ADOPTED 
 RULES 
 
 An agency may take final action on a section 30 days after a proposal has been 
published in the  Texas Register. The section becomes effective 20 days after 
the agency files the correct document with the  Texas Register, unless a later 
date is specified or unless a federal statute or regulation requires 
implementation of the action on shorter notice. 
 If an agency adopts the section without any changes to the proposed text, only 
the preamble of the notice and statement of legal authority will be published. 
If an agency adopts the section with changes to the proposed text, the proposal 
will be republished with the changes. 
 
   
  TITLE 16. ECONOMIC REGULATION 
 Part I. Railroad Commission of Texas 
  Chapter 15. Alternative Fuels Research and Education Division 
  
  Propane Water Heater Rebate Program 
 
  16 TAC sec.sec.15.101, 15.105, 15.110, 15.115, 15.120, 15.125, 15. 130, 
15.135, 15.140, 15.145, 15.150, 15.155, 15.160, 15.165 
 
  The Railroad Commission of Texas adopts new sec.sec.15.101, 15.105, 15.110, 
15.115, 15.120, 15.125, 15.130, 15.135, 15.140, 15.145, 15.150, 15.155, 15.160, 
and 15.165, concerning the establishment and administration of a consumer rebate 
program for water heaters fueled by propane (liquefied petroleum gas; LPG), 
without changes to the proposed text as published in the June 21, 1994, issue of 
the Texas Register (19 TexReg 4802). 
 The new sections establish a program that achieves energy conservation and 
efficiency and improves the quality of air in this state as authorized by the 
Texas Natural Resources Code, sec.113.2435(a) and sec.113.2435(b). Participation 
in the program is voluntary, and rebate payments are entirely at the discretion 
of the Railroad Commission of Texas. No person has a legal entitlement or other 
right to a rebate under this program. 
 New sec.15.101 states the purpose of the program, and  sec.15.105 defines terms 
used in the rule. New sec.15.110 establishes the rebate program for a period of 
two years unless the commission changes the termination date, and new sec.15.115 
limits funding to 25% of the funds available in the Alternative Fuels Research 
and Education Fund. Eligibility requirements, application procedures and 
conditions for receipt of rebates are described in sec. sec.15. 120-15.130. New 
sec.15.135 places sole responsibility for selection of equipment and an 
installer on the consumer. Sections 15.140-15.145 authorize the commission to 
set the amount of the rebate and the energy efficiency factor of an eligible 
water heater and prescribe verification, safety, disallowance and refund 
procedures and requirements. New sec.15.150 establishes requirements for 
assignment of rebates. Conditions under which a propane dealer may be suspended 
or declared ineligible to participate in the rebate program are set out in 
sec.15.155. Procedures for the receipt and handling of complaints and penalties 
for violation of rebate program rules are set out in sec.sec.15.160-15.165. 
 The commission views the consumer rebate program as an innovative tool for 
encouraging the use of environmentally beneficial alternative fuels which can 
contribute to the improvement of air quality in this state. For that reason, the 
commission wanted to implement this program as quickly as possible, while 
ensuring adequate opportunity to receive ideas, information, and suggestions 
about the consumer rebate program from a wide array of interested persons. To 
that end, on May 16, 1994, the commission authorized the issuance of a working 
draft of the proposed rules establishing a pilot consumer water heater rebate 
program and the convening of a public hearing on the working draft to receive 
input from interested persons before publishing a proposed rule. By having staff 
meet with interested persons and receive oral and written comments early in the 
process, the commission sought to cover gaps and resolve inconsistencies in the 
working draft of the rules, address areas of concern to interested persons, and 
achieve consensus before publishing proposed rules. 
 Notice of the public hearing was given by letter mailed on May 19, 1994, to 
more than 70 individuals and groups (including electric utilities and their 
representatives, propane industry representatives, and consumer and 
environmental groups) and by publication in the May 24, 1994, issue of the Texas 
Register. Commission staff from the Alternative Fuels Research and Education 
Division (AFRED) conducted the public hearing on June 3, 1994, at which time 
three entities offered oral and written comment: Brazos Electric Cooperative, 
Association of Texas Electric Cooperatives, and Texas Propane Gas Association. 
Written comments were received from Modern Diversified Propane Services of 
Austin and Dickens Electric Cooperative. A representative of the General Land 
Office attended the hearing but submitted no oral or written comments. 
 The Association of Texas Electric Cooperatives and Dickens Electric Cooperative 
said the program was bad public policy because it favored propane over 
electricity and interfered in the competitive fuels marketplace. The commission 
responds that the legislature established the public policy of achieving energy 
conservation and efficiency and improving the quality of air in this state in 
passing House Bill 2822, 73rd Legislature, 1993, which authorizes the commission 
to implement consumer rebate programs for the purchasers of appliances and 
equipment fueled by propane or other environmentally beneficial alternative 
fuels. 
 The Association and Brazos Electric Cooperative also said the working draft 
preamble did not lay out a full methodology and sources in support of the 
efficiency, emissions, and cost benefits claimed; Brazos submitted two pages of 
questions about how commission staff arrived at its estimates. In response to 
these observations and questions, the AFRED staff rewrote the preamble to 
provide a much more detailed analysis of the claimed benefits; made specific 
reference to the publications used as the sources of water use, heater 
efficiency, and energy costs; and extended a written offer to meet with 
interested persons to review in further detail the methodology, source 
materials, and assumptions underlying the cost, efficiency, and emissions 
estimates made in the preamble to the proposed rules. No one telephoned, wrote, 
or visited the AFRED offices in response to this offer. No requests for a second 
public hearing were received. 
 Modern Propane suggested rebates be limited to one per family or commercial 
entity. Limits or caps (not necessarily one per residence) were discussed and 
rejected by the AFRED advisory committee on the grounds that limits would make 
the program less attractive to certain consumers, such as apartment house 
residents and owners and new-construction contractors. The commission agrees 
that setting limits on rebates at this time would unduly restrict the 
opportunity to encourage use of propane water heaters. 
 Written comments of Texas Propane Gas Association (TPGA), dated May 11, 1994, 
concerned a preliminary working draft. The working draft circulated for comment 
at the June 3, 1994, hearing already addressed TPGA's May 11 comments. 
 Following publication of the proposed sections on June 21, 1994, the commission 
received no comments from groups or associations. The commission received only 
one comment from a business, which recommended restricting the availability of 
rebates to two per applicant so as to spread the benefits of the program to a 
greater number of consumers. The commission agrees that the rebate program's 
benefits must be distributed broadly to the public and not limited to a few 
applicants. In the absence of experience from operation of the program, however, 
the commission believes limiting rebates to two per applicant could impair the 
program's effectiveness in reaching some classes of consumers, e.g. , occupants 
and owners of apartment buildings or other multi-unit residences. The commission 
will monitor applications for multiple rebates throughout the program and take 
appropriate action to ensure adequate distribution of the program's benefits. 
Such actions could include actions under sec.15.120(e), which allows the 
commission to limit the total amount of rebates that may be paid to any 
applicant. 
 The new sections are adopted under the Texas Natural Resources Code, sec.113. 
2435(a) and sec.113.2435(b), which authorizes the commission to adopt rules 
relating to the establishment of consumer rebate programs for purchasers of 
appliances and equipment fueled by LPG or other environmentally beneficial 
alternative fuels for the purpose of achieving energy conservation and 
efficiency and improving the quality of air in this state. The Texas Natural 
Resources Code, sec.113.243(c)(6), authorizes the commission to use money in the 
Alternative Fuels Research and Education Fund to pay the direct and indirect 
cost of such programs. The Texas Natural Resources Code, sec.sec.113.248, 
113.249, and 113.250, prescribe civil and criminal penalties and establish an 
enforcement mechanism for violations of the Texas Natural Resources Code or 
commission rules. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 1, 1994. 
 TRD-9445949 
  Mary Ross McDonald 
 Assistant Director, Legal Division, Gas Utilities/LP Gas Section 
 Railroad Commission of Texas 
    Effective date: August 22, 1994 
 Proposal publication date: June 21, 1994 
 For further information, please call: (512) 463-7008 
         
               
  TITLE 22. EXAMINING BOARDS 
 Part X. Texas Funeral Service Commission 
  Chapter 203. Licensing and Enforcement-Specific Substantive Rules 
  
  22 TAC sec.sec.203.1, 203.7-203.9, 203.11, 203.17, 203.18 
 
  The Texas Funeral Service Commission adopts amendments to sec.sec.203.1, 203. 
7-203.9, 203.11, 203.17, and 203.18, concerning disclosures required to be made 
by providers of funeral services and merchandise, with changes to the proposed 
text as published in the May 13, 1994, issue of the Texas Register (19 TexReg 
3624). 
 The amendments coordinate and conform existing substantive rules with amended 
regulations of the Federal Trade Commission's Funeral Practices Trade Regulation 
Rule, at 16 Code of Federal Regulations (CFR), Part 453, concerning price 
disclosures and fraudulent and deceptive practices applicable to the sale of 
funeral services and merchandise. 
 No comments were received regarding the proposed amendments. Changes were made 
to improve clarity and intent. 
 The amendments are adopted under Texas Civil Statutes, Article 4582b, sec.5, 
which provide the Texas Funeral Service Commission with authority to adopt rules 
to administer Article 4582b. 
 
 
  sec.203.1. Definitions.  The following words and terms, when used in this 
chapter, shall have the following meanings, unless the context clearly indicates 
otherwise. 
   
     Alternative Container -An unfinished wood box or other non-metal receptacle 
or enclosure, without ornamentation or a fixed interior lining, which is 
designed for the encasement of human remains and which is made of fiberboard, 
pressed-wood, composition materials (with or without an outside covering) or 
like materials. 
   
     Cash advance item-Any item of service or merchandise described to a 
purchaser as a "cash advance, accommodation, cash disbursement" or similar 
terms. A cash advance item is also any item which is not an offering of the 
funeral provider but is obtained from a third party and paid for by the funeral 
provider on the purchaser's behalf. Cash advance items may include, but are not 
limited to, cemetery or crematory services, pallbearers, public transportation, 
clergy honoraria, flowers, musicians or singers, nurses, obituary notices, 
gratuities and death certificates. 
   
     Funeral ceremony -A service commemorating the deceased with the body 
present. 
   
     Funeral goods-Any "funeral merchandise," as defined by Texas Civil 
Statutes, Article 4582b, sec.1(N), which is sold or offered for sale directly to 
the public for use in connection with funeral services. 
   
     Funeral provider -Any person, partnership or corporation, including a 
funeral director or a funeral establishment and any employee or agent, that 
sells or offers to sell funeral goods and funeral services to the public. 
   
     Funeral services -For purposes of sec.sec.203.7, 203.9, 203. 11, and 203.18 
of this title (relating to Comprehension of Disclosures; Price Disclosure; 
Clarification of Fraudulent or Deceptive Conduct in Providing Funeral Services 
or Merchandise; and Presentation of Required Price Lists, Consumer Brochures, 
and Written Memorandum or Purchase Agreements), any funeral service as defined 
in Texas Civil Statutes, Article 4582b,  sec.1(O), sold or offered for sale to 
the public which may be used to: 
 
  (A) care for and prepare deceased human bodies for burial, cremation, or other 
final disposition; and 
   
  (B) arrange, supervise, or conduct the funeral ceremony or final disposition 
of deceased human bodies. 
     
     Memorial service -A ceremony commemorating the deceased without the body 
present. 
   
     Outer burial container-Any "outer enclosure," as defined in Texas Civil 
Statutes, Article 4582b,  sec.1(P), which is designed for placement in the grave 
above or around the casket and includes containers commonly known as burial 
vaults, grave boxes, and grave liners. 
   
     Services of funeral director and staff -The services of the funeral 
director and staff which are not included in the prices of other categories that 
must be separately stated on the general price list or written memorandum 
furnished by a funeral provider in arranging and supervising a funeral, 
including but not limited to conducting the arrangement conference, planning the 
funeral, obtaining necessary permits, placing obituary notices, any other 
services offered by the funeral establishment, and any unallocated overhead. 
 
   
  sec.203.7. Comprehension of Disclosures. 
 
  (a) Unfair or deceptive acts or practices. In selling or offering to sell 
funeral goods or funeral services to the public, it is an unfair or deceptive 
act or practice for a funeral provider to fail to furnish accurate price 
information disclosing the cost to the purchaser for each of the specific 
funeral goods and funeral services used in connection with the disposition of 
deceased human bodies, including at least the price of embalming, transportation 
of remains, use of facilities, caskets, outer burial containers, immediate 
burials, or direct cremations, to persons inquiring about the purchase of 
funerals. Any funeral provider who complies with the preventive requirements of 
these rules is not engaged in the unfair or deceptive acts or practices defined 
here. 
   
  (b) To prevent unfair or deceptive acts or practices, funeral providers must 
make all disclosures required by these rules in a clear and conspicuous manner. 
No statement or information may be included in a casket, outer burial container, 
or general price list which alters or contradicts the information required by 
these rules to be included in those lists. 
 
     
  sec.203.8. Telephone Price Disclosures. To prevent unfair or deceptive acts or 
practices, funeral providers must tell persons who ask by telephone about the 
funeral establishment's offerings or prices any accurate information from the 
General Price List, as defined in Texas Civil Statutes, Article 4582b, sec.1(S), 
and any other readily available information that reasonably answers the 
question. 
 
   
  sec.203.9. Price Disclosure. 
 
  (a) To prevent unfair or deceptive acts or practices, funeral providers must 
give a printed or typewritten General Price List, as defined in Texas Civil 
Statutes, Article 4582b, sec.1(S), for retention to persons who inquire in 
person about the offering, availability or price of funeral goods or services 
offered by the funeral provider. 
   
  (b) The General Price List must be given upon beginning any in-person 
discussion of the prices of or the overall type of funeral service or 
disposition, or of specific funeral goods or services offered by the funeral 
provider, whichever occurs first, and before showing any casket or outer burial 
container. 
   
  (c) The requirement of subsection (b) of this section applies whether the 
discussion takes place in the funeral establishment or elsewhere; provided, 
however, that when the deceased is removed for transportation to the funeral 
establishment, an in-person request at that time for authorization to embalm 
does not, by itself, trigger the requirement to give the General Price List if 
the funeral provider, in seeking prior embalming approval, discloses that 
embalming is not required by law. Any other discussion during that time about 
prices or the selection of funeral services triggers the requirement to give 
consumers a General Price List. 
   
  (d) The General Price List, as defined in Texas Civil Statutes, Article 4582b, 
sec.1(S), must contain a caption describing the list as a "General Price List," 
the name, address, and telephone number of the funeral establishment's place of 
business, the effective date for the price list, and the printed notices 
required by Texas Civil Statutes, Article 4582b, sec.1(S), and 
sec.203.11(g)(2)(A)(i) of this title (relating to Clarification of Fraudulent or 
Deceptive conduct in Providing Funeral Services or Merchandise). 
   
