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 1. ADMINISTRATION PART I. Office of the Governor CHAPTER 4.Automobile Theft Prevention Authority 1 TAC sec.4 (The Texas Automobile Theft Prevention Authority is transferring all rules from Title 1, Part I, Chapter 4 to Title 43, Part III, Chapter 57. Notice that 1 TAC sec.sec.4.2, 4.7, 4.14, and 4.47 are not to be transferred at this time. These rules will be repealed at a later date by Texas Automobile Theft Prevention Authority. The transfer is effective February 24, 1998. The Texas Register is administratively transferring the following rules listed in the conversion chart published in the issue under the Tables and Graphics section. The table lists the old rule numbers and the new rule numbers that correspond to them.) Figure: 43 TAC Chapter 57 1 TAC sec.4.47 The Automobile Theft Prevention Authority (ATPA) adopts the repeal sec.4.47, concerning the statutory fee assessment on insurance companies, without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10841). The rule adopts, by reference, the Texas Automobile Theft Prevention Authority Assessment Report form and instructions for the computation of the ATPA assessment of the Comptroller of Public Accounts. The provisions of the repealed rule are being incorporated in 43 TAC sec.57.48 relating to statutory fee assessment on insurance companies which is adopted this same date by separate rulemaking. Chapter 57 of Title 43 TAC, is the appropriate location for ATPA rules. No comments were received regarding the repeal of sec.4.47. This repeal is adopted under Texas Civil Statutes, Article 4413(37), sec.sec.6(a), 6A, 10. Section 6(a) authorizes the agency to adopt rules implementing its statutory powers and duties, which includes administration of the assessment and collection of the statutory fee, provided for in sec.6A and sec.10, in coordination with the state comptroller's office and the department of insurance. Texas Civil Statutes, Article 4413(37) sec.sec.6a, 6A and 10 are affected by this rule. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802506 Agustin De La Rosa Acting Director Automobile Theft Prevention Authority Effective date: March 11, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 416-4600 PART X. Department of Information Resources CHAPTER 201.Planning and Management of Information Resources Technologies 1 TAC sec.201.14 The Department of Information Resources adopts new sec.201.14, concerning digital signatures, with changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10867). The effect of the section is to establish acceptable digital signature technologies for the authentication of written electronic communications sent to state agencies. Specifically, the section: describes the communications to which it applies; provides definitions; requires digital signatures to be created by an acceptable technology; sets forth criteria for determining if a technology is acceptable; lists acceptable technologies; and provides a mechanism for adding new technologies to the list of acceptable technologies. The department received four comments regarding the proposed rule. One comment suggested that the rule should not be limited only to communications sent over the Internet, and suggested deleting the words "over the Internet" in the first sentence of subsection (a)(1). This suggestion was substantially echoed in two of the other comments received by the department. The department agrees in part with the suggestion and has modified the language of the rule to include other means of communication in addition to messages sent over the Internet, but has not deleted the reference to the Internet. Since it is anticipated that a substantial percentage of the communications that bear a digital signature will be sent via the Internet, the department believes that expanding upon this language, rather than deleting it, will provide more effective notice of the rule's scope. Another comment suggested that the term "written electronic communications" could be misinterpreted to exclude non-textual files, and suggested replacing that term with "electronic communications." This concern was also reflected in another comment received by the department suggesting that 'written electronic communication" be defined in the rule. The department agrees that it is necessary to include non-textual files within the scope of the rule, and it has modified the language of the rule by including a definition of "written electronic communication," since this term appears in the statute. The comment also proposed a revision to the first sentence of subsection (a)(1) intended to make clear that the rule would not impose an additional requirement on state agencies to authenticate all electronic documents received. The department agrees that the language in the proposed rule was unclear in that respect but disagrees that the proposed revision would have resulted in greater clarity. The department has therefore modified the language in the first and second sentences of subsection (a)(1) to clarify that the rule is not intended to impose an additional requirement on state agencies to authenticate all electronic documents received. The comment also suggested that the rules should not apply to a state agency until that agency adopts rules governing the acceptance of authenticated electronic messages, to allow agencies to build the necessary infrastructure to accept and manage documents with digital signatures attached. The department disagrees with the suggested solution since it would effectively require each state agency to adopt its own (and quite possibly inconsistent) rules before digital signatures could be used in state government. However, the department recognizes that the acceptance of digitally-signed documents may result in additional expenditures by some agencies, and has therefore modified the language of the rule by adding subsection (a)(3) to permit agencies to refuse to accept such documents if the agency determines that the cost of acceptance is excessive and unreasonable, and provides notice of that determination to interested persons and to the department. Another comment suggested that the department should have a shorter period than the proposed 180 days to review new technologies for inclusion on the list of acceptable technologies. The department agrees with this suggestion and has modified subsection (f)(2) of the rule to shorten the review period to 90 days, and also to require the department to give written notice of the reasons for denial of a petition and to allow appeals of such denials to the board. Another comment questioned the wisdom of including signature dynamics as an acceptable technology. Although the comment indicated that biometric verification processes are excellent physical security processes, it asserted that they are only of limited utility for distance based transaction processing. The comment also asserted that signature dynamics technology would require end users to purchase additional equipment and would therefore violate the assumption that there is no anticipated economic cost to persons who are required to comply with the rule. The department disagrees that signature dynamics should be excluded from the list of acceptable technologies, but acknowledges that its appropriate use depends on many factors, including the degree of security required for a particular transaction and the cost of use, among other factors. The department has therefore modified the language of the rule by adding subsection (a)(4) to require state agencies to review and consider guidelines and recommendations issued by the department in determining whether to accept written electronic communications containing a digital signature. The guidelines and recommendations will address issues such as the degree of security that particular acceptable technologies may afford to users and relying parties. The comment also expressed reservations about allowing escrow agents to hold private keys, and concern over the language in the proposed rule that the escrow agent must merely be acceptable to the state agency. The comment indicated nonetheless that the rule appeared to be workable so long as the use of an escrow agent is discretionary rather than mandatory. The department shares this concern and has modified subsection (e)(1)(A) and (C) to make it clear that an escrow agent must be used only in connection with role- based keys and must be acceptable both to the state agency and to the signer of the document, to ensure that no signer is required to disclose his or her private key involuntarily. The comment also noted that the proposed rules do not specify how the list of acceptable certification authorities (CA's) will be made available to end users, nor do they specify how end users will be notified of the removal of a CA from the list. The department agrees and has modified subsection (e)(1)(E)(i) of the rule to require the department to provide a copy of the list to persons requesting it and to make it available electronically via the World Wide Web. The comment also suggested that the rule should address what effect the removal of a CA from the list would have on the communication; i.e., does the removal of a CA renders the communication void? The department agrees with this suggestion and has modified subsection (e)(1)(E)(viii) of the rule to specify the consequences of removing a CA from the list of acceptable CA's. The comment also suggested that inclusion of a reference to current statutory or regulatory record retention requirements would be helpful to parties who will be dealing with state agencies. While the department acknowledges that this might be helpful, it is beyond the intended scope of the rule, and it is impractical for the department to attempt to list all such applicable law, particularly since such law is not established or implemented by the department and may be subject to change. The comment suggested defining the "SAS 70" audit as including any changes approved by AICPA subsequent to adoption of this rule. The department disagrees that such a definition is necessary because such audits must be unqualified and must evaluate the consistency between a CA's policies and practices and its certification practice statement (CPS) as of the date of the audit, regardless of when the audit occurs. However, the department agrees that the reliability of such an audit depends in large part on its currency, and has therefore modified subsection (e)(1)(E)(iii) and (vii) of the rule to require each CA to provide the department with a copy of its CPS as well as any changes to its CPS, as a condition of initial or continuing inclusion on the list of acceptable CA's. Finally, the comment suggested that the department should affirmatively assume the duty to post any new technologies to the list of acceptable technologies on its home page. The department agrees that it should provide such notice of new technologies, but believes that no action on this suggestion is necessary or appropriate at this time since the addition of new technologies will require an amendment to this rule. PenOp, Inc., Texas Natural Resource Conservation Commission, Texas Department of Insurance, and Ambac Connect, Inc. commented in favor of the rule. There were no comments received against the rule. The new section is adopted pursuant to the provisions of Texas Government Code, sec.2054.060(a), which permits the department to adopt rules relating to digital signatures, and Texas Government Code, sec.2054.052(a), which permits the department to adopt rules as necessary to implement its responsibilities. sec.201.14.Digital Signatures. (a) General. (1) This section applies to all written electronic communications which are sent to a state agency over the Internet or other electronic network or by another means that is acceptable to the state agency, for which the identity of the sender or the contents of the message must be authenticated, and for which no prior agreement between the sender and the receiving state agency regarding message authentication existed as of the effective date of this section. This section does not apply to or supersede the use and expansion of existing systems: (A) for the receipt of electronically filed documents pursuant to the Texas Business and Commerce Code or other applicable statutory law where the purpose of the written electronic communication is to comply with statutory filing requirements and the receiving state agency or local government is not a party to the underlying transaction which is the subject of the communication; or (B) for the electronic approval of payment vouchers under rules adopted by the comptroller of public accounts pursuant to applicable law. (2) Prior to accepting a digital signature, a state agency shall ensure that the level of security used to identify the signer of a message and to transmit the signature is sufficient for the transaction being conducted. A state agency that accepts digital signatures may not effectively discourage the use of digital signatures by imposing unreasonable or burdensome requirements on persons wishing to use digital signatures to authenticatewritten electronic communications sent to the state agency. (3) A state agency that accepts digital signatures shall not be required to accept a digital signature that has been created by means of a particular acceptable technology described in subsection (e) of this section if the state agency: (A) determines that the expense that would necessarily be incurred by the state agency in accepting such a digital signature is excessive and unreasonable; (B) provides reasonable notice to all interested persons of the fact that such digital signatures will not be accepted, and of the basis for the determination that the cost of acceptance is excessive and unreasonable; and (C) files an electronic copy (in html format) of the notice with the department. The department shall make a copy of such notice available to the general public via the World Wide Web at the following location: http://www.state.tx.us/Standards/srrpub13.htm. (4) A state agency shall review and consider any applicable guidelines and recommendations that have been adopted by the department in determining whether and for what purposes the state agency shall accept a digital signature. A copy of such guidelines and recommendations may be obtained directly from the department, or may be obtained electronically via the World Wide Web at the following location: http://www.state.tx.us/Standards/srrpub13.htm. (5) A state agency shall ensure that all written electronic communications received by the state agency and authenticated by means of a digital signature in accordance with this section, as well as any information resources necessary to permit access to the written electronic communications, are retained by the state agency as necessary to comply with applicable law pertaining to audit and records retention requirements. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context expressly indicates otherwise: (1) Asymmetric cryptosystem - a computer-based system that employs two different but mathematically related keys with the following characteristics: (A) one key encrypts a given message; (B) one key decrypts a given message; and (C) the keys have the property that, knowing one key, it is computationally infeasible to discover the other key. (2) Certificate - a message which: (A) identifies the certification authority issuing it; (B) names or identifies its subscriber; (C) contains the subscriber's public key; (D) identifies its operational period; (E) is digitally signed by the certification authority issuing it, and (F) conforms to ISO X.509 Version 3 standards. (3) Certification Authority - a person who issues a certificate. (4) Certification practice statement - documentation of the practices, procedures and controls employed by a Certification Authority. (5) Digital signature - an electronic identifier intended by the person using it to have the same force and effect as the use of a manual signature, and that complies with the requirements of this section. (6) Digitally-signed communication - a message that has been processed by a computer in such a manner that ties the message to the individual that signed the message. (7) Escrow agent - a person who holds a copy of a private key at the request of the owner of the private key in a trustworthy manner. (8) Expert - a person with demonstrable skill and knowledge based on training and experience who would qualify as an expert under Rule 702 of the Texas Rules of Civil Evidence. (9) Handwriting measurements - the metrics of the shapes, speeds and/or other distinguishing features of a signature as the person writes it by hand with a pen or stylus on a flat surface. (10) Key pair - a private key and its corresponding public key in an asymmetric cryptosystem. The keys have the property that the public key can verify a digital signature that the private key creates. (11) Local government - a county, municipality, special district, or other political subdivision of this state or a state that borders this state, or a combination of two or more of those entities, but excluding an agency in the judicial branch of local government. (12) Message - a digital representation of information. (13) Person - an individual, state agency, local government, corporation, partnership, association, organization, or any other legal entity. (14) Private key - the key of a key pair used to create a digital signature. (15) Proof of Identification - the document or documents or other evidence presented to a Certification Authority to establish the identity of a subscriber. (16) Public key - the key of a key pair used to verify a digital signature. (17) Public Key Cryptography - a type of cryptographic technology that employs an asymmetric cryptosystem. (18) Role-based key - a key pair issued to a person to use when acting in a particular business or organizational capacity. (19) Signature Digest - the resulting bit-string produced when a signature is tied to a document using Signature Dynamics. (20) Signature Dynamics - measuring the way an individual writes his or her signature by hand on a flat surface and binding the measurements to a message through the use of cryptographic techniques. (21) Signer - the person who signs a digitally signed communication with the use of an acceptable technology to uniquely link the message with the person sending it. (22) State agency - a department, commission, board, office, council, or other agency in the executive branch of state government that is created by the constitution or a statute of this state, including a university system or institution of higher education as defined by Education Code, sec.61.003. (23) Subscriber - a person who: (A) is the subject listed in a certificate; (B) accepts the certificate; and (C) holds a private key which corresponds to a public key listed in that certificate. (24) Technology - the computer hardware and/or software-based method or process used to create digital signatures. (25) Written electronic communication - A message that is sent by one person to another person. (c) Digital Signatures must be Created by an Acceptable Technology. For a digital signature to be valid for use by a state agency, it must be created by a technology that is accepted for use by the department pursuant to this section. (d) Criteria for Determining if a Digital Signature Technology is Acceptable. An acceptable technology must be capable of creating signatures that conform to requirements set forth in Government Code, sec.2054.060, and the requirements of this section. (e) List of Acceptable Technologies. (1) The technology known as Public Key Cryptography is an acceptable technology for use by state agencies, provided that the digital signature is created consistent with the following: (A) A public key-based digital signature must be unique to the person using it. Such a signature may be considered unique to the person using it if: (i) The private key used to create the signature on the message is known only to the signer or, in the case of a role-based key, known only to the signer and an escrow agent acceptable to the signer and the state agency, and (ii) the digital signature is created when a person runs a message through a one-way function, creating a message digest, then encrypting the resulting message digest using an asymmetric cryptosystem and the signer's private key, and (iii) although not all digitally signed communications will require the signer to obtain a certificate, the signer is capable of being issued a certificate to certify that he or she controls the key pair used to create the signature, and (iv) it is computationally infeasible to derive the private key from knowledge of the public key. (B) A public-key based digital signature must be capable of independent verification. Such a signature may be considered capable of independent verification if: (i) the acceptor of the digitally signed message can verify the message was digitally signed by using the signer's public key to decrypt the message; and (ii) if a certificate is a required component of a transaction with a state agency, the issuing Certification Authority, either through a certification practice statement or through the content of the certificate itself, has identified what, if any, proof of identification it required of the signer prior to issuing the certificate. (C) The private key of public-key based digital signature must remain under the sole control of the person using it, or in the case of a role-based key, that person and an escrow agent acceptable to that person and the state agency. Whether a signature is accompanied by a certificate or not, the person who holds the key pair, or the subscriber identified in the certificate, must exercise reasonable care to retain control of the private key and prevent its disclosure to any person not authorized to create the subscriber's digital signature. (D) The digital signature must be linked to the message of the document in such a way that it would be computationally infeasible to change the data in the message or the digital signature without invalidating the digital signature. (E) Acceptable Certification Authorities. (i) The department shall maintain an "Approved List of Certificate Authorities" authorized to issue certificates for digitally signed communications sent to state agencies. A copy of such list may be obtained directly from the department, or may be obtained electronically via the World Wide Web at the following location: http://www.state.tx.us/Standards/srrpub13.htm. (ii) State agencies shall only accept certificates from Certification Authorities that appear on the "Approved List of Certification Authorities." (iii) The department shall place a Certification Authority on the "Approved List of Certification Authorities" after the Certification Authority provides the Department with a copy of its current certification practice statement and a copy of an unqualified performance audit performed in accordance with standards set in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 70 (S.A.S. 70) to ensure that the Certification Authority's practices and policies are consistent with the requirements of the Certification Authority's certification practice statement and the requirements of this section. (iv) In order to be placed on the "Approved List of Certification Authorities" a Certification Authority that has been in operation for one year or less shall undergo a SAS 70 Type One audit - A Report of Policies and Procedures Placed in Operation, receiving an unqualified opinion. (v) In order to be placed on the "Approved List of Certification Authorities" a Certification Authority that has been in operation for longer than one year shall undergo a SAS 70 Type Two audit - A Report of Policies and Procedures Placed in Operation and Test of Operating Effectiveness, receiving an unqualified opinion. (vi) In lieu of the audit requirements of clauses (iv) and (v) of this subparagraph, a Certification Authority may be placed on the "Approved List of Certification Authorities" upon providing the Department with proof of accreditation by an accreditation body acceptable to the department whose requirements for accreditation are consistent with the requirements of this section. (vii) To remain on the "Approved List of Certification Authorities" a Certification Authority must provide proof of compliance with the audit requirements or accreditation to the department every two years after initially being placed on the list. In addition, a Certification Authority must provide a copy of any changes to its certification practice statement to the department promptly following the adoption by the Certification Authority of such changes. (viii) If the department is informed that a Certification Authority has received a qualified or otherwise unacceptable opinion following a required audit or has had its accreditation revoked, or if the Certification Authority's certification practice statement is substantially amended in a manner that causes the Certification Authority to become no longer in compliance with the audit requirements of this section, the Certification Authority may be removed from the "Approved List of Certification Authorities" by the department. The effect of the removal of a Certification Authority from the "Approved List of Certification Authorities" shall be to prohibit state agencies from thereafter accepting digital signatures for which the Certification Authority issued the certificate for so long as the Certification Authority is removed from the list. The removal of a Certification Authority from the "Approved List of Certification Authorities" shall not, in and of itself, invalidate a digital signature for which a Certification Authority issued the certificate prior to its removal from the list. (2) The technology known as "Signature Dynamics" is an acceptable technology for use by state agencies, provided that the signature is created consistent with the following provisions: (A) A digital signature produced by Signature Dynamics technology must be unique to the person using it. A signature digest produced by Signature Dynamics technology may be considered unique to the person using it if: (i) the signature digest records the handwriting measurements of the person signing the message using signature dynamics technology, and (ii) the signature digest is cryptographically bound to the handwriting measurements, and (iii) after the signature digest has been bound to the handwriting measurements, it is computationally infeasible to separate the handwriting measurements and bind them to a different signature digest. (B) A digital signature produced by Signature Dynamics technology must be capable of independent verification. A signature digest produced by Signature Dynamics technology may be considered capable of independent verification if: (i) the acceptor of the digitally signed message obtains the handwriting measurements for purposes of comparison, and (ii) if signature verification is a required component of a transaction with a state agency, the handwriting measurements can allow an expert handwriting and document examiner to assess the authenticity of a signature. (C) A digital signature produced by Signature Dynamics technology must remain under the sole control of the person using it. A signature digest produced by Signature Dynamics technology may be considered to be under the sole control of the person using it if: (i) the signature digest captures the handwriting measurements and cryptographically binds them to the message directed by the signer and to no other message, and (ii) the signature digest makes it computationally infeasible for the handwriting measurements to be bound to any other message. (D) The signature digest produced by signature dynamics technology must be linked to the message in such a way that it would be computationally infeasible to change the data in the message or the digital signature without invalidating the digital signature. (f) Provisions For Adding New Technologies to the List of Acceptable Technologies (1) Any person may, by providing a written request that includes a full explanation of a proposed technology which meets the requirements of subsection (c) of this section, petition the department to review the technology. If the department determines that the technology is acceptable for use by state agencies, the department shall draft proposed administrative rules which would add the proposed technology to the list of acceptable technologies in subsection (e) of this section. (2) The department has 90 days from the date of the request to review the petition and either accept or deny it. If the Department does not approve the request within 90 days, the petitioner's request shall be considered denied. If the department denies the petition, it shall notify the petitioner in writing of the reasons for denial. The petitioner may appeal the department's denial of the petition at the next regularly scheduled board meeting. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802439 C.J. Brandt, Jr. General Counsel Department of Information Resources Effective date: March 10,1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 475-2153 TITLE 7. BANKING AND SECURITIES PART I. Finance Commission of Texas CHAPTER 1.Consumer Credit Commissioner SUBCHAPTER A.Regulated Loan Licenses Division 1. General Provisions 7 TAC sec.sec.1.1, 1.3, 1.5, 1.6 The Finance Commission of Texas (the commission) adopts the repeal of sec.sec.1.1, 1.3, 1.5, and 1.6, part of the rules which implemented Chapter 3, Texas Civil Statutes, Article 5069-3.01 et seq., without changes to the proposal as published in the January 16, 1998, issue of the Texas Register (23 TexReg 405). The repeal is necessary as the sections which are repealed are now superfluous with the repeal of Chapter 3, Texas Civil Statutes, Article 5069-3.01 et seq. Moreover, they are being replaced by a new set of rules for Chapter 3A, a new chapter of the Credit Title which encompasses old Chapters 3 through 5. The agency received no comments on the proposal. The repeal is adopted under Texas Civil Statutes, Article 5069-3A.901, which authorizes the Finance Commission to adopt rules to enforce new Chapter 3A. The repeal will not be adopted until the proposed replacement sections are adopted. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802597 Leslie L. Pettijohn Commissioner Finance Commission of Texas Effective date: March 12, 1998 Proposal publication date: January 16, 1998 For further information, please call: (512) 936-7600 Division 5. Refund 7 TAC sec.sec.1.101-1.107 The Finance Commission of Texas (the commission) adopts new sec.sec.1.101 through 1.107, concerning the purpose and scope of a new chapter of the rules to cover loans made under new Chapter 3A (Texas Civil Statutes, Article 5069-3A.101 et seq.), definitions to be used in this chapter, the responsibility of licensees for the acts of their agents, required knowledge of laws and regulations, attempted evasion of new Chapter 3A, multiple licenses, and loans by mail. New sec.sec. 1.101 through 1.107 are being adopted without changes to the text as proposed in the January 16, 1998, issue of the Texas Register (23 TexReg 405). The new sections provide an introduction to a new set of rules for Chapter 3A, a new chapter of the Credit Code which encompasses the substance of old Chapters 3 through 5. The agency received no comments on the proposal. The new sections are adopted under Texas Civil Statutes, Article 5069-3A.901, which authorizes the Finance Commission to adopt rules to enforce new Chapter 3A. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802598 Leslie L. Pettijohn Commisisoner Finance Commission of Texas Effective date: March 12, 1998 Proposal publication date: January 16, 1998 For further information, please call: (512) 936-7600 CHAPTER 9. Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings SUBCHAPTER E. Rulemaking 7 TAC sec.9.81, sec.9.84 The Finance Commission of Texas, the Texas Department of Banking, the Savings and Loan Commissioner, and the Consumer Credit Commissioner (the agencies) adopt an amendment to sec.9.81 and sec.9.84, relating to rulemaking. The amendment is adopted without changes to the proposal as published in the January 2, 1998, issue of the Texas Register (23 TexReg 23), and the text will not be published. In connection with the enactment of the Texas Finance Code by Acts 1997, 75th Legislature, Chapter 1008, sec.1, certain provisions regarding special procedures for rulemaking in the consumer credit and pawnshop statutes were eliminated. Repealed Texas Civil Statutes, Article 5069-3.12(1) and Article 5069-51.09(b), codified in Finance Code, sec.342.501 and sec.371.006, respectively, formerly provided for procedures that were viewed by the legislature as superfluous or inconsistent with and implicitly re pealed by the original enactment of the Texas Administrative Procedure and Texas Register Act (former Texas Civil Statutes, Article 6252-13a, sec.22). Section 9.81 and sec.9.84 formerly cross-referenced to these now repealed provisions, and the amendment eliminates those references. The agencies received no comments regarding the proposal. The amendment is adopted under Government Code, sec.2001.004(1), which requires all administrative agencies to adopt rules of practice stating the nature and requirements of all available formal and informal procedures. The new sections are also proposed under specific rulemaking authority in the substantive statutes administered by the agencies. Finance Code, sec.31.003(a)(5), authorizes the finance commission to adopt rules necessary or reasonable to facilitate the fair hearing and adjudication of matters before the banking commissioner and the finance commission. Finance Code, sec.152.102, authorizes the finance commission to adopt rules necessary for the enforcement and orderly administration of that chapter (regulating sale of checks). Finance Code, sec.153.002, authorizes the finance commission to adopt rules necessary to implement that chapter (regulating currency exchange and transmission). Finance Code, sec.154.051(b), authorizes the department of banking to adopt rules concerning matters incidental to the enforcement and orderly administration of that chapter (regulating prepaid funeral benefits). Finance Code, sec.11.302, authorizes the finance commission to adopt rules applicable to state savings associations or to savings banks. Finance Code, sec.96.002(a)(2), and Finance Code, sec.66.002, also authorize the savings and loan commissioner and the finance commission to adopt procedural rules for deciding applications filed with the savings and loan commissioner or the savings and loan department. Finance Code, sec.11.304, authorizes the finance commission to adopt rules necessary for supervising the consumer credit commissioner and for ensuring compliance with Finance Code, Chapter 14 and Title 4, plus amendments to the source law made by Acts 1997, 75th Legislature, Chapter 1396). Texas Civil Statutes, Article 5069-3A.901, also authorizes the finance commission to adopt rules necessary for the enforcement of Article 5069-3A.001. Finance Code, sec.371.006, further authorizes the consumer credit commissioner to adopt rules necessary for the enforcement of Finance Code, Chapter 371. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802556 Everette D. Jobe Certifying Official Finance Commission of Texas Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 PART II. Texas Department of Banking CHAPTER 10.Trust Companies 7 TAC sec.sec.10.1-10.5, 10.10, 10.11 The Finance Commission of Texas (the commission) adopts the repeal of sec.sec.10.1-10.5,10.10, and 10.11, concerning the regulation of trust companies. The repeal is adopted without change to the proposal as published in the Janaury 2, 1998, issue of the Texas Register (23 TexReg 24). The repeal of these sections is necessary because recently enacted Texas Civil Statutes, Articles 342a-1.001, et seq, now governs trust companies and replaces prior law applicable to trust companies. The substantive provisions of these sections that have continuing vitality are adopted as new sections in Title 7, Chapters 17, 19, and 21, in this issue of the Texas Register. The commission received no comments regarding the proposal. The repeal is adopted pursuant to rulemaking authority under Texas Civil Statutes, Article 342a-1.003(a)(1), which authorize the commission to adopt rules necessary or reasonable to implement and clarify Texas Civil Statutes, Article 342a-1.001 et seq . This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802568 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 CHAPTER 12.Loans and Investments SUBCHAPTER A.Lending Limits 7 TAC sec.12.11 The Finance Commission of Texas (the commission) adopts an amendment to sec.12.11 and sec.12.61, concerning loan and investment limits. The amendment is adopted without change to the proposal as published in the January 2, 1998, issue of the Texas Register (23 TexReg 25), and the text will not be republished. Section 12.11 provides that a state bank does not violate the limitations on loans or extensions of credit with regard to a loan transaction that was legal when made but became nonconforming as a result of the enactment of the Texas Banking Act effect ive September 1, 1995. The section formerly referred to this type of loan as a "conforming" loan when in fact it does not conform to currently effective limits, and the amendment changes this erroneous terminology. Section 12.61 similarly provides that a state bank investment made prior to September 1, 1995, within the bank's investment limit when made but exceeding the new limits of the Texas Banking Act, remains a legal investment. The section formerly referr ed to this type of investment as a "conforming" investment although it does not conform to currently effective limits, and the amendment changes this erroneous terminology. The commission received no comments regarding the proposal. The amendment is adopted under Finance Code, sec.31.003(a)(1) and sec.34.201(b), which authorizes the commission to adopt rules necessary or reasonable to implement and clarify Finance Code, Title 3, Subtitle A, and further to adopt rules to administer the provisions of Finance Code, sec.34.201. