIS

The commission reviewed the rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in the Texas Government Code. "Major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The proposed rules concern commission administration and oversight of water districts and WSCs and their allowable activities, including requirements applicable to financial instruments such as bonds. The rules incorporate new legislative requirements and provide for regulatory consistency. The changes will not affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. Further, this rulemaking does not meet the applicability criteria of a "major environmental rule" because the proposed rules do not exceed a standard set by federal law, exceed an express requirement of state law, or exceed a requirement of a delegation agreement. Specifically, the proposed rules do not exceed a standard set by federal law nor exceed a requirement of a federal delegation agreement or contract, because no federal law or federal delegation agreement or contract applies to the proposed rulemaking. The rules are not adopted solely under the general rulemaking authority of the commission but also under TWC, §§5.122, 49.234, 49.351, and Texas Local Government Code, §395.080, and were specifically developed also to implement TWC, §§36.011, 36.013, 36.015, 49.108, 49.181, 49.212, 49.273, Chapter 49, Subchapter N, §51.149, §54.014, and HB 2912, §18.01, 77th Legislature, 2001, and the proposed rules do not exceed the express requirements of those state statutes. The commission invites public comment on the draft regulatory impact analysis.

TAKINGS IMPACT ASSESSMENT

The commission performed a preliminary assessment of the proposed rulemaking pursuant to Texas Government Code, §2007.043. The specific purpose of the proposed rulemaking is to implement applicable requirements of SB 2, SB 1444, HB 2994, and HB 2912, 77th Legislature, 2001, concerning commission administration and oversight of water districts, and correct and clarify the rules. The proposed rulemaking would advance this specific purpose by allowing a fire plan to be approved at the time of district creation; requiring certificates of land ownership and value to be provided by a CAD in lieu of the county tax assessor; modifying requirements for when an expedited bond application can be submitted; adding provisions to allow districts to fund costs related to recreational facilities; modifying provisions for allowable change orders; re-adopting requirements for applications for extension of time to sell bonds; providing additional exemptions from having to obtain commission approval of contract tax obligations and impact fees; adding provisions regarding districts and WSCs' requiring connection to their wastewater collection systems; deleting the requirement that a district provide evidence that it has held a hearing when seeking approval of a fire plan; repealing or deleting unnecessary rules; and clarifying certain rules. Promulgation and enforcement of these proposed rules will not burden private real property because the actions that are required by the rulemaking relate primarily to administration of water districts by the commission including requirements applicable to financial instruments such as bonds. Private real property is not subject to these rules. Therefore, this rulemaking will not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission reviewed the proposed rulemaking for consistency with the Texas Coastal Management Program (CMP) goals and policies in accordance with the regulations of the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, §§33.201 et seq.) and found that the proposal is a rulemaking identified in the Act's Implementation Rules, 31 TAC §505.11(b), relating to Actions and Rules Subject to the Coastal Management Program, or may affect an action/authorization identified in §505.11(a)(6), and will, therefore, require that applicable goals and policies of the CMP be considered during the rulemaking process.

The commission determined that the proposed rules are included under 31 TAC §505.22 and found that the proposed rulemaking is consistent with the applicable CMP goals and policies. CMP goals applicable to the proposed rules include the goal to ensure sound management of all coastal resources by allowing for compatible economic development and multiple human uses of the coastal zone. While these proposed rules do not specifically regulate location or type of development allowed, Chapter 293 provides requirements for developers and for water districts. Section §505.11 of 31 TAC provides the actions and rules that are subject to the CMP. Among the list is the creation of a special purpose district or approval of bonds to construct infrastructure on coastal barriers. As the proposed rules will be effective throughout the state, the CMP policy is applicable. CMP policies applicable to the proposed rules include the administrative policy requiring applicants to provide information necessary for an agency to make an informed decision on a proposed action listed in §505.11 and the standards related to the development of infrastructure on coastal barriers set out in 31 TAC §505.14(m).

The proposed rules do not alter the allowable location, standards, or stringency of requirements for infrastructure on coastal barriers. The specific purpose of the proposed rules is to adopt new requirements relating to the administration of water districts and the commission's supervision over their actions under TWC, Chapters 36, 49, 51, 54, 55, 58, 59, and 65, particularly as amended by SB 2, SB 1444, HB 2994, and HB 2912, 77th Legislature, 2001. The proposed rules will substantially advance this specific purpose. Specifically, the proposed rules would allow a fire plan to be approved at the time of district creation; require certificates of land ownership and value to be provided by a CAD in lieu of the county tax assessor; modify requirements for when an expedited bond application can be submitted; add provisions to allow districts to fund costs related to recreational facilities; re-adopt requirements for applications for extension of time to sell bonds; modify provisions for allowable change orders; provide additional exemptions from having to obtain commission approval of contract tax obligations and impact fees; add provisions regarding districts and WSCs' requiring connection to their wastewater collection systems; delete the requirement that a district provide evidence that it has held a hearing when seeking approval of a fire plan; repeal or delete unnecessary rules; and correct and clarify the rules.