  (e) The General Price List must also contain the retail prices (expressed in 
either as a flat fee, or as the price per hour, mile or other unit of 
computation), and the information specified below for at least each of the 
following items, if offered for sale: 
 
  (1) forwarding of remains to another funeral establishment, together with a 
list of the services provided for any quoted price; 
   
  (2) receiving remains from another funeral establishment, together with a list 
of the services provided for any quoted price; 
   
  (3) the price range for the direct cremations offered by the funeral 
establishment, together with: 
 
  (A) a separate price for a direct cremation where the purchaser provides the 
container; 
   
  (B)  separate prices for each direct cremation offered where the purchaser 
obtains a casket or alternative container from the funeral provider; and 
   
  (C) a description of the services and container (where applicable), included 
in each price; 
     
  (4) the price range for the immediate burials offered by the funeral 
establishment, together with: 
 
  (A) separate price for the immediate burial where the purchaser provides the 
casket; 
   
  (B) separate prices for each immediate burial offered where the purchaser 
obtains a casket or alternative container from the funeral provider; and 
   
  (C) description of the services and container (where applicable) included in 
that price; 
     
  (5) transfer of remains to funeral establishment; 
   
  (6) embalming; 
   
  (7) other preparation of the body; 
   
  (8) casket prices. The General Price List must contain the retail prices of 
all caskets and alternative containers offered which do not require special 
ordering and enough information to identify each. In lieu of the requirement to 
include individual casket and alternative container prices on the same list as 
other retail prices, the price range for the caskets and alternative containers 
offered by the funeral provider may be listed on the General Price List under 
the following conditions. 
 
  (A) The General Price List must contain the range of prices for caskets and 
alternative containers offered by the funeral provider, together with the 
following statement:  A complete price list will be provided at the funeral 
establishment. 
   
  (B) A separate casket price list must be given at the time the General Price 
list is required to be given pursuant to subsection (b) of this section. 
   
  (C) The separate list must contain the following: 
 
  (i) a caption describing the list as a Casket Price List; 
   
  (ii) the name, address and telephone number of the funeral establishment's 
place of business; 
   
  (iii) the retail prices of all caskets and alternative containers offered 
which do not require special ordering and enough information to identify each; 
   
  (iv) the effective date for the stated prices; and 
   
  (v) the notice required by Texas Civil Statutes, Article 4582b, sec.1(S); 
       
  (9) outer burial container prices. The General Price List must contain the 
retail prices of all outer burial containers offered which do not require 
special ordering and enough information to identify each container. In lieu of 
the requirement to include individual outer burial container prices on the same 
list as other retail prices, the price range for the outer burial containers 
offered by the funeral provider may be listed on the General Price List under 
the following conditions. 
 
  (A) The General Price List must contain the range of prices for outer burial 
containers offered by the funeral provider, together with the following 
statement: A complete price list will be provided at the funeral establishment . 
   
  (B) The separate outer burial container price list must be given at the time 
the General Price list is required to be given pursuant to subsection (b) of 
this section. 
   
  (C)  The separate list must contain the following: 
 
  (i) a caption describing the list as an Outer Burial Container Price List; 
   
  (ii)  the name, address and telephone number of the funeral establishment's 
place of business; 
   
  (iii) the retail prices of all outer burial containers offered which do not 
require special ordering and enough information to identify each; 
   
  (iv) the effective date for the stated prices; and 
   
  (v) the notice required by Texas Civil Statutes, Article 4582b, sec.1(S); 
       
  (10) use of funeral establishment facilities and staff for viewing the 
deceased; 
   
  (11) use of funeral establishment facilities and staff for funeral ceremony; 
   
  (12) use of funeral establishment facilities and staff for memorial service; 
   
  (13)  use of funeral establishment equipment and staff for graveside service; 
   
  (14) use of funeral establishment's hearse; 
   
  (15) use of funeral establishment's limousines; 
   
  (16) either subparagraph (A) or (B) of this paragraph (which shall be the only 
fee for services, facilities, or unallocated overhead permitted to be non-
declinable, unless otherwise required by law): 
 
  (A) the price for the services of funeral director and staff, together with a 
list of the principal basic services provided for any quoted price; however, if 
the charge cannot be declined by the purchaser: 
 
  (i) the following statement must be included: This fee for our basic services 
will be added to the total cost of the funeral arrangements you select. (This 
fee is already included in our charges for direct cremations, immediate burials, 
and forwarding or receiving remains.); and 
   
  (ii)  the quoted price shall include all charges for the recovery of 
unallocated funeral establishment overhead, and funeral providers may include in 
the required disclosure the phrase "and overhead" after the word "services"; or 
     
  (B) alternatively, the fee for the services of funeral director and staff may 
be included in the price of caskets and, if so, shall include all charges for 
recovery of unallocated funeral establishment overhead. 
 
  (i) Where the alternative of including the fee for the services of funeral 
director and staff in the price of caskets is chosen, the following statement 
must be shown on the General Price List, together with the prices of individual 
caskets (or the range of casket prices where a separate casket price list is 
used), and on any separate Casket Price List together with the individual casket 
prices: Please note that a fee for the use of our basic services is included in 
the price of our caskets. Our services include (specify here the principal basic 
services included in the quoted price). 
   
  (ii) Funeral providers may include in the required disclosure the phrase "and 
overhead" after the word "services". 
       
  (17) other itemized services provided by the funeral establishment staff, 
which must be declinable; and 
   
  (18) specifically itemized cash advance items. These prices must be given to 
the extent then known or reasonably ascertainable. If the prices are not known 
or reasonably ascertainable, a good faith estimate shall be given and a written 
statement of the actual charges shall be provided before the final bill is paid. 
     
  (f) To further prevent unfair or deceptive acts or practices, funeral 
providers must give an itemized written memorandum or funeral purchase agreement 
(as defined in Texas Civil Statutes, Article 4582b, sec.1(T)) for retention to 
each person who arranges a funeral, or other disposition of human remains, at 
the conclusion of the discussion of arrangements. The statement must contain at 
least the following information: 
 
  (1) the itemized cost of the funeral goods and funeral services selected by 
the customer from the general price list; 
   
  (2) each cash advance item or amount paid or owed by the funeral provider to 
another person on behalf of the customer, and each fee which the funeral 
provider charges the customer for the cost of advancing funds or becoming 
indebted to another person on behalf of the customer, together with the 
statement required by sec.203.11(f)(2) of this title (relating to Clarification 
of Fraudulent or Deceptive Conduct in Providing Funeral Services or 
Merchandise); 
   
  (3) the total cost of the goods and services selected; 
   
  (4) the following printed notices: 
 
  (A) Charges are made only for items that are used. If the type of funeral 
selected requires extra items, we will explain the reasons for the extra items 
in writing on this memorandum. (As required by Texas Civil Statutes, Article 
4582b, sec.1(T); and 
   
  (B) Charges are only for those items that you selected or that are required. 
If we are required by law or by a cemetery or crematory to use any items, we 
will explain the reasons in writing below; and 
     
  (5) the name, mailing address, and telephone number of the Texas Funeral 
Service Commission, and a statement indicating that complaints may be directed 
to the Commission; and 
   
  (6) the name, address, and telephone number of the funeral establishment. 
     
  (g)  Funeral providers may give persons any other price information in any 
other format, so long as the requirements of the commission's rules are also 
complied with. 
 
     
  sec.203.11. Clarification of Fraudulent or Deceptive Conduct in Providing 
Funeral Services or Merchandise. 
 
  (a) Embalming provisions. 
 
  (1) Deceptive acts or practices. In selling or offering to sell funeral goods 
or funeral services to the public, it is a deceptive act or practice for a 
funeral provider to: 
 
  (A) represent that state or local law requires that a deceased person be 
embalmed; 
   
  (B) fail to disclose that embalming is not required by law except in certain 
special cases. 
     
  (2) Preventive requirements. To prevent these deceptive acts or practices, 
funeral providers must: 
 
  (A) not represent that a deceased person is required to be embalmed for: 
 
  (i) direct cremation; 
   
  (ii) immediate burial; or 
   
  (iii) a closed casket funeral without viewing or visitation when refrigeration 
is available; and 
     
  (B) place the following disclosure on the general price list, in immediate 
conjunction with the price shown for embalming: Embalming is not required by 
law. Embalming may be necessary, however, if you select certain funeral 
arrangements, such as a funeral with viewing. If you do not want embalming, you 
usually have the right to choose an arrangement that does not require you to pay 
for it, such as direct cremation or immediate burial. 
       
  (b) Casket for cremation provisions. 
 
  (1)  Deceptive acts or practices. In selling or offering to sell funeral goods 
or funeral services to the public, it is a deceptive act or practice for a 
funeral establishment, a crematory, or other funeral provider to: 
 
  (A)  represent that state or local law requires a casket for direct cremation; 
   
  (B) represent that a casket is required for direct cremation; or 
   
  (C) require that a casket be purchased for direct cremation. 
     
  (2)  Preventive requirements. To prevent these deceptive acts or practices, 
funeral providers who arrange direct cremations must: 
 
  (A) if direct cremations are arranged, place the following disclosure in 
immediate conjunction with the price range shown for direct cremation: If you 
want to arrange a direct cremation, you can use an alternative container. 
Alternative containers encase the body and can be made of materials like 
fiberboard or composition materials (with or without an outside covering). The 
containers we provide are (specify here the containers provided); 
   
  (B)  make an alternative container available for direct cremations. 
       
  (c)  Outer burial container provisions. 
 
  (1) Deceptive acts or practices. In selling or offering to sell funeral goods 
or funeral services to the public, it is a deceptive act or practice for a 
funeral provider to: 
 
  (A) represent that state or local laws or regulations, or particular 
cemeteries, require outer burial containers when such is not the case; 
   
  (B) fail to disclose to persons arranging funerals that state law does not 
require the purchase of an outer burial container. 
     
  (2)  Preventative requirements. To prevent these deceptive acts or practices, 
funeral providers must place the following disclosure in immediate conjunction 
with the outer burial container prices or price range listed on the general 
price list, and if the prices of outer burial containers are listed on a 
separate outer burial container price list, in immediate conjunction with those 
prices: In most areas of the country, no state or local law makes you buy a 
container to surround the casket in the grave. However, many cemeteries require 
that you have such a container so that the graves will not sink in. Either a 
grave liner or a burial vault will satisfy these requirements. 
     
  (d) General provisions on legal and cemetery requirements. 
 
  (1) Deceptive acts or practices. In selling or offering to sell funeral goods 
or funeral services to the public, it is a deceptive act or practice for funeral 
providers to represent that federal, state, or local laws, or particular 
cemeteries or crematories, require the purchase of any funeral goods or funeral 
services when such is not the case. 
   
  (2)  Preventive requirements. To prevent these deceptive acts or practices, as 
well as the deceptive acts or practices identified in subsections (a)(1), (b) 
(1), and (c)(1) of this section, funeral providers must identify and briefly 
describe in writing on the statement of funeral goods and services selected any 
legal, cemetery, or crematory requirement which the funeral provider represents 
to persons as compelling the purchase of funeral goods or funeral services for 
the funeral which that person is arranging. 
     
  (e)  Provision on preservation and protective value claims. In selling or 
offering to sell funeral goods and funeral services to the public, it is a 
deceptive act or practice for a funeral provider to: 
 
  (1) represent that funeral goods or funeral services will delay the natural 
decomposition of human remains for a long-term or indefinite time; 
   
  (2) represent that funeral goods have protective features or will protect the 
body from graveside substances, when such is not the case. 
     
  (f) Cash advance provisions. 
 
  (1) Deceptive acts or practices. In selling or offering to sell funeral goods 
or funeral services to the public, it is a deceptive act or practice for a 
funeral provider to: 
 
  (A) represent that the price charged for a cash advance item is the same as 
the cost to the funeral director for the item when such is not the case; 
   
  (B) fail to disclose to persons arranging funerals that the price being 
charged for a cash advance item is not the same as the cost to the funeral 
provider for the item when such is the case. 
     
  (2) Preventive requirements. To prevent these deceptive acts or practices, 
funeral providers must place the following sentence in the itemized statement of 
funeral goods and services selected, in immediate conjunction with the list of 
itemized cash advance items required by sec.203.9(f)(2) of this title (relating 
to Price Disclosure), if the funeral provider makes a charge upon, or receives 
and retains a rebate, commission or trade or volume discount upon a cash advance 
item: We charge you for our services in obtaining: (specify here the cash 
advance items for which charges are made for obtaining the items). 
     
  (g) Other required purchases of funeral goods or funeral services. 
 
  (1) Unfair or deceptive acts or practices. In selling or offering to sell 
funeral goods or funeral services, it is an unfair or deceptive act or practice 
for a funeral provider to: 
 
  (A) condition the furnishing of any funeral goods or funeral services to a 
person arranging a funeral upon the purchase of any other funeral good or 
service, except as required by law or as otherwise permitted by these rules; or 
   
  (B) charge any fee as a condition to furnishing any funeral goods or funeral 
services to a person arranging a funeral, other than the fees for: 
 
  (i) services of funeral director and staff permitted by sec.203.9(e) (16); 
   
  (ii) other funeral services and funeral goods selected by the purchaser from 
the general price list; and 
   
  (iii) other funeral goods or services required to be purchased, as explained 
on the funeral purchase agreement, in accordance with subsection (d)(2) of this 
section. 
       
  (2) Preventive requirements. 
 
  (A) To prevent this unfair deceptive act or practice, funeral providers must: 
 
  (i)  place the following disclosure in the general price list, immediately 
above the prices required by these rules to be listed: The goods and services 
shown below are those we can provide to our customers. You may choose only the 
items you desire. If legal or other requirements mean you must buy any items you 
did not specifically ask for, we will explain the reason in writing on the 
statement we provide describing the funeral goods and services you selected . 
Provided, however, that if the charge for "services of funeral director and 
staff" cannot be declined by the purchaser, the statement shall include the 
following sentence between the second and third sentences of the preceding 
required sentence: However, any funeral arrangements you select will include a 
charge for our services. The preceding statement may include the phrase "and 
overhead" after the word "services" if the fee includes a charge for recovery of 
unallocated funeral establishment overhead; and 
   
  (ii) on the statement of funeral services selected, place the disclosures 
required by sec.203.9(f)(4) of this title. 
     
  (B) A funeral provider does not violate this section by failing to comply with 
a request for a combination of goods or services which would be impossible, 
impractical, or excessively burdensome to provide. 
       
  (h) Embalming without approval. 
 
  (1) Unfair or deceptive acts or practices. In selling or offering to sell 
funeral goods or funeral services to the public, it is an unfair or deceptive 
act or practice for any funeral provider to charge a fee for embalming a 
deceased human body unless: 
 
  (A) approval has been obtained, under conditions set out in paragraph (2) of 
this subsection, from a family member or other authorized person; and 
   
  (B) in seeking approval, the funeral provider discloses that a fee will be 
charged if a funeral which requires embalming (such as a funeral with viewing) 
is selected and that no fee will be charged if a service which does not require 
embalming (such a direct cremation or immediate burial) is selected, unless 
embalming was previously authorized and performed. 
     
  (2) Conditions under which a fee for embalming may be charged are: 
 
  (A) where the approval for embalming (expressly so described) has been 
obtained, without solicitation, prior to the embalming; 
   
  (B) in cases where embalming is performed without prior approval, only when 
the funeral provider was previously selected by a person authorized to make 
funeral arrangements and that funeral provider: 
 
  (i) exercised due diligence to attempt to contact a family member or other 
authorized person and such effort is documented as required by sec.203. 19 of 
this title (relating to Required Documentation for Embalming); 
   
  (ii)  had no reason to believe the family did not want embalming performed; 
and 
   
  (iii) subsequent approval is obtained for the already performed embalming; 
     
  (C) in seeking approval, a funeral provider must disclose that a fee will be 
charged if the family selects a funeral which requires embalming, such as a 
funeral with viewing, and that no fee will be charged if the family selects a 
service which does not require embalming, such as direct cremation or immediate 
burial. 
     