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802567 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 SUBCHAPTER C.Investment Limits 7 TAC sec.12.61 The amendment is adopted under Finance Code, sec.31.003(a)(1) and sec.34.101(j), which authorizes the commission to adopt rules necessary or reasonable to implement and clarify Finance Code, Title 3, Subtitle A, and further to adopt rules to administer the provisions of Finance Code, sec.34.101. sec.12.61.Transition Provisions. (a) An investment in securities made prior to September 1, 1995, that was within a state bank's investment limit when made but is currently in excess of the limitations of Finance Code, sec.34.101 or sec.34.104, is not a violation of Finance Code, sec.34.1 01 or sec.34.104, but is considered a nonconforming investment. (b) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802566 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 CHAPTER 15.Corporate Activities SUBCHAPTER A.Fees and Other Provisions of General Applicability 7 TAC sec.15.1, sec.15.2 The Finance Commission of Texas (the commission) adopts amendments to sec.15.1 and sec.15.2, concerning filing and investigation fees applicable to corporate applications filed with the Texas Department of Banking (the department). The sections are adopted with changes to the proposed text as published in the January 9, 1998, issue of the Texas Register (23 TexReg 287). Pursuant to Finance Code, sec.31.003(a)(4), the commission must recover the cost of maintaining and operating the department and the cost of law enforcement by imposing and collecting ratable and equitable fees for notices, applications, and examinations. The prior version of sec.15.2 was originally adopted in 1993 to specify fees applicable to the corporate application process. The purpose of a fee charged by the department, whether the fee is for applications, annual assessments, examinations, recovery of costs, or other purposes, is to enable the department to be self-supporting. Experience since 1993 and recent changes in similar fees charged to national banks convinced the department that the fees in sec.15.2 needed some adjustment. In addition, fees related to trust company applications and notices are removed from sec.15.2 and replaced by a trust company-specific rule, sec.21.2, adopted in this issue of the Texas Register. In this connection, the definition of "eligible trust company" is removed from sec.15.1. Three fees are added or increased. A fee of $1,500 is added for an application for approval of a reverse stock split. A fee of $1,000 is added for an application for approval to sell substantially all assets. The fee for an application to relocate the home office of a recently acquired charter without significant business activities (i.e., relocation of a "naked" charter) increases from $1,500 to $5,000. Several fees are reduced, generally representing increased use of "expedited" applications. Applicants and applications that meet certain minimum qualifications can file for expedited treatment. These fees are $2,500 for a conversion (currently $5,000), $2,500 for a change of control if the applicant has previously been approved to control another state bank and no material changes in the applicant's circumstances have occurred since the prior approval (currently $5,000), $2,500 for a merger (currently $5,000), and $2,000 for a purchase of assets and assumption of liabilities (currently $4,000). A reduced, expedited fee for charter applications will be proposed in 1998 in conjunction with a proposed amendment to sec.15.3 to permit expedited applications. Finally, bank charter and conversion applications will bear a flat $5,000 fee for investigation in lieu of the former per hour charge. In two instances, charter and branch applications, the fee otherwise due will be waived entirely if the facility will be located in a low or moderate income area. The amendment to sec.15.1 adds a definition of "low or moderate income area" for this purpose. The commission received no comments regarding the proposal. However, the phrase "or a branch office" has been deleted from sec.15.2(b)(12), (13), because it duplicated information already contained in sec.15.2(b)(8), pertaining to relocation of a branch office. The amendments are adopted pursuant to the Finance Code, sec.31.003(a)(4), which authorizes the commission to adopt rules to "recover the cost of maintaining and operating the department and the cost of enforcing this subtitle and Chapters 11, 12, and 13 by imposing and collecting ratable and equitable fees for notices, applications, and examinations...." As required by the Finance Code, sec.31.003(b), the commission considered the need to promote a stable banking environment, provide the public with convenient, safe, and competitive banking services, preserve and promote the competitive parity of state banks with national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system, and allow for economic development within this state. sec.15.1.Definitions. Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A, have the same meanings as defined in the Finance Code. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Eligible bank-A state bank that: (A) is well capitalized as defined in 12 Code of Federal Regulations (CFR), sec.325.103, or is operating in compliance with a capital plan approved in writing by the banking commissioner; (B)-(E) (No change.) Low or moderate income area-a designated geography for CRA purposes, as defined in 12 CFR, sec.228.12(l), (n)(1), and (n)(2), for state member banks, or 12 CFR, sec.345.12(l), (n)(1), and (n)(2), for state nonmember banks. sec.15.2. Filing Fees and Cost Deposits. (a) Types of fees. Subsection (b) of this section contains filing fees for specified applications and notices filed with the department, and subsection (c) of this section requires a fee for protesting an application. These fees are due at the time of filing the application or protest. Subsection (d) of this section requires an investigation fee to be paid in certain cases once an application has been accepted by the department for filing, and in other cases may require payment of investigative costs upon written request of the department. Pursuant to subsection (e) of this section, an applicant may seek waiver or reduction of required fees. (b) Filing fees. Simultaneously with a submitted application or notice, an applicant shall pay to the department: (1) $5,000 for an application for bank charter pursuant to Finance Code, sec.32.003, provided that the department will not require a filing fee for an application for a bank charter to be located in a low or moderate income area and where no other depository institution operates a branch or home office; (2) $5,000 for an application for conversion to a state bank charter pursuant to Finance Code, sec.32.502, and sec.15.108 of this title (relating to Conversion of a Financial Institution into a State Bank), or $2,500 for an expedited application if permissible pursuant to sec.15.103 of this title (relating to Expedited Filing); (3) $4,000 for an application to authorize a merger or share exchange pursuant to Finance Code, sec.32.302, and sec.15.104 of this title (relating to Application for Merger or Share Exchange), or $2,500 for an expedited application if permissible pursuant to sec.15.103 of this title; (4) $2,500 for each request to authorize an additional merger if more than one affiliated merger is to occur simultaneously; (5) $4,000 for an application to authorize a purchase of assets pursuant to Finance Code, sec.32.401, and sec.15.105 of this title (relating to Application for Authority to Purchase Assets of Another Financial Institution), or $2,000 for an expedited application if permissible pursuant to sec.15.103 of this title; (6) $1,000 for an application to authorize the sale of substantially all assets pursuant to Finance Code, sec.32.405, and sec.15.106 of this title (relating to Application for Authority to Sell Assets); (7) $1,500 for an application to establish a branch office pursuant to Finance Code, sec.32.203, and sec.15.42 of this title (relating to Establishment and Closing of a Branch Office), or $500 for an expedited application if permissible pursuant to sec.15.3 of this title, provided that the department will not require a filing fee for an application for a new branch office to be located in a low or moderate income area and where no other depository institution operates a branch or home office; (8) $1,500 for an application to relocate a branch office pursuant to sec.15.42(k) of this title; (9) $500 for a subsidiary notice letter pursuant to Finance Code, sec.34.103, plus an amount up to an additional $3,500 if the banking commissioner notifies the applicant that additional information and analysis is required; (10) $5,000 for an application regarding acquisition of control pursuant to Finance Code, sec.33.002, and sec.15.81 of this title (relating to Application for Acquisition or Change of Control of State Bank), or $2,500 for an expedited application if the applicant has previously been approved to control another state bank and no material changes in the applicant's circumstances have occurred since the prior approval; (11) $200 for a notice to change the home office to an existing branch office while retaining the existing home office as a branch office pursuant to Finance Code, sec.32.202, and sec.15.41(a) of this title (relating to Written Notice or Application for Change of Home Office); (12) $1,500 for an application to relocate the home office pursuant to Finance Code, sec.32.202, and sec.15.41(b) of this title, provided that the fee is $5,000 for an application to relocate the home office of a to-be-acquired charter without significant business activities; (13) $500 for an application to relocate the home office a short distance of one mile or less with no abandonment of the community pursuant to Finance Code, sec.32.202, and sec.15.41(b) of this title; (14) $3,000 for an application for a foreign bank agency license pursuant to Finance Code, sec.39.103, and sec.3.41(a) of this title (relating to Applications, Notices, and Reports of a Foreign Bank Corporation); (15) $500 for the statement of registration of a foreign bank representative office pursuant to Finance Code, sec.39.203, and sec.3.44(b) of this title (relating to Statement of Registration, Notices and Filings by a Representative Office); (16) $200 for an application to amend a bank charter (articles of association) pursuant to Finance Code, sec.32.101; (17) $1,500 for an application to authorize a reverse stock split subject to the substantive provisions of sec.15.122 of this title (relating to Amendment of Articles to Effect a Reverse Stock Split); (18) $500 for filing a copy of an application pursuant to Finance Code, sec.38.001, to acquire a bank or bank holding company; (19) $500 for filing a copy of an application pursuant to Finance Code, sec.38.004, to acquire a nonbank entity; (20) $100 for a request for a "no objection" letter to use a name containing a term listed in Finance Code, sec.31.005; (21) $500 for an application to authorize acquisition of treasury stock pursuant to Finance Code, sec.34.102, and sec.15.121 of this title (relating to Acquisition and Retention of Shares as Treasury Stock); and (22) $500 for a request to authorize an increase or reduction in capital and surplus pursuant to Finance Code, sec.32.103. (c) Filing fee for protest. A person or entity filing a protest to the application of another person or entity shall pay a fee of $2,500 simultaneously with such protest filing. The purpose of the fee required under this subsection is to partially off set the department's increased cost of processing and reduce the costs incurred by the applicant resulting solely from the protest. (d) Investigative fees and costs. An applicant for a bank charter or conversion to a state bank or limited banking association shall pay an investigation fee of $5,000 once the application has been accepted for filing. If required by the banking commissioner, an applicant under another type of application or filing listed in subsection (b) of this section shall pay the reasonable investigative costs of the department incurred in any investigation, review, or examination considered appropriate by the department, calculated as provided by sec.3.36(h) of this title (relating to Annual Assessments and Specialty Examination Fees). Such investigation fee or costs must be paid by the applicant upon written request of the department. Failure to timely pay the investigation fee or a bill for investigative costs constitutes grounds for denial of the submitted or accepted filing. (e) Reduction or waiver of fees. Fees paid are nonrefundable and the banking commissioner shall charge fees on a consistent and nondiscriminatory basis. However, in the exercise of discretion, the banking commissioner may reduce, waive, or refund all or part of a filing fee, investigation fee, or bill for investigative costs if the banking commissioner concludes that: (1) the application demonstrates that the fee creates an unreasonable hardship on the applicant; or (2) the nature of the application will result in substantially reduced processing time compared to normal expectations for an application of that type. (f) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802565 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 9, 1998 For further information, please call: (512) 475-1300 CHAPTER 17.Trust Company Regulation The Finance Commission of Texas (the commission) adopts new sec.sec.17.1, 17.2, 17.21, and 17.22, regarding ratable increases in required capital, advertising, the physical location of books and records, and examination fees applicable to trust companies. The sections are adopted without changes to the proposed text as published in the January 2, 1998, issue of the Texas Register (23 TexReg 26), and the text will not be republished. New sec.17.1 concerns ratable increases in capital and provides a timetable for a trust company to comply with minimum restricted capital requirements under Texas Civil Statutes, Article 342a-3.007. New sec.17.2 prohibits certain misleading advertising by trust companies. New sec.17.21 provides for the preservation and location of corporate and fiduciary records of a trust company to enhance the examination process by the department and to provide flexibility to trust companies in conducting their affairs. New sec.17.22 specifies examination fees to be charged to trust companies by the department. The commission received no comments regarding the proposals. SUBCHAPTER A.General 7 TAC sec.17.1, sec.17.2 The new sections are adopted under Texas Civil Statutes, Articles 342a- 1.003(a)(1), 342a-1.003(a)(2), and 342a-3.103(a), which authorize the commission to adopt rules to implement and clarify Texas Civil Statutes, Articles 342a- 1.001 et seq, preserve or protect the safety and soundness of trust companies, and establish the basis for reductions and increases in restricted capital. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802564 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 SUBCHAPTER B.Examination and Call Reports 7 TAC sec.17.21, sec.17.22 The new sections are adopted under Texas Civil Statutes, Articles 342a- 1.003(a)(1), 342a-1.003(a)(4), and 342a-4.109, which authorize the commission to adopt rules to implement and clarify Texas Civil Statutes, Articles 342a-1.001 et seq, to provide f or the recovery of the cost and maintenance and operation of the department and the cost of enforcing Texas Civil Statutes, Articles 342a- 1.001 et seq, through the imposition and collection of ratable and equitable fees for notices, applications and exam inations, and to require maintenance of fiduciary records. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802563 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 CHAPTER 19.Trust Company Loans and Investments The Finance Commission of Texas (the commission) adopts new sec.sec.19.1, 19.21, and 19.22, concerning loans or extensions of credit and investments by trust companies. The sections are adopted without change to the proposals as published in the January 2, 1998, issue of the Texas Register (23 TexReg 28), and the text will not be published. New sec.19.1 clarifies that a state trust company does not violate the limitations on loans or extensions of credit, including lease financing transactions, if such transactions were legal when made but become nonconforming as a result of exceeding the new legal lending limit created by Texas Civil Statutes, Article 342a-5.201. New sec.19.1 also authorizes the banking commissioner, under certain limited circumstances, to allow renewal, extension, or restructuring of loans which are not in compliance with a trust company's legal lending limit. New sec.19.21 clarifies that a state trust company does not violate the limitations on investments if such investments were legal when made but become nonconforming as a result of exceeding the new investment limit created by Texas Civil Statutes, Article 342a-5.101. A trust company may not make an investment on or after September 1, 1997, that is not in compliance with law, or that would cause an existing investment to become further out of compliance with law. Pursuant to Texas Civil Statutes, Article 342a-5.104(c), a trust company's total investment in mutual funds for its own account may not exceed an amount equal to 15% of the trust company's restricted capital. New sec.19.22 will substantially re duce this restriction by permitting investment of an amount up to 15% of the trust company's restricted capital in each qualified mutual fund, subject to the exercise of prudent investment judgment. A trust company must periodically review the investments in the portfolios of mutual funds in which it invests to determine that investment limits are not exceeded by reason of the combined holdings of the securities of a single issuer held directly by the trust company and held indirectly by multiple mutual funds in which the trust company is invested. Documentation of periodic reviews must be maintained by the trust company for examination purposes. Further, new sec.19.22 will permit a trust company to invest without limitation in a mutual fund with stated objectives of investing solely in securities that the trust company could invest in directly for its own account without limit, provided the mutual fund's portfolio in fact consists entirely of such securities. Finally, new sec.19.22 clarifies that a mutual fund investment is subject to the provisions of proposed sec.19.21. Thus, a mutual fund investment made prior to September 1, 1997, that was within a trust company's investment limit when made but became nonconforming as a result of the new limitations of Texas Civil Statutes, Article 342a-5.101, remains a legal but nonconforming investment. A trust company may not make a mutual fund investment on or after September 1, 1997, that is not in compliance with Texas Civil Statutes, Article 342a-5.101, or that would cause an existing mutual fund investment to become further out of compliance with Texas Civil Statutes, Article 342a-5.101, such as by electing to reinvest dividends. The commission received no comments regarding the proposals. SUBCHAPTER A.Loans 7 TAC sec.19.1 The new sections are adopted under Texas Civil Statutes, Articles 342a- 1.003(a)(1), 342a-1.003(a)(2), and 342a-5.201(c), which authorize the commission to adopt rules to implement and clarify Texas Civil Statutes, Articles 342a- 1.001 et seq, to preserve or protect the safety and soundness of state trust companies, and to establish limits, requirements, or exemptions for particular classes or categories of loans or extensions of credit, and establish collective lending and investment limits. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802561 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 SUBCHAPTER B.Investments 7 TAC sec.19.21, sec.19.22 The sections are adopted under Texas Civil Statutes, Articles 342a-1.003(a)(1), 342a-1.003(a)(2), and 342a-5.101(h), which authorize the commission to adopt rules to implement and clarify Texas Civil Statutes, Articles 342a-1.001 et seq, to preserve or protect the safety and soundness of state trust companies, and to establish limits, requirements, or exemptions for particular classes or categories of investment, or limit or expand investment authority for trust companies for particular classes or categories of securities or other property. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802560 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 CHAPTER 21.Trust Company Corporate Activities SUBCHAPTER A.Fees and Other Provisions of General Applicability 7 TAC sec.21.2 The Finance Commission of Texas (the commission) adopts new sec.21.2, regarding filing and investigation fees applicable to trust company corporate applications. The section is adopted without changes to the proposed text as published in the January 2, 1998 , issue of the Texas Register (23 TexReg 30), and the text will not be published. New sec.21.2 is the initial section in Subchapter A, entitled "Fees and Other Provisions of General Applicability." Proposed new sec.sec.21.4-21.8, pertaining to corporate application filings, are published in this issue of the Texas Register, and will also be included in Subchapter A. Pursuant to Texas Civil Statutes, Article 342a-1.003(a)(4), the commission must recover the cost of maintaining and operating the department and the cost of enforcing the law by imposing and collecting ratable and equitable fees for notices, applications, and examinations. New sec.21.2 establishes fees applicable to the corporate application process, and is based on existing sec.15.2, currently applicable to trust companies. The commission received no comments regarding the proposal. The new section is adopted under Texas Civil Statutes, Article 342a-1.003(1) and Article 342a-1.003(a)(4), which authorize the commission to adopt rules to implement and clarify Texas Civil Statutes, Articles 342a-1.001 et seq, and to provide for the recovery of the cost and maintenance and operation of the Texas Department of Banking and the cost of enforcing Texas Civil Statutes, Article 342a-1.001 et seq, through the imposition and collection of ratable and equitable fees for notices, applications, and examinations. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802559 Everette D. Jobe General Counsel Texas Department of Banking Effective date: March 12, 1998 Proposal publication date: January 2, 1998 For further information, please call: (512) 475-1300 TITLE 22. EXAMINING BOARDS PART I. Texas Board of Architectural Examiners CHAPTER 1.Architects SUBCHAPTER B.Registration 22 TAC sec.1.28 The Texas Board of Architectural Examiners adopts an amendment to sec.1.28, concerning Reciprocal Transfer without changes to the text as published in the December 26, 1997, issue of the Texas Register (22 TexReg 12653). The amendment is being adopted in order to ensure that registrants holding certificates of registration in other nations or territories who are applying for registration in Texas possess requirements substantially equivalent to those of Texas. The expected effect is assurance that foreign registrants satisfy all registration standards that have been set by the board. No comments were received regarding adoption of the amendment. The amendment is adopted pursuant to Vernon's Texas Civil Statutes, Article 249a, sec.5(b), which provide the Texas Board of Architectural Examiners with authority to promulgate rules regarding registration to practice architecture in Texas. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802422 Cathy L. Hendricks, ASID/HDA Executive Director Texas Board of Architectural Examiners Effective date: March 10, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 305-8535 SUBCHAPTER E.Fees. 22 TAC sec.1.84 The Texas Board of Architectural Examiners adopts an amendment to sec.1.84, concerning Annual Registration and Renewal Fee without changes to the text as published in the December 26, 1997, issue of the Texas Register (22 TexReg 12654). The amendment is being adopted in order to conform deadlines for registration renewal submissions to current limitations imposed by the use of the State Comptroller's Lock Box system. The expected effect of the amendment is to clarify deadlines for registration renewal submissions. Comments against the rule were received from The Texas Society of Architects. The Texas Society of Architects has objected to the change from "postmarked" date to "received" date because of registrants' inability to control actual delivery to the agency's office. The amendment is adopted under Vernon's Texas Civil Statutes, Article 249a, sec.5(b), which provide the Texas Board of Architectural Examiners with authority to promulgate rules regarding registration to practice architecture in Texas. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802423 Cathy L. Hendricks, ASID/HDA Executive Director Texas Board of Architectural Examiners Effective date: March 10, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 305-8535 CHAPTER 3.Landscape Architects SUBCHAPTER E.Fees 22 TAC sec.3.84 The Texas Board of Architectural Examiners adopts an amendment to sec.3.84, concerning Annual Registration and Renewal Fee without changes to the text as published in the December 26, 1997, of the Texas Register (22 TexReg 12655). The amendment is being adopted in order to conform deadlines for registration renewal submissions to current limitations imposed by the use of the State Comptroller's Lock Box system. The expected effect of the amendment is to clarify deadlines for registration renewal submissions. No comments were received concerning adoption of the amendment. The amendment is adopted under Vernon's Texas Civil Statutes, Article 249c, sec.4(a), which provide the Texas Board of Architectural Examiners with authority to promulgate rules regarding registration to practice architecture in Texas. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802424 Cathy L. Hendricks, ASID/HDA Executive Director Texas Board of Architectural Examiners Effective date: March 10, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 305-8535 CHAPTER 5.Interior Designs SUBCHAPTER E.Fees. 22 TAC sec.5.95 The Texas Board of Architectural Examiners adopts an amendment to sec.5.95, concerning Annual Registration and Renewal Fee without changes to the text as published in the December 26, 1997, issue of the Texas Register (22 TexReg 12656). The amendment is being adopted in order to conform deadlines for registration renewal submissions to current limitations imposed by the use of the State Comptroller's Lock Box system. The expected effect of the amendment is to clarify deadlines for registration renewal submissions. No comments were received regarding adoption of the amendment . The amendment is adopted under Vernon's Texas Civil Statutes, Article 249e, sec.5(d), which provide the Texas Board of Architectural Examiners with authority to promulgate rules regarding registration to practice architecture in Texas. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802425 Cathy L. Hendricks, ASID/HDA Executive Director Texas Board of Architectural Examiners Effective date: March 10, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 305-8535 TITLE 25. HEALTH SERVICES PART I. Texas Department of Health CHAPTER 29.Purchased Health Services SUBCHAPTER J.Ambulance Services 25 TAC sec.29.903 On behalf of the State Medicaid Director, the Texas Department of Health (department) submits for adoption an amendment to sec.29.903, concerning authorized ambulance services, with changes to the proposed text as published in the October 17, 1997, issue of the Texas Register (22 TexReg 10234). The section covers department policies governing ambulance services provided to Medicaid recipients. Senate Bill 30, sec.2.01(a), 75th Legislature, 1997, amended the Human Resources Code, Chapter 32, to require the department to establish rules requiring a physician, nursing facility, health care provider, or other responsible party to obtain authorization from the department before an ambulance is used to transport a recipient in situations not involving an emergency. The amendment will ensure the department is in compliance with the requirements of the Human Resources Code, Chapter 32, for prior authorizing nonemergency ambulance transport services. The rule is also amended for clarification and organizational purposes. The following comments were received concerning the proposed amendment. Following each comment is the department's response. The department is making the following change due to staff comments to clarify the intent and improve the accuracy of the section. Change: Concerning sec.29.903(4), the department deleted the last sentence "The final decision of the department regarding the provider's appeal under this subsection is made by the department's Medical Appeals office." This sentence is inconsistent with the current department appeal process. Comment: The commenter stated that the prior approval number (PAN) process addressed in this amendment will cause many delays for urgent nonemergency transports and that the Medicaid recipient will not receive the immediate care needed. The commenter indicated that many facilities view ambulance transports as a matter of "who can make the transport right now" with little concern for how the ambulance service will be paid. Response: The prior approval requirements specified in the proposed amendment apply only to nonemergency ambulance transports of recipients to a medical appointment. Providers submitting claims for transporting recipients on an urgent or emergency basis must be submitted for reimbursement as emergency claims. In an effort to avoid delays in the prior authorization process, the department, through its designee, has implemented short-term and annual prior authorizations for recipient's who require regular or multiple transports. After the initial review by the department's designee of the medical information supporting the issuance of a PAN, the number will be readily available to providers from the recipient, health care provider, or the department's designee. If the ambulance provider is unable to obtain the PAN from one these sources, the ambulance provider may consider the recipient as private pay and may hold the recipient responsible for payment, or provide the transport and appeal the denied claim through the provider appeals process. The department does not agree that recipients will not have access to immediate care as needed. No change was made as a result of this comment. Comment: The commenter stated that the amendment has no enforcement vehicle to require a physician, nursing facility, health care provider, or other responsible party to obtain the PAN in a timely manner. Response: The department believes that it will have the cooperation of recipients' physicians and other health care providers in complying with the prior authorization requirements. The department's designee is expending considerable effort to inform and assist these providers in making arrangements for transporting their patients so they may receive appropriate care. In addition, the department has informed other agencies such as the Texas Department of Human Services (TDHS) and the Texas Department of Mental Health and Mental Retardation (TDMHMR) of these requirements. These agencies have initiated efforts to ensure that facilities are informed and comply with these requirements. Recipients who may utilize these services are also being notified of the requirements. No change was made as a result of this comment. Comment: The commenter stated that this amendment does not address the procedure that will be followed if the department's designee, National Heritage Insurance Company (NHIC), does not respond within the 48-hour period. Response: The department has implemented an amendment to its contract with NHIC which requires the contractor to approve or deny a prior authorization request not later than 48 hours after receipt of a request. The 48-hour time limit does not include weekends or holidays. Failure of the contractor to perform according to requirements of the contract are subject to contractual remedies. No change was made as a result of this comment. Comment: The commenter stated that this amendment does not take into account that most city franchising agencies will not allow an ambulance provider to refuse or delay transport if a facility or individual has yet to get a patient's PAN. This trip will become the ambulance services' bad debt and will most definitely impact the services' bottom line. Response: Although there may be individual contracting arrangements whereby ambulance providers are not allowed to refuse or delay transport of an individual pending the receipt of a patient's PAN, the department must comply with the requirements of the Human Resources Code, Chapter 32, for prior authorizing nonemergency ambulance transport services. Individual contractual relationships between providers and other entities are not applicable to the policies governing reimbursement of Medicaid-covered services. No change was made as a result of this comment. Comment: The commenter stated that this amendment does not address the education process for health care providers responsible for securing the recipient's PAN. Response: The department, through its designee NHIC, is including information regarding the prior approval requirements for nonemergency ambulance transports in provider seminars throughout the state. The information will inform all Medicaid providers of the requirements for prior authorization of these services, as well as the process for obtaining the recipient's PAN. In addition, all Medicaid providers are informed of the prior authorization requirements and process through publications such as the Texas Medicaid Bulletin. No change was made as a result of this comment. Comment: The commenter stated that this amendment does not address the retroactive payment of patients who are Medicaid pending and Medicaid Qualified Medicare Beneficiaries (MQMB) patients. Response: Nonemergency ambulance transports provided without a prior authorization during the recipient's retroactive eligibility may be appealed by the provider through the department's established appeals process. When a service is a benefit of Medicare and Medicaid and the recipient is covered by both programs, the provider must first file a claim with Medicare. Medicaid payment is limited to the coinsurance and deductible amounts. Since Medicare is the primary payor, the Medicaid prior authorization requirements for nonemergency ambulance transports do not apply to MQMB recipients. No change was made as a result of this comment. Comment: The commenter stated the fiscal implications addressed in this rule do not seem realistic, and the impact on ambulance service will be much greater. Response: The department determination of no fiscal impact on small businesses includes the impact on ambulance providers and is based on the costs that may be attributable to obtaining the PAN prior to the transport by the provider, not the cost of having claims denied because the prior authorization is not obtained. The department is not required to calculate a fiscal impact of providers who fail to comply with the department's rules. As previously mentioned, the provider may obtain the PAN from the recipient, health care provider, or the department's designee and the department considers these costs to be minimal. Although a PAN does not guarantee payment of claims, the issuance of a PAN will increase the likelihood that the claim will meet the criteria for payment. Provider claims that do not meet the department's criteria for reimbursement will be denied and the department is not responsible for the fiscal impact of the denials on providers. No change was made as a result of this comment. The comments were received from the Texas Ambulance Association against the amendment in its entirety. This amendment is adopted under the Human Resources Code, sec.32.021 and Government Code sec.531.021, which provide the Health and Human Services Commission with the authority to adopt rules to administer the state's medical assistance program and is submitted by the Texas Department of Health under its agreement with the Health and Human Services Commission to operate the purchased health services program and as authorized under Chapter 15, sec.1.07, Acts of the 72nd Legislature, First Called Session (1991). sec.29.903.Authorized Ambulance Services. These requirements are in addition to the requirements as stated in sec.29.1 of this title (relating to Claim Information Requirements), and sec.29.902 of this title (relating to Additional Claim Information Requirements). (1) Emergency Ambulance Transportation. The department or its designee reimburses a Medicaid-enrolled provider for the emergency transportation of a Medicaid recipient whose condition conforms with the definition of an emergency medical condition as stated in sec.29.901 of this title (relating to Definitions) and: (A) the transportation must be to the nearest facility capable of providing the appropriate level of care for the recipient's condition. If the transportation is made to a facility other than the nearest facility, payment is limited to the amount which would be payable to the nearest facility; or (B) transportation by air or boat ambulance is reimbursable if the time and distance required to the nearest facility capable of providing the appropriate level of care for the recipient's condition make the transportation by ground ambulance unreasonable, impractical, or would endanger the life or safety of the recipient. If the recipient's medical condition does not meet the emergency air or boat criteria, but does meet the emergency ground transportation criteria, the payment to the provider is limited to the amount which would be payable at the emergency ground transportation rate. (2) Nonemergency Ambulance Transportation. The department or its designee reimburses a Medicaid-enrolled provider for the nonemergency transportation of a Medicaid recipient under the following conditions: (A) the recipient is severely disabled as defined in sec.29.901 of this title; (B) the severely disabled recipient can not be transported by any means other than an ambulance without endangering the health or safety of the recipient; (C) the nonemergency ambulance transportation of the severely disabled Medicaid recipient is to or from a scheduled medical appointment and authorization has been received from the department or its designee. (i) the prior authorization for nonemergency ambulance transportation will be based upon the following: (I) the recipient's medical needs and disability; and (II) duration of time if regular transportation will be required as a result of the recipient's medical needs and disability. (ii) the prior authorization request must be approved or denied by the department or its designee not later than 48 hours after receipt of a request. (3) Recipient Fair Hearing. A denial, delay, reduction, or modification of ambulance transportation services may be appealed by the recipient under the department's fair hearing rules as stated in Chapter 36 of this title (relating to Medicaid Program Appeals Procedures). (4) Provider Appeal. A denial of a transportation claim may be appealed by a provider under the department's appeals procedures contained in the Texas Medicaid Provider Procedures Manual. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 17, 1998. TRD-9802387 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 10, 1998 Proposal publication date: October 17, 1997 For further information, please call: (512) 458-7236 CHAPTER 313.Athletic Trainers SUBCHAPTER A.General Requirements and Guidelines 25 TAC sec.sec.313.1, 313.3, 313.5, 313.7-313.9, 313.12, 313.13 The Advisory Board of Athletic Trainers (board), by majority vote on January 13, 1998, enters this order finally adopting amendments to sec.sec.313.1, 313.3, 313.5, 313.7-313.9, 313.12, and 313.13, concerning the regulation of licensed athletic trainers, without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10886). Specifically, the sections cover definitions, fees, qualifications, examination for licensure, determination of eligibility for licensure, temporary license, license renewal, and continuing education requirements. Section 313.1 is amended to add the definition of "associate executive secretary," a board officer position that has been in existence for several years and that assists the executive secretary and serves as a member of the Administrative Services Committee; and the definition of "executive secretary emeritus," a position that will allow for continuity should the executive secretary resign. Section 313.3 is amended to clearly define that the written examination fee is $50 and the oral/practical examination fee is $50. Section 313.5 is amended to further define the course work requirements for licensure; to add the requirement of a course in advanced athletic training or sports medicine for all applications filed after September 1, 2000; and to further define the duration, number of hours, and settings for the athletic training apprenticeship. Section 313.7 is amended to further define when a student may make application for examination. Section 313.8 is amended to clarify the situations in which the board will deny an application for licensure and to clarify board actions when an applicant fails to request a hearing or withdraws a request for hearing. Section 313.9 is amended to clarify that, upon failure of an examination, a temporary license is voided and the applicant is not eligible for another temporary license. Section 313.12 is amended to clarify the status of a license when the license holder has requested an extension for completion of continuing education requirements. Section 313.13 is amended to allow a licensee who has requested an extension for completion of continuing education requirements to provide athletic training services during the extension period. These sections provide clarification of the rules, ensure competency of athletic trainer applicants, and provide for more effective regulation of athletic trainers. There were no comments received on the proposed rules during the comment period. The amendments are adopted under Texas Civil Statutes, Article 4512d, sec.5(a), which provides the board with the authority to adopt rules consistent with the Act which are necessary for the performance of its duties; under Texas Civil Statutes, Article 4512d, sec.5(c), which provides the board with the authority to establish requirements for continuing education for athletic trainers in Texas; under Texas Civil Statutes, Article 4512d, sec.5(d), which provides the board with the authority to employ an executive secretary and other persons necessary to carry out the provisions of the Act; and under Texas Civil Statutes, Article 4512d, sec.10(c), which provides the board with the authority to prescribe the time during which temporary licenses are valid. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 20, 1998. TRD-9802577 Michael Daniel Saly Chairman Advisory Board of Athletic Trainers Effective date: March 12, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 458-7236 TITLE 28. INSURANCE PART I. Texas Department of Insurance CHAPTER 21.Trade Practices SUBCHAPTER D.Statistical Agents 28 TAC sec.21.301 The Texas Department of Insurance adopts new sec.21.301, concerning the performance of designated statistical agents of the Texas Department of Insurance, pursuant to the Texas Insurance Code Annotated, Article 21.69. Section 21.301 is adopted without changes to the proposed text as published in the December 26, 1997, issue of the Texas Register (22 TexReg 12673) and will therefore not be republished. The section concerns the performance of statistical agents designated by the Commissioner of Insurance, pursuant to the Texas Insurance Code Annotated, Article 21.69. The statistical agents are designated for the purpose of gathering insurance data relevant for regulatory purposes or as otherwise provided in the Insurance Code. Currently the following statistical agents are designated by Commissioner's Order Numbers 96-0576, 96-0397, 96-0396, 97-0415, and 97-1224, respectively: National Council on Compensation Insurance, Inc. for workers' compensation insurance; Insurance Services Office, Inc. for commercial lines insurance; and Texas Insurance Checking Office for residential property insurance, private passenger automobile insurance, farm and ranch insurance, and farm and ranchowners insurance. Each current designation is subject to the requirements of the Request for Interest and Qualifications published by the department and the statistical agent's submissions to the department related to the designation. In order to further clarify both the department's and the statistical agents' understanding of the standards of performance for the statistical agents, this section provides each statistical agent an opportunity to negotiate with the department and agree upon a set of standards of performance. Those currently designated statistical agents are required to negotiate with the department and agree upon a set of standards of performance within eight months of the effective date of the section. Since both the designated statistical agents and the department staff now have a year or more of actual experience with the collection of data by designated statistical agents, all parties have better information with which to develop standards of performance. Any future statistical agent will be required to agree upon standards of performance prior to its designation as statistical agent. This section further clarifies that if the commissioner determines that a statistical agent does not to comply with its agreed upon standards of performance, the commissioner may impose sanctions under the Texas Insurance Code Annotated, Article 1.10 and 1.10E. The section lists the factors the commissioner will consider in setting the amount of monetary penalty and provides the maximum amount of administrative monetary penalty to be assessed for each act of noncompliance. The section provides that each statistical agent designated by the commissioner must meet certain agreed upon performance standards while serving as designated statistical agent to collect data on his behalf. It also requires each statistical agent to negotiate with the department to develop agreed upon standards of performance. Those currently designated statistical agents are required to negotiate and agree upon standards of performance within eight months of the effective date of the section. Any future statistical agent will be required to agree upon standards of performance prior to its designation as statistical agent. The section also clarifies that if, after notice and the opportunity for a hearing, the commissioner determines that a statistical agent has failed to comply with its agreed upon standards of performance, the commissioner may impose sanctions under the Texas Insurance Code Annotated, Articles 1.10 and 1.10E. Under this section the commissioner will consider the factors and not exceed the maximum amount of administrative monetary penalty as established in Texas Insurance Code Annotated, Article 1.10E when determining the amount of monetary administrative penalty to impose against the statistical agent. Lastly, the section reserves all other rights that the department may have against the statistical agents or any other related parties. One commenter agrees with the concept of the department recovering a monetary amount from a statistical agent for its failure to meet its obligations, but suggested that the use of the "penalty-type approach" proposed by the department is inappropriate. The commenter would prefer defining standards and remedies in a contractual setting because such an arrangement would allow the statistical agents to better measure, control, and limit liability arising out of its obligations. Agency response. The department disagrees that its "penalty-type" approach is inappropriate. Because the commissioner's designation of a statistical agent is not based on a contractual relationship between the commissioner and each statistical agent, defining remedies in a contractual setting would be inappropriate. In addition, the section is designed to deter the statistical agent from failing to meet its obligations rather than to provide for the department to recover damages incurred arising out of the statistical agent's failure to meet its obligations. Also, the department's approach provides that each statistical agent and the department agree upon standards of performance. During the negotiation process, the statistical agent will have the opportunity to measure, control, and limit its liability by realistically assessing the services it can provide. Also, by complying with the agreed upon standards once they are executed, the statistical agent may control and limit its exposure under this section. One commenter stated that during the bidding process the department represented that its sole remedy for a statistical agent's failure of performance was to terminate the designation. The commenter urged that the section would create substantial additional exposure for the statistical agent that was not present when the bids were submitted. Agency response. The department disagrees that its sole remedy against a statistical agent for failure of performance is to terminate the designation. However, the section is intended to be implemented prospectively and only after the current statistical agent has negotiated agreed upon standards of performance with the clear understanding that it may be subject to an administrative monetary penalty under this section. In the event that there was reliance on past representations by the department, this process and the prospective implementation of this section allows the statistical agent to reconsider its possible liabilities. One commenter stated that although the section permits the statistical agents to negotiate performance standards, it does not allow them to negotiate the assignment of penalties for breach of standards. The commenter also stated that it cannot measure its possible liability because the only limitation on the penalty amount is a $25,000 cap per act and the section does not include a definition of the term "act" that would reliably prevent a future insurance administration from assessing penalties on a per report, per record, or per policy basis. Agency response. The department disagrees that a definition of "act" should be included in the section. The section is consistent with the Texas Insurance Code Annotated, Article 1.10E which gives the commissioner discretion in determining whether a violation or an "act of noncompliance" warrants consideration of a penalty and which sets a $25,000 penalty limit per act of noncompliance. Although the department agrees that the section does not allow the statistical agent to negotiate the assignment of penalties for breach of standards nor to measure its possible liability in advance of an act of noncompliance, the department disagrees that the section does not allow the statistical agent to negotiate the assignment of penalties nor to measure its possible liability for an act of noncompliance. First, by developing agreed upon standards of performance with the department, the statistical agent and the department will prioritize the importance of the various tasks. Second, under the section and the Texas Insurance Code Annotated, Article 1.10E, the statistical agent has opportunities to negotiate the amount of penalties prior to final assessment. Under Texas Insurance Code Annotated, Article 1.10E sec.4(a)&(b), the amount of administrative penalty recommended by the department would be included in both a report to the commissioner and a notice to the statistical agent. Within 20 days after the date the statistical agent would receive notice, it may accept the determination and recommended penalty, or request a hearing on the occurrence of the violation, the amount of the penalty, or both. Even if the statistical agent does not respond to the notice or request a hearing, the department is required to set a hearing on the matter at which the statistical agent may be heard. This process provides ample opportunity for the statistical agent to both negotiate the amount of penalty and have input in determining whether a specific act of noncompliance warrants assessment of an administrative penalty. One commenter stated that the section does not tie the amount of penalties to actual damages incurred by the department. Agency response. The department did not intend to recover its damages incurred due to the statistical agents' failure to perform by proposing this section. Rather, the section is intended to deter the statistical agent from failing to comply with its standards of performance so that the portion of the state's business that is affected by the collection of data by the statistical agent, can be efficiently done. In addition, the possible damages are not readily measurable in specific dollar amounts. For example, the department uses data collected to produce time-sensitive reports to the legislature. The department's damages incurred due to its inability to produce these reports cannot be measured in specific dollar amounts. Other entities, such as the parties in the annual rate hearings also use data gathered by statistical agents. The department's inability to provide the data to the rate hearing parties due to a statistical agent's failure to comply with its standards of performance, could result in delays in the hearings and an ultimate delay in the final setting of the rates. These delays can potentially cause damage to the insurance industry and to consumers, which is neither easily measured nor recoverable in terms of specific dollars. One commenter supported the application of Article 1.10 authority against statistical agents. The commenter submitted a rule petition in 1996 that would have achieved a similar result as the section. Agency response. The department agrees that the issues related to commenter's 1996 rule petition may be addressed in the process contemplated by this section. The main focus of the commenter's 1996 proposal was to provide prohibitions and penalties for statistical agents who were also advisory organizations. Although not specifically addressed in this section the department will consider restrictions necessary to segregate the dual roles of an advisory organization that is also a designated statistical agent in the negotiations of the agreed upon standards of performance. One commenter requested that it be included in the negotiations between the department and each statistical agent to determine the agreed upon standards of performance because it relies heavily on the data compiled by the statistical agents. Agency response. The department believes it would be unfair to allow this commenter to participate without allowing all others who may rely on the data collected by the statistical agents to also participate. Conducting the negotiations in a public proceeding would likely constrain the flow of information concerning the internal operations of the statistical agents since this information may include confidential trade secrets. Although the department is interested in the input of all potential users, it is unrealistic to allow all potential users to participate in the negotiation process. Instead the department will informally notify all interested parties of any proposed standards of performance and request informal comments. Also, once the agreed upon standards of performance are executed, they will be available to the public. One commenter suggested that it may be necessary to either re-designate the current statistical agents or amend the current agreements to include any provisions of the rule which are not noted in the current agreements. Agency response. The department agrees that, once the agreed upon standards of performance are executed, new designation orders should be issued. The department will issue new designation orders referencing the agreed upon standards of performance. One commenter urged the department to make the process open if the commissioner implements any changes to the performance standards for, or other agreements with, a statistical agent in the future. That commenter alternatively urged the department to informally notify interested parties of changes prior to their adoption. Similarly, another commenter urged that any proposed changes in standards of performance for currently designated statistical agents be available to the public for comment prior to adoption by the department. Agency response. The department believes it would be inefficient to conduct discussions of each change to the performance standards or other agreement with each statistical agent in a public proceeding. However, the department agrees to informally notify interested parties of any proposed standards of performance and request informal comments. One commenter suggested that the existing standards of performance should be enforced under the section as soon as it is effective, rather than waiting for the new agreed upon standards of performance. Agency response. Although there are existing performance standards, it will likely be beneficial to all parties to fine-tune the standards at this time. Since each of the designated statistical agents and the department staff have a year or more of actual experience with the collection of data by designated statistical agents, all parties now have better information with which to develop more accurate and reasonable standards of performance. The negotiation process will allow the parties to better prioritize and define the standards of performance and to fully consider the possibility of an administrative monetary penalty for a breach of the standards. One commenter suggested that the eight-month time period for the currently designated statistical agents to agree upon standards of performance should be shortened. The commenter also urged that the standards of performance should be completed by the effective date of the section. Agency response. The department disagrees that the eight-month period should be shortened. The department anticipates that most, if not all, of the standards of performance will be agreed upon well in advance of the eight-month deadline. The eight-month deadline was included as the latest possible completion time. Based on its past experience, the department believes it to be more efficient to stagger the negotiations with the various statistical agents so that staff can apply its experience from the earlier negotiations to later negotiations. One commenter urged that any revision to existing standards of performance preserve the fundamental principle that the statistical agent is the agent of the commissioner and that the primary responsibility of the designated statistical agent is to the commissioner. Agency response. The department agrees that this principle should be preserved. This principle has and will continue to be the fundamental basis for the relationship between the department and the statistical agents. Office of Public Insurance Counsel and Birny Birnbaum submitted comments that were generally in favor of the section. Insurance Services Office, Inc. submitted comments that agreed with the concept of the section, but were generally opposed to the section. The new section is adopted pursuant to the Texas Insurance Code Annotated Articles 21.69, and 1.03A, and the Texas Government Code Annotated sec.2001.004 et. seq. Article 21.69 (a) authorizes the commissioner to designate or contract with qualified organizations to serve as statistical agents to gather data relevant for regulatory purposes or as otherwise provided in the Texas Insurance Code. Article 21.69 (g) authorizes the commissioner to adopt rules necessary to accomplish the purposes of that article. Article 1.03A provides that the commissioner may adopt rules and regulations to execute the duties and functions of the department as authorized by statute. Texas Government Code Annotated sec.sec.2001.004 et seq. authorizes and requires each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and prescribes the procedures for adoption of rules by a state administrative agency. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 17, 1998. TRD-9802313 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 9, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 463-6327 CHAPTER 26. Health Insurance Portability and Availability Act Regulations The Commissioner of Insurance adopts amendments to sec.sec.26.1, 26.4 - 26.9, 26.11 - 26.20, and 26.22 - 26.26, new sec.26.27 and new Subchapter C, sec.sec.26.301 - 26.311, concerning small and large employer health benefit plans. Sections 26.4, 26.5 - 26.7, 26.9, 26.14, 26.15, 26.22, 26.23, 26.27, 26.301, 26.302 - 26.306 and 26.308 are adopted with changes to proposed text as published in the August 19, 1997 issue of the Texas Register (22 TexReg 8002). Sections 26.1, 26.8, 26.11 - 26.16 - 26.20, 26.24 - 26.26, 26.307 and 26.309 - 26.311 are adopted without changes and will not be republished. The amendments to these sections and new sections are necessary to implement legislation enacted by the 75th Legislature in House Bill 1212 (sometimes referred to as "HB 1212"), required by federal law in the Health Insurance Portability and Availability Act of 1996 (sometimes referred to as "HIPAA"). To accomplish this implementation, the rules amend sections in Chapter 26 relating to small employer carriers (with health benefit plans covering employers with 2-50 employees), and add a new Subchapter C to implement provisions applying to large employer carriers (with health benefit plans covering employers with more than 50 employees). Simultaneous to this adoption of the amendments, new sec.26.27 and new Subchapter C, sec.sec.26.301 - 26.311, the department is repealing sec.26.2 and sec.26.27. Notice of the adopted repeal is published elsewhere in this issue of the Texas Register. The sections as adopted differ in some respects from the proposed sections, based on further study in response to comments, the need to correct typographical and clerical errors and the need to revise certain dates based on effective date of the rules. In sec.26.4, the department has added a definition of "effective date." It has deleted the first use of the word "eligible" in the definition of late enrollee because the word is redundant, and has revised the definition to more closely conform with the intent of HB 1212 and HIPAA. The department has added the word "service" between the words "hospital" and "corporation" in paragraph (A) of the Point-of-service contract definition. The department also revised the definition of "waiting period" to clarify that periods before the effective date of enrollment of late enrollees and certain others in similar circumstances are not counted as part of any waiting period. The language in sec.sec.26.5(i) and 26.301(e) has been changed regarding participation criteria in response to comments. Sections 26.5(k) and 26.301(g), pertaining to non-federal government plans, have been changed to comply with HIPAA and based on comments. Section 26.6(a) has been changed to make March 1, 1998 the date by which carriers must notify the department whether they intend to offer coverage to small employers. A similar change has been made in sec.26.302(a) of the large employer rules. Sections 26.7(d) and 26.304(d) have been changed to incorporate a commenter's suggestions regarding married employees and dependents of married employees. The provisions in sec.sec.26.7(i)(3) and 26.305(k) have been changed based on comments to include the date stamp placed on a piece of mail by either the U.S. Postal Service or other delivery entity. The department has changed sec.sec.26.7(m) and 26.304(g) to clarify open enrollment and credit for prior coverage. The department has changed the language and examples in sec.sec.26.9(a)(8) and 26.306(h) regarding late enrollees to clarify the provisions and conform with the intent of HB1212 and HIPAA. The department has added examples of crediting coverage to sec.sec.26.9(a)(12) and (13) and 26.306. The department has changed the language regarding cancellation of coverage in sec.sec.26.15 and 26.308 to include a subscriber or enrollee in an HMO. The department has added clarifying language to sec.26.22. Changes have been made to Figure 33 to eliminate the mix of indemnity-type and HMO type references, add a section related to Dependent Child/Parents Separated or Divorced, and change the reference "covered services" to "covered health services." In those instances that the department has changed the language of a rule which affects the language in the prototypes, the language in the prototype has been changed to be consistent. Changes have been made to sec.26.301 to address a commenter's concerns regarding employers out of state. The language in sec.sec.26.303(c) and 26.7(e) has been changed based on comments, including modifications to clarify that insurers may accept a facsimile of an employee's signed, written waiver of coverage, provided that the facsimile includes a representation by the employer that it will maintain the original waiver for six years from the date of the transmission. For clarity, references in Subchapter C to "participation criteria" and "participation requirements" have been changed, as applicable to "minimum participation requirements" or "percentage participation." Changes have been made to sec.sec.26.304(g)(4) and 26.7(m) to address a commenter's concerns regarding notice. Subsections (c) and (d) of sec.26.305 have been changed based on comments. The department has deleted the words "following enrollment" from sec.sec.26.306(j) and 26.9(a)(14) for clarification. Throughout the rules, the department has corrected typographical and grammatical errors. The amendments and new sections of Chapter 26 implement the provisions of the Health Insurance Portability and Availability Act, Insurance Code, Chapter 26 relating to small and large employers and implement the federal reforms contained in the Health Insurance Portability and Availability Act of 1996. Significant provisions include the following: A definition for creditable coverage has been added to sec.26.4. The definition of creditable coverage differs from the definition of creditable coverage in the Insurance Code, Article 26.035, to comply with HIPAA, sec.2721(d). For example, short-term limited duration insurance is creditable coverage under federal law. A definition of "effective date" of coverage has been added, which is consistent with the definition of enrollment date in federal law. Section 26.4 also adds definitions for DNA, genetic information, genetic test and RNA, to include the definition of genetic information contained in House Bill 39, health insurance coverage, health status related factor, large employer, large employer carrier, large employer health benefit plan, limited scope dental or vision benefits, medical care, medical condition, participation criteria, public health benefit plan, reinsured carrier, risk-assuming carrier, risk pool, short-term limited duration insurance, and significant break in coverage. The definitions for affiliation period, case characteristics, child, class of business, dependent, eligible employee, franchise insurance policy, HMO, health benefit plan, health carrier, late enrollee, new entrant, person, point of service contract, policy year, premium, renewal date, risk characteristic, small employer, small employer carrier, and waiting period have been amended. The provision that a waiting period may not exceed 90 days for small employers has been removed from the definition of waiting period, and placed in sec.26.7(j). Section 26.5 explains how to calculate small employer status if the employer was not in existence in the year prior to the offer of coverage. These amendments bring the subchapter into compliance with the definition of small employer as contained in HIPAA, sec.2791(e)(4). Provisions regarding policies issued prior to September 1, 1993, have been deleted because neither House Bill 1212 nor HIPAA permit the grandfathering of any policies. Notice requirements for carriers that provided coverage to small employers prior to July 1, 1997 and elect not to continue to offer, deliver, or issue for delivery health benefit plans to small employers are set forth, as well as, notice requirements for carriers that elect to continue to offer, deliver, or issue for delivery health benefit plans to small employers. Section 26.5 implements provisions of the federal regulations, 62 Fed. Reg. 16893, 16973 (to be codified at 45 CFR sec.146.180) which require a governmental health benefit plan provided through health insurance coverage, that otherwise meets the requirements of being a small employer, to be subject to the provisions of HIPAA. This language conflicts with the statutory language in House Bill 1212, Insurance Code, Article 26.02(28), but is necessary to meet the minimum federal requirements regarding small employers. Section 26.6 requires small employer carriers to file their geographic service areas with the department. Section 26.7 provides that a small employer carrier shall not deny two individuals that are married the status of eligible employee solely on the basis that the two individuals are married. It also provides that a married employee cannot be covered under a plan as a dependent of the other employee, and that only one parent may cover the same dependent on the same plan. Section 26.7 provides that "received by the small employer" means postmarked or received by the time period in question. It provides requirements for an enrollment period upon employment and annually. A waiting period applied to employees of small employers cannot exceed 90 days. Section 26.7 also provides that eligible employees or their dependents excluded from coverage, not eligible for coverage, or denied coverage by a small employer carrier shall be provided an opportunity to enroll in the small employer's health benefit plan on the earlier of first renewal date or the first open enrollment period on or after July 1, 1997, and sets forth the requirements for such opportunity to enroll. It also requires a small employer carrier to secure a written waiver for each employee who declines coverage, provides the information such waiver must contain, and requires the waivers to be maintained for six years. Included in sec.26.8 are provisions that a small employer carrier shall provide health benefit plans to small employers without regard to health status related factors and that the 75% participation requirement shall not apply to a small employer that has only two eligible employees. Small employers with only two eligible employees are subject to a 100% participation requirement. To comply with the HIPAA, sec.2701(d)(1)-(2), sec.26.9 provide that if a newborn or adopted child is enrolled in a health benefit plan within the time periods specified in the rule, and subsequently enrolls in another health benefit plan without a significant break in coverage, a preexisting condition exclusion may not be imposed. If a newborn or adopted child is not enrolled within time periods specified in the rule, then the newborn or adopted child may be considered a late enrollee. The section explains a small employer carrier's options regarding late enrollment. A carrier either must accept an eligible employee or dependent requesting enrollment as a late enrollee during the plan year, and apply a preexisting condition exclusion of no more than 18 months (insurers), or an affiliation period of no more than 90 days (HMOs), or exclude such employees and dependents from coverage until the next open enrollment period, in which case it applies a 12-month maximum on a preexisting condition exclusion (insurers), or a 60-day maximum affiliation period (HMOs). The carrier must choose the same option for all of its health benefit plans subject to this subchapter. The section provides examples of applying preexisting condition exclusions to late enrollees and to late applicants excluded until the next open enrollment period. A preexisting condition provision may not apply to coverage for a disease or condition other than a disease or condition for which medical advice, diagnosis, care, or treatment was recommended or received from an individual licensed to provide such services under state law and operating within the scope of practice authorized by state law. Preexisting condition provisions required by House Bill 1212 are set forth in sec.26.9 as well as parameters for HMOs regarding an affiliation period. Section 26.11 provides that premium rates shall not be based on health status related factors of small employer groups. Section 