Promulgation and enforcement of these proposed rules will not violate or exceed any standards identified in the applicable CMP goals and policies because the proposed rules are consistent with these CMP goals and policies, because these rules do not create or have a direct or significant adverse effect on any Coastal Natural Resource Areas, and because the proposed rules do not alter the allowable location, standards, or stringency of the requirements for infrastructure on coastal barriers.

The commission seeks public comment on the consistency of the proposed rulemaking.

SUBMITTAL OF COMMENTS

Comments may be submitted to Patricia Durón, Office of Environmental Policy, Analysis, and Assessment, MC 205, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512) 239-4808. All comments should reference Rule Log Number 2001-054-293-WT. Comments must be submitted by 5:00 p.m. on May 13, 2002. For further information, please contact Auburn Mitchell, Office of Environmental Policy, Analysis, and Assessment, (512) 239-1873.

Subchapter A. GENERAL PROVISIONS

Subchapter A. REQUIREMENTS OF WATER RIGHTS APPLICATIONS GENERAL PROVISIONS

The Texas Natural Resource Conservation Commission (commission) proposes amendments to §§295.9, 295.13, 295.31, 295.32, 295.51, 295.71, 295.72, 295.133, and 295.202.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES

Senate Bill (SB) 2, 77th Legislature, 2001, made numerous significant changes to the Texas Water Code (TWC). Among those changes to surface water law in Texas was the elimination of irrigation as a type of use for which one could obtain a permit to use state water. In the place of the old irrigation use, SB 2, §§2.01 - 2.03, created the new use category of agricultural use. This new agricultural use category included irrigation use and provided a detailed listing of other activities that are included in the agricultural use category, including floriculture, viticulture, silviculture, horticulture, nursery operations, raising of animals for production of food and fiber, raising equine animals, wildlife management, and planting of cover crops. Some of these types of use, such as raising of animals in confined animal feeding operations (CAFOs) or certain types of nursery operations, could have been permitted under the industrial use category prior to September 1, 2001. Most of the proposed amendments to Chapter 295 relate to implementing this change from irrigation use to agricultural use and providing for the transition.

Other provisions of SB 2 implemented by this proposed rulemaking include amendments to TWC, §11.146 and §11.177, related to forfeiture and cancellation of water rights. SB 2 also exempted certain water right applications from the one-time use fee at the time of the applications. These provisions are implemented in this proposed rulemaking.

Also as part of this rulemaking implementing House Bill 247, 77th Legislature, 2001, and portions of SB 2, the commission proposes revisions to Chapter 288, Water Conservation Plans, Drought Contingency Plans, Guidelines and Requirements, and Chapter 297, Water Rights, Substantive. These proposed revisions are also published in this issue of the Texas Register .

SECTION BY SECTION DISCUSSION

Subchapter A - Requirements of Water Rights Applications General Provisions

Division 1, General Requirements

The proposed amendments to §295.9, Water Conservation and Drought Contingency Plans, revise the term "irrigation use" to "agricultural use" to implement the new agricultural use category that expanded the existing irrigation use to include other types of agricultural activities.

The proposed amendment to §295.13, Interbasin Transfers, is necessary to correct the section title in a reference to §297.52. The title of §297.52 is proposed to become Suppliers of Water for Agriculture.

Division 3, Additional Requirements for Irrigation

The title of Division 3 is proposed to be changed to Additional Requirements for Agriculture to reflect the revisions proposed in the division.

The proposed amendment to §295.31, Ownership Information Required; Exceptions, changes the phrase "irrigation of" to "agricultural use on" to reflect the new agricultural use category created by SB 2.

The proposed amendment to §295.32, Documents and Information To Be Submitted, revises the term "irrigation" to "agricultural use" to reflect the new agricultural use category created by SB 2.

The proposed amendment to §295.51, Application for Texas Water Code, §11.143, Permit, rewords subsection (a)(9) to clarify that the information required in paragraph (9) is required only for applicants who intend to use water to irrigate under the new agricultural use category.