  (3) Preventive requirements. To prevent these unfair or deceptive acts or 
practices, funeral providers must include on the itemized statement of funeral 
goods and services selected, the following statement: If you selected a funeral 
that may require embalming, such as a funeral with viewing, you may have to pay 
for embalming. You do not have to pay for embalming you did not approve if you 
selected arrangements such as a direct cremation or immediate burial. If we 
charged for embalming, we will explain why below . 
 
       
  sec.203.17. Clarification of Other Itemized Services Provided by Funeral Home 
Staff.  The term, other itemized services provided by the funeral establishment 
staff, in Texas Civil Statutes, Article 4582b, sec.1(S), is interpreted to 
include only those services, if any, of the funeral director and staff which are 
not included in the definition of "services of funeral director and staff," as 
defined in sec.203.1 of this title (relating to Definitions), and which 
therefore must be declinable. 
 
   
  sec.203.18. Presentation of Required Price Lists, Consumer Brochures, and 
Written Memorandum or Purchase Agreement.  In order to provide the maximum 
protection to the consuming public, the presentation of required price lists and 
purchase agreements will be as follows. 
 
  (1) The general price list will be presented for retention to any consumer who 
inquires in person about any funeral services, cremation or merchandise and 
prior to the consumer viewing or selecting any merchandise or service. 
   
  (2)  Consumer Information Brochures, containing information specified by the 
Commission, will be presented in the same manner and timing as price lists. 
   
  (3) The written memorandum or funeral purchase agreement must be presented for 
retention to the person who arranges a funeral, cremation or other disposition 
of a dead human body upon the conclusion of the discussion of arrangements. 
   
  (4) When a separate casket price list or a separate outer burial container 
price list is provided to pursuant to and in accordance with sec.203.9(e)(8) or 
sec.203.9(e)(9) of this title (relating to Price Disclosure), there is no 
requirement that the provision of such separate price lists be provided for 
retention by the customer. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on July 12, 1994. 
 TRD-9445960 
  Wayne L. Goodrum 
 General Counsel 
 Texas Funeral Service Commission 
    Effective date: August 23, 1994 
 Proposal publication date: May 13, 1994 
 For further information, please call: (512) 834-9992 
         
                 
  TITLE 30. ENVIRONMENTAL QUALITY 
 Part I. Texas Natural Resource Conservation Commission 
  Chapter 117. Control of Air Pollution From Nitrogen Compounds 
  
  The Texas Natural Resource Conservation Commission (TNRCC) adopts the repeal 
of sec.117.570 and adopts new sec.117.570 in Chapter 117, concerning Control of 
Air Pollution From Nitrogen Compounds. New sec.117.570 is adopted with changes 
to the proposed text as published in the March 1, 1994 Texas Register (19 TexReg 
1443). The repeal is adopted without changes and will not be republished. 
 Revisions to Chapter 117 are adopted in response to a requirement by the U. S. 
Environmental Protection Agency (EPA) and the 1990 Federal Clean Air Act (FCAA) 
Amendments for states to apply reasonably available control technology (RACT) 
requirements to major sources of nitrogen oxides (NO [sub]x) in the following 
ozone nonattainment counties: Brazoria, Chambers, Fort Bend, Galveston, Hardin, 
Harris, Jefferson, Liberty, Montgomery, Orange, and Waller. 
 New sec.117.570, concerning Trading, establishes a NO point=4.02p  [sub]x RACT 
trading program which provides a cost-effective alternative method of complying 
with the NO [sub]x emission specifications of this chapter. Under the trading 
program, an owner or operator may reduce the amount of NO  [sub]x emission 
reductions otherwise required under this chapter by obtaining an emission 
reduction credit which may be generated by the same or another company in the 
same ozone nonattainment area. New sec.117.570 states the conditions under which 
trading may take place, defines procedures for generating and using reduction 
credits, and specifies the system for administration of the trading program. 
 Public hearings on this proposal were held in Beaumont, Texas on March 30, 
1994, and in Houston, Texas on March 31, 1994. No oral comments were received at 
the public hearings, and written comments were received from six commenters. 
 General Comments. The Texas Chemical Council (TCC), Baker & Botts, Houston 
Lighting and Power (HL&P), and OxyChem expressed support for the proposed 
trading rule. 
 The staff acknowledges the support expressed by the commenters. 
 An individual expressed opposition to the emissions trading concept in the 
Houston ozone nonattainment area, which is classified as severe, and emphasized 
the need to control emissions to the maximum extent possible. 
 The concepts of emission trading and emission control are not mutually 
exclusive. The staff believes that progress in achieving air quality goals can 
be made while introducing innovative and cost-effective methods to comply with 
regulatory requirements. Foremost in the staff's concerns has been the necessity 
of requiring real emissions reductions as a prerequisite to emission trading. 
The suggestion to apply "maximum" controls is not consistent with the philosophy 
of RACT, defined as a level of control that is technically practicable and 
economically feasible. The trading rule does not address the stringency of 
controls per se, but rather provides an alternative, flexible method of 
complying with existing rules which reflect RACT. 
 HL&P requested confirmation that a source has the option to purchase sufficient 
reduction credits (RCs) to allow that source to operate at its current NO [sub]x 
emission rate (i.e., without the full application of NO  [sub]x RACT controls 
required under Chapter 117), at maximum rated capacity, throughout the entire 
year. HL&P requested clarification that the proposed rule does not limit the 
quantity of RCs allowed to be purchased. 
 The trading rule is designed to allow sources to comply with the NO [sub]x 
reduction requirements of Chapter 117 (NO  [sub]x RACT rule) by using an 
emission reduction credit created and used in accordance with the rule. As long 
as the trading rule's requirements are met, RCs may be used in any manner 
consistent with the original rule section requiring NO [sub]x for a given unit. 
For units complying with the provisions of sec.117. 105 or sec.117.205, 
concerning Emission Specifications, or sec.117.107 or sec.117. 207, concerning 
Alternative System-Wide or Plant-Wide Emission Specifications, respectively, 
operation at maximum rated capacity (MRC) is allowed. The amount of required 
reduction credit is now calculated on an annual basis at MRC. For units 
complying with the provisions of sec.117.223 (Source Cap), however, the 
historical operating rate of participating units determines the maximum emission 
cap, and all units may not necessarily be allowed to operate at MRC. In any 
case, additional RCs may not be applied to raise allowable emissions above the 
level established for the source cap. 
 The EPA Region 6 office stated its intent to evaluate the proposed trading rule 
for consistency with the Economic Incentive Program (EIP) rules and any EPA 
policies on NO  [sub]x RACT. The final EIP rules (40 Code of Federal Regulations 
(CFR) Part 51, Subpart U), which appeared in the April 7, 1994 Federal Register 
, set out nine key criteria which the state must address in its EIP State 
Implementation Plan (SIP) submission. The EPA added that the state would meet 
the EIP criteria by addressing EPA's comments in sec.117.570 in addition to 
providing a narrative in its SIP submission. 
 The EPA promulgated the final EIP rules one month after the TNRCC's rule 
proposal in the Texas Register , and after approximately 18 months of ongoing 
meetings of the NO  [sub]x Trading Working Group (with EPA's participation). The 
TNRCC understands that the EIP rules, as applied to discretionary EIPs such as 
the NO  [sub]x trading rule under consideration, are intended to provide 
guidance to states opting to include such programs in the SIP. The EPA's 
specific comments relating to the EIP rules are addressed in several places in 
this evaluation of testimony. In cases where sec.117.570 has not been revised to 
conform with EIP guidance, the state's rationale and proposed remedy, if 
appropriate, are discussed. 
 Specific Comments. OxyChem commented that the proposed rule's requirement under 
sec.117.570(b)(1), allowing trades only within the same ozone nonattainment 
area, restricts the use of emission credits. The commenter suggested language 
which would provide an exception to this requirement if the credits were used on 
an intra-company basis (i.e., used by different facilities owned and operated by 
the same company). 
 The requirement for confining emission trades to a single ozone nonattainment 
area is valid, regardless of the ownership of companies wishing to exchange 
credits in a trade. The potential differences in ozone precursor loadings, mix 
of source types, and overall control strategies between two different ozone 
nonattainment areas make trading between contiguous areas problematic, not to 
mention areas separated by even greater distances. For this reason the rule 
requirement has been retained. 
 An individual objected to allowing the use of shutdown credits for emission 
reductions occurring after November 15, 1990, proposed in sec.117.570(b)(3), 
stating that since these reductions have already taken place, they should not 
result in further credits to industry. 
 In order to implement an emission trading program, a baseline date along with 
meaningful pre-trade criteria must be established. EPA guidance has identified 
November 15, 1990, the date the FCAA Amendments were enacted by Congress, as an 
appropriate baseline date. It should be noted that shutdown credits can be 
generated and used only by sources participating in a source cap in accordance 
with sec.117.223. 
 The EPA commented that in referencing sec.101.29(f), relating to Emissions 
Banking, in the methods for calculating RCs for nonRACT sources, proposed 
sec.117.570(c)(1)(A) does not specify replicable methods for quantifying 
emissions as required by  sec.51.493(d) of the federal EIP rules. The EPA 
further commented that any RC calculated in a manner other than that specified 
in sec.117.570(c)(2) must be approved by EPA before it can be used in trading. 
An individual stressed the necessity of basing emission reduction credits on 
actual test results, rather than estimations, in proposed sec.117.570(c)(1)(B) 
in order to avoid faulty documentation and use of credits. 
 The procedures specified in sec.117.570(c)(1)(B) require the use of emissions 
test data in establishing a unit's actual emissions baseline. The rule also 
allows alternative documentation in the event that the source creating the RC 
has shut down or irreversibly changed. Such documentation would represent 
historical activity levels, defined in EPA's draft document "RACT for NO 
point=4.02p  [sub]x Trading Guidance" (June 10, 1993) as the product of the 
capacity utilization and the hours of operation that have historically occurred 
for each emission unit. The activity level reflects the actual production rate 
or a surrogate thereof, such as heat input or fuel usage, obtained from 
historical data. The staff believes that the use of best available data and good 
engineering practice, as required by the rule, will provide credible, workable 
procedures for proper documentation of emission reduction credits. The staff 
will work with EPA to further define the scope of replicable procedures 
necessary to adequately quantify emissions. 
 The EPA cited 40 CFR sec.51.493(d) of the EIP rule, concerning replicable 
methods for quantifying emissions and 40 CFR sec.51.493(e), concerning 
monitoring, recordkeeping, and reporting (MRR), and stated that these provisions 
need to be addressed in sec.117.570 in order for the rule to be approvable by 
EPA. 
 See the response to EPA's preceding comment concerning replicable emission 
quantification procedures. With regard to MRR requirements, 40 CFR sec.51.493(e) 
(2)(i) lists such criteria as continuous monitoring, in situ or portable 
measurement devices, operation and maintenance procedures, and manual or 
automated recordkeeping, which must be contained in the EIP (or the SIP as a 
whole). The adopted NO point=4.02p  [sub]x RACT rule specifies one or more of 
the above listed MRR requirements for each unit affected by the rule, in 
addition to acceptable test methods. Since the NO [sub]x RACT rule has been 
submitted as a SIP revision, the cited MRR requirements in the EIP appear to 
have been addressed properly. 
 The EPA commented that the term "actual emissions baseline" in proposed 
sec.117.570(c)(1)(B) should be defined. 
 The actual emissions baseline has been defined in sec.117.570(c)(1)(B) as "the 
actual annual emissions, in tons per year, from a source determined by use of 
data representative of actual operations in 1990 or later, assuming full 
compliance with all applicable state and federal rules and regulations." 
 The EPA suggested using different notations, such as "i" and "j," to 
distinguish between RC generators and RC users throughout the rule. 
 The staff agrees with this comment, and has changed notations in the rule for 
clarity. In order to maintain consistency with notations already cross-
referenced in sec.117.223 (Source Cap), "i" denotes RC users, and "j" denotes RC 
generators. 
 The EPA noted a discrepancy in the definitions of "i" and "N" in the equation 
given in proposed sec.117.570(c)(2), concerning generation of RCs, as compared 
to the definitions of these terms in the equation given in sec.117. 223(b)(1), 
concerning Source Cap. The EPA commented that sec.117.570(c)(2) as proposed 
would allow sources to selectively include particular units, rather than the 
entire source category to which the units belong, contrary to EPA policy 
guidance. The EPA recommended that either the rule clarify that shutdown units 
cannot generate RCs, or that "i" and "N" be defined in proposed 
sec.117.570(c)(2) consistent with sec.117.223(b)(1). 
 The staff's intent in sec.117.570(c)(2) was to define the mechanism for 
generating RCs consistent with EPA's emission trading guidance, which specifies 
that shutdown credits can be used or generated only under an emissions cap 
program. New sec.117.570(c)(3) adds language which clarifies this point. 
Therefore, the only revisions to the definitions of "i" and "N" in 
sec.117.570(c)(2) have been the addition of "generating RCs" at the end of each 
definition. As discussed in the previous response to EPA's comment, the notation 
"i" has been changed to "j" to clarify that a RC generator is denoted. 
 OxyChem commented on the definition of R [sub]Ai in the equation in proposed 
sec.117.570(c)(2) for calculating generated RCs, which defines the pre-trade 
allowable emission rate as the lowest of any federally enforceable emission 
limitation, the applicable RACT limit, or the actual emission rate as of June 9, 
1993. The commenter stated that including the actual emission rate in the 
definition penalizes sources that significantly reduced emissions since November 
15, 1990. OxyChem suggested revising the definition of R  [sub]Ai so that 
assignment of the actual emission rate would apply only to those sources without 
state or federal emission limitations in determining the pre-trade allowable 
emission limitation. 
 The basis of a valid emission trading program rests on the proper documentation 
and assignment of credits for emissions reductions actually achieved below a set 
baseline. Sources which have historically emitted at a level less than 
applicable state or federal emission limitations do not gain a corresponding 
credit which may then be used in an emission trade to comply with rule 
requirements. To allow such an approach would undermine the trading program's 
fundamental requirement that only real emissions reductions below the emissions 
baseline may be credited. 
 The EPA commented that the use of shutdown credits is allowed only under an 
emissions cap program, and not under a traditional RACT or emission averaging 
program. Therefore, EPA commented, sources can use shutdown credits as RCs in 
accordance with proposed sec.117.570(d)(1), but not under proposed 
sec.117.570(d) (2). 
 The staff agrees, and has added new sec.117.570(c)(3) and sec.117.570(d)(3) 
specifying that RCs from shutdown units may be generated or used, respectively, 
only by units participating in a source cap. 
 The EPA commented that in the equations given in proposed sec.117.570(d)(1), 
the definitions of "i" and "N" should be consistent with the definitions of 
these terms given in sec.117.223(b)(1). 
 The definitions of "i" in both equations in sec.117.570(d)(1) have been changed 
to "each emission unit in the source cap," thereby addressing EPA's comment. 
 The EPA commented that the reason for denoting the reduction credit as "RC 
[sub]i" instead of "RC" in the equations in proposed sec.117.570(d)(1) is not 
clear, since the RC is generated by a unit outside of the facility. 
 In sec.117.570(d)(1), the term "RC [sub]i" is used to denote that portion of a 
RC applied to unit i in the source cap. The revision of nomenclature to denote 
RC generators by "j" and RC users by "i" may help to make this distinction 
clearer. 
 The EPA commented that in the equation given in proposed  sec.117.570(d)(2), H 
[sub]i should be defined as the maximum daily heat input of the unit using the 
RC, instead of the actual daily heat input of the unit generating the RC. The 
EPA further commented that the source could assign a heat input to a given unit 
which was less than its maximum heat input, if the source is willing to make 
that assigned heat input its new enforceable limit. 
 The EPA's comment is relevant to the trading rule's underlying concept that RCs 
are created by reducing actual emissions, and are used by applying RCs toward 
allowable emission rates. For units complying with sec.sec.117.105, 117.107, 
117.205, or 117.207, the allowable emission rate is based on MRC and is not 
limited by historical activity levels. Using the definition of H [sub]i as 
originally proposed in sec.117.570(d)(2) would result in trading actual 
emissions from the source generating RCs for actual emissions from the source 
using RCs. If the source using RCs determined its emission trading credit based 
on actual historical operations which were less than MRC, then operated at MRC 
and a higher activity level as allowed, the trade would not achieve emissions 
reductions equivalent to those obtained by applying traditional RACT. Therefore, 
the definition of H [sub]i in sec.117.570(d)(2) has been changed by replacing H  
[sub]i with H [sub]Mi, defined as "the maximum daily heat input, in MMBtu/day, 
as defined in sec.117.223(b)(2) of this title." 
 The EPA commented that under sec.117.213(b)(1)(E), concerning Continuous 
Demonstration of Compliance, any unit complying with the emission specifications 
of sec.117.205 or sec.117.207 using a pound per million British thermal units 
(lb/MMBtu) limit on a 30-day rolling average must install and operate a 
continuous emissions monitoring system (CEMS). The EPA stated that if a unit 
complies with sec.117.205 or sec.117.207 under the trading provisions of 
proposed sec.117.570(d)(2), using a 30-day rolling average, then that unit must 
also comply with the CEMS provisions of sec.117.213(b)(1)(E). The EPA commented 
that the equation given in sec.117.570(d)(2) should clarify that the new 30-day 
rolling average emission limit, in lb/MMBtu, is for a given unit i. 
 As EPA has noted, the NO [sub]x RACT rule specifies operation of CEMS whenever 
a 30-day rolling averaging period is used. However, it is not the intent of the 
trading rule to automatically impose CEMS requirements or to allow longer 
compliance averaging periods for units participating in trading, if such 
requirements or averaging periods would not have applied to those units in the 
absence of trading. Clarifying language has therefore been added to 
sec.117.570(d)(2), stating that the appropriate compliance averaging period 
specified in sec.sec.117.105, 117.107, 117.205, or 117.207 shall be assigned to 
the unit using a RC in accordance with the provisions of  sec.117.570(d)(2). In 
addition, the left-hand side of the equation in sec.117.570(d)(2) has been 
changed to "New emission limit for unit i (lb/MMBtu)." 
 The EPA requested clarification on how a program to lease RCs, referenced in 
proposed sec.117.570(e), would work. The EPA commented that the rule subsection 
should clarify that RCs do not carry property rights. The EPA also recommended 
starting the last sentence in proposed sec.117.570(e) with the word "approved," 
thus clarifying that RCs must be approved before they can be used. 
 Leasing may be a desirable approach for sources needing credits on a temporary 
basis in order to satisfy the rule requirements. Although sec.117. 570(e) does 
not specify the exact manner in which RCs would be leased under the emission 
trading program, it is envisioned that negotiations between trading parties for 
leasing RCs would be conducted similarly as for purchasing RCs. One difference 
would be the need to specify an expiration date for the credits, at which time 
the RC user would have to either control emissions or obtain other credits to 
remain in compliance with the rule. Language has been added to sec.117.570(e), 
requiring information on leased RCs to be included in the final control plan or 
revised final control plan. With regard to property rights, the intent of the 
rule is that RCs are not considered property for which a loss, such as might 
occur through revision of RCs or adoption of a more stringent rule, must be 
compensated by the state. Recommended language has been added to sec.117.570(e), 
emphasizing that RCs must be approved before being used. 
 An individual objected to the leasing or selling of emission credits allowed 
under proposed sec.117.570(e), stating that the public health would thus be 
jeopardized. 
 The staff believes that the process of creating economic incentives for 
achieving required emissions reductions through the leasing or selling of 
credits does not jeopardize the ultimate goal of protecting the public health. 
The commenter does not substantiate the claim that a company's leasing or 
selling credits externally, as opposed to banking and applying the credits 
internally, would uniquely endanger the public's health. 
 The EPA commented that in proposed sec.117.570(f), which requires a source 
using RCs to submit a revised final control plan if a more stringent NO [sub]x 
emission limit is established for the unit generating the RC, the rule should 
specify a time period for submitting the revised plan. The EPA also requested 
clarification on whether the source generating the RC is required to revise the 
registration application under proposed sec.117.570(g)(1) . 
 Language has been added in sec.117.570(f) requiring the owner or operator using 
the RC to submit a revised final control plan as soon as practicable, but no 
later than 90 days prior to the effective date of the new, more stringent rule 
or permit limitations. Language has also been added in sec.117. 570(f) requiring 
the owner or operator generating the RC to submit a revised registration 
application in accordance with sec.117.570(g)(1) as soon as practicable, but no 
later than 90 prior to the effective date of the new, more stringent rule or 
permit limitations. In addition, the terms in parentheses in the equation in 
sec.117.570(f) have been reversed in order to correct an inadvertent error which 
appeared in the proposed version. The words "or revise" have been added after 
"create" in the first sentence of sec.117.570(g) (1) to maintain rule 
consistency. 
 The EPA stated that in proposed sec.117.570(g)(1), concerning the Executive 
Director's evaluation and adjustment of the value of the RC, that any adjustment 
not based on the emission quantification protocol of sec.117.570(c) (2) would 
need to be approved by EPA. 
 This issue has been discussed in a previous response to EPA's comment 
concerning approvable emission quantification procedures. The procedures 
specified in sec.117.570(c)(1)(B) for quantifying emissions from non-RACT 
sources require the use of actual emissions test data, or if the source has shut 
down or irreversibly changed, use of best available data and good engineering 
practice. Typically, this documentation would be as rigorous as that required 
under sec.117.570(c)(2), since it would require submittal of data reflecting 
actual heat input, fuel usage, or some other surrogate of historical activity 
levels. Therefore, the TNRCC believes that any adjustment of RCs by the 
Executive Director should have the latitude allowed under both sec.117.570(c)(1) 
and (2) without the necessity of EPA approval. 
 The TCC and Baker & Botts commented that the provision in proposed sec.117. 
570(g)(1), concerning the Executive Director's discretion to adjust the value of 
a RC after an engineering evaluation, is misplaced, and recommended deleting the 
fourth sentence in proposed sec.117.570(g)(1). The TCC, Baker & Botts, and HL&P 
recommended revising proposed sec.117.570(g)(4) by adding the word "modify" as 
follows: "... approve, modify, or deny the registration." The TCC, Baker & 
Botts, and HL&P also recommended revising proposed sec.117.570(g) (6) by adding 
"modification" to the opening language in order to provide a mechanism for 
appeal of the Executive Director's adjustment of a RC. 
 The suggested revisions of sec.117.570(g)(4) and sec.117.570(g)(6) have been 
made for clarity. However, the staff has retained the language in sec.117.570(g) 
(1) referring to the Executive Director's authority to perform an engineering 
evaluation and adjust the value of the RC as appropriate. 
 The EPA stated that the provision in proposed sec.117.570(g)(2), concerning 
receipt of registration applications at least 90 days before the RC is utilized, 
should clarify that RCs must be approved by the TNRCC before they can be used. 
 The recommended changes have been added to sec.117.570(g)(2), along with a 
clarifying reference to "planned" utilization of the RC. 
 The EPA requested clarification of proposed sec.117.570(g)(3) and (4), 
concerning the disposition of the application completeness determination 
(required within 30 days of receipt) and application approval (required within 
90 days of receipt), and asked if the application would automatically be deemed 
complete, or approved, if the respective deadlines passed without TNRCC action. 
 Nothing in sec.117.570(g)(3) and (4) is intended to imply the TNRCC's automatic 
determination of completeness or approval of an application after the respective 
deadlines have passed. 
 Under proposed sec.117.570(g)(5), EPA requested clarification concerning 
procedures to follow if the approval of a registration is subsequently revoked. 
 The referenced rule paragraph gives the criteria for revocation of a 
registration approval, and provides that a revised control plan may be required 
to be submitted. Language has been added requiring a revised control plan to be 
submitted as soon as practicable, but no later than 90 days of notification of 
the Executive Director's revocation of registration approval. Since adequate 
authority is already provided for enforcement of Chapter 117, the staff does not 
consider a detailed outline of enforcement options within the trading rule to be 
necessary. 
 The EPA requested clarification under proposed sec.117.570(g)(7) and (8), 
concerning documentation of RC use in the initial and final control plans, 
respectively, whether a source needed to obtain TNRCC approval of either plan 
before using the RC. The EPA further commented that proposed sec.117.570(g)(7) 
should specify the time period for a source to submit a revised initial control 
plan after including RCs, rather than specify that the plan be submitted "as 
soon as practicable." 
 Language has been added to sec.117.570(g)(7) and (8) stating that the Executive 
Director must approve the revised initial control plan or final control plan, 
respectively, before the RC may be used. This requirement should address EPA's 
concern about specifying the time frame for submitting a revised initial control 
plan, since the RC cannot be used until Executive Director approval is received. 
 The EPA commented that if the state takes credit for projected NO [sub]x 
reductions from Chapter 117 in its post-1996 Reasonable Further Progress (RFP) 
SIP, it must evaluate the appropriate application of the two uncertainty factors 
required by 40 CFR sec.51.493(f)(2) of the EIP rules. 
 The referenced portions of the EIP rules concern the use of factors for 
compliance uncertainty, defined in the rules as "the extent to which sources 
will actually comply with program requirements," and program uncertainty, 
defined as "the extent to which voluntary market responses to incentives 
actually occur and/or the use of various quantification methods with differing 
confidence levels." The TNRCC has not received guidance from EPA regarding 
presumptive norms and other criteria to be used in formulating and applying 
these uncertainty factors. The TNRCC will work with EPA to determine appropriate 
methods to address this issue. 
 The EPA cited the following requirements of the EIP rule which must be 
contained in the state's SIP narrative: sec.51.493(f)(3), concerning periodic 
audits, sec.51.493(h), concerning administrative procedures, and sec.51.493(i), 
concerning enforcement provisions. 
 The TNRCC will address the referenced portions of the EIP rule, as appropriate, 
in the SIP narrative. 
   