26.12 provides that each HMO small employer carrier shall disclose in its solicitation and sales any applicable affiliation period. Section 26.13 provides that a health carrier shall elicit at the time of application whether or not the applicant is a small employer. Section 26.14 addresses HMO continuation and conversion provisions contained in Insurance Code, Article 20A.09(k) and clarifies the information that shall be contained in the health benefit plan forms of an HMO carrier offering a state approved health benefit plan. Section 26.15 provides that a small employer carrier shall renew a small employer health benefit plan unless there has been: nonpayment of the premium, fraud or intentional misrepresentation of a material fact by the small employer, or noncompliance with a material provision of the health benefit plan relating to premium contribution or minimum participation requirements. It also clarifies the provisions regarding guaranteed renewability for standard benefit plans and other small employer health benefit plans. Section 26.16 provides requirements for discontinuing a particular type of small employee coverage on all small employee coverage. New sec.26.27 includes the forms referenced in this chapter in their entirety. Most of these forms were contained in an earlier version of sec.26.27 which is repealed elsewhere in this issue of the Texas Register. Changes to Figures 10- 12, 16, 18, 21, 23, 24-27, 31, 33, 35, and 40-48 from the earlier versions incorporate the requirements of House Bill 1212, to ensure consistency with Chapter 26 of the Insurance Code, and make other correctional changes. The changes to Figure 30 from the earlier version incorporate the provisions of Insurance Code, Article 3.70-3C contained in Senate Bill 383. The changes to Figure 33 include adding definitions of emergency care and life-threatening. Figure 33 also includes provisions relating to continuation and conversion; addresses complaints and appeals to the HMO; addresses filing complaints with the Texas Department of Insurance; addresses out-of-network services and continuity of treatment; addresses the appeals process to an Internal Review Organization, and ensures consistency with 28 TAC sec.11.1500 for provisions on retaliation. Figure Numbers 50-51 are forms for filing requirements for large employers. New sec.26.301 sets forth the applicability of Subchapter C of Chapter 26 and the method for determining whether an employer is a large employer for those employers who were not in existence the preceding calendar year. It provides that the Insurance Code, Subchapters A and H, and Subchapter C of this chapter shall continue to apply to a health benefit plan issued to a large employer that ceases to be large employer, if the employer elects to renew the large employer health benefit plan. It sets forth the notice requirements that health carriers shall provide to such employers. It provides that Subchapter C applies to a health benefit plan that is issued to an employer that subsequently becomes a large employer on the first renewal date, unless the employer was a small employer and renews its current health benefit plan. It implements provisions of the federal regulations, 62 Fed. Reg. 16893, 16973 (to be codified at 45 CFR sec.146.180) which state that health insurance coverage issued to a nonfederal governmental health plan is subject to the provisions of HIPAA, if the governmental entity otherwise meets the requirements for being a large employer. This language conflicts with the statutory language in House Bill 1212, Insurance Code, Article 26.02(14) but is necessary to meet the minimum federal requirements regarding large employers. New sec.26.302 requires health carriers providing health benefit plans in this state to make a filing with the commissioner regarding whether the health carrier will or will not offer, renew, or issue health benefit plans to large employers in this state. It also requires large employer health carriers to establish and file geographic services areas with the department. New sec.26.303 states that a large employer may establish participation criteria as long as the participation criteria is not based on health status related factors. It requires a large employer carrier to accept or reject the entire group of individuals who meet the large employer's participation criteria, except those individuals in such group who have declined coverage. It also requires a large employer carrier to secure a written waiver for each employee who declines coverage, provides the information such waiver must contain, and requires the waivers to be maintained for six years. It requires an agent to notify a large employer carrier of circumstances that would indicate the large employer induced an employee to decline coverage due to health status related factors. It also provides that a large employer carrier may require a large employer to meet minimum premium contribution or minimum participation requirements, sets forth standards if such requirements are used, and provides that health carriers may require a large employer to answer questions regarding such requirements. It sets forth a round-down requirement for use when a large employer carrier has a minimum participation requirement. It also addresses termination of coverage when a large employer fails to meet the minimum participation requirement for six consecutive months. New sec.26.304 sets forth the requirements for large employer carriers to insure entire groups of individuals meeting the employer's participation criteria. It provides that a large employer carrier offering coverage to a large employer and its employees shall offer to provide coverage to each eligible employee who meets the minimum participation requirement. It also requires large employer carriers that offer dependent coverage to enrollees to offer to provide coverage to each eligible dependent. It provides that a large employer carrier may require large employers applying for coverage to provide a list of eligible employees and dependents, if applicable, and supporting documentation regarding eligibility. It provides that a large employer carrier shall not deny two individuals that are married the status of eligible employee solely on the basis that the two individuals are married. It also provides that a married employee cannot be covered under a plan as a dependent of the other employee, and that only one parent may cover the same dependent on the same plan. It sets forth requirements regarding new entrants. It provides that eligible employees or their dependents excluded from coverage, not eligible for coverage, or denied coverage by a large employer carrier shall be provided an opportunity to enroll in the large employer's health benefit plan on the earlier of the first renewal date or first open enrollment period on or after July 1, 1997, and provides the requirements for such opportunity to enroll. New sec.26.305 provides enrollment requirements for the initial enrollment period, for new entrants, and for the annual open enrollment period. It provides enrollment criteria for new employees, and addresses coverage for dependents, newborns, and adopted children. It also provides that "received by the large employer" means received, postmarked or date stamped by a delivery entity by the time period in question. It also states that if a newborn or adopted child is not enrolled within the time periods specified in the rule, then in accordance with sec.26.306(h), the newborn or adopted child may be considered a late enrollee or excluded from coverage until the next open enrollment period. New sec.26.306 limits exclusions for individuals who meet the participation criteria to those contained in the Insurance Code, Articles 26.83 and 26.90. It sets forth parameters for preexisting condition provisions required by House Bill 1212. Subsection (h) of the section explains a large employer carrier's options regarding late enrollment. A carrier either must accept an eligible employee or dependent requesting enrollment as a late enrollee during the plan year, and apply a preexisting condition exclusion of no more than 18 months (insurers), or an affiliation period of no more than 90 days (HMOs), or exclude such employees and dependents from coverage until the next open enrollment period, in which case a 12-month maximum on a preexisting condition exclusion (insurers) or a 60-day maximum affiliation period (HMOs). A carrier either must accept late applicants immediately as late enrollees, and apply a preexisting condition exclusion of no more than 18 months (insurers), or an affiliation period of no more than 90 days (HMOs), or exclude from coverage all applicants for late enrollment until the next open enrollment period, in which case it applies a 12-month maximum on a preexisting condition exclusion (insurers) or a 60-day maximum affiliation period (HMOs). The carrier must choose the same option for all of its health benefit plans subject to this subchapter. The section provides examples of applying preexisting condition exclusions to late enrollees and to late applicants excluded until the next open enrollment period. Section 26.306 also states requirements for a waiting period. It provides that a large employer health benefit plan may not limit or exclude coverage by the use of a rider or amendment, except for a preexisting condition or affiliation period permitted under the Insurance Code, Articles 26.83 or 26.90. New sec.26.307 provides fair marketing requirements for large employer carriers. New sec.26.308 provides that a large employer carrier shall renew a large employer health benefit plan unless there has been: nonpayment of the premium, fraud or intentional misrepresentation of a material fact by the large employer, or noncompliance with a material provision of the health benefit plan relating to premium contribution or minimum participation requirements. The section states that carriers may cancel a large employer plan only for the reasons the carrier may nonrenew the plan. The section also clarifies that an eligible employee or dependent who is a subscriber or enrollee in an HMO may be canceled for the reasons specified in 28 TAC sec.11.506(4)(A) (relating to Mandatory Provisions: Group and Non-Group Contract and Group Certificate). New sec.26.309 provides requirements for when a large employer carrier may elect to refuse to renew all large employer health benefit plans in this state. It also sets forth requirements applicable if a large employer carrier elects to discontinue a particular type of large employer coverage. New sec.26.310 addresses misrepresentation in marketing large employer health benefit plans and sec.26.311 provides that the commissioner may impose sanctions for a violation of the Insurance Code and this subchapter. General. Several commenters commended staff on their efforts in working with them and producing a regulation which, for the most part, complies with federal requirements and HB 1212. According to some commenters, the proposed rules exceed statutory authority by requiring an HMO small employer carrier to either use the HMO prototype plan or include mandated benefits in its plan. One of the commenters stated that several bills passed during the 75th Legislature exclude a small employer health benefit plan written under Chapter 26 of this code. Agency Response: An HMO that does not use the HMO prototype plan must issue a state approved plan that meets the federal guidelines and includes all the mandated benefits, except when the law requiring the mandate specifically excludes small employer health benefit plans issued under Chapter 26. sec.26.4. One commenter suggested that the definition of health status related factor should refer to "family violence" rather than "domestic violence" to be consistent with HB 839 and other statutes. Another commenter recommended deleting the first use of the word "eligible" in the definition of late enrollee. Agency Response: The department disagrees with using family violence instead of domestic violence. The definition of domestic violence is consistent with sec.2702(a)(1) of HIPAA and 45 CFR 146.121 (interim rules implementing HIPAA). "Domestic violence" is used to conform Texas law to federal law. The department agrees with the suggested deletion from the definition of late enrollee. sec.sec.26.4 & 26.303. A commenter asked for clarification as to whether a large employer can create classes such as salaried and hourly or managers and elect to cover one class and not to cover another class. Another commenter sought clarification regarding dependents, asking whether a large employer cover dependents of one class of employees and not dependents of another class? Agency Response: Large employers can use participation criteria to establish classes of employees that are eligible for coverage; however the criteria used to establish the classes may not be based on health status related factors. Large employers are not required to cover dependents of all classes. sec.26.4. In the definition of point of service contract, a commenter suggested that the word "service" be added between "hospital" and "corporation" in the last sentence of paragraph (A) of this definition. Agency Response: The department agrees and has incorporated the change. sec.26.4. A commenter expressed concern that the definition of policy year might conflict with an ERISA plan year. The commenter suggested a provision that permits an ERISA plan to utilize the plan year rather than the policy year if the two dates are different. Agency Response: Section 26.14(h)(1)(C) and (2)(D), which are applicable to indemnity contracts, allow the small employer carrier to select one of two definitions of "policy year" (the one that is consistent with the carrier's and employer's practices). These choices allow the carrier to choose a definition that does not conflict with an ERISA plan year. sec.26.5. A commenter suggested retaining grandfathered regulations except as required by HIPAA, because some old plans have noncancellable contracts. Also, some have generous benefit plans that are not offered to small employers and attempting to amend an old plan with multiple amendments and benefit changes to comply with current small employer offerings would be burdensome. Also many small public entities are now small employers under Chapter 26 and have nonconforming plans. The commenter requested clarification whether a grandfathered small employer is required to move to an approved small employer benefit plan and if the answer is any different if the grandfathered plan is noncancellable. According to the commenter, the reasons for the 1993 grandfathering rules for small employers still exist. Agency Response: There is no provision in federal or state law that allows for grandfathering. The department believes the intent was to create a level playing field for employer group health benefit plans, and that it is not appropriate to create a special exception. Neither HIPAA nor HB 1212 require grandfathered plans to reduce generous benefits. The department acknowledges that other provisions such as renewability and eligibility must be amended, and Figure 32, a prototype compliance rider, has been provided as a tool to assist carriers in amending plans. sec.sec.26.5(i) and 26.303(j). A commenter stated that these provisions require continued group coverage of a group of one employee, whereas HIPAA and Chapter 26 have a minimum of two. The commenter pointed out that conversion options are available. The commenter suggested that these provisions should be reexamined as the statute provides no authorization for group coverage of one person. The commenter also suggested a rule providing a notice that Chapter 26 requires a minimum of two eligible employees and a 30-day notice to cure, otherwise the plan would terminate as provided in Article 26.23(a)(3). Agency Response: The department acknowledges the commenter's concerns and has changed the language of sec.sec.26.5(i) and 26.301(e) to clarify that protections of Chapter 26 will no longer apply to an employer who fails to comply with contribution or minimum participation requirements. These provisions must be read in conjunction with provisions in sec.sec.26.8 and 26.303, which provide that a carrier may terminate coverage to the employer only after the employer has failed to meet participation requirements for six consecutive months. sec.sec.26.5(k) and 26.301(g). A commenter suggested that provisions in these subsections relating to self-funded nongovernmental plans be deleted. The commenter stated that there is no language in HB 1212 which provides an election ability for the entity's self-insured plan. It is the commenter's belief that there may be a conflict with Chapter 172 of the Local Government Code, which provides that risk pool coverage or interlocal will not be considered insurance. According to the commenter there is no reason to include a self-insured plan since it is not controlled by an insurance company, but is entirely the plan of the employer. Agency Response: Federal law only allows non-federal government plans that are not provided through insurance the right to elect to be exempt from requirements of federal law. The department recognizes that some portions of HB 1212 go beyond the requirements of HIPAA, and therefore has changed the last sentence of the subsection to comply with HIPAA. sec.sec.26.5(I) and 26.301(e) and (f). A commenter interpreted these provisions to mean that if an employer is large and becomes small, they become a small employer, but if the employer is small and becomes large, it remains small. The commenter suggested either that employers, regardless of size, retain their status on renewal or change to the correct status on renewal and prefers that the change be to the correct status on renewal. Agency Response: The department does not agree with the commenter's reading of these provisions; however, the changes the department has made in sec.sec.26.5(i) and 26.301(e) should provide clarity. sec.sec.26.7(d) and 26.304(d). A commenter suggested adding language to make these sections consistent with the prototypes. Also, according to the commenter, the rule needs to clearly state that: (1) two married employees are both to be covered as employees; (2) neither married employee is eligible as a dependent of the other; and (3) only one of the employees may cover any children. The commenter stated that these requirements are in the 1995 prototypes as well as the new proposed forms and suggested that the language be added to these subsections. Agency Response: The department agrees with the comment and has changed the sections accordingly. sec.26.7(i). A commenter stated this provision allows for an application up to 31 days after the expiration of the waiting period, which conflicts with Article 26.21(j). The commenter believed that sec.26.7(h) as adopted in 1993 correctly implements the statute. Agency Response: The rules in 1993 supported the law in effect at that time. The 74th Legislature amended Chapter 26 and subsequently the rules were amended in 1996. The provision has not been modified substantially from the rules adopted in 1996. The department believes the language "not later than the 31st day after the date" in Article 26.21(j) modifies both the phrases "on which the employment begins" and "on completion of a waiting period." This position is supported by language contained in the large employer law, Article 26.83(i), and the prototype policy forms adopted in 1996. sec.sec.26.7(i)(3) and 26.305(k). A commenter objected to when an application is considered "received" and suggested that the "received date" should be either the date noted on the application or two business days after postmark. The commenter also suggested that "postmark" be defined as time/date stamp placed on a piece of mail by the U.S. Postal Service or other delivery entity. Agency Response: The postmark date is a standard date accepted by the department as "date received" for filing purposes and believes that this is a reasonable standard for the employer market. The department has added a definition of "postmarked" in sec.26.2. sec.sec.26.7(i)(4) and 26.305(a)(4). A commenter suggested changing the language of these provisions to allow open enrollment to occur on a date other than the first day of the month. Agency Response: The department disagrees. Articles 26.21(h) and 26.83(f) require open enrollment to begin on the first of the month. sec.26.7(j). According to a commenter, this provision conflicts with HB 1212, which eliminates a maximum limitation on a waiting period of 90 days. Agency Response: The department acknowledges that the definition of waiting period no longer contains a reference to 90 days. However, Article 26.21(i) does limit the waiting period to 90 days. The rule is consistent with the statute. sec.sec.26.7(m) and 26.304(g). The commenter stated that these subsections contain inconsistencies. The commenter believes that there is a requirement for two enrollment periods for some employees. The commenter stated that Article 26.21 does not mandate when the open enrollment must be provided, only that it occur annually. It is the commenter's position that these provisions are not provided for in the statute and should not be required and that sec.26.7(i) is sufficient and is supported by statute. Also, the commenter stated that the language is ambiguous regarding applicability and that "not eligible" could mean the person did not meet the definition of an eligible employee and when such person becomes eligible, they are treated like a new employee without special rules. The commenter requested that the rules regarding open enrollment and credit for prior coverage be very concise and follow statutory guidelines. The commenter suggested that persons which are intended to be given special protection can be handled routinely during the annual open enrollment period. Agency Response: The department acknowledges that the language pertaining to enrollment of individuals previously excluded is inexact and has modified the language to clarify when these individuals must first be offered coverage. Plans previously grandfathered could exclude certain individuals (i.e. certain classes of employees, employees who were not actively at work). It would be impractical to attempt to define all individuals who were previously "not eligible". sec.sec.26.8(h) and 26.303(j). The commenter acknowledged that the provision in sec.26.8(h) allowing cancellation of plans which do not meet participation requirements for six consecutive months (which has been mirrored in sec.26.303(j)) is not new and repeats comments expressed concerning sec.26.5(i). According to the commenter, there seemed to be no statutory basis for maintaining a noncomplying small employer for up to 17 months and urges that a notice and chance to cure should be sufficient. Agency Response: The suggestion to give 30 days notice does not give employers sufficient time to advertise, interview, and hire an employee. The department will continue to analyze the issue for future rulemaking. sec.sec.26.9(a)(8) and 26.306(h). According to one commenter, the provisions on late applicants and enrollees have the effect of providing credit for a waiting period, because they reward the late employee by providing credit for time during which the employee chose not to be covered. HIPAA allows a maximum 18- month preexisting condition exclusion for such persons and Texas law requires an annual open enrollment period. The commenter suggested the rule be amended to permit a small employer carrier to utilize a preexisting condition which is the shorter of (1) 18 months dated from the receipt of the application by the carrier or (2) 12 months from the day following the last day of the open enrollment period. Another commenter recommended adopting a provision similar to federal law that would allow a carrier to accept late enrollees immediately and eliminate the option of an open enrollment period. This would allow a late enrollee to obtain immediate coverage for everything except the preexisting condition and the carrier would receive premium for the period that the late enrollee is satisfying the preexisting condition period. The commenter stated that the proposed rule seems unfair to persons who timely enroll and have to pay for a full 12 months of coverage before the expiration of the preexisting condition limitation. Agency Response: The department does not believe that these sections reward persons requesting enrollment as late enrollees. The sections give carriers an option of whether to exclude late applicants until the next open enrollment period and apply up to a 12-month preexisting condition exclusion, or accept applicants immediately as late enrollees and apply up to an 18-month preexisting condition exclusion. A late applicant receives no credit against a preexisting condition exclusion during the period in which the applicant chooses not to be covered or is excluded from coverage pursuant to these sections. The department disagrees with elimination of the annual open enrollment period, which allows enrollees to meet changing insurance needs by electing another available health plan that may be offered by the employer. The rules and prototype forms, as adopted, have been amended to more clearly express the intent of these provisions and HB1212, and to conform language with that used in HIPAA. The rules clarify that carriers must apply the same late enrollment option for all of its health benefit plans subject to this subchapter. They also clarify that late enrollment provisions apply to HMOs, and that if an HMO chooses to accept a late enrollee during the plan year, it may apply up to a 90-day affiliation period. For clarity, the definition of "effective date" has been added which conforms with the definition of "enrollment date" in HIPAA, and the definitions of "late enrollee" and "waiting period" have been revised. sec.26.9(a)(3) and (a)(5)(B) and sec.26.305(g)(2) and (j)(2). A commenter stated that these provisions could extend the 31-day required coverage for enrollment of newborn and adopted children for an additional 30 days. The commenter suggested amending the provisions to require coverage to continue until the latter of the end of the 31-day period or the next premium due date, thus avoiding an unintentional loss of coverage. Agency Response: The department believes that the rules in question prevent an unintentional lapse of coverage as described by the commenter; therefore, the department does not believe that the suggested change is necessary. sec.sec.26.9(a)(9) and 26.306(c). A commenter stated that the language regarding providers licensed under state law is unnecessary and confusing especially since Texas is a border state and that treatment in Mexico or other foreign countries could constitute advice, care or treatment which would affect the preexisting condition provision. Agency Response: The department appreciates and recognizes the commenter's concerns; however, the language is necessary to conform to federal law, as provided in the interim federal rule at 45 CFR sec.146.111(a). sec.sec.26.9(a)(13) and (b) and 26.306(l). Another commenter requested clarification regarding persons whose coverage never became effective. According to the commenter, the carrier has no information on persons who were hired but left employment prior to becoming covered; thus, no certificate of coverage can be issued by the carrier. The commenter expressed concern that the carrier cannot investigate information not given to them, stating that it is the employee or employer who has the knowledge regarding prior coverage. The commenter provided suggested language. Agency Response: The commenter's concerns are addressed in interim federal rules (45 CFR sec.146.115) and the department's proposed rules regarding creditable coverage (at 28 TAC sec.sec.21.1101-21.1110). A carrier is not required to give credit for preexisting conditions when creditability cannot be verified via a certificate of creditable coverage issued by the prior carrier or through other means (i.e. pay stubs showing payroll deduction for health benefit coverage, health benefit plan ID card, etc.). Additionally the proposed creditable coverage rules require that the carrier provide credit as long as an individual is cooperating with a carrier's efforts to verify the individual's coverage. sec.sec.26.9(a)(12) & (13) and sec.26.306. One commenter recommended that examples for crediting of coverage be provided. Agency Response: The department agrees that examples of crediting coverage should be included and has incorporated examples into the rule. sec.sec.26.15 and 26.308. The commenter stated that sec.sec.26.15 and 26.308 provide for termination of coverage only on grounds specified in HIPAA (sec.2712(b) of the Public Health Service Act). The commenter expressed serious concern that the rules do not provide for cancellation of enrollees in HMOs on such grounds as abusive or threatening behavior, illegal acts and failure to maintain an appropriate physician/patient relationship, as allowed by sec.11.506(4)(A) of this title, in the rules governing HMOs. The commenter believes that HIPAA does not prevent an insurer from terminating for any good cause and does not limit group health plans to only those reasons set out in sec.2712. Agency Response: HIPAA requires that both large and small employer carriers cancel employer plans only for the reasons allowed for nonrenewal of such plans. However, the department agrees with the commenter than HIPAA does not address cancellation of an enrollee. Current HMO rules, at 28 TAC sec.11.506(4)(A), set forth circumstances under which an HMO can cancel coverage of an individual enrollee. Sections 26.15(b) and 26.308(b) have been amended to clarify that these rules do not prevent application of sec.11.506(4)(A). sec.sec.26.15(a)(2), (b); 26.308(a)(3), (b). A commenter stated that the sentence beginning "On or after September 1, 1995" contained in these subsections conflicts with sec.2712(b)(2) of HIPAA, which does not contain the quoted language. The commenter expressed concern that no legislative authority exists for these provisions. Agency Response: In regards to sec.26.15 in the small employer rules, the legislative authority for the quoted language is contained in HB 2055, SECTION 10(f), which enacted Article 26.21(a) (guarantee issuance of coverage to small employers) beginning September 1, 1995. The quoted language is not contained in sec.26.308, which addresses only large employers. sec.26.22. A commenter requested clarification regarding when a cooperative becomes a small or large employer. The commenter requested that such clarification should provide for when separate benefit plans can be selected by an employer. The commenter suggested additional language to clarify the provision. Agency Response: The department agrees that clarifying language should be included and has added such language to this section. Figure 28: Form Number 369 CONV. A commenter stated that offering a conversion policy is optional under HB 710, and that the prototype plan should not require a conversion privilege when all other plans do not require it. Agency Response: The department is in the process of proposing amendments to Figure 28 and the Conversion/Continuation rules (28 TAC sec.sec.3.501-3.520). Figure 33: Form Number 1212 HMO GRP CONT and Related Riders. Two commenters expressed concern about the HMO prototype plan proposed by staff, stating "many of the forms have incomplete sentences or are grammatically incorrect" and "there also appears to be a combination of indemnity type language being offered in combination with HMO language." They also suggested: (a) under the Coordination of Benefits, Order of Benefit Determination Rules, a section related to Dependent Child/Parents Separated or Divorced should be added and be consistent with the language in Figure 29; (b) the definition of creditable coverage contained too much information and the second paragraph was not necessary and should be deleted; (c) the definition of Primary Care Provider should be amended to Primary Care Physician; and (d) the language "covered services" should be changed to "covered health services". A commenter echoed these concerns regarding related riders at the hearing on these rules. Agency Response: The department has corrected the grammatical and typographical errors, and has deleted inappropriate mixing of indemnity-type and HMO-type language. The adopted rule incorporates all changes requested, except for two. The reference to "primary care provider," as opposed to "primary care physician" remains, because a physician assistant can be considered a provider. Also, the last paragraph of the definition of creditable coverage has not been deleted. Enrollees should have full disclosure of what is and what is not creditable coverage. sec.26.301(a). A commenter stated the proposed provision attempts to regulate large employers who have no presence in Texas, because it does not require that a policy be issued in Texas or even that any covered person reside in Texas. The commenter expressed concern that other states and large employers outside Texas may disagree regarding the jurisdiction apparently presumed by this provision. Agency Response: The department agrees that it does not have regulatory authority over employers. However, Article 21.42 stipulates Texas law governs policies which cover any citizen or inhabitant of this state. Language has been added to the section to address the commenter's concerns. sec.26.303(c) (also applicable to sec.26.7(e)). One commenter questioned whether carriers must retain declination waivers when an employer offers multiple plans and employees have elected another carrier's coverage. The commenter asked whether each carrier was required to maintain a copy of a waiver for the other carrier's product. Another commenter requested that carriers be allowed to obtain and rely upon waivers submitted via electronic forms of communication, such as facsimile and electronic mail. Agency Response: To address the first commenter's concerns, the department has changed the language to provide that: If a large employer elects to offer coverage through more than one large employer carrier (1) waivers are only required to be signed if the eligible individual is declining all large employer health benefit plans offered and (2) the large employer carriers may enter into an agreement under which one large employer carrier will retain the waiver. Since this same issue is applicable to small employer carriers, a corresponding change in language has been added to sec.26.7(e). Both this section and sec.26.7(e) of the small employer rules require carriers to receive signed, written waivers of employees who decline coverage. These requirements implement Articles 26.21 and 26.83 of the Insurance Code. The department believes that to ensure authenticity of a waiver, the waiver needs to contain the signature of the employee declining coverage. The department believes that a carrier can assure authenticity through receipt of a facsimile transmission of an employee's signed declination of coverage, provided that the carrier receives with the facsimile an acknowledgment that the employer will retain the original signed declination on file for six years, the same length of time that carriers are required to maintain the waiver. The department has amended sec.sec.26.7(e) and 26.303(c) to allow receipts of facsimile transmissions under these circumstances. The department acknowledges that emerging technology is allowing persons to "sign" electronic mail through unique digital signatures. Accordingly, the department will continue to evaluate for possible future rulemaking whether electronic mail transmissions with digital signatures can be allowed consistently with applicable statutes. sec.26.303(h). The commenter stated that language in sec.26.303(h) could be used to interpret participation rules to only mean percentages. Agency Response: The department recognizes that the terms "participation criteria" and "participation requirements" are confusing. The department has changed the references in these rules that pertain to participation requirements of large employer carriers to be either "minimum participation requirements" or "percentage participation." sec.26.304(g)(4)(also applicable to sec.26.7(m)) One commenter suggested inserting, after the first reference to 45 days, that the notice is provided to the large employer who provides the notice to employees. Agency Response: In response to the commenter's concerns, the department has added language to this section and sec.26.7(m) of the small employer rules. sec.26.305(c). The commenter expressed concerns that this subsection differed from comparable provisions in the small employer rules in a manner that will make compliance difficult. The commenter notes that the proposed regulation uses the statutory language "received by large employer," while the small employer provisions of Chapter 26 use 'received by the small employer carrier.' Agency Response: The department believes the