The proposed amendment to §295.71, Applications To Amend a Permit, tracks new language in TWC, §11.122. That language is proposed to be placed in the rules to clarify that existing water right holders of industrial or irrigation permits are not required to seek an amendment to their permit if their actual use would be classified as an agricultural use. Holders of existing certified filings or certificates of adjudication that were classified as industrial or irrigation before September 1, 2001, but would now be classified as agricultural may choose to file an application for an amendment to change the use to an agricultural use. Such applications are considered by the commission as minor amendments not requiring notice.

The proposed amendments to §295.72, Applications for Extension of Time, clarify commission intent and provide an additional cross-reference. In subsections (a) and (b), the term "due diligence" is replaced with "reasonable diligence" to follow the wording of TWC, §11.146 and §11.177, in order to clarify that the commission does not intend to set a different standard for cancellation of water rights for failure to begin or complete construction than is expressed in TWC, §11.177 for cancellation of a water right. The proposed amendment to subsection (c) adds an additional reference to the substantive rules related to forfeiture of water rights so as to avoid repeating new limitations of forfeiture that are proposed in §297.74.

Subchapter B - Water Use Permit Fees

The amendments to §295.133, One-Time Use Fees, include changes to clarify that all of the fees listed in the section must be submitted at the time an application is filed, even if those fees can be considered use fees. The proposed amendments also include changing the one-time irrigation use fee to a one-time agricultural use fee to reflect the new agricultural use created by SB 2. The proposed amendments also add a waiver of the one-time use fee for applications for instream use water rights to be deposited into the Texas Water Trust. The amendment is necessary to implement the waiver in TWC, §5.235(j).

Subchapter F - Miscellaneous

The proposed amendments to §295.202, Reports, correct an obsolete reference.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

John Davis, Technical Specialist with Strategic Planning and Appropriations, determined that for each year of the first five-year period the proposed amendments are in effect, no significant fiscal implications are anticipated for the agency or other units of state and local government due to implementation of the proposed amendments.

The proposed amendments implement certain provisions of SB 2. The bill made numerous changes to the TWC, including eliminating irrigation and in its place creating agricultural as a type of use for which an entity could obtain a permit to use state water. Additionally, SB 2 exempted certain water right applications from the one-time use fee.

The proposed amendments would apply to all units of state and local government seeking surface water use permits or amendments and those units of government seeking a permit or to amend a permit to place water rights into the Texas Water Trust.

The proposed amendments would update existing commission procedural water rights rules to reflect the water use classification change. These revisions only change the categories of water use and do not introduce any new permit requirements. Therefore, the commission does not anticipate significant fiscal implications for units of state and local government due to implementation of these provisions.

The proposed amendments would also restate that applicants seeking a permit or permit amendment to place water rights into the Texas Water Trust for beneficial instream use would be exempt from the one-time use fee. This would protect the water rights from cancellation and benefit the aquatic life. This is not a new provision, but is included in this rulemaking to reinforce that this exemption exists. No significant fiscal implications to units of state or local government are anticipated due to implementation of this provision.

PUBLIC BENEFITS AND COSTS

Mr. Davis also determined for each of the first five years the proposed amendments are in effect, the public benefit anticipated as a result of implementing the proposed amendments will be the clarification of water use categories, which is intended to provide affected individuals and businesses with a clearer understanding of which requirements apply to them. Additionally, the exemption of the one-time use fee for rights placed into the Texas Water Trust may encourage placement of unused or underutilized water rights into the trust, which could potentially improve the environmental condition of streams, bays, or estuaries.

The proposed amendments implement certain provisions of SB 2, which made numerous changes to the TWC, including eliminating irrigation and in its place creating agricultural as a type of use for which an entity could obtain a permit to use state water. Additionally, SB 2 exempted certain water right applications from the one-time use fee.

The proposed amendments would apply to all applicants seeking surface water use permits or amendments and those individuals and businesses seeking a permit or to amend a permit to place water rights into the Texas Water Trust.

The proposed amendments would update existing commission procedural water rights rules to reflect the water use classification change. These revisions only change the categories of water use and do not introduce any new permit requirements. Therefore, the commission does not anticipate significant fiscal implications for individuals and businesses due to implementation of these provisions.

The proposed amendments would also restate that applicants seeking a permit or permit amendment to place water rights into the Texas Water Trust for beneficial instream use would be exempt from the one-time use fee. This would protect the water rights from cancellation and benefit the aquatic life. This is not a new provision, but is included in this rulemaking to reinforce that this exemption exists. No significant fiscal implications to individuals and businesses are anticipated due to implementation of this provision.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

There are no adverse fiscal implications anticipated for small or micro-businesses due to the implementation of the proposed amendments, which are intended to implement certain provisions of SB 2. The bill made numerous changes to the TWC, including eliminating irrigation and in its place creating agricultural as a type of use for which an entity could obtain a permit to use state water. Additionally, SB 2 exempted certain water right applications from the one-time use fee.