  Subchapter D. Administrative Provisions 
 
  30 TAC sec.117.570 
 
  The repeal is adopted under the Texas Health and Safety Code (Vernon 1992) , 
the Texas Clean Air Act (TCAA), sec.382.017, which provides the TNRCC with the 
authority to adopt rules consistent with the policy and purposes of the TCAA. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's authority. 
 Issued in Austin, Texas, on July 27, 1994. 
 TRD-9445985 
  Mary Ruth Holder 
 Director, Legal Division 
 Texas Natural Resource Conservation Commission 
    Effective date: August 23, 1994 
 Proposal publication date: March 1, 1994 
 For further information, please call: (512) 239-1970 
         
     
  The new section is adopted under the Texas Health and Safety Code (Vernon 
1992), the Texas Clean Air Act (TCAA), sec.382.017, which provides the TNRCC 
with the authority to adopt rules consistent with the policy and purposes of the 
TCAA. 
 
 
  sec.117.570. Trading. 
 
  (a) An owner or operator may reduce the amount of emission reductions 
otherwise required by sec.117.105 or sec.117.205 of this title (relating to 
Emission Specifications), sec.117.107 of this title (relating to Alternative 
System-Wide Emission Specifications), sec.117.207 of this title (relating to 
Alternative PlantWide Emission Specifications), or sec.117.223 of this title 
(relating to Source Cap) by obtaining an emission reduction credit which is 
established in accordance with this section. 
   
  (b) The following requirements must be met in order for a particular unit to 
be eligible to use this section. 
 
  (1) The unit or source creating the reduction credit (RC) must be located in 
the same federally designated ozone nonattainment area as the unit subject to 
the requirements of this section. 
   
  (2) RCs must be generated from a stationary source or sources. 
   
  (3) The emission reduction which is the basis for establishment of the RC must 
have occurred after November 15, 1990. 
     
  (c) Reduction credits shall be generated as follows. 
 
  (1) For sources not subject to the emission specifications of sec.117. 105 or 
sec.117.205 of this title, creditable RCs shall be established in accordance 
with the following requirements. 
 
  (A) RCs shall be calculated in accordance with the establishment of stationary 
source emission reduction credits (ERCs) under sec.101.29(f) of this title 
(relating to Emissions Banking); and 
   
  (B) The source shall use emissions test data to establish the actual emissions 
baseline in accordance with the testing requirements of sec.117.209(b) of this 
title (relating to Initial Control Plan Procedures), or sec.117.111 or , 
sec.117.211 of this title (relating to Initial Demonstration of Compliance), as 
applicable. The actual emissions baseline is defined as the actual annual 
emissions, in tons per year, from a source determined by use of data 
representative of actual operations in 1990 or later, assuming full compliance 
with all applicable state and federal rules and regulations. If the source 
creating the RC has been shut down or irreversibly changed, the source shall use 
the best available data and good engineering practice to establish the actual 
emissions baseline. 
     
  (2) For sources subject to the emission specifications of sec.117.105 or 
sec.117.205 of this title, creditable RCs shall be calculated using the 
following equation: Figure 1: 30 TAC sec.117.570(c)(2) 
   
  (3) RCs from shutdown units may be generated only by units participating in a 
source cap in accordance with sec.117.223 of this title. 
     
  (d) Reduction credits shall be used as follows. 
 
  (1) An owner or operator complying with sec.117.223 of this title may reduce 
the amount of emission reductions otherwise required by complying with both of 
the following equations instead of the equations in sec.117.223(b)(1) and (2) of 
this title. Figure 2: 30 TAC sec.117.570(d)(1) 
   
  (2) An owner or operator complying with sec.sec.117.105, 117.107, 117.205, or 
117.207 of this title may reduce the amount of emission reduction otherwise 
required by those sections for a unit or units at a major source by complying 
with individual unit emission limits calculated from the following equation: 
Figure 4: 30 TAC sec.117.570(d)(2) 
   
  (3) RCs from shutdown units may be used only by units participating in a 
source cap in accordance with sec.117.223 of this title. 
     
  (e) RCs may be freely transferred in whole or in part and may be sold or 
conveyed in any manner in accordance with the laws of the State of Texas. The RC 
may be sold outright or leased for some time period agreed to by the parties 
subject to subsection (g) of this section, but not less than six months. Any 
owner or operator shall document the use of a leased RC in the final control 
plan in accordance with sec.117.115 or  sec.117.215 of this title (relating to 
Final Control Plan Procedures), or in the revised final control plan in 
accordance with sec.117.117 or sec.117.217 of this title (relating to Revision 
of Final Control Plan), identifying the lessee and lessor, the amount of RCs 
leased, and the conditions of the lease. Approved RCs must be acquired by a 
source prior to their utilization under subsection (d) of this section. 
   