omission of the word "carrier" in the law and rule was an oversight as carriers issue coverage; not employers, and the department has no jurisdiction over the employers. The department has changed subsections (c) and (d) to address this oversight. sec.26.305(f) and sec.26.308(a)(4). One commenter requested clarification on the ability to deny coverage when an otherwise eligible employee resides outside the service area. Another commenter stated they previously applied the standard of residing in the service area and asked if there is a conflict with other rules if they change to "reside or work?" Another commenter said that neither HIPAA nor any other statutory provisions mandated that HMOs cover persons who only work, rather than reside, in a service area. The commenter also stated that if the department was promulgating such a requirement, it should do so more explicitly. This commenter stated that state law did not give the department authority to apply such standards to an HMO providing services to a governmental plan. Agency Response: A large employer carrier is not required to offer or issue a health benefit plan to an employee of the large employer who neither resides nor works in the geographic service area of the large employer carrier as set forth in Article 26.85. If a carrier is issuing large employer coverage, it must comply with this standard. Under HB 1212, state governmental plans covered by the statute are only defined as a large employer if they elect to be treated as such. The Employee Retirement System ("ERS") is never considered a large employer under HB 1212 or these rules, because HB1212 does not apply to it. Accordingly, the large employer rules do not apply to carriers offering coverage to governmental plans who elect not to be treated as a large employer, and do not apply at all to carriers offering coverage to ERS. HIPAA expressly applies to all carriers offering coverage to nonfederal governmental plans. However, the only provision referencing a "live or reside" standard is an exception to guaranteed renewability requirements in sec.2712 of the Public Health Services Act, under which carriers may nonrenew or cancel a plan if "there is no longer any enrollee in connection with such plan who lives, resides or works in the service area of the issuer (or in the area for which the issuer is authorized to do business) and, in the case of the small group market, the issuer would deny enrollment with respect to such plan under sec.2711(c)(1)(A)." This provision does not explicitly require coverage of any employee who only works in the service area. Accordingly, the department believes it is appropriate to allow state governmental plans which opt out of HB1212, or are expressly excluded from the provisions of HB1212, to determine whether they want to cover such employees. sec.26.306(j) (also applicable to sec.26.9(a)(14)). A commenter suggested deleting "following enrollment" from the end of the next to last sentence in subsection (j). The commenter expressed concern that the sentence as written could be interpreted to require an insurer to make coverage effective before the end of the waiting period. Agency Response: The department agrees that the phrase "following enrollment" is redundant and should be deleted to avoid possible misinterpretation. As this same phrase is in the corresponding small employer rule, the department has also deleted the language from sec.26.9(a)(14). sec.26.307. A commenter noted that an employer of 2000 may demand or desire benefits unavailable to a large employer of 100. The commenter suggested that a summary of all usual plans for which comparable employers are eligible be provided. Agency Response: If the carrier has only certain plans that are available to extremely large employers, the carrier would only be required to provide summaries of those plans for which the employer is eligible. sec.26.307(c). One commenter stated it is not unusual in the large employer market for a carrier to require purchase of group term life insurance with the health plan. The commenter believed that this subsection would prohibit the practice and that there is no basis in statute for the prohibition. Agency Response: As evidenced by other statutes and rules, including but not limited to Article 21.21 and 28 TAC sec.sec.26.13(I) and 21.109(c), the provision echoes the department's long standing position that Texas law prohibits the practice of requiring the purchase of one service/product in order to obtain or qualify for another service/product. For with changes: Blue Cross Blue Shield of Texas; Long, Burner Parks & Sealy; Scott & White Health Plan; Texas Health Maintenance Organization Association, FirstCare Southwest Health Alliances; Harris Methodist Health Plan; Sierra Health Services, Inc.; Employees Retirement System of Texas; and Harris County. SUBCHAPTER A. Small Employer Health Insurance Portability and Availability Act 28 TAC sec.sec.26.1, 26.4-26.9, 26.11-26.20, 26.22-26.27 The amendments and new sections are adopted under the Insurance Code, Chapter 26; HIPAA; the interim federal regulations implementing HIPAA; and the Insurance Code, Article 1.03A. The Insurance Code, Chapter 26, as amended by the 75th Legislature, implements provisions regarding small and large employers which were necessary to comply with the federal requirements contained in HIPAA. Under the Insurance Code, Article 26.04, the commissioner shall adopt rules as necessary to implement the Insurance Code, Chapter 26 and to meet the minimum requirements of federal law and regulations. The minimum requirements of federal law for small and large employers are contained in HIPAA. Interim federal regulations implementing HIPAA have been promulgated by the Department of the Treasury, Department of Labor, and the Department of Health and Human Services, 62 Fed. Reg. 16893. As identified in the introduction to these rules, portions of the federal regulations are included in these rules as necessary to meet the minimum requirements of federal law and regulations. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. sec.26.4. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Actuary--A qualified actuary who is a member in good standing of the American Academy of Actuaries. Affiliation period--A period of time that under the terms of the coverage offered by a HMO, must expire before the coverage becomes effective. During an affiliation period a HMO is not required to provide health care services or benefits to the participant or beneficiary and a premium may not be charged to the participant or beneficiary. Agent--A person who may act as an agent for the sale of a health benefit plan under a license issued under the Insurance Code, Article 20A.15 or 20A.15A, or under the Insurance Code, Chapter 21, Subchapter A. Base premium rate--For each class of business and for a specific rating period, the lowest premium rate that is charged or that could be charged under a rating system for that class of business by the small employer carrier to small employers with similar case characteristics for small employer health benefit plans with the same or similar coverage. Case characteristics--With respect to a small employer, the geographic area in which that employer's employees reside, the age and gender of the individual employees and their dependents, the appropriate industry classification as determined by the small employer carrier, the number of employees and dependents, and other objective criteria as established by the small employer carrier that are considered by the small employer carrier in setting premium rates for that small employer. The term does not include health status related factors, duration of coverage since the date of issuance of a health benefit plan, or whether a covered person is or may become pregnant. Child--An unmarried natural child of the employee, including a newborn child; adopted child, including a child whom an insured is a party in a suit in which the adoption of the child by the insured is sought; natural child or adopted child of the employee's spouse, provided that the child resides with the employee. Class of business--All small employers or a separate grouping of small employers established under the Insurance Code, Chapter 26, Subchapters A-G. Commissioner--The commissioner of insurance. Creditable coverage: (A) --An individual's coverage is creditable for purposes of this chapter if the coverage is provided under: (i) a self-funded or self-insured employee welfare benefit plan that provides health benefits and that is established in accordance with the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.); (ii) a group health benefit plan provided by a health insurance carrier or an HMO; (iii) an individual health insurance policy or evidence of coverage; (iv) Part A or Part B of Title XVIII of the Social Security Act (42 U.S.C. Section 1395c et seq.); (v) Title XIX of the Social Security Act (42 U.S.C. Section 1396 et seq.), other than coverage consisting solely of benefits under Section 1928 of that Act (42 U.S.C. Section 1396s); (vi) Chapter 55 of Title 10, United States Code (10 U.S.C. Section 1071 et seq.); (vii) a medical care program of the Indian Health Service or of a tribal organization; (viii) a state or political subdivision health benefits risk pool; (ix) a health plan offered under Chapter 89 of Title 5, United States Code (5 U.S.C. Section 8901 et seq.); (x) a public health plan as defined in this section; (xi) a health benefit plan under Section 5(e) of the Peace Corps Act (22 U.S.C. Section 2504(e)); and (xii) short-term limited duration insurance as defined in this section. (B) Creditable coverage does not include: (i) accident-only, disability income insurance, or a combination of accident- only and disability income insurance; (ii) coverage issued as a supplement to liability insurance; (iii) liability insurance, including general liability insurance and automobile liability insurance; (iv) workers' compensation or similar insurance; (v) automobile medical payment insurance; (vi) credit only insurance; (vii) coverage for onsite medical clinics; (viii) other coverage that is similar to the coverage described in this subsection under which benefits for medical care are secondary or incidental to other insurance benefits and specified in federal regulations; (ix) if offered separately, coverage that provides limited scope dental or vision benefits; (x) if offered separately, long-term care coverage or benefits, nursing home care coverage or benefits, home health care coverage or benefits, community based care coverage or benefits, or any combination of those coverages or benefits; (xi) if offered separately, coverage for limited benefits specified by federal regulation; (xii) if offered as independent, noncoordinated benefits, coverage for specified disease or illness; (xiii) if offered as independent, noncoordinated benefits, hospital indemnity or other fixed indemnity insurance; or (xiv) Medicare supplemental health insurance as defined under Section 1882(g)(1), Social Security Act (42 U.S.C. Section 1395ss), coverage supplemental to the coverage provided under Chapter 55 of Title 10, United States Code (10 U.S.C. Section 1071 et seq.), and similar supplemental coverage provided under a group plan, but only if such insurance or coverages are provided under a separate policy, certificate, or contract of insurance. Department--The Texas Department of Insurance. Dependent--A spouse; newborn child; child under the age of 19 years; child who is a full-time student under the age of 23 years and who is financially dependent on the parent; child of any age who is medically certified as disabled and dependent on the parent; any person who must be covered under the Insurance Code, Article 3.51-6, sec.3D or sec.3E, or the Insurance Code, Article 3.70- 2(L); and any other child included as an eligible dependent under an employer's benefit plan. DNA--Deoxyribonucleic acid. Eligible employee--An employee who works on a full-time basis and who usually works at least 30 hours a week. The term also includes a sole proprietor, a partner, and an independent contractor, if the sole proprietor, partner, or independent contractor is included as an employee under a health benefit plan of a small or large employer. The term does not include: (A)-(B) (No change.) Franchise insurance policy--An individual health benefit plan under which a number of individual policies are offered to a selected group of a small or large employer. The rates for such a policy may differ from the rate applicable to individually solicited policies of the same type and may differ from the rate applicable to individuals of essentially the same class. Effective date--The first day of coverage under a health benefit plan, or, if there is a waiting period, the first day of the waiting period. Genetic information--Information derived from the results of a genetic test. Genetic test--A laboratory test of an individual's DNA, RNA, proteins, or chromosomes to identify by analysis of the DNA, RNA, proteins, or chromosomes the genetic mutations or alterations in the DNA, RNA, proteins, or chromosomes that are associated with a predisposition for a clinically recognized disease or disorder. The term does not include: (A) a routine physical examination or a routine test performed as a part of a physical examination; (B) a chemical, blood or urine analysis; (C) a test to determine drug use; or (D) a test for the presence of the human immunodeficiency virus. HMO--Any person governed by the Texas Health Maintenance Organization Act, Insurance Code, Chapter 20A, including: (A) a person defined as a health maintenance organization under Section 2 of the Texas Health Maintenance Organization Act; (B) an approved nonprofit health corporation that is certified under Section 5.01(a), Medical Practice Act, Article 4495b, Texas Civil Statutes, and that holds a certificate of authority issued by the commissioner under Insurance Code, Article 21.52F; (C) a statewide rural health care system under Insurance Code, Article 20C.05; or (D) a nonprofit corporation created and operated by a community center under Subchapter C, Health and Safety Code. Health benefit plan--A group, blanket, or franchise insurance policy, a certificate issued under a group policy, a group hospital service contract, or a group subscriber contract or evidence of coverage issued by a health maintenance organization that provides benefits for health care services. The term does not include the following plans of coverage: (A) accident-only or disability income insurance or a combination of accident- only and disability income insurance; (B) credit-only insurance; (C) disability insurance coverage; (D) coverage for a specified disease or illness; (E) Medicare services under a federal contract; (F) Medicare supplement and Medicare Select policies regulated in accordance with federal law; (G) long-term care coverage or benefits, nursing home care coverage or benefits, home health care coverage or benefits, community-based care coverage or benefits, or any combination of those coverages or benefits; (H) coverage that provides limited-scope dental or vision benefits; (I) coverage provided by a single-service health maintenance organization; (J) coverage issued as a supplement to liability insurance; (K) insurance coverage arising out of a] workers' compensation or similar insurance; (L) automobile medical payment insurance coverage; (M) jointly managed trusts authorized under 29 United States Code sec.sec.141 et seq. that contain a plan of benefits for employees that is negotiated in a collective bargaining agreement governing wages, hours, and working conditions of the employees that is authorized under 29 United States Code sec.157; (N) hospital indemnity or other fixed indemnity insurance; (O) reinsurance contracts issued on a stop-loss, quota-share, or similar basis; (P) short-term limited duration insurance as defined in this section; (Q) liability insurance, including general liability insurance and automobile liability insurance; (R) coverage for onsite medical clinics; or (S) coverage that provides other limited benefits specified by federal regulations or (T) other coverage that is: (i) similar to the coverage described in subparagraphs A-S of this paragraph under which benefits for medical care are secondary or incidental to other insurance benefits; and (ii) specified in federal regulations. Health carrier--Any entity authorized under the Insurance Code or another insurance law of this state that provides health insurance or health benefits in this state including an insurance company, a group hospital service corporation under the Insurance Code, Chapter 20, an HMO and a stipulated premium company under the Insurance Code, Chapter 22. Health insurance coverage--Benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or HMO contract. Health status related factor--Health status; medical condition, including both physical and mental illnesses; claims experience; receipt of health care; medical history; genetic information; evidence of insurability, including conditions arising out of acts of domestic violence; and disability. Index rate--For each class of business as to a rating period for small employers with similar case characteristics, the arithmetic average of the applicable base premium rate and corresponding highest premium rate. Large employer--An employer who employed an average of at least 51 eligible employees on business days during the preceding calendar year and who employs at least two eligible employees on the first day of the policy year. For purposes of this definition, a partnership is the employer of a partner. Large employer carrier--A health carrier, to the extent that carrier is offering, delivering, issuing for delivery, or renewing health benefit plans subject to Insurance Code, Subchapters A and H. Large employer health benefit plan--A health benefit plan offered to a large employer. Late enrollee--Any employee or dependent eligible for enrollment who requests enrollment in a small or large employer's health benefit plan after the expiration of the initial enrollment period established under the terms of the first plan for which that employee or dependent was eligible through the small or large employer or after the expiration of an open enrollment period under Insurance Code, Article 26.21(h) or 26.83(f), who does not fall within the exceptions listed below, and who is accepted for enrollment and not excluded until the next open enrollment period. An employee or dependent requesting enrollment cannot be excluded until the next open enrollment period and, when enrolled, is not a late enrollee, in the following special circumstances: (A) the individual: (i) was covered under another health benefit plan or self-funded employer health benefit plan at the time the individual was eligible to enroll; (ii) declines in writing, at the time of initial eligibility, stating that coverage under another health benefit plan or self-funded employer health benefit plan was the reason for declining enrollment; (iii) has lost coverage under another health benefit plan or self-funded employer health benefit plan as a result of the termination of employment, the reduction in the number of hours of employment, the termination of the other plan's coverage, the termination of contributions toward the premium made by the employer; or the death of a spouse, or divorce; and (iv) requests enrollment not later than the 31st day after the date on which coverage under the other health benefit plan or self-funded employer health benefit plan terminates; (B) the individual is employed by an employer who offers multiple health benefit plans and the individual elects a different health benefit plan during an open enrollment period; (C) a court has ordered coverage to be provided for a spouse under a covered employee's plan and the request for enrollment is made not later than the 31st day after the date on which the court order is issued; (D) a court has ordered coverage to be provided for a child under a covered employee's plan and the request for enrollment is made not later than the 31st day after the date on which the employer receives the court order or notification of the court order; (E) the individual has a change in family composition due to marriage, birth of a child, adoption of a child, or because an insured becomes a party in a suit for the adoption of a child ; (F) an individual becomes a dependent due to marriage, birth of a newborn child, adoption of a child, or because an insured becomes a party in a suit for the adoption of a child; and (G) the individual described in subparagraphs E and F of this paragraph requests enrollment no later than the 31st day after the date of the marriage, birth, adoption of the child, or within 31 days of the date an insured becomes a party in a suit for the adoption of a child. Limited scope dental or vision benefits--Dental or vision benefits that are sold under a separate policy or rider and that are limited in scope to a narrow range or type of benefits that are generally excluded from hospital, medical, or surgical benefits contracts. Medical care--Amounts paid for: (A) the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body; (B) transportation primarily for and essential to the medical care described in subparagraph (A) of this paragraph; or (C) insurance covering medical care described in either subparagraphs (A) or (B) of this paragraph. Medical Condition--Any physical or mental condition including, but not limited to, any condition resulting from illness, injury (whether or not the injury is accidental), pregnancy, or congenital malformation. Genetic information in the absence of a diagnosis of the condition related to such information shall not constitute a medical condition. New business premium rate--For each class of business as to a rating period, the lowest premium rate that is charged or offered or that could be charged or offered by the small employer carrier to small employers with similar case characteristics for newly issued small employer health benefit plans that provide the same or similar coverage. New entrant--An eligible employee, or the dependent of an eligible employee, who becomes part of a small or large employer group after the initial period for enrollment in a health benefit plan. After the initial enrollment period, this includes any employee or dependent who becomes eligible for coverage and who is not a late enrollee. Participation criteria--Any criteria or rules established by a large employer to determine the employees who are eligible for enrollment, including continued enrollment, under the terms of a health benefit plan. Such criteria or rules may not be based on health status related factors. Person--An individual, corporation, partnership, or other legal entity. Point-of-service contract--A benefit plan offered through an HMO that: (A) includes corresponding indemnity benefits in addition to benefits relating to out-of-area or emergency services provided through insurers or group hospital service corporations; and (B) permits the insured to obtain coverage under either the HMO conventional plan or the indemnity plan as determined in accordance with the terms of the contract. Policy year--For purposes of the Insurance Code, Chapter 26, and this chapter, a 365-day period that begins on the policy's effective date or a period of one full calendar-year, under a health benefit plan providing coverage to small or large employers and their employees, as defined in the policy. Small or large employer carriers must use the same definition of policy year in all small or large employer health benefit plans. Postmarked--A date stamp by the US Postal Service or other delivery entity including any electronic delivery available. Preexisting condition provision--A provision that denies, excludes, or limits coverage as to a disease or condition for a specified period after the effective date of coverage. Premium--All amounts paid by a small or large employer and eligible employees as a condition of receiving coverage from a small or large employer carrier, including any fees or other contributions associated with a health benefit plan. Public health plan--Any plan established or maintained by a State, county, or other political subdivision of a State that provides health insurance coverage to individuals who are enrolled in the plan. Rating period--A calendar period for which premium rates established by a small employer carrier are assumed to be in effect. Reinsured carrier--A small employer carrier participating in the Texas Health Reinsurance System. Renewal date--For each small or large employer's health benefit plan, the earlier of the date (if any) specified in such plan (contract) for renewal; the policy anniversary date; or the date on which the small or large employer's plan is changed. A change in the premium rate due solely to the addition or deletion of an employee or dependent if the deletion is due to a request by the employee, death or retirement of the employee or dependent, termination of employment of the employee, or because a dependent is no longer eligible is not considered a renewal date. For association or multiple employer trusts group health benefit plans, small or large employer carriers may use the date specified for renewal or the policy anniversary date, of either the master contract or the contract or certificate of coverage of each small or large employer in the association or trust, in determining the renewal date. Small or large employer carriers must use the same method of determining renewal dates for all small or large employer health benefit plans. Risk-assuming carrier--A small employer carrier that elects not to participate in the Texas Health Reinsurance System, as approved by the department. Risk characteristic--The health status related factors, duration of coverage, or any similar characteristic related to the health status or experience of a small employer group or of any member of a small employer group. Risk load--The percentage above the applicable base premium rate that is charged by a small employer carrier to a small employer to reflect the risk characteristics of the small employer group. Risk pool--The Texas Health Insurance Risk Pool established under Insurance Code, Article 3.77, or other similar arrangements in other states. RNA--Ribonucleic acid. Short-term limited duration insurance--Health insurance coverage provided under a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that may be elected by the policyholder without the issuer's consent) that is within 12 months of the date the contract becomes effective. Significant break in coverage--A period of 63 consecutive days during all of which the individual does not have any creditable coverage. Neither a waiting period nor an affiliation period is counted in determining a significant break in coverage. Small employer-- An employer that employed an average of at least two but not more than 50 eligible employees on business days during the preceding calendar year and who employs at least two eligible employees on the first day of the policy year. For purposes of this definition, a partnership is the employer of a partner. A small employer includes an independent school district that elects to participate in the small employer market as provided under Insurance Code, Article 26.036. Small employer carrier--A health carrier, to the extent that health carrier is offering, delivering, issuing for delivery, or renewing health benefit plans subject to Subchapters A-G of the Insurance Code, Chapter 26, under Article 26.06(a). Small employer health benefit plan--A plan developed by the commissioner under the Insurance Code, Chapter 26, Subchapter E, or any other health benefit plan offered to a small employer under the Insurance Code, Article 26.42(c) or Article 26.48. Standard benefit plans--The basic coverage benefit plan and the catastrophic care benefit plan required to be offered by health carriers, excluding HMOs, under the Insurance Code, Chapter 26, Subchapter E. For HMOs, the standard benefit plan means the prototype small employer group health benefit plan that may be offered by an HMO, as provided under the Insurance Code, Chapter 26, Subchapter E. Waiting period--A period of time, established by an employer that must pass before an individual who is a potential enrollee in a health benefit plan is eligible to be covered for benefits. If an employee or dependent enrolls as a late enrollee, under special circumstances that except the employee or dependent from the definition of late enrollee, or during an open enrollment period, any period of eligibility before the effective date of such enrollment is not a waiting period. sec.26.5. Applicability and Scope. (a) Except as otherwise provided, Subchapter A of this chapter shall apply to any health benefit plan providing health care benefits covering two or more eligible employees of a small employer, whether provided on a group or individual franchise basis, regardless of whether the policy was issued in this state, if the plan meets one of the following conditions: (1) a portion of the premium or benefits is paid by a small employer; (2) the health plan is treated by the employer or by a covered individual as part of a plan or program for the purposes of 26 United States Code sec.106 or sec.162; or (3) the health plan is a group policy issued to a small employer. (b) Except as provided by Insurance Code, Article 26.06(a), or subsection (a) of this section, this subchapter does not apply to an individual health insurance policy that is subject to individual underwriting, even if the premium is remitted through a payroll deduction method. (c) For an employer who was not in existence throughout the calendar year preceding the year in which the determination of whether the employer is a small employer is made, the determination is based on the average number of eligible employees the employer reasonably expects to employ on business days in the calendar year in which the determination is made. (d) An insurance policy, evidence of coverage, contract, or other document that is delivered, issued for delivery, or renewed to small employers and their employees on or after July 1, 1997 shall comply with all provisions of the Insurance Code, Chapter 26, Subchapters A-G, as amended by the 75th Legislature, and with amendments to this subchapter. (e) An insurance policy, evidence of coverage, contract or other document establishing coverage under a health benefit plan for small employers and their employees that is delivered, issued for delivery or renewed before July 1, 1997 is governed by the law and this chapter as it existed before that date until the first renewal date of that policy, evidence of coverage, contract or other document establishing coverage on or after July 1, 1997. (f) If a health carrier continues to provide coverage to small employers and their employees under health benefit plans delivered or issued for delivery before July 1, 1997, and elects not to continue to offer, deliver, or issue for delivery health benefit plans to small employers and their employees, the health carrier will only be considered a small employer carrier for purposes of renewing such existing plans. In this case, the health carrier shall notify the small employer of certain information. The notice shall be provided at least 30 days prior to the first renewal date occurring on or after July 1, 1997. The notice shall: (1) state that the health carrier (the current health carrier of the small employer's employee health benefit plans) has elected not to continue to offer new health benefit plans in the small employer market; (2) offer the small employer the option of continuing the existing health benefit plan or plans, with amendments to comply with Insurance Code, Chapter 26, Subchapters A-G and this subchapter; and, (3) state that other health benefit plans may be available to the small employer through other small employer carriers and that such other plans should be compared against existing plans to determine which plan is more beneficial. (g) If a health carrier continues to provide coverage to small employers and their employees under health benefit plans delivered or issued for delivery before July 1, 1997, and elects to continue to offer, issue, and issue for delivery health benefit plans to small employers and their employees, the health carrier shall notify the small employer of certain information. The notice shall be provided at least 30 days prior to the first renewal date occurring on or after July 1, 1997. The notice shall: (1) offer the small employer the option of continuing the existing health benefit plan or plans, with amendments to comply with Chapter 26, or purchasing new small employer benefit plans in accordance with the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter; and (2) provide notice that such other plans should be compared against existing plans to determine which plan is more beneficial. (h) The provisions of the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter shall apply to a health benefit plan provided to a small employer or to the employees of a small employer without regard to whether the health benefit plan is offered under or provided through a group policy or trust arrangement of any size sponsored by an association or discretionary group. (i) If a small employer or the employees of a small employer are issued a health benefit plan under the provisions of the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter, and the small employer subsequently employs more than 50 eligible employees or less than two eligible employees, the provisions of the Insurance Code, Chapter 26, and this subchapter shall continue to apply to that particular health plan subject to the provisions of sec.26.15 of this title (relating to Renewability of Coverage and Cancellation). A health carrier providing coverage to such an employer shall, within 60 days of becoming aware that the employer has more than 50 eligible employees or less than two eligible employees, but not later than the first renewal date occurring after the small employer has ceased to be a small employer, notify the employer that the protections provided under the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter shall cease to apply to the employer, if such employer fails to renew its current health benefit plan, fails to comply with the contribution or participation requirements, or elects to enroll in a different health benefit plan. (j) If a small employer has employees in more than one state, the provisions of the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter shall apply to a health benefit plan issued to the small employer if: (1) the majority of eligible employees of such small employer are employed in this state on the issue date or renewal date; or (2) the primary business location of the small employer is in this state on the issue date or renewal date and no state contains a majority of the eligible employees of the small employer. (k) A governmental entities' health benefit plan (subject to Insurance Code, Articles 3.51-1, 3.51-2, 3.51-3, 3.51-4, 3.51-5, or 3.51-5A) that is provided through health insurance coverage and that otherwise meets the requirements of being a small employer is subject to the provisions of Chapter 26, Insurance Code, Subchapters A-G and this subchapter. The portion of a non-federal governmental entity's health benefit plan that is self-insured may elect not to comply with sec.2721 of the Public Health Services Act as added by the Health Insurance Portability and Accountability Act of 1996. sec.26.6. Status of Health Carriers as Small Employer Carriers and Geographic Service Area. (a) No later than March 1, 1998, each health carrier providing health benefit plans in this state shall make a filing with the commissioner indicating whether the health carrier will or will not offer, renew, issue, or issue for delivery health benefit plans to small employers in this state as defined in the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter. The required filing shall include the certification form provided at Figure 40 of sec.26.27(b) of this title (relating to Forms) (Form Number 1212 CERT SEHC STATUS) completed according to the carrier's status and shall at least provide a statement to the effect of one of the following: (1) the health carrier intends to offer, renew, issue, and issue for delivery health benefit plans to small employers and their employees and therefore will operate in accordance with the Insurance Code, Chapter 26, Subchapters A-G and this subchapter; or (2) the health carrier does not intend to offer, issue, or issue for delivery health benefit plans to small employers and their employees; however, the health carrier intends to renew health benefit plans issued prior to July 1, 1997 and comply with the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter; (3) the health carrier does not intend to offer, issue, or issue for delivery health benefit plans to small employers and their employees in the State