The proposed amendments would apply to all applicants seeking surface water use permits or amendments and those small and micro-businesses seeking a permit or to amend a permit to place water rights into the Texas Water Trust.

The proposed amendments would update existing commission procedural water rights rules to reflect the water use classification change. These revisions only change the categories of water use and do not introduce any new permit requirements. Therefore, the commission does not anticipate significant fiscal implications for small and micro-businesses due to implementation of these provisions.

The proposed amendments would also restate that applicants seeking a permit or permit amendment to place water rights into the Texas Water Trust for beneficial instream use would be exempt from the one-time use fee. This would protect the water rights from cancellation and benefit the aquatic life. This is not a new provision, but is included in this rulemaking to reinforce that this exemption exists. No significant fiscal implications to small or micro-businesses are anticipated due to implementation of this provision.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission reviewed the proposed rulemaking and determined that a local employment impact statement is not required because the proposed rules do not adversely affect a local economy in a material way for the first five years that the proposed rules are in effect.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in that statute. "Major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a section of the state. The rule amendments in Chapter 295 are procedural in nature, relating to filing applications and procedural requirements for certain actions, and do not adversely affect the economy, productivity, competition, jobs, the environment, or public health and safety.

In addition, §2001.0225 only applies to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. These amendments are necessary to implement state law, do not exceed any requirements of that law, and do not involve federal law.

The commission invites public comment on the draft regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

The commission prepared a preliminary takings impact assessment for these rule amendments under Texas Government Code, §2007.43. The purpose of these amendments is to implement procedural amendments made by SB 2 in TWC, Chapter 11. These amendments relate to changing and adding to the definition of irrigation and agriculture and making changes to procedural rules for cancellation of water rights. These amendments do not adversely affect private real property.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission reviewed the proposed rulemaking and found that the proposal is a rulemaking identified in Coastal Coordination Act Implementation Rules, 31 TAC §505.11, or will affect an action/authorization identified in Coastal Coordination Act Implementation Rules, 31 TAC §505.11, and will, therefore, require that applicable goals and policies of the Texas Coastal Management Program (CMP) be considered during the rulemaking process. In accordance with the regulations of the Coastal Coordination Council, the commission reviewed the proposed rulemaking for consistency with the CMP goals and policies. The CMP goal applicable to this rulemaking is the goal in 31 TAC §501.12(l) to protect, preserve, restore, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (CNRAs). The CMP policies applicable to this rulemaking are the policies in 31 TAC §501.14(r), regarding appropriations of water.

The purpose of the proposed rules is to implement portions of SB 2. More specifically, the proposed rules include changes and additions to the definition of irrigation and agriculture and changes to procedural rules for cancellation of water rights. Promulgation and enforcement of the proposed rules will not have a direct or significant adverse effect on any CNRAs, nor will the rulemaking have a substantive effect on commission actions subject to the CMP. No new uses for water rights are authorized by these amendments. In accordance with SB 2, certain types of uses that were formally industrial or irrigation uses are now reclassified as agricultural uses. Therefore, the rulemaking is consistent with the applicable goals and policy. The commission seeks public comment on this preliminary consistency determination.

ANNOUNCEMENT OF HEARING

A public hearing on this proposal will be held in Austin on May 9, 2002 at 2:00 p.m., Texas Natural Resource Conservation Commission complex, Building F, Room 2210, 12100 Park 35 Circle. The hearing will be structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order of registration. There will be no open discussion during the hearing; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearing and will answer questions before and after the hearing.

Persons with disabilities who have special communication or other accommodation needs who are planning to attend the hearing should contact the Office of Environmental Policy, Analysis, and Assessment, at (512) 239-4900. Requests should be made as far in advance as possible.

SUBMITTAL OF COMMENTS

Comments may be submitted to Joyce Spencer, MC 205, Office of Environmental Policy, Analysis, and Assessment, Texas Natural Resource Conservation Commission, P.O. Box 13087, Austin, Texas 78711-3087, or faxed to (512) 239-4808. All comments should reference Rule Log Number 2001-031-297-WT. Comments must be received by 5:00 p.m., May 13, 2002. For further information, please contact Jill Burditt, Regulation Development Section, (512) 239-0560.