  (f) Any lower NO [sub]x emission specification established by rule or permit 
for the unit or units generating the RC shall require the user of the RC to 
obtain an approved new reduction credit or otherwise reduce emissions prior to 
the effective date of such rule or permit change. For units using a RC in 
accordance with this section which are subject to new, more stringent rule or 
permit limitations, the owner or operator using the RC shall submit a revised 
final control plan to the Executive Director of the TNRCC in accordance with 
sec.117.117 or sec.117.217 of this title (relating to Revision of Final Control 
Plan) to revise the basis for compliance with the emission specifications of 
this chapter. The owner or operator using the RC shall submit the revised final 
control plan as soon as practicable, but no later than 90 days prior to the 
effective date of the new, more stringent rule or permit limitations. In 
addition, the owner or operator of a unit generating the RC shall submit a 
revised registration application to the Executive Director, in accordance with 
subsection (g)(1) of this section, within 90 days prior to the effective date of 
any new, more stringent rule or permit limitations affecting that unit. If a 
more stringent NO [sub]x emission specification is established by rule or permit 
for the unit or units generating the RC, the value of the RC shall be 
recalculated as follows: Figure 5: 30 TAC sec.117.570(f) 
   
  (g) The RC program established by this section shall be administered as 
follows. 
 
  (1) The owner or operator of a source seeking to create or revise a RC shall 
submit a registration application to the Executive Director using the RC 
registration form approved by the Executive Director. The Executive Director 
shall annotate the RC registration application with the date of receipt. The RC 
registration shall include information sufficient to calculate the RC value 
under subsection (c) of this section. The Executive Director shall perform an 
engineering evaluation of the claimed credit and may adjust the value of the RC 
on the basis of this evaluation. The application must clearly state the 
enforceable limits for each unit generating a credit. For emission units subject 
to the emission specifications of this chapter, which generate RCs, and for 
which the owner or operator elects to comply with the individual emission 
specifications of sec.sec.117.105, 117.107, 117.205, or 117.207 of this chapter, 
the enforceable emission limit R [sub]Bj shall be calculated using the maximum 
rated capacity. For emission units subject to the emission specifications of 
this chapter, which generate RCs, and for which the owner or operator elects to 
achieve compliance using sec.117.223 of this title, the enforceable emission 
limit R [sub]Bj shall be substituted for R [sub]i in the source cap allowable 
mass emission rate equations of  sec.117.223(b)(1) and (2) of this title and 
those allowable rates shall be the enforceable limits for those sources. 
   
  (2) Registration applications must be received at least 90 days prior to the 
planned utilization of the RC. RCs may be utilized only after the Executive 
Director grants approval of the registration application. 
   
  (3) The Executive Director shall have 30 days from date of receipt to 
determine if the registration application is complete. 
   
  (4) The Executive Director shall have 90 days from date of receipt to approve, 
modify, or deny the registration or 60 days after determination of completeness, 
whichever is later. 
   
  (5) The Executive Director may revoke approval of a registration under this 
section at any time upon a determination that the requirements of this section 
are not being met, and may require submittal of a revised control plan for the 
generator or user of a RC upon such a finding. The owner or operator shall 
submit a revised control plan to the Executive Director as soon as practicable, 
but no later than 90 days after the date of the Executive Director's 
notification that approval of a registration has been revoked. 
   
  (6) Denial or modification of a registration by the Executive Director may be 
appealed according to the provisions of sec.101.29(l)(2) of this title. 
   
  (7) The owner or operator desiring to utilize the RC in accordance with 
subsection (d) of this section shall document this in the initial control plan 
submitted in accordance with sec.117.109 or sec.117.209 of this title (relating 
to Initial Control Plan Procedures). The change of a control plan to include a 
RC after April 1, 1994, shall require a revision to the initial control plan and 
resubmission of the plan for approval as soon as practicable. RCs may be 
utilized only after the Executive Director grants approval of the revised 
initial control plan. 
   
  (8) The owner or operator desiring to utilize the RC in accordance with 
subsection (d) of this section shall document this in the final control plan 
submitted in accordance with  sec.117.115 or sec.117.215 of this title (relating 
to Final Control Plan Procedures). The new emission limit for each unit as 
calculated in subsection (d) of this section shall be clearly listed and will be 
considered federally enforceable. RCs may be utilized only after the Executive 
Director grants approval of the final control plan. 
   
  (9) After submission of the final control plan in accordance with sec.117.115 
or sec.117.215 of this title, an owner or operator who wishes to transfer an RC 
to revise the basis for compliance with the emission specifications of this 
chapter shall submit a revised final control plan to the Executive Director in 
accordance with sec.117.117 or sec.117.217 of this title. The owner or operator 
shall not vary from the representations made in the final control plan without 
prior approval from the Executive Director. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's authority. 
 Issued in Austin, Texas, on July 27, 1994. 
 TRD-9445986 
  Mary Ruth Holder 
 Director, Legal Division 
 Texas Natural Resource Conservation Commission 
    Effective date: August 23, 1994 
 Proposal publication date: March 1, 1994 
 For further information, please call: (512) 239-1970 
         