of Texas and intends to nonrenew all health benefit plans issued to small employers in Texas and will provide notice to the commissioner and employers in accordance with sec.26.16 of this title (relating to Refusal to Renew and Application to Reenter Small Employer Market); or (4) The health carrier has no health benefit plans issued to small employers or to employees of a small employer which are in force on or after July 1, 1997, and the health carrier does not intend to offer, issue, or issue for delivery health benefit plans to small employers. (b) If a health carrier chooses to change its election under subsection (a)(1), (2), or (4) of this section, the health carrier shall notify the commissioner of its new election at least 30 days prior to the date the health carrier intends to begin operations under the new election. This notification shall be made on Form Number 1212 CERT SEHC STATUS provided at Figure 40 of sec.26.27(b)(40) of this title (relating to Forms. (c) Upon election to become a small employer carrier, the health carrier shall establish geographic service areas within which the health carrier reasonably anticipates it will have the capacity to deliver services adequately to small employers in each established geographic service area. Small employer carriers shall comply with the following: (1) The geographic service areas shall be defined in terms of counties or zip codes, to the extent possible, and shall be submitted in conjunction with any filing of a small employer health benefit plan. (2) If the service area cannot be defined by counties or zip code, a map which clearly shows the geographic service areas is required to be submitted in conjunction with the filing of the small employer health benefit plan. (3) If the geographic service area of the carrier is the entire state, the carrier shall define the service area as the State of Texas and no other documentation is necessary. (4) Service areas by zip code shall be defined in a non-discriminatory manner and in compliance with the Insurance Code, Articles 21.21-6 and 21.21-8. (5) Networks of HMO small employer carriers shall be established in accordance with Chapter 20A, Insurance Code. (6) Small employer carriers shall utilize Form Number 1212 CERT GEOG to submit this information provided at Figure 44 of sec.26.27(b)(44) of this title (relating to Forms), as required by sec.26.19(b) of this title (relating to Filing Requirements). (d) Health carriers providing coverage under any health benefit plans issued to small employers and/or their employees, whether on a group or franchise basis, shall be considered small employer carriers for purposes of such plans, and shall comply with all provisions of the Insurance Code, Chapter 26, Subchapters A-G, and this subchapter, as applicable. (e) A health carrier that continues to provide coverage pursuant to subsection (a)(2) of this section shall not be eligible to participate in the reinsurance program established under the Insurance Code, Chapter 26, Subchapter F. sec.26.7. Requirement To Insure Entire Groups. (a) (No change.) (b) If elected by the small employer, a small employer carrier may offer the eligible employees of a small employer the option of choosing among one or more health benefit plans, provided that each eligible employee may choose any of the plans offered. Except as provided in the Insurance Code, Article 26.21 and Article 26.49 (with respect to an affiliation period or exclusions for pre- existing), the choice among benefit plans may not be limited, restricted, or conditioned based upon the risk characteristics of the eligible employees or their dependents. (c) A small employer carrier may require each small employer that applies for coverage, as part of the application process, to provide a complete list of eligible employees and dependents of eligible employees as defined in the Insurance Code, Article 26.02. The small employer carrier may also require the small employer to provide reasonable and appropriate supporting documentation (such as a W-2 Summary Wage and Tax Form) to verify the information required under this subsection. A determination of eligibility shall be made within five business days of receipt of any requested documentation. (d) A small employer carrier shall not deny two individuals who are married the status of eligible employee solely on the basis that the two individuals are married. The small employer carrier shall provide a reasonable opportunity for the individuals to submit evidence as provided in subsection (c) of this section to establish each individual's status as an eligible employee. (1) The two individuals will not be eligible for coverage as a dependent. Each must be covered as an employee. (2) A child of either of the two individuals may only be covered under the same small employer health benefit plan as a dependent by one of the two individuals. (e) A small employer carrier shall secure a waiver with respect to each eligible employee and each dependent of such an eligible employee who declines an offer of coverage under a health benefit plan provided to a small employer. If a small employer elects to offer coverage through more than one small employer carrier waivers are only required to be signed if the eligible individual is declining all small employer health benefit plans offered and the small employer carriers may enter into an agreement under which one small employer carrier will retain the waiver. Waivers shall be maintained by the small employer carrier for a period of six years. The waiver shall be signed by the eligible employee (on behalf of such employee or the dependent of such employee) and shall certify that the individual who declined coverage was informed of the availability of coverage under the health benefit plan. Receipt by the small employer carrier of a facsimile transmission of the waiver is permissible, provided that the transmission includes a representation from the small employer that the employer will maintain the original waiver on file for a period of six years from the date of the facsimile transmission. The waiver form shall: (1) require that the reason for declining coverage be stated on the form; (2) include a written warning of the penalties imposed on late enrollees; and (3) include a statement that the eligible employee and dependents were not induced or pressured by the small employer, agent, or health carrier into declining coverage, but elected of their own accord to decline such coverage. (f) A small employer carrier may not provide coverage to a small employer or the employees of such employer if the health carrier, or an agent for such health carrier, has knowledge that the small employer has induced or pressured an eligible employee (or dependent of an eligible employee) to decline coverage due to the individual's risk characteristics. (g) An agent shall notify a small employer carrier, prior to submitting an application for coverage with the health carrier on behalf of a small employer or employee of a small employer, of any circumstances that would indicate that the small employer has induced or pressured an eligible employee (or dependent of an eligible employee) to decline coverage due to the individual's risk characteristics. (h) New entrants in a health benefit plan issued to a small employer group shall be offered an opportunity to enroll in the health benefit plan currently held by such employer group or shall be offered an opportunity to enroll in the health benefit plan if the plan is provided through an individual franchise policy or more than one plan is available. If a small employer carrier has offered more than one health benefit plan to eligible employees of a small employer group pursuant to subsection (b) of this section, the new entrant shall be offered the same choice of health benefit plans as the other employees (members) in the group. A new entrant that does not exercise the opportunity to enroll in the health benefit plan within the period provided by the small employer carrier may be treated as a late enrollee by the health carrier, provided that the period provided to enroll in the health benefit plan complies with subsection (i) of this section. (i) Periods provided for enrollment in and application for any health benefit plan provided to a small employer group shall comply with the following: (1) the enrollment period extends at least 31 days after the date the new entrant begins employment or if the waiting period exceeds 31 days, at least 31 days after the date the new entrant completes the waiting period for coverage; (2) the new entrant is notified of his or her opportunity to enroll at least 31 days in advance of the last date enrollment is permitted; (3) a period of at least 31 days following the date of employment, or following the date the new entrant is eligible for coverage, is provided during which the new entrant's application for coverage may be submitted. Submitted for purposes of this paragraph means that the item(s) must be postmarked by the specified time period. At the discretion of the small employer carrier, alternative methods of submission such as fax, may be acceptable; and (4) an open enrollment period of at least 31 days is provided on an annual basis. Such enrollment period shall consist of an entire calendar month, beginning on the first day of the month and ending on the last day of the month. If the month is a 30-day month, the enrollment period shall begin on the first day of the month and end on the first day of the following month. If the month is February, the period shall last through March 2nd. (j) Any waiting period shall be established by the small employer and shall not exceed 90 days. A small employer carrier shall not apply a waiting period, elimination period, or other similar limitation of coverage (other than an exclusion for pre-existing medical conditions or impose an affiliation period consistent with the Insurance Code, Article 26.21 and Article 26.49), with respect to a new entrant, that is longer than the waiting period established by the small employer. (k) New entrants in a health plan issued to a small employer group shall be accepted for coverage by the small employer carrier without any restrictions or limitations on coverage related to the risk characteristics of the employees or their dependents, except that a health carrier may exclude coverage for pre- existing medical conditions or impose an affiliation period, to the extent allowed under the Insurance Code, Article 26.21 and Article 26.49. (l) A small employer carrier may assess a risk load to the premium rate associated with a new entrant, consistent with the requirements of the Insurance Code, Chapter 26, Subchapter D, and this chapter. The risk load shall be the same risk load charged to the small employer group immediately prior to acceptance of the new entrant into the group. (m) In the case of an eligible employee (or dependent of an eligible employee) who was excluded from coverage, not eligible for coverage, or denied coverage by a small employer carrier, in the process of providing a health benefit plan to an eligible small employer (as defined in the Insurance Code, Chapter 26, and this chapter), the small employer carrier shall provide an opportunity for the eligible employee (or dependent(s) of such eligible employee) to enroll in the health benefit plan issued to the small employer or the employees of the small employer on the earlier of the first renewal date occurring on or after July 1, 1997, or the first open enrollment period occurring on or after July 1, 1997. The opportunity to enroll shall meet the following requirements. (1) The opportunity to enroll under this subsection shall comply with subsection (i) of this section. (2) Eligible employees and dependents of eligible employees who are provided an opportunity to enroll pursuant to this subsection shall be treated as new entrants. Premium rates related to such individuals shall be set in accordance with subsection (l) of this section. (3) The terms of coverage offered to an individual described in this subsection may exclude coverage for preexisting medical conditions or impose an affiliation period only if the health benefit plan currently held by the small employer contains such an exclusion or an affiliation period. (4) A small employer carrier shall provide written notice at least 45 days prior to the opportunity to enroll provided in this subsection or if less than 45 days are available, within five working days after determination that subsections (h)-(m) of this section apply to each small employer insured under a health benefit plan offered by such health carrier. A small employer carrier may provide the notice to the employer if the carrier has entered into an agreement with the employer to provide the notice to the employees. The notice shall clearly describe the rights granted under subsections (h)-(m) of this section to employees and dependents who were previously excluded from, not eligible for, or denied coverage and the process for enrollment of such individuals in the employer's health benefit plan. (n) A small employer carrier may require an individual who requests enrollment under subsection (m) of this section to sign a statement indicating that such individual sought coverage under the group contract or franchise policy (other than as a late enrollee) and that the coverage was not offered or provided to the individual. sec.26.9. Exclusions, Limitations, Waiting Periods, Affiliation Periods and Preexisting Conditions and Restrictive Riders. (a) All health benefit plans that provide coverage for small employers and their employees as defined in the Insurance Code, Article 26.02(28) and sec.26.4 of this title (relating to Definitions) shall comply with the following requirements. (1) (No change.) (2) A small employer carrier shall not limit or exclude (by use of rider, amendment, or other provision of the plan, applicable to a specific individual) coverage by type of illness, treatment, medical condition, or accident, except for preexisting conditions or diseases or an affiliation period, as permitted under the Insurance Code, Article 26.49. (3) A small employer health benefit plan may not limit or exclude initial coverage of a newborn child of a covered employee. Any coverage of a newborn child of an employee under this subsection terminates on the 32nd day after the date of the birth of the child unless notification of the birth and any required additional premium are received by the small employer carrier not later than the 31st day after the date of birth. A small employer carrier shall not terminate coverage of a newborn child if such carrier's billing cycle does not coincide with this 31-day premium payment requirement, until the next billing cycle has occurred and there has been nonpayment of the additional required premium, within 30 days of the due date of such premium. (4) A small employer health benefit plan may not limit or exclude initial coverage of an adopted child of an insured. A child is considered to be the child of an insured if the insured is a party in a suit in which the adoption of the child by the insured is sought. The adopted child of an insured may be enrolled, at the option of the insured, within either: (A) 31 days after the insured is a party in a suit for adoption; or (B) within 31 days of the date the adoption is final. (5) Coverage of an adopted child of an insured under paragraph (4) of this subsection terminates unless notification of the adoption and any required additional premium are received by the small employer carrier not later than either: (A) the 31st day after the insured becomes a party in a suit in which the adoption of the child by the insured is sought; or (B) the 31st day after the date of the adoption. A small employer carrier shall not terminate coverage of an adopted child if such carrier's billing cycle does not coincide with this 31-day premium payment requirement, until the next billing cycle has occurred and there has been nonpayment of the additional required premium, within 30 days of the due date of such premium. (6) For purposes of paragraphs (3) and (5) of this subsection, received by the small employer by a specified time period means that the item(s) must be either received or postmarked by the specified time period. (7) If a newborn or adopted child is enrolled in a health benefit plan or other creditable coverage within the time periods specified in paragraphs (3) or (4), respectively, and subsequently enrolls in another health benefit plan without a significant break in coverage, the other plan may not impose any preexisting condition exclusion or affiliation period with regard to the child. If a newborn or adopted child is not enrolled within the time periods specified in paragraphs (3) or (4), respectively, then in accordance with paragraph (8) of this subsection, the newborn or adopted child may be considered a late enrollee or excluded from coverage until the next open enrollment period. (8) A small employer carrier shall choose one of the methods set forth in subparagraphs (A) or (B) of this paragraph for handling requests for enrollment as a late enrollee in any health benefit plan subject to this subchapter. The small employer carrier must use the same method in regards to all such health benefit plans. (A) The employee or dependent may be excluded from coverage and any application for coverage rejected until the next annual open enrollment period and, upon enrollment, may be subject to a 12-month preexisting condition provision, or, in the case of an HMO, may be subject to a 60-day affiliation provision, as such provisions are described by the Insurance Code, Article 26.49. (B) the employee or dependent's application may be accepted immediately and the employee or dependent enrolled as a late enrollee during the plan year, in which case the preexisting condition provision imposed for a late enrollee may not exceed 18 months or, in the case of an HMO, the affiliation period may not exceed 90 days, from the date of the late enrollee's application for coverage. (C) The provisions of subparagraphs (A) and (B) do not apply to employees or dependents under the special circumstances listed as exceptions under the definition of late enrollee in sec.26.4 of this title (relating to (Definitions)). (D) Examples for applying subparagraphs (A) and (B) of this paragraph, in the case of both insurers and HMOs: Individual A requests coverage on October 1, 1997, after the enrollment period of July 1, 1997 through July 31, 1997 has ended. The next annual open enrollment period is July 1, 1998 through July 31, 1998. The effective date of coverage for persons enrolling during an open enrollment period is the beginning of the plan year, which is September 1 of each year. (i) If the carrier is an insurer and has elected to exclude all applicants requesting late enrollment under health benefit plans subject to this subchapter until the next open enrollment period, Individual A must reapply for coverage in July 1998 and the carrier may apply up to a 12-month preexisting condition period from the effective date of coverage, as with any other enrollee, the preexisting condition period would begin on September 1, 1998 and expires on September 1, 1999. (ii) If the carrier is an insurer and has elected to accept applications for late enrollment under health benefit plans subject to this subchapter immediately and enroll the applicant during the plan year, then the carrier may apply up to an 18-month preexisting condition period from the date of application. If Individual A applied for coverage on October 1, 1997, the preexisting condition period would begin on that date and would expire on April 1, 1999. (iii) If the carrier is an HMO and has elected to exclude all applicants requesting late enrollment under health benefit plans subject to this subchapter until the next open enrollment period, Individual A must reapply for coverage in July 1998 and the carrier may apply up to a 60-day affiliation period, as with any other enrollee. (iv) If the carrier is an HMO and has elected to accept applications for late enrollment under health benefit plans subject to this subchapter immediately and enroll the applicant during the plan year, then the carrier may apply up to a 90-day affiliation period from the day Individual A applied for coverage. (9) A preexisting condition provision in a small employer health benefit plan may not apply to coverage for a disease or condition other than a disease or condition for which medical advice, diagnosis, care, or treatment was recommended or received from an individual licensed to provide such services under state law and operating within the scope of practice authorized by state law during the six months before the earlier of the: (A) effective date of coverage; or (B) the first day of the waiting period. (10) A small employer carrier shall not treat genetic information as a preexisting condition described by Insurance Code, Article 26.49(b) in the absence of a diagnosis of the condition related to the information. (11) A small employer carrier shall not treat a pregnancy as a preexisting condition described in Article 26.49(b), Insurance Code. (12) A preexisting condition provision in a small employer health benefit plan shall not apply to an individual who was continuously covered for an aggregate period of 12 months under creditable coverage that was in effect up to a date not more than 63 days before the effective date of coverage under the small employer health benefit plan, excluding any waiting period. For example, Individual A has coverage under an individual policy for six months beginning on May 1, 1997 through October 31, 1997, followed by a gap in coverage of 61 days until December 31, 1997. Individual A is covered under an individual health plan beginning on January 1, 1997 for six months through June 30, 1997, followed by a gap in coverage of 62 days until August 31, 1997. Individual A's effective date of coverage under a small employer health benefit plan is September 1, 1997. Individual A has 12 months of creditable coverage and would not be subject to a preexisting condition exclusion under the small employer health benefit plan. (13) In determining whether a preexisting condition provision applies to an individual covered by a small employer health benefit plan, the small employer carrier shall credit the time the individual was covered under creditable coverage if the previous coverage was in effect at any time during the 12 months preceding the effective date of coverage under a small employer health benefit plan. Any waiting period that applied before that coverage became effective also shall be credited against the preexisting condition provision period. For instance, Individual B is covered under an individual health insurance policy for 18 months beginning May 1, 1995 through November 30, 1996, followed by a four month gap in coverage from December 1, 1996 to March 31, 1997. On April 1, 1997, Individual B is covered under a group health plan for three months through June 30, 1997, followed by a two month gap in coverage until August 31, 1997. Individual B's coverage became effective on September 1, 1997. Under this example, since there was a significant break in coverage, to determine the length of creditable coverage, the small employer carrier counts the creditable coverage the individual had for the 12-month period preceding the effective date of the individual's coverage under the small employer plan. Individual B has creditable coverage of six months and the issuer of the small employer health benefit plan may impose a preexisting condition limitation for six months on Individual B. (14) A small employer may establish a waiting period that cannot exceed 90 days from the first day of employment during which a new employee is not eligible for coverage. Upon completion of the waiting period and enrollment within the time frame allowed by sec.26.7(i) of this title (relating to Requirement To Insure Entire Groups), coverage must be effective no later than the next premium due. Coverage may be effective at an earlier date as agreed upon by the small employer and the small employer carrier. (15) A health maintenance organization may impose an affiliation period factor, if the period is applied uniformly without regard to any health status related factor. The affiliation period shall not exceed two months for an enrollee, other than a late enrollee, and shall not exceed 90 days for a late enrollee. An affiliation period under a plan shall run concurrently with any applicable waiting period under the plan. An HMO shall not impose any preexisting condition limitation, except for an affiliation period. (16) The imposition by an HMO carrier of an affiliation period does not preclude application of any waiting period applicable as determined by the employer to all new entrants under a health benefit plan. (17) An affiliation period provision in a small employer health benefit plan shall not apply to an individual who would not be subject to a preexisting condition limitation in accordance with paragraphs (12) and (13) of this subsection. (b) To determine if preexisting conditions as defined in the Insurance Code, Article 26.02(23), exist, a small employer carrier shall ascertain the source of previous or existing coverage of each eligible employee and each dependent of an eligible employee at the time such employee or dependent initially enrolls into the health benefit plan provided by the small employer carrier. The small employer carrier shall have the responsibility to contact the source of such previous or existing coverage to resolve any questions about the benefits or limitations related to such previous or existing coverage in the absence of a creditable coverage certification form. sec.26.14. Coverage. (a) Every small employer carrier, except HMOs, shall, as a condition of transacting business in this state with small employers, offer to small employers two standard benefit plans, the basic coverage benefit plan and the catastrophic care benefit plan, as provided under the Insurance Code, Articles 26.42, 26.43, 26.44, 26.44A, 26.44B, and 26.49. (b) In addition to the standard benefit plans required to be offered to small employers as provided in the Insurance Code, Chapter 26, Subchapters A-G, small employer carriers may, subject to the provisions of the Insurance Code, Article 26.42(c), and this subchapter, offer other health benefit plans to small employers, as provided in the Insurance Code, Article 26.42(c). Such other health benefit plans shall comply with all provisions of the Insurance Code, Chapter 26, and this subchapter, except that provisions defining the specific benefits required under the required standard benefit plans are not applicable. The Insurance Code, Article 26.06(d), does not apply to a health benefit plan offered to a small employer as provided under the Insurance Code, Article 26.42(c). (c) Instead of the standard benefit plans described by this chapter, a health maintenance organization may offer a state-approved health benefit plan that complies with the requirements of Title XIII, Public Health Service Act (42 United States Code sec.sec.300e, et seq.) and rules adopted under that Act or by the Commissioner. An HMO may also offer the prototype small employer group health benefit plan. (d) All small employer health benefit plans provided by a small employer carrier other than an HMO shall provide an option for conversion/continuation which complies with all provisions of Chapter 3, Subchapter F of this title (relating to Group Health Insurance Mandatory Conversion Privilege). An HMO shall provide coverage for continuation or if offered by the HMO conversion of any small employer health benefit plan which complies with the requirements of Insurance Code, Article 20A.09(k). A state approved health benefit plan that complies with the requirements of Title XIII, Public Health Service Act (42 U.S.C. sec.300e et seq.) shall provide coverage for continuation which complies with the requirements of Insurance Code, Article 20A.09(k) and must offer conversion in compliance with 42 C.F.R. sec.417.124(e) and applicable federal law. (e)-(f) (No change.) (g) This subsection contains requirements for optional prototype policy forms for small employer carriers other than HMOs. The policy forms described in this subsection complete a prototype policy and/or certificate when combined with the required prescribed benefit prototype policy forms outlined in this section. The prototype policy forms have been developed to facilitate implementation of the Insurance Code, Chapter 26, Subchapters A-G, and to streamline the policy approval process. Small employer carriers are encouraged to use all of the prototype policy forms as described in this section to expedite the approval process. The forms referenced in this section can be found in sec.26.27(b) of this title (relating to Forms). Each form has a unique form number appearing in the lower left-hand corner and small employer carriers may use one or any number of the prototype forms. Alternate language, except for variables indicated by brackets, must be filed for review and approval under a different form number using 1212 as part of the form number. Additional filing requirements are outlined in sec.26.19 of this title (relating to Filing Requirements). (1) This paragraph describes group policy face pages. These prototype policies provide for the entire contract to include any applications, the certificate of insurance, and any attached riders. If the small employer carrier elects to use policies other than the prototype forms, this shell format shall be used with any small employer health benefit plan. Each policy face page, whether or not the prototype form is used, shall include the small employer carrier name and address; policyholder name (and industry, if used on a multiple employer trustee basis); policy number; policy effective date; provision for the entire contract to include applications, the certificate of insurance, and any attached riders; workers' compensation disclaimer notice; description of the policy in bold type as a small employer benefit plan; and the form number in the lower left hand corner. The policy face page for the prototype form shall contain the description of the plan in bold type as the Group Small Employer Basic Coverage Benefit Plan or the Group Small Employer Catastrophic Care Benefit Plan. The small employer carrier may include or omit the variable provision addressing the free look period. The group policy face pages for the prototype policies include the following: (A) Group Small Employer Basic Coverage Benefit Plan (Form Number 1212 SE.BASC) for a single employer policy provided at Figure 1 of sec.26.27(b)(1) of this title (relating to Forms); (B) Group Small Employer Catastrophic Care Benefit Plan (Form Number 1212 SE.CAT) for a single employer policy provided at Figure 2 of sec.26.27(b)(2) of this title (relating to Forms); (C) Group Small Employer Basic Coverage Benefit Plan (Form Number 1212 ASSN.BASC) for an association policy provided at Figure 3 of sec.26.27(b)(3) of this title (relating to Forms); (D) Group Small Employer Catastrophic Care Benefit Plan (Form Number 1212 ASSN.CAT) for an association policy provided at Figure 4 of sec.26.27(b)(4) of this title (relating to Forms); (E) Group Small Employer Basic Coverage Benefit Plan (Form Number 1212 MET.BASC) for a multiple employer trustee policy provided at Figure 5 of sec.26.27(b)(5) of this title (relating to Forms); (F) Group Small Employer Catastrophic Care Benefit Plan (Form Number 1212 MET.CAT) for a multiple employer trustee policy provided at Figure 6 of sec.26.27(b)(6) of this title (relating to Forms). (2) (No change.) (3) The group certificate of insurance face page is described in this paragraph. Each certificate of insurance face page, whether or not the prototype form is used, shall include the small employer carrier name and address; the certification provision; a provision that the certificate face page, all attached provisions, and any riders shall constitute the entire certificate of insurance; the workers' compensation disclaimer notice; a description of the plan in bold type as a small employer benefit plan; and the form number in the lower left hand corner. The certificate face page for the prototype form shall contain the description of the plan in bold type as the Group Small Employer Basic Coverage Benefit Plan or the Group Small Employer Catastrophic Care Benefit Plan. The identification information (Employee name, ID Number, Certificate Effective Date, Policyholder Name, Policy Number, Policy Effective Date, Dependent Coverage) is variable to the extent that small employer carriers may include all of the information in the certificate of insurance by any appropriate method, such as an insert or as a sticker on the face page or schedule of benefits or printed on the face page as provided in the prototype form. The dependent coverage information is variable for small employer carriers to insert an employee's election of dependent coverage. The variable replacement provision is an optional provision which carriers may include as provided in the prototype form or carriers may alter the language in any appropriate manner or may elect to omit the provision in its entirety. The group certificate of insurance face pages include the following: (A) Certificate of Insurance Face Page for the Group Small Employer Basic Coverage Benefit Plan (Form Number 1212 CERT.BASC) provided at Figure 8 of sec.26.27(b)(8) of this title (relating to Forms); (B) Certificate of Insurance Face Page for the Group Small Employer Catastrophic Care Benefit Plan (Form Number 1212 CERT.CAT) provided at Figure 9 of sec.26.27(b)(9) of this title (relating to Forms). (4) The table of contents for group policies (Form Number 1212 TCG) is described in this paragraph and provided at Figure 10 of sec.26.27(b)(10) of this title (relating to Forms). The variable items shall be included or omitted as appropriate for the policy or certificate and page numbers shall be numbered accordingly. If the prototype table of contents is not used, the format and order shall be the same as provided in the prototype. (5) The General Provisions Form for Group Policies (Form Number 1212 GGP) and provided at Figure 11 of sec.26.27(b)(11) of this title (relating to Forms) may be used with all group small employer health benefit plans. If the prototype general provisions form is not used, each general provision with same or similar language shall be included in each policy/certificate. Variable language for the general provisions form are described as follows: (A) (No change.) (B) The definition of Eligible Dependents under the Eligibility for Coverage (Dependent Coverage) provision allows a variable to include language describing other children who are included under an employer's benefit plan. (C) The Initial Enrollment for New Eligible Employees provision under Effective Dates allows a variable for receipt of the application or enrollment form within 31 days of the: (i) date of employment; or (ii) completion of any waiting period established by the small employer. The length of time for the waiting period is also variable to allow flexibility for small employers to elect a period of time not to exceed 90 days. (D) The Newborn Children provision under Effective Dates allows a variable to be included if the small employer carrier requires a premium to be charged for the 31-day period of coverage if the insured person elects not to continue coverage for the newborn child. If no premium will be charged, this provision shall be omitted. (E) The Newly Adopted Children provision under Effective Dates allows a variable to be included if the small employer carrier requires a premium to be charged for the 31-day period of coverage if the insured person elects not to continue coverage for the newly adopted child. If no premium will be charged, this provision shall be omitted. (F) The Late Enrollment provision under Effective Dates is variable based on whether the small employer carrier has elected to exclude eligible employees or dependents who request late enrollment under a health benefit plan until the next open enrollment period or enroll such applicants immediately. The provision shall be omitted in its entirety if the small employer carrier elects not to impose a limitation for preexisting conditions. The time period is variable to allow a shorter period of time, if elected by the small employer carrier. (G) The Preexisting Conditions provision is variable only to the extent that it shall be omitted in its entirety if the small employer carrier elects not to impose a limitation for preexisting conditions. If a preexisting condition limitation applies, this provision shall be included in its entirety. The time period is variable to allow a shorter period of time if elected by the small employer carrier. (H) The Eligible Employees provision under Termination of Insurance allows variables for continued coverage for an employee who is on an approved leave of absence for a specified