                 Chapter 291. Water Rates 
  
  Subchapter I. Wholesale Water or Sewer Service 
 
  30 TAC sec.sec.291.128-291.138 
 
  The Texas Natural Resource Conservation Commission (commission) adopts the 
repeal of sec.sec.291.131-291.136 and new sec. sec.291.128-291.138. New 
sec.sec.291. 128-291.138 are adopted with changes to the proposed text as 
published in the May 20, 1994, issue of the Texas Register  (19 TexReg 3899). 
The repeals are adopted without changes and will not be republished. This repeal 
is necessary to address an administrative processing error from a previous 
rulemaking and does not affect the current rules in sec.sec.291.121-291.127, 
Subchapter H, Utility Submetering. The new sec.sec.291.128-291.138 concern 
appeals of wholesale water and sewer rates. 
 A public hearing was held on June 10, 1994, and several persons appeared and 
presented testimony. These individuals also submitted written comment during the 
comment period. 
 The commission received several comments questioning the propriety of this 
entire rules proposal. Commenters contend the proposal is contrary to 
constitutional and statutory authority and/or premature. For several years, 
participants in Texas Water Code Chapter 11, 12, and 13 wholesale rate cases 
have urged the need for rules governing these proceedings. The courts continue 
to recognize the commission's jurisdiction in these matters and have reconciled 
that jurisdiction with the argument that commission review interferes with a 
constitutional right of contract. The commission believes a review process with 
an inherent deference to contracts will encourage careful planning by sellers 
and purchasers, foster regionalization and generate an efficiency factor absent 
from the current process. 
 One commenter proposed stylistic and grammatical changes to sec.sec.291.130-
291. 135, 291.137, 291.138. The commission has adopted several of the suggested 
changes. 
 One commenter suggested sec.291.128 be amended to limit its applicability "to 
instances where service is provided pursuant to a contract." The commission 
agrees that these rules should apply only to those petitions filed that involve 
a written contract, including filings submitted pursuant to Chapters 11 and 12 
of the Texas Water Code (Water Code). 
 Several commenters addressed sec.291.129 claiming the definitions of "Cash 
Basis" and "Utility Basis" were too restrictive. The commission agrees with the 
comments on these two definitions and has modified the text accordingly. One 
commenter suggested that use of the term "demanded" in the definition of 
"Protested Rate" is inappropriate because it presumes rates stipulated in a 
contract are "demanded" by the seller. The commission notes that the rule 
assumes the seller's "protested rate" correctly interprets any existing 
agreement between the seller and purchaser. There will be instances where the 
purchaser files a petition or appeal and the commission finds the protested rate 
does not adversely affect the public interest. The commission decision is not 
tantamount to a judicial interpretation of any underlying agreement. The parties 
would still have the courts to seek this redress. In addition, rates set forth 
in a contract do not generally give rise to appeals before the commission. It is 
those rates demanded pursuant to a contract that are usually appealed. 
 A few commenters suggested changes to sec.291.130 which would impose additional 
requirements on petitioners, such as requiring them to serve a copy of its 
petition on the seller complained of and that the petition contain specific 
factual allegations. One commenter suggests that a petitioner's complaint be 
subject to sanctions under the Texas Rules of Civil Procedure. The commission 
agrees that petitioner should serve its complaint on the party against whom the 
petitioner seeks relief and that the petition should contain specific 
allegations which will support a finding of at least one criteria identified in 
sec.291.133. The section has been revised to reflect these suggestions. The 
commission has general discovery rules which can be used in these rate 
proceedings so there is no need to reference the civil court rules. 
 Several commenters identified an incorrect reference in  sec.291.131 which the 
commission has corrected. 
 One commenter proposed modifications to sec.291.131 which clarify the executive 
director's role when reviewing petitions filed under the Water Code, sec.11.041. 
Another commenter suggests sec.291.131 clarify that petitions filed pursuant to 
the Water Code, sec.11.041, are also subject to the public interest test in 
sec.291.133. This commenter also asks the commission to recognize an authority 
in the executive director to dismiss the Water Code, sec.11.041, petitions. The 
functions performed by the executive director under the Water Code, sec.11.041, 
are ministerial, so the commission has revised the section to clearly reflect 
his role. 
 The commission received one comment supporting language in sec.291.132 which 
allows parties to agree to "opt out" of the bifurcated hearing process. The 
remaining comment identifies various problems with the rule. One commenter 
contends the use of a "probable grounds" standard also used in sec.291.131 is 
confusing. The commission has revised this section to more accurately identify 
the purpose of the first phase hearing which is to determine if the protested 
rate is adverse to the "public interest." Thus, all references to "probable 
grounds" in sec.291.132 and subsequent sections have been replaced with "public 
interest." 
 Another commenter proposed changes to sec.291.132 clarifying that a petition 
will be heard by a hearings examiner before it is presented to the commission. 
This change is consistent with changes to sec.291.131 and has been made. 
 The commission received one comment suggesting the time frames in sec.291. 132 
be condensed in order to reduce the possibility of "pancaking" rate cases. The 
commission believes that even the original 120 day time frame in sec.291. 132 
will be difficult to satisfy. Therefore, it is more appropriate to have the time 
frame begin on the day the petition is forwarded to the office of hearings 
examiners rather than on the day of filing. This approach will ensure adequate 
administrative review, particularly of petitions which fall short of meeting 
minimum filing requirements. 
 One commenter asks sec.291.132 be modified to define "relevance," for purposes 
of first phase discovery, in terms of the specific "probable grounds" 
allegations raised in the petition. The commission disagrees with this comment 
and believes such a limitation is understood particularly with the limited time 
available in the initial phase of the process. 
 Two commenters argued that sec.291.132 and other sections making up the 
bifurcated hearing approach are too restrictive, may result in dismissal of 
otherwise legitimate rate appeals, and may force parties to litigate twice the 
same contested issues. The commission disagrees with this argument. The 
bifurcated approach will serve to identify frivolous appeals and more 
efficiently process legitimate ones. While the process will require petitioners 
to conduct some pre-filing research and preparation to support their 
allegations, the process will also serve to encourage contracting parties to 
more carefully negotiate their agreements. A petitioner need not allege every 
item outlined in sec.291.133, only those it can substantiate. A petitioner with 
a supportable claim should be able to demonstrate violation of a public interest 
criteria within the time frames and process prescribed in sec.291.132. Changes 
to sec.sec.291.132-291.134 clarifying that the parties will litigate public 
interest issues in the first evidentiary hearing and cost of service issues in 
the subsequent hearing are intended to forestall the waste and delay associated 
with litigating an issue more than once. Finally, adopted sec.291.132 clarifies 
that findings of fact and conclusions will be included in an order prepared by 
the examiner rather than in the proposal for decision. 
 Most of the comment received was directed at all or parts of sec.291.133. About 
half of these commenters argued that the determination of the public interest 
requires an analysis of the seller's cost of service. On the other hand, the 
other half of the commenters argued that the seller's cost of service cannot be 
part of the analysis of the public interest, and that the proposed rules should 
be revised to clarify that cost of service will not be considered during the 
evidentiary hearing on public interest. 
 The commission concludes the public interest does not demand that a wholesale 
rate shall equal the seller's cost of providing service to the purchaser. The 
commission believes this is an appropriate conclusion which is consistent with 
the statutory requirements of the Water Code, Chapters 11, 12, and 13. This is 
appropriate even though the Code requires the commission to ensure that rates 
are "just and reasonable," "not unreasonably preferential, prejudicial, or 
discriminatory," and that they shall be "sufficient, equitable, and consistent 
in application to each class of customers." While these terms are traditionally 
used to invoke a regulatory authority's duty to set rates that are based upon 
cost of service, the circumstances which justify cost of service ratemaking are 
not present here. As is explained in the Water Code, the Legislature imposed a 
comprehensive regulatory system upon retail water and sewer utilities which are 
by definition monopolies in the areas they serve, and that the regulatory system 
is intended to serve as a substitute for competition. This system calls for 
rates based on the seller's cost of providing service. The circumstances of 
wholesale water and sewer service are not the same. The disputes concerning 
wholesale rates which have come before the commission concern parties who are in 
a position quite different than the typical retail customer. The purchaser is 
itself a utility that is sophisticated in utility transactions, and the 
purchaser, generally, has had several options from which it may obtain water or 
sewer service, including self service. 
 The commission's conclusion is consistent with the entirety of the statutory 
requirements. First, the Water Code provisions concerning the commission's 
appellate jurisdiction over disputes between utilities states that rates must be 
"just and reasonable." See, Water Code, sec.13.043(f), (j). But nowhere does it 
specify that the rates must equal the seller's cost of providing service to the 
purchaser. Moreover, the 73rd Legislature amended the Water Code, sec.13.043(j), 
so that it now specifies that the commission shall consider the terms of any 
agreement between municipalities. The new requirement is not conditional. The 
commission must consider the agreement even when the agreement calls for rates 
that are not based upon cost of service. Second, Water Code, Chapter 12, 
specifies the commission may use any reasonable basis for fixing rates for the 
furnishing of raw or treated water. Water Code sec.12.013(c). The commission 
believes this provision alone is sufficient authority to support the 
commission's conclusion, at least with respect to those disputes raised pursuant 
to the Water Code, Chapters 11 and 12. 
 The commission's conclusion is also consistent with the opinions of the courts. 
The court in High Plains Natural Gas Company v. Railroad Commission of Texas , 
467 S.W.2d 532 (Tex. Civ. App.--Austin 1971, writ ref'd n.r.e.) was confronted 
by a similar wholesale rate dispute, but concerning a contract for the sale of 
natural gas. The court specifically rejected the argument that the court should 
compare the disputed rate with a rate based on cost of service in order to 
determine the public interest. The court rejected the argument that this was a 
relevant inquiry. The commenters' citations to opinions such as Texas Water 
Commission v. City of Fort Worth, No. 3-92- 00502-CV (Tex. App.--March 2, 1994, 
writ requested) did not cause the commission to change its conclusion. The court 
in Fort Worth, like the Water Code itself, calls for rates not "unreasonably 
preferential, prejudicial, or discriminatory." The opinion does not state one 
way or the other whether the public interest must, or even can, be analyzed on 
the basis of cost of service. The commission believes its conclusion is 
consistent with this opinion, for the same reasons its conclusion is consistent 
with the statutory requirements. 
 The commission next addresses the statements of those commenters on the public 
interest finding who argued the commission cannot, or at least should not, 
evaluate cost of service as part of the analysis. One commenter argued that the 
High Plains opinion shows the commission cannot consider cost of service because 
the court there imposed a public interest test which did not mention cost of 
service. 
 The commission concludes that under the adopted bifurcated hearing procedure 
the commission should not consider cost of service in the determination on 
public interest. The commission relies on three rationales to reach this 
conclusion. First, the adopted public interest criteria and related factors seek 
the facts which lie at the heart of disputes concerning wholesale rates. The 
commission reaches this conclusion after conducting numerous public meetings 
where both sellers and purchasers generally agreed that most agreements for the 
sale of wholesale services are reasonable and are the product of arms length 
negotiations. However, there are situations where a seller and purchaser have 
entered into a long term agreement that later is disputed. Over time the seller 
exercises near monopoly power over the purchaser because many agreements allow 
the seller the unilateral right to adjust the rate. Moreover, the purchaser 
substantially has no alternatives to obtain water or sewer service because it 
has entered into a long term agreement with the seller. The adopted criteria 
focus on the actual facts which will show whether the protested rate reflects 
this latter type of agreement so much that it invokes the public interest. 
Second, the commission concludes the determination of the seller's cost of 
service is not as reliable a mechanism to determine the public interest as some 
commenters believe. The discussions at the public meetings showed generally that 
there will be as many different determinations of cost of service as experts who 
are asked the question. Moreover, the expert opinions can arrive at equally 
reasonable conclusions which recommend rates that are two or three times the 
rates recommended by other experts. Third, the use of cost of service to 
determine the public interest does not give sufficient deference to contractual 
agreements between the seller and purchaser. 
 One commenter argued that the determination of the public interest should not 
be limited to the public interest criteria listed in sec.291.133(a)(1)-(4). 
However, the commission favors a conservative approach when evaluating whether 
to cancel a rate which was set pursuant to a private agreement between 
utilities. The public interest criteria as adopted are sufficiently broad. A 
party should not be allowed to urge that some other criteria have been violated. 
Two commenters argued that the violation of one of the public interest criteria 
alone should not lead to a finding the rate adversely affects the public 
interest, and one commenter argued all the public interest criteria should be 
proved up before such a finding is made. The commission disagrees because the 
violation of any one of the four public interest criteria shows there has been a 
substantial breach of the public interest. 
 One commenter argued that sec.291.133(a)(1) is not relevant to the commission's 
jurisdiction and should be deleted. The commission disagrees. There have been 
past instances where a purchaser filed a petition or appeal, and even the seller 
argued against the protested rate but for opposite reasons. This criteria will 
address this type of situation. Moreover, the commission has asked the courts to 
reconsider commission jurisdiction under the Water Code, Chapters 11 and 12. 
 Two commenters argued that the public interest criteria in sec.291.133(a)(2) 
should at least be expanded to include a definition of "excessive financial 
burden." Another commenter opposed the paragraph altogether. The commission 
agrees this public interest criteria was not sufficiently defined. The paragraph 
as adopted incorporates the standard used in sec.291.133(a)(1), but focuses the 
inquiry upon the purchaser. Basically, the criteria states the public interest 
will be violated if the protested rate would impair the purchaser's ability to 
provide service to its retail customers, based on the purchaser's financial 
integrity and operational capability. The commission believes this would be an 
unusual circumstance. Nonetheless, were it to occur it would adversely affect 
the public interest. 
 Two commenters argue that citing monopoly power in sec.291.133(a)(3), as a 
public interest criteria is improper because the fact that a utility is a 
monopoly does not alone determine a violation of the public interest. The 
commission agrees, but points out that the rule inquires into whether there 
exists an abuse  of monopoly power. 
 One commenter contends that the factors in sec.291.133(a)(3) are ill-defined, 
and will lead to substantial uncertainty whether a seller must fear the 
commission will cancel the contract it reached with a purchaser. However, the 
adopted rules are actually a substantial move towards giving due consideration 
to contracts. The adoption of these rules marks the end of past policy where the 
commission essentially automatically cancelled the rate set by contract and set 
a rate based on cost of service. Nor are the factors ill-defined. During the 
commission's public meetings the parties discussed the issues that are commonly 
the basis of disputes. The factors focus upon those issues. Moreover, during the 
public meetings the commission met with near universal rejection of mathematic 
tests and safe harbors meant to define the public interest because these "exact" 
methods often require lengthy cost of service analyses which lead to ancillary 
disputes on whether the thresholds have been met. 
 This same commenter suggests that sec.291.133(a)(3)(A) should refer to issues 
surrounding possible annexation into a municipality. The commission believes the 
subparagraph is already sufficiently broad to allow such an analysis. 
 One commenter argued that sec.291.133(a)(3)(B), improperly focuses on the 
seller's cost of providing service to the purchaser. As discussed previously, 
the commission agrees and has revised the subparagraphs so that the focus is not 
on cost of service. The commenter argued for a provision specifying the pass-
through of an increase in purchased water costs is a reasonable change in 
conditions. The commission rejects this because the commission cannot assume 
that every agreement allows for the pass-through of purchased water costs. 
 One commenter suggested the commission evaluate the water or sewer rates 
charged by other Texas utilities as described in sec.291.133(a)(3)(G) only if 
they are comparable. Another commenter argued the factor should be deleted. The 
commission rejects these comments because the commission will use a rate 
comparison only for limited purposes. The commission believes the rates charged 
by other utilities is a relevant inquiry to determine the public interest. 
However the commission, like the commenters, understands that there are numerous 
reasons which may explain why one utility's rate may be higher than the rates 
imposed by another utility. Given that understanding, the commission will not be 
placing dispositive weight on the fact the protested rate is different than the 
rates charged by other utilities. While the commission is interested in broad 
terms why there are differences in rates, the commission believes a requirement 
that rates must be comparable would unduly complicate the hearing, often 
concerning a utility that is not even before the commission. 
 One commenter argued sec.291.133(a)(3)(H) should be amended to provide that a 
comparison of retail rates should not be undertaken when the purchaser has 
earlier refused annexation by the seller. The commission rejects this 
recommended amendment. Another commenter opposed the requirement altogether. 
Again, as in sec.291.133(a)(3)(G), the commission believes it focuses on a 
relevant inquiry to determine the public interest. However, the commission 
understands that it cannot place dispositive weight on this factor. 
 One commenter argued that the public interest criteria in sec.291.133(a)(4) 
should concern unreasonable discrimination between customers, but should only 
focus on wholesale customers. The commission agrees that a comparison of the 
protested rate with rates the seller charges other wholesale customers is 
relevant to the public interest inquiry, and that the statutory language gives 
sufficient guidance concerning the scope of the inquiry. The public interest 
inquiry under paragraph sec.291.133(a)(3) should sufficiently cover whether any 
disparity in treatment between retail and wholesale customers adversely affects 
the public interest. Accordingly, the adopted rule includes a revised paragraph 
sec.291.133(a)(4) which uses the statutory language found in the Water Code, 
sec.13.047(j), that the rate shall not be unreasonably preferential, 
prejudicial, or discriminatory, and specifies that under the subsection the 
inquiry shall be limited to a comparison of seller's rates charged to wholesale 
customers. A commenter argued that sec.291.133(a)(4) imposed an unlawful 
standard to determine the public interest because the subsection inquired 
concerning the mere appearance of discrimination, as opposed to the existence of 
discrimination. This issue has been resolved by the adopted changes which 
inquire whether the protested rate is unreasonably preferential, prejudicial, or 
discriminatory. 
 Several commenters opposed sec.291.133(a)(5) because it appeared to require 
that all wholesale contracts entered into after the effective date of the rules 
must be based upon the seller's cost of service. A commenter argued that the 
subsection imposed a criteria irrelevant to the public interest finding. Several 
of the commenters argued the test would ignore that cities may base their 
agreements upon considerations that cannot be added easily to a cost of service 
analysis. Moreover, a municipality that desires to provide wholesale service to 
one entity would not want to incur the expense of a cost of service study. The 
commission believes proposed sec.291.133(a)(5) should be deleted because it is 
not consistent with the commission's conclusion stated previously that the 
public interest does not demand that a wholesale rate shall equal the seller's 
cost of providing service. 
 Several commenters addressed sec.291.134. One commenter stated that the 
procedure was unclear once the commission finds a protested rate adversely 
affects the public interest, while another commenter argued the subsection 
should not include the "just and reasonable" standard as a test used to evaluate 
the protested rate. These comments persuade the commission to clarify the rule. 
If the commission in the evidentiary hearing on public interest determines the 
protested rate adversely affects the public interest, there is no need to 
revisit and reanalyze the protested rate during the evidentiary hearing on cost 
of service. The sole purpose of the evidentiary hearing on cost of service will 
be to determine the seller's cost of providing service to the purchaser, and to 
set a rate on that basis. One commenter argued that the commission should not 
limit itself to setting the rate based on cost of service. The commission 
disagrees because the commission wishes to add as much certainty to this process 
as possible. The commission has found it difficult indeed to anticipate all the 
possible disputes which could arise and to give guidance, to the extent 
possible, concerning how the commission will determine the public interest. The 
commission believes that if the public interest criteria cannot be explained in 
more definite form, then at least the commission should show in clear terms the 
remedy the commission will use whenever it finds the public interest has been 
adversely affected. 
 One commenter argued that when the commission finds the protested rate 
adversely affects the public interest, and remands the proceeding to an examiner 
for an evidentiary hearing on cost of service, such finding should be issued in 
a final order. The commission disagrees because a remand is an interim order, 
marking roughly the end of the first half of the proceeding, not the end of the 
entire proceeding. Moreover, the commenter's proposal would unreasonably prolong 
appeals and unduly complicate them. If the remand order were final and subject 
to a judicial appeal then the seller would appeal in many instances. This would 
likely leave the remaining cost of service proceedings before the commission in 
administrative limbo while the seller seeks his day in court concerning the 
commission's public interest finding. If the commission were to nonetheless 
proceed with the cost of service determination the proceedings would be unduly 
complicated by the fact the same proceeding was already at the courthouse. This 
would be an unreasonable burden on the parties' time and resources. 
 The commission also disagrees with commenter's argument that the opinion in 
Texas Water Commission v. City of Fort Worth  requires the immediate issuance of 
a final order where the commission finds the protested rate adversely affects 
the public interest. The opinion does not discuss, much less resolve, the 
argument that the commission must make a public interest finding in a separate 
proceeding subject to immediate judicial review. The commission could have 
issued rules which provide for one evidentiary hearing on all contested issues, 
but elected not to. The commission adopts the bifurcated hearing approach 
because it believes the procedure will clarify the contested issues and conserve 
both the commission's and the parties' resources. The adoption of the 
commenter's argument would substantially thwart these benefits. 
 One commenter argued that sec.291.134(b) should provide that if the commission 
sets rates the commission will take into account any agreement between the 
seller and purchaser. The commission believes this would merely restate a 
provision found in sec.291.135(a). A commenter pointed out that the proposed 
rule had no provision concerning interim rates. The commission believes it may 
impose interim rates where appropriate, but that there is no need to add an 
interim rates provision to the rule. 
 The commission received numerous comments addressing sec.291.135. One commenter 
suggested that sec.291.135(a), which provides that the commission "may" rely on 
reasonable methodologies set by contract should be made mandatory. The 
commission agrees with this comment and revised the rule to provide that the 
commission "shall" rely on reasonable methodologies set by contract in 
calculating the cost of service. 
 Two commenters suggested that cost of service for non-profit utilities should 
be determined based on the cash basis methodology regardless of the methodology 
specified in the contract. The commission disagrees. While the commission has 
traditionally applied cash basis methodology to such utilities, these rules are 
intended to afford increased deference to reasonable contractual provisions such 
as the specification of a reasonable accounting methodology. With respect to 
sec.291.135(b), which provides that the commission may, under specific 
circumstances, decline to recognize a change in methodologies imposed by a 
service provider, (suggesting that a change in methodologies may be reasonable 
and authorized by the contract), the commission believes such a situation could 
be appropriately addressed pursuant to the rule since it remains permissive, 
i.e., it does not prohibit the commission from recognizing a change in 
methodologies under appropriate circumstances. 
 The commission received a few comments relating to sec.291.136. Two commenters 
suggest that the law and sound policy require that the burden of proof should 
always be on the service provider. One commenter suggests that the burden of 
proof should always be on the "applicant," (the party seeking relief from the 
commission) whether the applicant is the seller or the buyer. A final commenter 
suggests that the law requires imposition of a heightened burden of proof "by 
clear and satisfactory evidence" on the party seeking to set aside the contract 
based on the public interest. 
 The commission believes the rule appropriately places the burden of proof on 
the petitioner to show that the rate demanded violates the public interest, and 
upon the service provider to establish the appropriate cost based rate. The 
commission believes this standard is fair and consistent with current case law. 
 The commission received several comments relating to sec.291.137. Five of the 
commenters assert that the section is illegal because the commission "enjoys" 
only appellate jurisdiction over these wholesale rates disputes. In light of 
these comments, this section has been revised to clarify that it does not 
prohibit a service provider from proposing a rate increase at any time and; if 
the proposed increase is not appealed, it will go into effect. This section will 
apply only when a utility has had a rate demanded set aside as violating the 
public interest, raises its rates within three years of the end of the test year 
from the prior proceeding, and the customer appeals. The effect of this section, 
under these limited circumstances, is to require the seller to justify the 
increase and place an automatic interim rate in effect at the level set in the 
prior proceeding. At the conclusion of the proceeding, the appropriate party 
will be required to pay to the other party the difference between the automatic 
interim rate and the final rate set. The commenters generally believed 
sec.291.137 is unfair in addition to being unlawful. In light of the limited 
applicability and consequences of the section, the commission believes that it 
is legal, fair, and efficient. 
 Two commenters contend the requirements set forth in sec.291.138 invite 
inappropriate rate comparisons, are overly burdensome, and require information 
that will fail to identify the unique characteristics of a water or sewer 
service relationship. The commission has revised the rule to allow more 
flexibility on data to be reported concerning all types of rates and other 
characteristics of water and sewer service relationship. The adopted rule allows 
for guidelines on the contents of these reports to be established. Since annual 
filings may create hardships, the section has also been modified to require 
submittals in odd-numbered years only. The reference to a specific agency 
division was duplicative and has been removed. 
 Comments were received from the following: City of Arlington, City of 
Carrollton, City of Dallas, Dallas Water Utilities, City of Denton, City of El 
Paso, City of Fort Worth, City of Lewisville, City of Wichita Falls, Lost Creek 
Municipal Utility District, Lower Colorado River Authority, Northwest Travis 
County Municipal Utility District No. 1; Tarrant County Water Control and 
Improvement District No. 1. Comments were also received from the following: 
Butler, Porter, Gay & Day; Law Offices of Ronald J. Freeman; Gebhard Sarma 
Group, Inc.; Hutchison Boyle Brooks & Fisher, and Scanlan & Buckle, P.C. 
 The new sections are adopted under the Texas Water Code,  sec.5.103, which 
authorizes the commission to adopt and enforce rules necessary to carry out its 
powers and duties under the laws of this state and Texas Water Code, 
sec.sec.11.041, 12.013, and 13.043 which govern appeals or petitions for review 
of wholesale water and wastewater rates. 
 
 
  sec.291.128. Petition or Appeal Concerning Wholesale Rate.  This subchapter 
sets forth substantive guidelines and procedural requirements concerning: 
 
  (1) a petition to review rates charged pursuant to a written contract for the 
sale of water for resale filed pursuant to the Texas Water Code, Chapter 11 or 
12; or 
   
  (2) an appeal pursuant to the Texas Water Code, sec.13.043(f), (appeal by 
retail public utility concerning a decision by a provider of water or sewer 
service). 
 
     
  sec.291.129. Definitions.  For purposes of this subchapter, the following 
definitions apply: 
 
  (1) Petitioner-The entity that files the petition or appeal. 
   
  (2) Protested rate-The rate demanded by the seller. 
   
  (3) Cash Basis calculation of cost of service-A calculation of the revenue 
requirement to which a seller is entitled to cover all cash needs, including 
debt obligations as they come due. Basic revenue requirement components 
considered under the cash basis generally include operation and maintenance 
expense, debt service requirements, and capital expenditures which are not debt 
financed. Other cash revenue requirements should be considered where applicable. 
Basic revenue requirement components under the cash basis do not include 
depreciation. 
   
  (4) Utility Basis calculation of cost of service-A calculation of the revenue 
requirement to which a seller is entitled which includes a return on investment 
over and above operating costs. Basic revenue requirement components considered 
under the utility basis generally include operation and maintenance expense, 
depreciation, and return on investment. 
 
     
  sec.291.130. Petition or Appeal. 
 
  (a) The petitioner must file a written petition with the commission 
accompanied by the filing fee required by the Texas Water Code. The petitioner 
must serve a copy of the petition on the party against whom the petitioner seeks 
relief and other appropriate parties. 
   
  (b) The petition must clearly state the statutory authority which the 
petitioner invokes, specific factual allegations, and the relief which the 
petitioner seeks. The petitioner must attach any applicable contract to the 
petition. 
   
  (c) The petitioner must file an appeal pursuant to the Texas Water Code, 
sec.13.043(f), in accordance with the time frame provided therein. 
 
     
  sec.291.131. Executive Director's Determination of Probable Grounds. When a 
petition or appeal is filed, including a petition subject to the Texas Water 
Code, sec.11.041, the executive director shall determine within ten days of the 
filing of the petition or appeal whether the petition contains all of the 
information required by this subchapter. For purposes of this section only, the 
executive director's review of probable grounds shall be limited to a 
determination whether the petitioner has met the requirements of sec.291.130 of 
this title (relating to Petition or Appeal). If the executive director 
determines that the petition or appeal does not meet the requirements of 
sec.291.130, the executive director shall inform the petitioner of the 
deficiencies with the petition or appeal and allow the petitioner the 
opportunity to correct these deficiencies. If the executive director determines 
that the petition or appeal does meet the requirements of sec.291. 130, the 
executive director shall forward the petition or appeal to the office of 
hearings exainers for an evidentiary hearing. 
 
   
  sec.291.132. Evidentiary Hearing on Public Interest. 
 
  (a) If the executive director forwards a petition to the office of hearings 
examiners pursuant to sec.291.131 of this title (relating to Executive 
Director's Determination of Probable Grounds), the office of hearings examiners 
shall conduct an evidentiary hearing on public interest to determine whether the 
protested rate adversely affects the public interest. 
   
  (b) Prior to the evidentiary hearing on public interest discovery shall be 
limited to matters relevant to the evidentiary hearing on public interest. 
   
  (c) The examiner shall prepare a proposal for decision and order with proposed 
findings of fact and conclusions of law concerning whether the protested rate 
adversely affects the public interest, and shall submit this recommendation to 
the commission no later than 120 days after the executive director forwards the 
petition to the office of hearings examiners pursuant to sec.291.131 of this 
title (relating to Executive Director's Determination of Probable Grounds). 
   
  (d) The seller and buyer may agree to consolidate the evidentiary hearing on 
public interest and the evidentiary hearing on cost of service. If the seller 
and buyer so agree the examiner shall hold a consolidated evidentiary hearing. 
 
     
  sec.291.133. Determination of Public Interest. 
 
  (a) The commission shall determine the protested rate adversely affects the 
public interest if after the evidentiary hearing on public interest the 
commission concludes at least one of the following public interest criteria have 
been violated: 
 
  (1) the protested rate impairs the seller's ability to continue to provide 
service, based on the sellers's financial integrity and operational capability; 
   
  (2) the protested rate impairs the purchaser's ability to continue to provide 
service to its retail customers, based on the purchaser's financial integrity 
and operational capability; 
   
  (3) the protested rate evidences the seller's abuse of monopoly power in its 
provision of water or sewer service to the purchaser. In making this inquiry, 
the commission shall weigh all relevant factors. The factors may include: 
 
  (A) the disparate bargaining power of the parties, including the purchaser's 
alternative means, alternative costs, environmental impact, regulatory issues, 
and problems of obtaining alternative water or sewer service; 
   
  (B) the seller's failure to reasonably demonstrate the changed conditions that 
are the basis for a change in rates; 
   
  (C) the seller changed the computation of the revenue requirement or rate from 
one methodology to another; 
   
  (D) where the seller demands the protested rate pursuant to a contract, other 
valuable consideration received by a party incident to the contract; 
   
  (E) incentives necessary to encourage regional projects or water conservation 
measures; 
   
  (F) the seller's obligation to meet federal and state wastewater discharge and 
drinking water standards; 
   
  (G) the rates charged in Texas by other sellers of water or sewer service for 
resale; 
   
  (H) the seller's rates for water or sewer service charged to its retail 
customers, compared to the retail rates the purchaser charges its retail 
customers as a result of the wholesale rate the seller demands from the 
purchaser; 
     
  (4) the protested rate is unreasonably preferential, prejudicial, or 
discriminatory, compared to the wholesale rates the seller charges other 
wholesale customers. 
     
  (b) The commission shall not determine whether the protested rate adversely 
affects the public interest based on an analysis of the seller's cost of 
service. 
 
     
  sec.291.134. Commission Action to Protect Public Interest, Set Rates. 
 
  (a) If as a result of the evidentiary hearing on public interest the 
commission determines the protested rate does not adversely affect the public 
interest, the commission will deny the petition or appeal by final order. The 
commission must state in the final order that dismisses a petition or appeal the 
bases upon which the commission finds the protested rate does not adversely 
affect the public interest. 
   
  (b) If the commission determines the protested rate adversely affects the 
public interest, the commission will remand the matter to the office of hearings 
examiners for further evidentiary proceedings. The remand order is not a final 
order subject to judicial review. 
   
  (c) No later than 90 days after remand the seller shall file with the Office 
of Chief Clerk five copies of a cost of service study which supports the 
protested rate. 
   
  (d) After remand the parties shall not offer evidence or argument on whether 
the protested rate adversely affects the public interest. After further 
evidentiary proceedings the commission shall cancel the protested rate, and set 
a rate consistent with the ratemaking mandates of the Texas Water Code, Chapters 
11, 12, and 13. The commission must state in a final order that grants a 
petition or appeal the bases upon which the commission finds the protested rate 
adversely affects the public interest. 
 
     
  sec.291.135. Determination of Cost of Service. 
 
  (a) The commission shall follow the mandates of the Texas Water Code, Chapters 
11, 12, and 13 to calculate the annual cost of service. The commission shall 
rely on any reasonable methodologies set by contract which identify costs of 
providing service and/or allocate such costs in calculating the cost of service. 
   
  (b) When the protested rate was calculated using the cash basis or the utility 
basis, and the rate which the protested rate supersedes was not based on the 
same methodology, the commission may calculate cost of service using the 
superseded methodology unless the seller establishes a reasonable basis for the 
change in methodologies. Where the protested rate is based in part upon a change 
in methodologies the seller must show during the evidentiary hearing the 
calculation of revenue requirements using both the methodology upon which the 
protested rate is based, and the superseded methodology. When computing revenue 
requirements using a new methodology, the commission may allow adjustments for 
past payments. 
 
     
  sec.291.136. Burden of Proof. The petitioner shall have the burden of proof in 
the evidentiary proceedings to determine if the protested rate is adverse to the 
public interest. The seller of water or sewer service (whether the petitioner or 
not) shall have the burden of proof in evidentiary proceedings on determination 
of cost of service. 
 
   
  sec.291.137. Commission Order to Discourage Succession of Rate Disputes. 
 
  (a) If the commission finds the protested rate adversely affects the public 
interest and sets rates on a cost of service basis, then the commission shall 
add the following provisions to its order. 
 
  (1) If the purchaser files a new petition or appeal, and the executive 
director forwards the petition or appeal to the office of hearings examiners 
pursuant to sec.291.131, then the examiner shall set an interim rate 
immediately. The interim rate shall equal the rate set by the commission in this 
proceeding where the commission granted the petition or appeal and set a cost of 
service rate. 
   
  (2) The commission shall determine in the proceedings pursuant to the new 
petition or appeal that the protested rate adversely affects the public 
interest. The examiner shall not hold an evidentiary hearing on public interest 
but rather shall proceed with the evidentiary hearing to determine a rate 
consistent with the ratemaking mandates of the Texas Water Code, Chapters 11, 
12, and 13. 
     
  (b) The effective period for the provisions issued pursuant to subsection (a) 
of this section shall expire upon the earlier of three years after the end of 
the test year period, or upon the seller and purchaser entering into a new 
written agreement for the sale of water or sewer service which supersedes the 
agreement which was the subject of the proceeding where the commission granted 
the petition or appeal and set a cost of service rate. The provisions shall be 
effective in proceedings pursuant to a new petition or appeal if the petition or 
appeal is filed before the date of expiration. 
   
  (c) For purposes of subsection (b) of this section, the "test year period" is 
the test year used by the commission in the proceeding where the commission 
granted the petition or appeal and set rates on a cost of service basis. 
 
     
  sec.291.138. Filing of Rate Data. 
 
  (a) For purposes of comparing the rates charged in Texas by providers of water 
or sewer service for resale, the commission requires each provider of water or 
sewer service for resale to report the retail and wholesale rates it charges to 
purchasers. 
   
  (b) By January 31st of each odd-numbered year each provider of water or sewer 
service for resale shall file a report with the commission. The report must 
provide the information prescribed in a form prepared by the commission. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 3, 1994. 
 TRD-9446017 
  Mary Ruth Holder 
 Director, Legal Division 
 Texas Natural Resource Conservation Commission 
    Effective date: August 23, 1994 
 Proposal publication date: May 20, 1994 
 For further information, please call: (512) 463-8069 
         
               Chapter 291. Water Rates 
  
  Subchapter I. Nonsubmetered Master Meter Utilities 
 
  30 TAC sec.sec.291.131-291.136 
 
  The repealed sections are adopted under the Texas Water Code, sec.5.103, which 
provides the commission the authority to adopt and enforce rules necessary to 
carry out its powers and duties under the laws of this state. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 3, 1994. 
 TRD-9446018 
  Mary Ross McDonald 
 Director, Legal Division 
 Texas Natural Resource Conservation Commission 
    Effective date: May 20, 1994 
 Proposal publication date: August 23, 1994 
 For further information, please call: (512) 463-8069 
         
               
  TITLE 34. PUBLIC FINANCE 
 Part I. Comptroller of Public Accounts 
  Chapter 3. Tax Administration 
  
  Subchapter CC. Waste Tire Recycling Fee 
 
  34 TAC sec.3.721 
 
  The Comptroller of Public Accounts adopts an amendment to sec.3.721, 
concerning the tires that are subject to the waste tire recycling fee, without 
changes to the proposed text as published in the February 8 , 1994, issue of the 
Texas Register (19 TexReg 892). 
 The 73rd Legislature, 1993, amended the Health and Safety Code, sec.361.472, 
effective October 1, 1993, to impose the fee on basically all new tires with a 
rim diameter equal to or greater than 12 inches but less than 25 inches, 
including all sizes of new motorcycle tires, and to repeal the authority for 
dealers to retain a portion of the fees remitted. 
 No comments were received regarding adoption of the amendment. 
 The amendment is adopted under the Tax Code, sec.111.002, which provides the 
comptroller with the authority to prescribe, adopt, and enforce rules relating 
to the administration and enforcement of the provisions of the Tax Code, Title 
2. 
 The amendment implements the Health and Safety Code, sec.361.472. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 2, 1994. 
 TRD-9445992 
  Martin Cherry 
 Chief, General Law 
 Comptroller of Public Accounts 
    Effective date: August 23, 1994 
 Proposal publication date: February 8, 1994 
 For further information, please call: (512) 463-4028 
         
           Chapter 9. Property Tax Administration 
  
  Subchapter A. Practice and Procedure 
 
  34 TAC sec.9.17 
 
  The Comptroller of Public Accounts adopts an amendment to sec.9.17, concerning 
notice of public hearing on tax increase, without changes to the proposed text 
as published in the June 7, 1994, issue of the Texas Register  (19 TexReg 4410). 
 The Tax Code, sec.26.06, requires the comptroller to prescribe by rule the form 
and content of the notice of a public hearing on a tax increase. The rule adopts 
by reference amended model form 26.06. The form is amended to delete unnecessary 
information. 
 The amendment is necessary because Senate Bill 7, 73rd Legislature, 1993, 
abolished county education districts. The abolishment of county education 
districts returned to school districts the portion of the school district's tax 
rate formerly levied by the county education district. The current notice 
reflects the abolition of county education districts. Because county education 
districts levied taxes for the last time in 1992, reference to county education 
districts is no longer needed on the notice. 
 The amendment deletes the optional information for school districts concerning 
county education districts on model form 26.06. Amendment of the rule also 
changes the address of the Comptroller of Public Accounts, Property Tax 
Division, and deletes the date of the amendment of the form. 
 No comments were received regarding adoption of the amendment. 
 The amendment is adopted under the Tax Code, sec.26.06, which requires the 
comptroller by rule to prescribe the form and wording for notice of a public 
hearing on a tax increase. The amendment implements the Tax Code, sec.26.06. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 2, 1994. 
 TRD-9445990 
  Martin Cherry 
 Chief, General Law 
 Comptroller of Public Accounts 
    Effective date: August 23, 1994 
 Proposal publication date: June 7, 1994 
 For further information, please call: (512) 463-4028 
         
       
  34 TAC sec.9.19 
 
  The Comptroller of Public Accounts adopts the repeal of  sec.9.19, concerning 
notice of effective and rollback tax rates, without changes to the proposed text 
as published in the June 7, 1994, issue of the Texas Register  (19 TexReg 4410). 
 The Tax Code, sec.26.04, only requires that the comptroller prescribe the form. 
Adoption of the form by rule is not necessary. 
 No comments were received regarding adoption of the repeal. 
 The repeal is adopted under the Tax Code, sec.26.04, which requires the 
comptroller to prescribe the form for publishing notice of effective and 
rollback tax rates. The repeal implements the Tax Code, sec.26.04. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 2, 1994. 
 TRD-9445991 
  Martin Cherry 
 Chief, General Law 
 Comptroller of Public Accounts 
    Effective date: August 23, 1994 
 Proposal publication date: June 7, 1994 
 For further information, please call: (512) 463-4028 
         
               
  TITLE 40. SOCIAL SERVICES AND ASSISTANCE 
 Part I. Texas Department of Human Services 
  Chapter 47. Primary Home Care 
  
  The Texas Department of Human Services (DHS) adopts amendments to sec.sec.47. 
2902, 47.2904, 47.2909, 47.2912, 47.2913, 47.3901, and 47.3906 in its Primary 
Home Care chapter. The amendments to sec.sec.47.2902, 47.2909, 47.2913, and 47. 
3901 are adopted with changes to the proposed text as published in the June 7, 
1994, issue of the Texas Register (19 TexReg 4413). The amendments to sec. 
sec.47.2904, 47.2912, and 47.3906 are adopted without changes to the proposed 
text and will not be republished. 
 The justification for the amendments is to streamline the prior approval 
process to require only initial prior approval of medical need, with the 
following exceptions: Annual renewal of prior approval of medical need by the 
DHS regional nurse is required for applicants who are eligible under the 
provisions of the Social Security Act, sec.1929(b); and DHS's regional nurse 
gives a time-limited prior approval for applicants with a medical need and 
related functional impairment based on an acute medical condition that is 
expected to improve. The requirement for an annual physician's order for primary 
home care is also being changed. A physician's order is only required for 
initial prior approval and for renewal of prior approval for time-limited 
services. 
 The amendments will function by streamlining the process so provider agencies 
will not be required to submit a prior approval packet to the DHS regional nurse 
to obtain reauthorization of primary home care. Also, service plan changes may 
be authorized faster since the approval will be handled directly by the 
caseworker. 
 During the comment period, DHS received written comments from the Texas Health 
Care Association. A summary of the comments and DHS's responses follows: 
 Comment concerning sec.47.2902: Require clients with time-limited approval 
(less than 12 months) to be reassessed at 120 days to be consistent with nursing 
facility requirements for reassessment at 120 days. 
 Response: Time-limited prior approval can be for varying lengths of time 
depending on the client's medical condition and related functional impairment. 
DHS is adopting this section without change. 
 Comment: Require physician's orders to be updated every six months. 
 Response: Primary home care is a non-skilled attendant care program for persons 
with chronic health conditions which cause functional impairments in activities 
of daily living. Attendants provide assistance with activities of daily living. 
The physician is ordering the attendant care service, not the specific skilled 
nursing tasks/treatments. Also, federal Medicaid requirements do not require the 
physician to update orders for primary home care every six months. DHS is 
adopting the sections without change. 
 Comment concerning sec.47.2913(b)(1): Change the wording to "summary of client 
need for service when provided" because sections should be written for 
circumstances when a service is provided, not "if" services a provided. 
 Response: This paragraph refers to a form that is completed by the DHS 
caseworker and is only sent to the provider if any information has changed since 
the last assessment. The form summarizes the client's need for service. If the 
client continues to need services, and the reasons continue to be the same, a 
new form is not sent to the provider. DHS is adopting this paragraph without 
change. 
 The department has revised the section titles of sec. sec.47.2902, 47.2909 and 
47.2913 for clarification. Also, the department has moved the location of the 
word "form" in sec.47.3901(b)(11) for clarification. 
   
  Service Requirements 
 
  40 TAC sec.sec.47.2902, 47.2904, 47.2909, 47.2912, 47.2913 
 
  The amendments are adopted under the Human Resources Code, Title 2, Chapters 
22 and 32, which provides the department with the authority to administer public 
and medical assistance programs and under Texas Civil Statutes, Article 4413 
(502), sec.16, which provides the Health and Human Services Commission with the 
authority to administer federal medical assistance funds. 
 The amendments implement sec.sec.22.001-22.024 and 32.001-32.041 of the Human 
Resources Code. 
 
 
  sec.47.2902. Requesting Prior Approval for Primary Home Care. 
 
  (a)  Provider agencies must obtain, from the regional nurse, prior approval of 
medical need for applicants and renewal of prior approval for certain clients. 
 
  (1) Except as indicated in paragraph (2) of this subsection, only initial 
prior approval of medical need by the department regional nurse is required for 
applicants who have a chronic medical condition causing functional impairment in 
personal care that is expected to be long-standing. However, annual 
reauthorization of service by the caseworker is required. 
   
  (2) Annual renewal of prior approval by the department regional nurse is 
required for clients who are eligible under the provisions of the Social 
Security Act, sec.1929(b). 
   
  (3) The department regional nurse gives a time-limited prior approval for 
applicants with a medical need and related functional impairment based on an 
acute medical condition that is expected to improve in less than 12 months. 
     
  (b)-(g) (No change.) 
 
     
  sec.47.2909. Physician Supervision for Primary Home Care.  An individual 
seeking initial prior approval for primary home care, or a client with time-
limited (less than 12 months) prior approval who wants to renew prior approval, 
must have a physician's order for the service. 
 
   
  sec.47.2913. Prior Approval Renewal for Primary Home Care. 
 
  (a) For clients who have time-limited prior approval and who request renewal 
of prior-approval of medical need by the regional nurse, the RN supervisor must 
send the following forms to the regional nurse: 
 
  (1)-(4) (No change.) 
     
  (b) For clients who are eligible for primary home care under the provisions of 
the Social Security Act, sec.1929(b), the RN supervisor must send the following 
forms to the regional nurse to obtain renewal of prior approval: 
 
  (1) summary of client need for service, if provided; 
   
  (2) approval for CCAD services-referral response, if received from the 
caseworker; and 
   
  (3) client health assessment/proposed service plan. 
     
  (c) The RN supervisor must submit the prior approval material to the regional 
nurse in time for it to be postmarked or date-stamped by the department no later 
than one day after the termination date of the current prior approval period. If 
the required forms are not submitted within this time frame, a gap in client 
coverage occurs. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 2, 1994. 
 TRD-9446007 
  Nancy Murphy 
 Section Manager of Media and Policy Services 
 Texas Department of Human Services 
    Effective date: October 1, 1994 
 Proposal publication date: June 7, 1994 
 For further information, please call: (512) 450-3765 
         
             
  Claims Payment 
 
  40 TAC sec.47.3901, sec.47.3906 
 
  The amendments are adopted under the Human Resources Code, Title 2, Chapters 
22 and 32, which provides the department with the authority to administer public 
and medical assistance programs and under Texas Civil Statutes, Article 4413 
(502), sec.16, which provides the Health and Human Services Commission with the 
authority to administer federal medical assistance funds. 
 The amendments implement sec.sec.22.001-22.024 and  sec.sec.32.001-32.041 of 
the Human Resources Code. 
 
 
  sec.47.3901. Claims Requirements. 
 
  (a) (No change.) 
   
  (b) The provider agency is not entitled to payment if: 
 
  (1)-(8) (No change.) 
   
  (9) services are ordered by a physician who has been excluded from the 
Medicare or Medicaid program or both; 
   
  (10) services are billed at a unit rate that does not match the client's 
priority level; or 
   
  (11) the physician's order form for primary home care services does not meet 
department requirements. 
     
  (c)-(d) (No change.) 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 2, 1994. 
 TRD-9446008 
  Nancy Murphy 
 Section Manager of Media and Policy Services 
 Texas Department of Human Services 
    Effective date: October 1, 1994 
 Proposal publication date: June 7, 1994 
 For further information, please call: (512) 450-3765 
         
               Chapter 48. Community Care for Aged and Disabled 
  
  Eligibility 
 
  40 TAC sec.48.2918 
 
  The Texas Department of Human Services (DHS) adopts an amendment to sec.48. 
2918, without changes to the proposed text as published in the June 7, 1994, 
issue of the Texas Register (19 TexReg 4413). 
 The justification for the amendment is to streamline the prior approval process 
to require only initial prior approval of medical need, with the following 
exceptions: Annual renewal of prior approval by the DHS regional nurse is 
required for applicants who are eligible under the provisions of the Social 
Security Act, sec.1929(b); and DHS's regional nurse gives a time-limited prior 
approval for applicants with a medical need and related functional impairment 
based on an acute medical condition that is expected to improve. The requirement 
for an annual physician's order for primary home care is also being changed. A 
physician's order is only required for initial prior approval and for renewal of 
prior approval for time-limited services. 
 The amendment will function by streamlining the process so provider agencies 
will not be required to submit a prior approval packet to the DHS regional nurse 
to obtain reauthorization of primary home care. Also, service plan changes may 
be authorized faster since the approval will be handled directly by the 
caseworker. 
 No comments were received regarding adoption of the amendment. 
 The amendment is adopted under the Human Resources Code, Title 2, Chapters 22 
and 32, which provides the department with the authority to administer public 
and medical assistance programs and under Texas Civil Statutes, Article 4413 
(502), sec.16, which provide the Health and Human Services Commission with the 
authority to administer federal medical assistance funds. 
 The amendment implements sec.sec.22.001-22.024 and  sec.sec.32.001-32.041 of 
the Human Resources Code. 
 
  This agency hereby certifies that the rule as adopted has been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
 Issued in Austin, Texas, on August 2, 1994. 
 TRD-9446006 
  Nancy Murhpy 
 Section Manager of Media and Policy Services 
 Texas Department of Human Services 
    Effective date: October 1, 1994 
 Proposal publication date: June 7, 1994 
 For further information, please call: (512) 450-3765 
         
    Texas Department of Insurance Exempt Filing  
  Notification Pursuant to the Insurance Code, Chapter 5, Subchapter L 
 
  (Editor's Note: As required by the Insurance Code, Article 5.96 and 5. 97, the 
Texas Register publishes notices of actions taken by the Department of Insurance 
pursuant to Chapter 5, Subchapter L, of the Code. Board action taken under these 
articles is not subject to the Administrative Procedure Act. 
 These actions become effective 15 days after the date of publication or on a 
later specified date. 
 The text of the material being adopted will not be published, but may be 
examined in the offices of the Department of Insurance, 333 Guadalupe, Austin.) 
   
  The Commissioner of Insurance at a public meeting held July 18, 1994, at 9: 00 
a.m., in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe 
Street in Austin, Texas, adopted a staff proposal, with changes to the rules and 
endorsement as proposed, of new Texas Personal Lines Manual rules and an 
amendatory Foundation Exclusion/Limited Coverage Endorsement to the Homeowner's 
Policy, Texas Dwelling Policy, Farm and Ranch Owner's Policy, and Texas Farm and 
Ranch Policy to exclude coverage for damage to foundations or slabs of the 
insured dwelling, other than loss caused by fire, lightning, smoke, windstorm, 
hurricane, hail, explosion, aircraft, vehicles, vandalism, malicious mischief, 
riot, civil commotion, and falling objects. This endorsement restricts coverage, 
including the exclusion of damage to foundations or slabs caused by leakage from 
a plumbing system. An insurer may attach this endorsement only if the insured 
dwelling is more than ten years old. Notice of the proposed rules and 
endorsements (Reference Number P-0694-14-I) was published in the June 17, 1994 
issue of the Texas Register (19 TexReg 4742). The date of the hearing was 
changed as published in the June 24, 1994 issue of the Texas Register  (19 
TexReg 4990). 
 As a result of comments received on the proposed rules and endorsements, the 
Commissioner adopted the proposed exclusionary/limited coverage endorsements 
with the following changes: the introductory words on premium reduction were 
deleted and replaced with language to track the provisions of the statute 
verbatim; a notice in bold type was added to clarify for policyholders that the 
endorsement restricts coverage, including the exclusion of damage to foundations 
or slabs caused by leakage from a plumbing system. Also, as a result of 
comments, the Commissioner adopted the proposed Manual rules with the following 
changes: language was added to require that the endorsement number and the 
endorsement title be shown on the declaration page along with the premium 
reduction; and the provision on the application of the premium percentage 
reduction was amended to provide that the percentage reduction be applied to the 
basic premium before, rather than after, any adjustments to the basic premium. 
 The Commissioner has determined that these rules and endorsements are necessary 
to comply with the Insurance Code, Article 5.35-2 (Acts 1993, 73rd Legislature, 
Chapter 685, sec.20.23, effective September 1, 1994). Article 5. 35-2 provides 
that the Commissioner shall adopt an endorsement form that excludes coverage for 
damage to foundations or slabs of the insured dwelling, other than loss caused 
by fire, lightning, smoke, windstorm, hurricane, hail, explosion, aircraft, 
vehicles, vandalism, malicious mischief, riot, civil commotion, and falling 
objects from a homeowner's, farm and ranch owner's, or fire insurance policy 
promulgated under Article 5.35 of the Insurance Code. 
 The newly adopted endorsements include Endorsement Number HO-150 to be attached 
to Homeowner's Policy Form HO-A with Endorsement Number HO-170 attached, Form 
HO-B, and Form HO-C; Endorsement Number TDP-022 to be attached to the Texas 
Dwelling Policy Forms 2 and 3; Endorsement Number FRO-450 to be attached to Farm 
and Ranch Owner's Policy Form FRO-A with Endorsement Number FRO-470 attached and 
Form FRO-B; and Endorsement Number TFR-075 to be attached to Texas Farm and 
Ranch Policy Forms 2 and 3. 
 The newly adopted Texas Personal Lines Manual rules include Homeowner's Section 
Rule IV.A.20, Dwelling Section Rule IV.O, Farm and Ranch Owner's Section Rule 
IV.A.21, and Farm and Ranch Section Rule IV.R. These rules address when the 
endorsements may be attached and application of the premium reduction resulting 
from the exclusionary endorsement. The rules provide that the endorsement may be 
attached only to a policy insuring a dwelling that is more than ten years old 
and is void if attached to a policy insuring a dwelling that is ten years old or 
less as of the inception date of the policy. Under the rules, the determination 
of whether a dwelling is more than ten years old is to be made by using the 
period from the date of completion of the construction of the dwelling to the 
inception date of the latest policy insuring the dwelling. The rules also: 
provide that the reduction in premium is determined by reducing the basic 
premium by a certain specified percentage, which will be determined at this 
year's residential property insurance benchmark rate hearing; require that the 
endorsement number, endorsement title, and the premium reduction be shown 
separately on the declaration page; and require that the percentage reduction be 
applied to the basic premium before any adjustments to the basic premium. 
 The rules and endorsements become effective on the effective date of the 1994 
residential property insurance benchmark rates. 
 The Commissioner has jurisdiction of this matter pursuant to the Insurance 
Code, Articles 5.35-2, 5.35, 5.96, and 5.98. 
 The adopted endorsements and rules are on file in the Office of the Chief Clerk 
under Reference Number P-0694-14-I and are incorporated by reference by 
Commissioner Order Number 94-0840. 
 This notification is made pursuant to the Insurance Code, Article 5.96, which 
exempts action taken under Article 5.96 from the requirements of the 
Administrative Procedures and Texas Register Act (Administrative Procedure Act, 
73rd Legislature, Regular Session, Chapter 268, sec.1, 1993 Texas General Laws 
737 (codified at Texas Government Code Title 10, Chapter 2001)). 
 Consistent with the Insurance Code, Article 5.96(h), prior to the effective 
date of this action, the Texas Department of Insurance will notify all insurers 
affected by this action. 
 This notification is made pursuant to the Insurance Code, Article 5.96, which 
exempts it from the requirements of the Administrative Procedure Act. 
   
  This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's authority to adopt. 
 Issued in Austin, Texas, on August 3, 1994. 
 TRD-9446050 
  D. J. Powers 
 General Counsel and Chief Clerk 
 Texas Department of Insurance 
    Effective date: n/a 
 For further information, please call: (512) 463-6327