period of time to be inserted if the provision remains. This provision shall be included or omitted as appropriate. (I) The Eligible Employees and Dependents provisions under Termination of Insurance allow a variable to be included if the policy contains a grace period. (J) The Eligible Employees and Dependents provisions under Termination of Insurance allow variables for coverage to end on either "the date the Employer terminates participation in the Trust" which may be included when the policy is to be issued to a multiple employer trust; or "the date the Employer member terminates membership in the Association" which may be included when the policy is to be issued to an association. (K) The Policyholder and Company provision under Termination of Insurance provides alternate provisions for termination by the Employer as Policyholder; termination by the Association as Policyholder; termination of participation by an Employer (member) under an Association policy, or termination of participation by an Employer under a Multiple Employer Trust policy. Provisions shall be included appropriately for a single employer policy, an association policy or a multiple employer trust policy. (L) The Policyholder and Company provision under Termination of Insurance allows a variable to be included for the exception to nonpayment of premiums if a grace period is provided. If a grace period is not provided, the variable "Coverage will end at the end of the last period for which premium payment has been made to Us" shall be included. The policy shall contain a provision allowing for termination by the small employer carrier due to fraud or intentional misrepresentation of a material fact by the "Policyholder or" Employer. The phrase "Policyholder or" shall be used when policies are issued to an association or to a multiple employer trust. A variable is allowed to be included if the small employer carrier will terminate the employer's plan for failure to maintain the required minimum participation requirements. (6) The Group Provisions Form (Form Number 1212 GRP) provided at Figure 12 of sec.26.27(b)(12) of this title (relating to Forms) may be used with all group small employer health benefit plans. If the prototype Group Provisions form is not used, each provision with the same or similar language shall be included in each policy/certificate. Variable provisions for the Group Provisions form include the following. (A) A variable is provided in the Payment of Premiums provision for the mode of premium to be inserted. (B) The Time Limit on Certain Defenses provision allows a variable for Preexisting Conditions only to the extent that it may be omitted in its entirety if the small employer carrier elects not to impose a limitation for preexisting conditions. If a preexisting condition limitation applies, this provision shall be included in its entirety. The time period is variable to allow a shorter period of time if elected by the small employer carrier. (C) The alternate Time Limit on Certain Defenses provision is allowed to be used in policies that are underwritten as permitted by and in accordance with the Insurance Code, Article 26.21(d). The Preexisting Conditions under the alternate Time Limit on Certain Defenses provision is variable only to the extent that it may be omitted in its entirety if the small employer carrier elects not to impose a limitation for preexisting conditions. If a preexisting condition limitation applies, this provision shall be included in its entirety. The time period is variable to allow a shorter period of time if elected by the small employer carrier. (D)-(F) (No change.) (7) Alternate Cost Containment Provisions for Large Case Management and Second Opinion Requirements (Form Number 1212 ACC) provided at Figure 13 of sec.26.27(b)(13) of this title (relating to Forms) are provided as optional provisions for all plans. Small employer carriers may use these provisions or modifications of these provisions. The reduction in Percentage Payable is variable but cannot be more than 50%. Other alternate cost containment provisions, including precertification, pre-authorization, case management and utilization review may be used. Penalties for noncompliance with cost containment provisions shall not reduce benefits more than 50% in the aggregate. (h) Prescribed benefits are discussed in this subsection. No policy, subscriber contract or certificate shall be issued or delivered for issue in this state to a small employer by a small employer carrier as a Basic Coverage Benefit Plan or a Catastrophic Care Benefit Plan unless such policy, subscriber contract, or certificate contains the prescribed benefit provisions outlined in paragraphs (1)-(4) of this subsection. (1) The Basic Coverage Benefit Plan is discussed in this paragraph. The forms which follow shall be included in this plan as prescribed. Variable language in the prescribed forms is indicated by brackets. These forms can be found in sec.26.27(b) of this title (relating to Forms. A small employer carrier shall provide the benefits as described in the following subparagraphs (A) and/or (B): (A) The Schedule of Benefits (Non-PPO Plan) for the Basic Coverage Benefit Plan (Form Number 1212 SCH.BASC) provided at Figure 14 of sec.26.27(b)(14) of this title (relating to Forms) shall be in the language and format prescribed. This Schedule of Benefits shall be used when the plan does not include preferred provider (PPO) benefits. (i)-(ii) (No change.) (B) The Schedule of Benefits (PPO Plan) for the Basic Coverage Benefit Plan (Form Number 1212 SCHPPO.BASC) provided at Figure 15 of sec.26.27(b)(15) of this title (relating to Forms) shall be in the language and format prescribed. This Schedule of Benefits shall be used when the plan includes preferred provider benefits. (i)-(iv) (No change.) (C) The Policy Definitions for the Basic Coverage Benefit Plan (Form Number 1212 DEF.BASC) provided at Figure 16 of sec.26.27(b)(16) of this title (relating to Forms) shall be in the language and format prescribed. (i) The terms and definitions for "Contracting Facility" and "Noncontracting Facility" are variables to be included by Chapter 20 companies only and neither provision shall be used by other than Chapter 20 companies. (ii) The definition Dependent allows a variable to include language describing other children who are included under an employer's benefit plan. (iii)-(vii) (No change.) (viii) The term and definition of "Preexisting Condition" is variable only to the extent that it may be omitted in its entirety if the small employer carrier elects not to impose a limitation for preexisting conditions. If a preexisting condition limitation applies, the provision shall be included in its entirety. The time period is variable to allow a shorter period of time to be elected by the small employer carrier or offered as an option to the small employer. Language addressing the waiting period is variable only to the extent that it may be omitted in its entirety if the small employer elects not to impose a waiting period. (ix) (No change.) (D) The Benefits Provided for the Basic Coverage Benefit Plan (Form Number 1212 BEN.BASC) provided at Figure 17 of sec.26.27(b)(17) of this title (relating to Forms) shall be in the language and format prescribed. The Policy Year Coinsurance Maximum amount elected shall be inserted in this provision. Services provided by first assistant at surgery may be included as a covered service if elected by the small employer carrier or offered as an option to the small employer. (E) The Exclusions and Limitations for the Basic Coverage Benefit Plan (Form Number 1212 EXC.BASC) provided at Figure 18 of sec.26.27(b)(18) of this title (relating to Forms) shall be in the language and format prescribed. Exclusions of elective abortions, if any, are to be determined by an agreement between the employer and the small employer carrier and shall be included in the exclusions and limitations of the policy and the certificate. Other variable exclusions may be included by Chapter 20 companies for their Non-PPO products only. (2) The Catastrophic Care Benefit Plan is discussed in this paragraph. The forms which follow shall be included in this plan as prescribed. These forms can be found in sec.26.27(b) of this title (relating to Forms). Variable language in the prescribed forms is indicated by brackets. A small employer carrier shall provide the benefits as described in the following subparagraphs (A) and/or (B). (A) The Schedule of Benefits (Non-PPO Plan) for the Catastrophic Care Benefit Plan (Form Number 1212 SCH.CAT) provided at Figure 19 of sec.26.27(b)(19) of this title (relating to Forms) shall be in the language and format prescribed. This Schedule of Benefits shall be used when the plan does not include preferred provider (PPO) benefits. (i)-(iii) (No change.) (B) The Schedule of Benefits (PPO Plan) for the Catastrophic Care Benefit Plan (Form Number 1212 SCHPPO.CAT) provided at Figure 20 of sec.26.27(b)(20) of this title (relating to Forms) shall be in the language and format prescribed. This Schedule of Benefits shall be used when the plan includes preferred provider benefits. (i)-(ii) (No change.) (iii) Variability is permitted to allow the small employer carrier to offer other deductible, coinsurance maximum and percentage payable amounts within the limits set out in the following subclauses. (I) A variable amount not to exceed $10,000 for the Policy Year Deductible or the Non-Preferred Provider Policy Year Deductible may be elected by the small employer carrier or offered as an option to the small employer. The Preferred Provider Policy Year Deductible shall not be less than one half of the Non- Preferred Provider Policy Year Deductible. (II) A variable amount not to exceed $15,000 for the Policy Year Coinsurance Maximum may be elected by the small employer carrier or offered as an option to the small employer. The preferred provider and non-preferred provider amounts shall be combined for the Policy Year Coinsurance Maximum. (III) A variable Percentage Payable of not less than 60% when non-preferred providers are utilized may be elected by the small employer carrier or offered as an option to the small employer. A variable Percentage Payable when preferred providers are utilized may not be more than 30% greater than the Percentage Payable for non-preferred providers as required by sec.3.3704(1) of this title (relating to Preferred Provider Plans). (iv) The Schedule of Benefits shall reflect any benefits added by riders and any penalties for failing to comply with any precertification or cost containment provisions. Any such penalties shall not reduce benefits more than 50% in the aggregate. (C) A small employer carrier may offer and make available to an employer eligible for medical savings account coverage a Catastrophic Care Medical Savings Account Plan. If a small employer carrier elects to offer this plan, the small employer carrier shall develop and submit to the department for approval alternate Schedule of Benefits for either or both a Catastrophic Care Medical Savings Account (Non-PPO) Plan or a Catastrophic Care Medical Savings Account (PPO) Plan. The Schedule of Benefits must comply with applicable laws pertaining to Medical Savings Accounts and include appropriate amendatory language. (D) The Policy Definitions for the Catastrophic Care Benefit Plan (Form Number 1212 DEF.CAT) provided at Figure 21 of sec.26.27(b)(21) of this title (relating to Forms) shall be in the language and format prescribed. (i) The terms and definitions for "Contracting Facility" and "Noncontracting Facility" are variables to be included by Chapter 20 companies only and neither provision shall be used by other than Chapter 20 companies. (ii) The term and definition of "Employer" provides a variable to include an Employer member of an association when a policy is to be issued to an association. (iii) The definition Dependent allows a variable to include language describing other children who are included under an employer's benefit plan. (iv)-(vi) (No change.) (vii) The term and definition of "Preexisting Condition" is variable only to the extent that it may be omitted in its entirety if the small employer carrier elects not to impose a limitation for preexisting conditions. If a preexisting condition limitation applies, the provision shall be included in its entirety. The time period is variable to allow a shorter period of time to be elected by the small employer carrier or offered as an option to the small employer. Language addressing the waiting period is variable only to the extent that it may be omitted in its entirety if the small employer elects not to impose a waiting period. (viii) The term and definition of "Waiting Period" is variable only to the extent that it shall be omitted in its entirety if the small employer elects not to impose a waiting period. (E) The Benefits Provided for the Catastrophic Care Benefit Plan (Form Number 1212 BEN.CAT) provided at Figure 22 of sec.26.27(b)(22) of this title (relating to Forms) shall be in the language and format prescribed. The Policy Year Coinsurance Maximum amount shall be inserted in this provision. Services provided by first assistant at surgery may be included as a covered service if elected by the small employer carrier or offered as an option to the small employer. (F) The Exclusions and Limitations for the Catastrophic Care Benefit Plan (Form Number 1212 EXC.CAT) provided at Figure 23 of sec.26.27(b)(23) of this title (relating to Forms) shall be in the language and format prescribed. Exclusions of elective abortions, if any, are to be determined by an agreement between the employer and the small employer carrier and shall be included in the exclusions and limitations of the policy and the certificate. Other variable exclusions may be included by Chapter 20 companies for their Non-PPO products only. (3) Riders are discussed in this paragraph. The small employer carrier shall offer and make available to the small employer the riders described in subparagraphs (A)-(D). Any benefits added by riders shall be reflected on the Schedule of Benefits. (A) The Alcohol and Drug Abuse Benefit Rider (Form Number 1212 ADB) provided at Figure 24 of sec.26.27(b)(24) of this title (relating to Forms) is required to be offered with the Basic Coverage Benefit Plan and the Catastrophic Care Benefit Plan. Variable amounts of five or ten days of care per Insured Person per Policy Year are allowed to be elected by the small employer carrier or offered as an option to the small employer. The coinsurance and deductible amounts are variable. (B) The Mental Health Benefit Rider (Form Number 1212 MHB) provided at Figure 25 of sec.26.27(b)(25) of this title (relating to Forms) is required to be offered with the Basic Coverage Benefit Plan and the Catastrophic Care Benefit Plan. The 30 days of inpatient benefits and the 20 outpatient treatments per Insured Person per Policy Year are variable to allow longer periods of time to be elected by the small employer carrier or offered as an option to the small employer. The coinsurance and deductible amounts are variable. (C) The Prescription Drug Benefit Rider (Form Number 1212 RX) provided at Figure 26 of sec.26.27(b)(26) of this title (relating to Forms) is required to be offered with the Basic Coverage Benefit Plan and the Catastrophic Care Benefit Plan. Benefits shall be provided at a Percentage Payable of at least 50% but may be provided at a greater Percentage Payable to be elected by the small employer carrier or offered as an option to the small employer. In the alternative the small employer carrier may elect to provide the prescription drug benefit through a prescription drug card program with a copayment not to exceed $8.00 per prescription or refill for a generic drug, or name brand drug if less than the generic drug, and $12 per prescription or refill for a name brand drug. Exclusions of a prescription drug card program shall not be more restrictive than the exclusions contained in Form Number 1212 RX. (D) The Preventive Care Benefit Rider (Form Number 1212 PCR) provided at Figure 27 of sec.26.27(b)(27) of this title (relating to Forms) is required to be offered with the Basic Coverage Benefit Plan. The coinsurance and deductible amounts are variable. (E) Additional riders may be offered as elected by the small employer carrier. Any such riders must be filed in accordance with Chapter 3, Subchapter A of this title (relating to Requirements for Filing of Policy Forms, Riders, Amendments, and Endorsements for Life, Accident and Health Insurance and Annuities). (4) Forms common to more than one health benefit plan are described in subparagraphs (A)-(C) and shall be included with the benefit provisions of each plan as specified. (A) Continuation/Conversion Provisions are described in this subparagraph. (i) Small employer carriers shall include (Form Number 369 CONV) provided at Figure 28 of sec.26.27(b)(28) of this title (relating to Forms) shall be included with all group plans issued prior to June 1, 1996. (ii) Small employer carriers shall include Form 369 CCPRO adopted under sec.3.520 of this title (relating to Appendix) with all group plans issued after June 1, 1996. (iii) The forms shall be in the language and format prescribed in accordance with Chapter 3, Subchapter F of this title (relating to Group Health Insurance Mandatory Conversion Privilege). The small employer carrier shall include one of the variable provisions for continuation upon policy termination. (B) The Coordination of Benefits (Form Number 1212 COB) provided at Figure 29 of sec.26.27(b)(29) of this title (relating to Forms) shall be included with all plans. This form shall be in the language and format prescribed. The variable insert language "This provision will only apply for the duration of your employment with the Employer" is required to be included in the individual policies. (C) The Preferred Provider Provisions (PPO) (Form Number 1212 PPO) provided at Figure 30 of sec.26.27(b)(30) of this title (relating to Forms) shall be included with all plans when preferred provider options are included. This form shall be in the language and format prescribed. Additional provisions may be added as necessary to disclose preferred provider information. (i) (No change.) (ii) Small employer carriers shall include language regarding complaint and appeal procedures in accordance with applicable law. (iii) Except as provided in sec.26.21 of this title (relating to Cost Containment) preferred provider arrangements shall comply with Chapter 3, Subchapter X of this title (relating to Preferred Provider Plans) and Insurance Code, Article 3.70-3C. (5) Applications are discussed in this paragraph. The Texas Small Employer Group Health Benefit Plan Master Application (Form Number 1212 APP) provided at Figure 31 of sec.26.27(b)(31) of this title (relating to Forms) may be used by small employer carriers. Small employer carriers may use any appropriate application, enrollment or participation agreement forms in lieu of this form. Variability is described in the following subparagraphs: (A) Language relating to a waiting period is variable only to the extent that it may be omitted in its entirety if the small employer elects not to impose a waiting period. (B) Language relating to additional deductibles, coinsurance and percentage payable is variable only to the extent that the amounts offered comply with the provisions of this subsection. (6) The House Bill 1212 Compliance Rider for Small Employers (Form Number 1212 SE END) provided at Figure 32 of sec.26.27(b)(32) of this title (relating to Forms) may be used as a guide for carriers to bring existing policies into compliance with the requirements of these regulations. Because of the differences in small employer health benefit plans, the compliance rider provisions may not be all encompassing and carriers should amend the rider as needed to achieve compliance with these rules and with the provisions of Insurance Code, Chapter 26, Subchapters A-G. Any variability that was previously discussed in these rules regarding the prototype policies shall be addressed accordingly in this rider. (7) (No change.) (i) HMO Coverage. Every HMO small employer carrier shall, as a condition of transacting business in this state with small employers, offer to small employers a standard benefit plan as provided under the Insurance Code, Articles 26.42, 26.43, 26.44, 26.44A, 26.44B, 26.48, and 26.49(g). The HMO forms are as follows: (1) Prototype contract/certificate of coverage and benefit plans have been developed to facilitate implementation of the Insurance Code, Chapter 26, and to streamline the contract approval process. The required benefit language is provided in the prototype Small Employer Group Health Benefit Plan (Form Numbers 1212 HMO-GRP CONT, Contract and Certificate of Coverage; 1212 HMO-APP, Group Application; 1212 HMO-SCHB, Schedule of Benefits; 1212 HMO-RX, Prescription Drugs Benefit Rider; 1212 HMO-DAA, Drug and Alcohol Abuse Benefit Rider; 1212 HMO-INF, Infertility Benefit Rider; 1212 HMO-MHMR, Mental Health Benefit Rider). These forms can be found at Figures 33 - 39 of sec.26.27(b)(33)-(39) of this title (relating to Forms. Variable provisions in these forms are denoted in brackets. HMOs may use various options in accordance with the bracketed provisions. Exclusions of elective abortions, and health services that violate religious convictions, if any, are to be determined by an agreement between the employer and the small employer carrier and must be in the contract/certificate of coverage in the Exclusions contract provision. (2) The prototype contracts/certificates of coverage provide for the entire contract to include an application, schedule of benefits, and any attached riders. (3) If the HMO elects to be a small employer carrier and offers a health benefit plan other than the prototype benefit plan, that plan must be a state approved health benefit plan that complies with the requirements of Title XIII, Public Health Service Act (42 United States Code sec.sec.300, et seq.) and the rules adopted under the Act or by the Commissioner. An HMO small employer carrier that is offering a state approved health plan shall submit health benefit plan forms that contain the following: (A) CONTRACT FACE PAGE. This page shall contain the name, address and telephone numbers (800 number, if applicable) of the health maintenance organization, workers compensation disclaimer notice, and the form number in the lower left hand corner. (B) TOLL-FREE NUMBER PAGE. This form must contain the language prescribed in sec.1.601 of this title (relating to Notice of Toll-free Telephone Numbers and Information and Complaint Procedures) and shall be attached as the first, second or third page of the contact. (C)-(D) (No change.) (E) PREMIUM RATES. Premium rates must be established in accordance with Article 26.38(a) or 42 C.F.R. sec.417.104. sec.26.15. Renewability of Coverage and Cancellation. (a) Except as provided by the Insurance Code, Article 26.24, a small employer carrier shall renew any small employer health benefit plan for any covered small employer at the option of the small employer, unless: (1) the premium has not been paid as required by the terms of the plan; (2) the small employer has committed fraud or intentional misrepresentation of a material fact. On or after September 1, 1995, an intentional misrepresentation of a material fact shall not include any misrepresentation related to health status. (3) the small employer has not complied with a material provision of the health benefit plan relating to premium contribution or participation requirements; (4) the small employer has no enrollee, in connection with the plan, who resides or works in the service area of the HMO small employer carrier or in the area for which the small employer carrier is authorized to do business; or (5) membership of an employer in an association terminates, but only if coverage is terminated uniformly without regard to a health status related factor of a covered individual. (b) A small employer carrier may refuse to renew the coverage of an eligible employee or dependent for fraud or intentional misrepresentation of a material fact by that individual and with respect to an eligible employee or dependent who is a subscriber or enrollee in an HMO, for the reasons specified in sec.11.506(4)(A) of this title (relating to Mandatory Provisions: Group and Non- group Agreement and Group Certificate). The coverage is also subject to any policy or contractual provisions relating to incontestability or time limits on certain defenses. On or after September 1, 1995, an intentional misrepresentation of a material fact shall not include any misrepresentation related to health status. (c)-(d) (No change.) (e) Standard benefit plans and other small employer health benefit plans, provided through individual policies, shall be guaranteed renewable for life or until maximum benefits have been paid, or may be guaranteed renewable with the only reasons for termination being those set out in the Insurance Code, Articles 26.23 and 26.24, and this subchapter, provided that such plans shall include a conversion provision which provides comparable benefits to those required under Chapter 3, Subchapter F of this title (relating to Group Health Insurance Mandatory Conversion Privilege). All other health benefit plans issued to small employers shall be renewed at the option of the small employer, but may provide for termination in accordance with the Insurance Code, Chapter 26, and this subchapter. sec.26.22. Private Purchasing Cooperatives. (a) Two or more small or large employers may form a cooperative for the purchase of small or large employer health benefit plans. A cooperative must be organized as a nonprofit corporation and has the rights and duties provided by the Texas Non-profit Corporation Act, Texas Civil Statutes, Articles 1396-1.01, et seq. (b) On receipt of a certificate of incorporation or certificate of authority from the secretary of state, the purchasing cooperative shall file notification of the receipt of the certificate and a copy of the cooperative's organizational documents with the commissioner by filing the required notification and documents with the Life/Health Group, Mail Code 106-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. (c) The board of directors shall file annually with the commissioner a statement of all amounts collected and expenses incurred for each of the preceding years. The annual filing shall be made on Form Number 1212 CERT COOP provided at Figure 49 of sec.26.27(b)(49) of this title (relating to Forms) and shall be mailed to the Life/Health Group, Mail Code 106-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. (d) When a private purchasing cooperative or the Texas Health Benefits Purchasing Cooperative arranges for coverage under a health benefit plan for a small or large employer, the health benefit plan: (1) issued to a small employer shall be a small employer health benefit plan; (2) issued to a large employer shall be a large employer health benefit plan; and (3) issued to a school district electing to be treated as a small employer in accordance with Insurance Code, Article 26.036, shall be a small employer health benefit plan. sec.26.23. Powers and Duties of Texas Health Benefits Purchasing Cooperative and Private Purchasing Cooperatives. (a) A private purchasing cooperative described in this section and the Texas Health Benefits Purchasing Cooperative described in the Insurance Code, Article 26.13: (1) shall arrange for small or large employer health benefit plan coverage for small or large employer groups who participate in the cooperative by contracting with small or large employer carriers who meet the criteria established in the Insurance Code, Article 26.15(b) and subsection (b) of this section; (2) shall collect premiums to cover the cost of: (A) small or large employer health benefit plan coverage purchased through the cooperative; and (B) the cooperative's administrative expenses; (3)-(5) (No change). (6) may contract with a small or large employer carrier or third-party administrator to provide administrative services to the cooperative; (7) shall contract with small or large employer carriers for the provision of services to small or large employers covered through the cooperative; (8)-(9) (No change). (b) A cooperative may contract only with small or large employer carriers who desire to offer coverage through the cooperative and who demonstrate: (1)-(7) (No change). (c)-(d) (No change). sec.26.27. Forms. (a) The forms relating to Chapter 26, Insurance Code for small and large employers referenced in this chapter are included in subsection (b) of this section in their entirety and have been filed with the Office of the Secretary of State. The forms can be obtained from the Texas Department of Insurance, Life/Health Group, MC 106-1A, P.O. Box 149104, Austin, Texas 78714-9104. (b) The forms referenced in this chapter are as follows: (1) Figure Number 1: Form Number 1212 SE.BASC FIGURE NO. 1: 28 TAC sec.26.27(b)(1) (2) Figure Number 2: Form Number 1212 SE.CAT FIGURE NO. 2: 28 TAC sec.26.27(b)(2) (3) Figure Number 3: Form Number 1212 ASSN.BASC FIGURE NO. 3: 28 TAC sec.26.27(b)(3) (4) Figure Number 4: Form Number 1212 ASSN.CAT FIGURE NO. 4: 28 TAC sec.26.27(b)(4) (5) Figure Number 5: Form Number 1212 MET.BASC FIGURE NO. 5: 28 TAC sec.26.27(b)(5) (6) Figure Number 6: Form Number 1212 MET.CAT FIGURE NO. 6: 28 TAC sec.26.27(b)(6) (7) Figure Number 7: Form Number TOLLFREE FIGURE NO. 7: 28 TAC sec.26.27(b)(7) (8) Figure Number 8: Form Number 1212 CERT.BASC FIGURE NO. 8: 28 TAC sec.26.27(b)(8) (9) Figure Number 9: Form Number 1212 CERT.CAT FIGURE NO. 9: 28 TAC sec.26.27(b)(9) (10) Figure Number 10: Form Number 1212 TCG FIGURE NO. 10: 28 TAC sec.26.27(b)(10) (11) Figure Number 11: Form Number 1212 GGP FIGURE NO. 10: 28 TAC sec.26.27(b)(11) (12) Figure Number 12: Form Number 1212 GRP FIGURE NO. 12: 28 TAC sec.26.27(b(12) (13) Figure Number 13: Form Number 1212 ACC FIGURE NO. 13: 28 TAC sec.26.27(b)(13) (14) Figure Number 14: Form Number 1212 SCH.BASC FIGURE NO. 14: 28 TAC sec.26.27(b)(14) (15) Figure Number 15: Form Number 1212 SCHPPO.BASC FIGURE NO. 15: 28 TAC sec.26.27(b)(15) (16) Figure Number 16: Form Number 1212 DEF.BASC FIGURE NO. 16: 28 TAC sec.26.27(b(16) (17) Figure Number 17: Form Number 1212 BEN.BASC FIGURE NO. 17: 28 TAC sec.26.27(b)(17) (18) Figure Number 18: Form Number 1212 EXC.BASC FIGURE NO. 18: 28 TAC sec.26.27(b)(18) (19) Figure Number 19: Form Number 1212 SCH.CAT FIGURE NO. 19: 28 TAC sec.26.27(b)(19) (20) Figure Number 20: Form Number 1212 SCHPPO.CAT FIGURE NO. 20: 28 TAC sec.26.27(b)(20) (21) Figure Number 21: Form Number 1212 DEF.CAT FIGURE NO. 21: 28 TAC sec.26.27(b)(21) (22) Figure Number 22: Form Number 1212 BEN.CAT FIGURE NO. 22: 28 TAC sec.26.27(b)(22) (23) Figure Number 23: Form Number 1212 EXC.CAT FIGURE NO. 23: 28 TAC sec.26.27(b)(23) (24) Figure Number 24: Form Number 1212 ADB FIGURE NO. 24: 28 TAC sec.26.27(b)(24) (25) Figure Number 25: Form Number 1212 MHB FIGURE NO. 25: 28 TAC sec.26.27(b)(25) (26) Figure Number 26: Form Number 1212 RX FIGURE NO. 26: 28 TAC sec.26.27(b)(26) (27) Figure Number 27: Form Number 1212 PCR FIGURE NO. 27: 28 TAC sec.26.27(b)(27) (28) Figure Number 28: Form Number 369 CONV FIGURE NO. 28: 28 TAC sec.26.27(b)(28) (29) Figure Number 29: Form Number 1212 COB FIGURE NO. 29: 28 TAC sec.26.27(b)(29) (30) Figure Number 30: Form Number 1212 PPO FIGURE NO. 30: 28 TAC sec.26.27(b)(30) (31) Figure Number 31: Form Number 1212 APP FIGURE NO. 31: 28 TAC sec.26.27(b)(31) (32) Figure Number 32: Form Number 1212 SE END FIGURE NO. 32: 28 TAC sec.26.27(b)(32) (33) Figure Number 33: Form Number 1212 HMO GRP CONT FIGURE NO. 33: 28 TAC sec.26.27(b)(33) (34) Figure Number 34: Form Number 1212 HMO-SCHB FIGURE NO. 34: 28 TAC sec.26.27(b)(34) (35) Figure Number 35: Form Number 1212 HMO-APP FIGURE NO. 35: 28 TAC sec.26.27(b)(35) (36) Figure Number 36: Form Number 1212 HMO-RX FIGURE NO. 36: 28 TAC sec.26.27(b)(36) (37) Figure Number 37: Form Number 1212 HMO-DAA FIGURE NO. 37: 28 TAC sec.26.27(b)(37) (38) Figure Number 38: Form Number 1212 HMO-INF FIGURE NO. 38: 28 TAC sec.26.29(b)(38) (39) Figure Number 39: Form Number 1212 HMO-MHMR FIGURE NO. 39: 28 TAC sec.26.27(b)(39) (40) Figure Number 40: Form Number 1212 CERT SEHC STATUS FIGURE NO. 40: 28 TAC sec.26.27(b)(40) (41) Figure Number 41: Form Number 1212 SUMM FIGURE NO. 41: 28 TAC sec.26.27(b)(41) (42) Figure Number 42: Form Number 1212 RISK FIGURE NO. 42: 28 TAC sec.26.27(b)(42) (43) Figure Number 43: Form Number 1212 CERT ANN LIST-OTHER/SEHP FIGURE NO. 43: 28 TAC sec.26.27(b)(43) (44) Figure Number 44: Form Number 1212 CERT GEOG FIGURE NO. 44: 28 TAC sec.26.27(b)(44) (45) Figure Number 45: Form Number 1212 A&H CERT PROTOTYPES/MRKT FIGURE NO. 45: 28 TAC sec.26.27(b)(45) (46) Figure Number 46: Form Number 1212 HMO-CERT FIGURE NO. 46: TAC sec.26.27(b)(46) (47) Figure Number 47: Form Number 1212 CERT ACTUARIAL FIGURE NO. 47: 28 TAC sec.26.27(b)(47) (48) Figure Number 48: Form Number 1212 CERT DATA FIGURE NO. 48: 28 TAC sec.26.27(b)(48) (49) Figure Number 49: Form Number 1212 CERT COOP FIGURE NO. 49: 28 TAC sec.26.27(b)(49) (50) Figure Number 50: Form Number 1212 CERT LEHC Status FIGURE NO. 50: 28 TAC sec.26.27(b)(50) (51) Figure Number 51: Form Number 1212 CERT GEOG FIGURE NO. 51 28 TAC sec.26.27(b)(51) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 13, 1998. TRD-9802215 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 5, 1998 Proposal publication date: August 19, 1997 For further information, please call: (512) 463-6327 SUBCHAPTER C. Large Employer Health Insurance Portability Availability Act Regulation 28 TAC sec.sec.26.301-26.311 The amendments and new sections are adopted under the Insurance Code, Chapter 26; HIPAA; the interim federal regulations implementing HIPAA; and the Insurance Code, Article 1.03A. The Insurance Code, Chapter 26, as amended by the 75th Legislature, implements provisions regarding small and large employers which were necessary to comply with the federal requirements contained in HIPAA. Under the Insurance Code, Article 26.04, the commissioner shall adopt rules as necessary to implement the Insurance Code, Chapter 26 and to meet the minimum requirements of federal law and regulations. The minimum requirements of federal law for small and large employers are contained in HIPAA. Interim federal regulations implementing HIPAA have been promulgated by the Department of the Treasury, Department of Labor, and the Department of Health and Human Services, 62 Fed. Reg. 16893. As identified in the introduction to these rules, portions of the federal regulations are included in these rules as necessary to meet the minimum requirements of federal law and regulations. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. sec.26.301. Applicability and Scope. (a) Except as otherwise provided, this subchapter shall apply to any health benefit plan providing health care benefits covering 51 or more eligible employees of a large employer, whether provided on a group or individual franchise basis, regardless of whether the policy was issued in this state if it provides coverage to any citizen or inhabitant of this state and if the plan meets one of the following conditions: (1) a portion of the premium or benefits is paid by a large employer; (2) the health plan is treated by the employer or by a covered individual as part of a plan or program for the purposes of 26 United States Code sec.106 or sec.162; or (3) the health plan is a group policy issued to a large employer. (b) For an employer who was not in existence throughout the calendar year preceding the year in which the determination of whether the employer is a large employer is made, the determination is based on the average number of eligible employees the employer reasonably expects to employ on business days in the calendar year in which the determination is made. (c) An insurance policy, evidence of coverage, contract, or other document that is delivered, issued for delivery, or renewed to large employers and their employees on or after July 1, 1997, shall comply with all provisions of the Insurance Code, Chapter 26, Subchapters A and H, as adopted by the 75th Legislature, and with this subchapter. (d) An insurance policy, evidence of coverage, contract or other document establishing coverage under a health benefit plan for large employers and their employees that is delivered, issued for delivery or renewed before July 1, 1997 is governed by the law as it existed before that date, until the first renewal date of that policy, evidence of coverage, contract or other document establishing coverage on or after July 1, 1997. (e) If a large employer or the employees of a large employer are issued a health benefit plan under the provisions of the Insurance Code, Chapter 26, Subchapters A and H, and this subchapter, and the large employer subsequently employs less than 51 eligible employees, the provisions of the Insurance Code, Chapter 26, Subchapters A and H, and this subchapter shall continue to apply to that particular health plan if the employer elects to renew the large employer health benefit plan subject to the provisions of sec.26.308 of this title (relating to Renewability of Coverage and Cancellation). A health carrier providing coverage to such an employer shall, within 60 days of becoming aware that the employer has less than 51 eligible employees, but not later than the first renewal date occurring after the employer ceases to be a large employer, notify the employer of the following: (1) The employer may renew the large employer policy. (2) If the employer does not renew the large employer health benefit plan, the employer will be subject to the requirements of the Insurance Code, Chapter 26, Subchapters A-G relating to small employers, and Subchapter A of this chapter, including guaranteed issue, rating protections, and participation/contribution requirements. (3) The employer has the option to purchase a small employer health benefit plan from the employer's current health carrier, if the carrier is offering such coverage, or from any small employer carrier currently offering small employer coverage in this state. (4) If the employer fails to comply with the minimum percentage participation or contribution requirements, the coverage will terminate. (f) If a health benefit plan is issued on or after July 1, 1997, to an employer that is not a large employer as defined in the Insurance Code, Chapter 26, but subsequently the employer becomes a large employer, the provisions of the Insurance Code, Chapter 26, Subchapter H and this subchapter shall apply to the health benefit plan on the first renewal date, unless the employer was a small employer and renews its current health benefit plans as provided under sec.26.5(i) of this title (relating to Applicability and Scope). (g) A governmental entities' health benefit plan (subject to Insurance Code, Articles 3.51-1, 3.51-2, 3.51-3, 3.51-4, 3.51-5, or 3.51-5A) that is provided through health insurance coverage and that otherwise meets the requirements of being a large employer is subject to the provisions of Chapter 26, Insurance Code, Subchapters A and H and this subchapter. The portion of a non-federal governmental entity's health benefit plan that is self-insured may elect not to comply with sec.2721 of the Public Health and Services Act as added by the Health Insurance Portability and Availability Act of 1996. sec.26.302. Status of Health Carriers as Large Employer Carriers and Geographic Service Area. (a) Not later than March 1, 1998, each health carrier providing health benefit plans in this state shall make a filing with the commissioner indicating whether the health carrier will or will not offer, renew, issue, or issue for delivery health benefit plans to large employers in this state as defined in the Insurance Code, Chapter 26, Subchapters A and H, and this subchapter. The required filing shall include the certification form provided at Figure 50 of sec.26.27(b)(50) of this title (relating to Forms) (Form Number 1212 CERT LEHC STATUS) completed according to the carrier's status and shall at least provide a statement to the effect of one of the following: (1) the health carrier intends to offer, renew, issue, and issue for delivery health benefit plans to large employers and their employees and therefore will operate in accordance with the Insurance Code, Chapter 26, Subchapters A and H and this subchapter; (2) the health carrier does not intend to offer, issue, or issue for delivery health benefit plans to large employers and their employees; however, the health carrier intends to renew health benefit plans issued prior to July 1, 1997 and comply with the Insurance Code, Chapter 26, Subchapters A and H, and this subchapter; (3) the health carrier does not intend to offer, issue, or issue for delivery health benefit plans to large employers and their employees in the State of Texas and intends to nonrenew all health benefit plans issued to large employers in Texas and will provide notice to the commissioner and employers in accordance with sec.26.309 of this title (relating to Refusal to Renew and Application to Reenter Large Employer Market); or (4) the health carrier has no health benefit plans issued to large employers or to employees of a large employer which are in force on or after July 1, 1997, and the health carrier does not intend to offer, issue, or issue for delivery health benefit plans to large employers. (b) If a health carrier chooses to change its election under subsection (a)(1), (2), or (4) of this section, the health carrier shall notify the commissioner of its new election at least 30 days prior to the date the health carrier intends to begin operations under the new election. This notification shall be made on Form Number 1212 CERT LEHC STATUS provided at Figure 50 of sec.26.27(b)(50) of this title (relating to Forms). (c) Upon election to become a large employer carrier, the health carrier shall establish geographic service areas within which the health carrier reasonably anticipates it will have the capacity to deliver services adequately to large employers in each established geographic service area. Large employer carriers shall comply with the following: (1) The geographic service areas shall be defined in terms of counties or zip codes, to the extent possible, and shall be submitted in conjunction with any filing of a large employer health benefit plan. (2) If the service area cannot be defined by counties or zip code, a map which clearly shows the geographic service areas is required to be submitted in conjunction with the filing of the large employer health benefit plan. (3) If the geographic service area of the carrier is the entire state, the carrier shall define the service area as the State of Texas and no other documentation is necessary. (4) Service areas by zip code shall be defined in a non-discriminatory manner and in compliance with the Insurance Code, Articles 21.21-6 and 21.21-8. (5) Networks of HMO large employer carriers shall be established in accordance with Chapter 20A, Insurance Code and Chapter 11 of this title (relating to Health Maintenance Organizations). (6) Large employer carriers shall utilize Form Number 1212 LEHC GEOG provided in Figure 51 of sec.26.27(b)(51) of this title (relating to Forms) to submit this information. sec.26.303. Coverage Requirements. (a) A large employer carrier may refuse to provide coverage to a large employer in accordance with the carrier's underwriting standards and criteria. However, on issuance to a large employer, each large employer carrier shall provide coverage to the employees meeting the participation criteria established by the large employer without regard to an individual's health status related factors. The participation criteria may not be based on health status related factors. A large employer's participation criteria may not require an employee to maintain an actively at work status, unless the actively at work status is wholly unrelated to health status related factors, such as time off for a sabbatical leave or vacation. (b) The large employer carrier shall accept or reject the entire group of individuals who meet the participation criteria established by the employer and who choose coverage and may exclude only those employees or dependents, if applicable, who have declined coverage. The carrier may charge premiums in accordance with Insurance Code, Article 26.89 to the group of employees or dependents, if applicable, who meet the participation criteria established by the employer and who do not decline coverage. (c) A large employer carrier shall secure a written waiver for each employee who meets the participation criteria and each dependent, if dependent coverage is offered to enrollees under a large employer health benefit plan, who declines an offer of coverage under a health benefit plan provided to a large employer. If a large employer elects to offer coverage through more than one large employer carrier, waivers are only required to be signed if the eligible individual is declining all large employer health benefit plans offered. The large employer carriers may enter into an agreement designating which large employer carrier will receive and retain the waiver. Waivers shall be maintained by the large employer carrier for a period of six years. The waiver must ensure that the employee was not induced or pressured into declining coverage because of the employee's health status related factors. The waiver shall be signed by the employee (on behalf of such employee or the dependent, if applicable, of such employee) and shall certify that the individual who declined coverage was informed of the availability of coverage under the health benefit plan. Receipt by the large employer carrier of a facsimile transmission of the waiver is permissible, provided that the transmission includes a representation from the large employer that the employer will maintain the original waiver on file for a period of six years from the date of the facsimile transmission. The waiver form shall: (1) require that the reason for declining coverage be stated on the form; (2) include a written warning of the penalties imposed on late enrollees; and (3) include a statement that the eligible employee who meets the large employer's participation criteria and dependents, if dependent coverage is offered to enrollees under a large employer health benefit plan, were not induced or pressured by the large employer, agent, or health carrier into declining coverage, but elected of their own accord to decline such coverage. (d) A large employer carrier may not provide coverage to a large employer or the employees of a large employer if the carrier or an agent for the carrier knows that the large employer has induced or pressured an employee who meets the participation criteria or a dependent of the employee to decline coverage because of that individual's health status related factors. (e) An agent shall notify a large employer carrier, prior to submitting an application for coverage with the health carrier on behalf of a large employer or employee of a large employer, of any circumstances that would indicate that the large employer has induced or pressured an employee who meets the large employer's participation criteria or a dependent of the employee to decline coverage due to the individual's health status related factors. (f) A large employer carrier may require a large employer to meet minimum premium contribution requirements as a condition of issuance and renewal in accordance with the carrier's usual and customary practices for all employer health benefit plans in this state. A health carrier shall treat all similarly situated large employer groups in a consistent and uniform manner when terminating health benefit plans due to failure of the large employer to meet a contribution requirement. If a large employer fails to meet a contribution requirement for a large employer health benefit plan, the health carrier may terminate coverage as provided under the plan in accordance with the terms and conditions of the plan requiring such contribution and in accordance with the Insurance Code, Articles 26.86, 26.87, 26.88 and sec.26.309 of this title (relating to Renewability of Coverage and Cancellation). (g) Health carriers may require large employers to answer questions designed to determine the level of premium contribution by the large employer and the percentage of participation of eligible employees of the large employer. (h) A large employer carrier may require a large employer to meet minimum participation requirements as a condition of issuance and renewal in accordance with the carrier's usual and customary practices for all employer health benefit plans in this state. The minimum participation requirements may determine the percentage of individuals that must be enrolled in the plan in accordance with participation criteria established by the employer. These minimum participation requirements must be stated in the contract and must be applied uniformly to each large employer offered or issued coverage by the large employer carrier in this state. A large employer health carrier shall accept or reject the entire group of employees meeting the participation criteria and minimum participation requirements that choose to participate and exclude only those employees and dependents, if applicable, that have declined coverage. (i) In determining whether an employer has the required percentage of participation of eligible employees who meet the large employer's participation criteria, if the percentage of eligible employees is not a whole number, the result of applying the percentage to the number of eligible employees shall be rounded down to the nearest whole number. For example: if an employer uses a minimum participation requirement of 75% of the eligible employees meeting the large employer's participation criteria, 75% of 55 employees is 41.25, so 41.25 would be rounded down to 41; therefore, 75% participation by a 55 employee group will be achieved if 41 of the eligible employees meeting the large employer's participation criteria participate. (j) If a large employer fails to meet the qualifying minimum participation requirement for a large employer health benefit plan, for a period of at least six consecutive months, the large employer health carrier may terminate coverage under the plan upon the first renewal date following the end of the six-month consecutive period during which the qualifying minimum participation requirement was not met, provided that the termination shall be in accordance with the terms and conditions of the plan concerning termination for failure to meet the qualifying minimum participation requirement and in accordance with the Insurance Code, Articles 26.86, 26.87, 26.88 and sec.26.309 of this title (relating to Renewability and Cancellation). A large employer health carrier shall treat all similarly situated large employer groups in a consistent and uniform manner when terminating health benefit plans due to a participation level of less than the qualifying participation level. sec.26.304. Requirement To Insure Entire Groups. (a) A large employer carrier that offers coverage to a large employer and its employees shall offer to provide coverage to each eligible employee who meets the large employer's participation criteria. If dependent coverage is offered to enrollees under a large employer health benefit plan, then a large employer carrier shall offer to provide coverage to each eligible dependent. Except as provided in subsection (b) of this section, the large employer carrier shall provide the same health benefit plan to each such employee and dependent. (b) If elected by the large employer, a large employer carrier may offer the eligible employees of a large employer, who meet the participation criteria, the option of choosing among one or more health benefit plans, provided that each eligible employee who meets the participation criteria may choose any of the plans offered to the employee. Except as provided in the Insurance Code, Articles 26.83 and 26.90 (with respect to an affiliation period or exclusions for preexisting conditions), the choice among benefit plans may not be limited, restricted, or conditioned based upon the health status related factors of the eligible employees or their dependents, if applicable. (c) A large employer carrier may require each large employer that applies for coverage, as part of the application process, to provide a complete list of eligible employees and if dependent coverage is offered to enrollees under a large employer health benefit plan, a complete list of dependents of eligible employees as defined in the Insurance Code, Article 26.02. The large employer carrier may also require the large employer to provide reasonable and appropriate supporting documentation (such as a W-2 Summary Wage and Tax Form) to verify the information required under this subsection. A determination of eligibility shall be made within five business days of receipt of any requested documentation. (d) A large employer carrier shall not deny two individuals that are married the status of eligible employee solely on the basis that the two individuals are married. The large employer carrier shall provide a reasonable opportunity for the individuals to submit evidence as provided in subsection (c) of this section to establish each individual's status as an eligible employee. . (1) The two individuals will not be eligible for coverage as a dependent. Each must be covered as an employee. (2) A child of either of the two individuals may only be covered under the same small employer health benefit plan as a dependent by one of the two individuals. (e) New entrants who meet the large employer's participation criteria in a health benefit plan issued to a large employer group shall be offered an opportunity to enroll in the health benefit plan currently held by such employer group or shall be offered an opportunity to enroll in the health benefit plan if the plan is provided through an individual franchise policy or more than one plan is available. If a large employer carrier has offered more than one health benefit plan to eligible employees of a large employer group pursuant to subsection (b) of this section, the new entrant shall be offered the same choice of health benefit plans as the other employees (members) in the group. A new entrant that does not exercise the opportunity to enroll in the health benefit plan within the period provided by the large employer carrier may be treated as a late enrollee by the health carrier, provided that the period provided to enroll in the health benefit plan complies with sec.26.305(a) of this title (relating to Enrollment). (f) New entrants meeting the participation criteria in a health benefit plan issued to a large employer group shall be accepted for coverage by the large employer carrier without any restrictions or limitations on coverage related to the health status related factors of the employees or their dependents, if applicable, except that a health carrier may exclude coverage for pre-existing medical conditions or impose an affiliation period, to the extent allowed under Insurance Code, Articles 26.83 and 26.90. (g) In the case of an eligible employee that meets the participation criteria (or dependent of an eligible employee, if applicable) who was excluded from coverage, not eligible for coverage, denied coverage by a large employer carrier, or in the process of providing a health benefit plan to an eligible large employer, the large employer carrier shall provide an opportunity for the eligible employee that meets the participation criteria (or dependent(s) of such eligible employee) to enroll in the health benefit plan issued to the large employer or the employees of the large employer on the earlier of the first renewal date occurring on or after July 1, 1997, or the first open enrollment period occurring on or after July 1, 1997. The opportunity to enroll shall meet the following requirements: (1) The opportunity to enroll under this subsection shall comply with sec.26.305(a) of this title (relating to Enrollment). (2) Eligible employees that meet the large employer's participation criteria and dependents of eligible employees who are provided an opportunity to enroll pursuant to this subsection shall be treated as new entrants. (3) The terms of coverage offered to an individual described in this subsection may exclude coverage for preexisting conditions or impose an affiliation period only if the health benefit plan currently held by the large employer contains such an exclusion or an affiliation period. (4) A large employer carrier shall provide written notice at least 45 days prior to the opportunity to enroll provided in this subsection or if less than 45 days are available, within five working days after determination that subsections (e)-(g) of this section apply to each large employer insured under a health benefit plan offered by such health carrier. A large employer carrier may provide the notice to the employer if the carrier has entered into an agreement with the employer to provide the notice to the employees. The notice shall clearly describe the rights granted under subsections (e)-(g) of this section to employees and dependents who were previously excluded from, not eligible for, or denied coverage and the process for enrollment of such individuals in the employer's health benefit plan. (h) A large employer carrier may require an individual who requests enrollment under subsection (g) of this section to sign a statement indicating that such individual sought coverage under the group contract or franchise policy (other than as a late enrollee) and that the coverage was not offered or provided to the individual. sec.26.305. Enrollment. (a) Periods provided for enrollment in and application for any health benefit plan provided to a large employer group shall comply with the following: (1) the initial enrollment period for the employees meeting the large employer's participation criteria must be at least 31 days, or if the waiting period exceeds 31 days, at least 31 days after the date the new entrant completes the waiting period for coverage; (2) the new entrant who meets the large employer's participation criteria shall be notified of his or her opportunity to enroll at least 31 days in advance of the last date enrollment is permitted; (3) a period of at least 31 days following the date of employment, or following the date the new entrant is eligible for coverage, shall be provided during which the new entrant's application for coverage may be submitted. For purposes of this paragraph, submitted means that the item(s) must be postmarked by the specified time period. At the discretion of the large employer carrier, alternative methods of submission such as fax, may be acceptable; and (4) an open enrollment period of at least 31 days shall be provided on an annual basis. Such enrollment period shall consist of an entire calendar month, beginning on the first day of the month and ending on the last day of the month. If the month is a 30-day month, the enrollment period shall begin on the first day of the month and end on the first day of the following month. If the month is February, the period shall last through March 2nd. (b) If dependent coverage is offered to enrollees under a large employer health benefit plan, the initial enrollment period for the dependents must be at least 31 days, with a 31 day annual open enrollment period. (c) A new employee who meets the participation criteria of a covered large employer may not be denied coverage if the application for coverage is received by the large employer carrier not later than the 31st day after the later of: (1) the date on which the employment begins; or (2) the date on which the waiting period established under Insurance Code, Article 26.83(h) expires. (d) If dependent coverage is offered to the enrollees under a large employer health benefit plan, a dependent of a new employee who meets the participation criteria established by the large employer may not be denied coverage if the application for coverage is received by the large employer carrier not later than the 31st day after the later of: (1) the date on which the employment begins; (2) the date on which the waiting period established under Insurance Code, Article 26.83(h) expires; or (3) the date on which the dependent becomes eligible for enrollment. (e) A large employer carrier may not exclude any employee who meets the participation criteria or an eligible dependent, including a late enrollee, who would otherwise be covered under a large employer group. (f) A large employer health benefit plan may not limit or exclude initial coverage of a newborn child of a covered employee. Any coverage of a newborn child of a covered employee under this subsection terminates on the 32nd day after the date of the birth of the child unless: (1) dependent children are eligible for coverage under the large employer health benefit plan; and (2) notification of the birth and any required additional premium are received by the large employer not later than the 31st day after the date of birth. A large employer carrier shall not terminate coverage of a newborn child if such carrier's billing cycle does not coincide with this 31-day premium payment requirement, until the next billing cycle has occurred and there has been nonpayment of the additional required premium, within 30 days of the due date of such premium. (g) If dependent children are eligible for coverage under the large employer health benefit plan, a large employer health benefit plan may not limit or exclude initial coverage of an adopted child of an insured. A child is considered to be the child of an insured if the insured is a party in a suit in which the adoption of the child by the insured is sought. (h) If dependent children are eligible for coverage under the large employer health benefit plan, an adopted child of an insured may be enrolled, at the option of the insured, within either: (1) 31 days after the insured is a party in a suit for adoption; or (2) 31 days of the date the adoption is final. (i) Coverage of an adopted child of an employee terminates unless notification of the adoption and any required additional premiums are received by the large employer not later than either: (1) the 31st day after the insured becomes a party in a suit in which the adoption of the child by the insured is sought; or (2) the 31st day after the date of the adoption. A large employer carrier shall not terminate coverage of an adopted child if such carrier's billing cycle does not coincide with his 31-day premium payment requirement, until the next billing cycle has occurred and there has been nonpayment of the additional required premium within 30 days of the date of such premium. (j) For purposes of subsections (c), (d), (g), and (j) of this section, received by the large employer by a specified time period means that the item(s) must be postmarked by the specified time period. (k) If a newborn or adopted child is enrolled in a health benefit plan or other creditable coverage within the time periods specified in subsections (g) or (j) of this section, respectively, and subsequently enrolls in another health benefit plan without a significant break in coverage, the other plan may not impose any preexisting condition exclusion with regard to the child. If a newborn or adopted child is not enrolled within the time periods specified in subsections (g) or (j) of this section, respectively, then in accordance with sec.26.306(h) of this title (relating to Exclusions, Limitations, Waiting Periods, Affiliation Periods and Preexisting Conditions and Restrictive Riders), the newborn or adopted child may be considered a late enrollee or excluded from coverage until the next open enrollment period. sec.26.306. Exclusions, Limitations, Waiting Periods, Affiliation Periods and Preexisting Conditions and Restrictive Riders. (a) A large employer carrier may not exclude any employee who meets the participation criteria or an eligible dependent, if dependent coverage is offered to enrollees under a large employer health benefit plan, (including a late enrollee, who would otherwise be covered under a large employer's health benefit plan), except to the extent permitted under the Insurance Code, Articles 26.83 and 26.90. (b) A preexisting condition provision in a large employer health benefit plan may not apply to expenses incurred on or after the expiration of the 12 months following the initial effective date of coverage of the enrollee or late enrollee. (c) A preexisting condition provision in a large employer health benefit plan may not apply to coverage for a disease or condition other than a disease or condition for which medical advice, diagnosis, care, or treatment was recommended or received from an individual licensed to provide such services under state law and operating within the scope of practice authorized by state law during the six months before the earlier of: (1) the effective date of coverage; or (2) the first day of the waiting period. (d) A large employer carrier shall not treat genetic information as a preexisting condition described by Insurance Code, Article 26.90(b) in the absence of a diagnosis of the condition related to the information. (e) A large employer carrier shall not treat a pregnancy as a preexisting condition described by Insurance Code, Article 26.90(b). (f) A preexisting condition provision in a large employer health benefit plan shall not apply to an individual who was continuously covered for an aggregate period of 12 months under creditable coverage that was in effect up to a date not more than 63 days before the effective date of coverage under the large employer health benefit plan, excluding any waiting period. For example, Individual A has coverage under an individual policy for 6 months beginning on May 1, 1997 through October 31, 1997, followed by a gap in coverage of 61 days until December 31, 1997. Individual A is covered under an individual health plan beginning on January 1, 1997 for 6 months through June 30, 1997, followed by a gap in coverage of 62 days until August 31, 1997. The effective date of Individual A's coverage under a large employer health benefit plan is September 1, 1997. Individual A has 12 months of creditable coverage and would not be subject to a preexisting condition exclusion under the large employer health benefit plan. (g) In determining whether a preexisting condition provision applies to an individual covered by a large employer benefit plan, the large employer carrier shall credit the time the individual was covered under previous creditable coverage if the previous coverage was in effect at any time during the 12 months preceding the effective date of coverage under a large employer health benefit plan. If the previous coverage was issued under a health benefit plan, any waiting period that applied before that coverage became effective also shall be credited against the preexisting condition provision period. For instance, Individual B is covered under an individual health insurance policy for 18 months beginning May 1, 1995 through November 30, 1996, followed by a four month gap in coverage from December 1, 1996 to March 31, 1997. On April 1, 1997, Individual B is covered under a group health plan for three months through June 30, 1997, followed by a two month gap in coverage until August 31, 1997. The effective date of Individual B's coverage under a large employer health insurance policy is September 1, 1997. Under this example, since there was a significant break in coverage, to determine the length of creditable coverage, the large employer carrier counts the creditable coverage the individual had for the 12 month period preceding the effective date of the individual's coverage under the large employer plan. Individual B has creditable coverage of six months and the issuer of the large employer health benefit plan may impose a preexisting condition limitation for six months on Individual B. (h) A large employer carrier shall choose one of the methods set forth in paragraphs (1) or (2) of this subsection for handling requests for enrollment from a late applicant in any health benefit plan subject to this subchapter. The large employer carrier must use the same method in regards to all such health benefit plans. (1) The employee or dependent may be excluded from coverage and any application for coverage rejected until the next annual open enrollment period and, upon enrollment, may be subject to a 12-month preexisting condition provision, or, in the case of an HMO, may be subject to a 60-day affiliation provision, as such provisions are described by the Insurance Code, Article 26.90. (2) the employee or dependent's application may be accepted immediately and the employee or dependent enrolled as a late enrollee during the plan year, in which case the preexisting condition provision imposed for a late enrollee may not exceed 18 months or, in the case of an HMO, the affiliation period may not exceed 90 days, from the date of the late enrollee's application for coverage. (3) The provisions of subparagraphs (A) and (B) do not apply to employees or dependents under the special circumstances listed as exceptions under the definition of late enrollee in sec.26.4 of this title (relating to (Definitions)). (4) Examples for applying subparagraphs (A) and (B) of this paragraph, in the case of both insurers and HMOs: Individual A requests coverage on October 1, 1997, after the enrollment period of July 1, 1997 through July 31, 1997 has ended. The next annual open enrollment period is July 1, 1998 through July 31, 1998. The effective date of coverage for persons enrolling during an open enrollment period is the beginning of the plan year, which is September 1 of each year. (A) If the carrier is an insurer and has elected to exclude all applicants requesting late enrollment under health benefit plans subject to this subchapter until the next open enrollment period, Individual A must reapply for coverage in July 1998 and the carrier may apply up to a 12-month preexisting condition period from the effective date of coverage, as with any other enrollee, the preexisting condition period would begin on September 1, 1998 and expires on September 1, 1999. (B) If the carrier is an insurer and has elected to accept applications for late enrollment under health benefit plans subject to this subchapter immediately and enroll the applicant during the plan year, then the carrier may apply up to an 18-month preexisting condition period from the date of application. If Individual A applied for coverage on October 1, 1997, the preexisting condition period would begin on that date and would expire on April 1, 1999. (C) If the carrier is an HMO and has elected to exclude all applicants requesting late enrollment under health benefit plans subject to this subchapter until the next open enrollment period, Individual A must reapply for coverage in July 1998 and the carrier may apply up to a 60-day affiliation period, as with any other enrollee. (D) If the carrier is an HMO and has elected to accept applications for late enrollment under health benefit plans subject to this subchapter immediately and enroll the applicant during the plan year, then the carrier may apply up to a 90-day affiliation period from the day Individual A applied for coverage. (i) A health maintenance organization may impose an affiliation period if the period is applied uniformly to each enrollee without regard to any health status related factor. The affiliation period shall not exceed two months for an enrollee, other than a late enrollee, and shall not exceed 90 days for a late enrollee. An affiliation period under a plan shall run concurrently with any applicable waiting period under the plan. An HMO shall not impose any preexisting condition limitation, except for an affiliation period. (j) A large employer may establish a waiting period applicable to all new entrants under the health benefit plan during which a new employee is not eligible for coverage. The large employer shall determine the duration of the waiting period. A large employer carrier shall not apply a waiting period, elimination period, or other similar limitation of coverage (other than an exclusion for pre-existing medical conditions or impose an affiliation period consistent with the Insurance Code, Articles 26.83 and 26.90), with respect to a new entrant, that is longer than the waiting period established by the large employer. Upon completion of the waiting period and enrollment within the time frame allowed by sec.26.305(a) of this title (relating to Enrollment), coverage must be effective no later than the next premium due date. Coverage may be effective at an earlier date as agreed upon by the large employer and the large employer carrier. (k) A large employer health benefit plan may not, by use of a rider or amendment applicable to a specific individual, limit or exclude coverage by type of illness, treatment, medical condition, or accident, except for a preexisting condition or affiliation period permitted under Insurance Code, Articles 26.83 and 26.90. (l) To determine if preexisting conditions as defined in the Insurance Code, Article 26.02(23) exist, a large employer carrier shall ascertain the source of previous or existing coverage of each employee meeting the participation criteria and each dependent of an eligible employee at the time such employee or dependent initially enrolls into the health benefit plan provided by the large employer carrier. The large employer carrier shall have the responsibility to contact the source of such previous or existing coverage to resolve any questions about the benefits or limitations related to such previous or existing coverage in the absence of a creditable coverage certification form. sec.26.308. Renewability of Coverage and Cancellation. (a) Except as provided by the Insurance Code, Article 26.87, a large employer carrier shall renew any large employer health benefit plan for any covered large employer at the option of the large employer, unless: (1) the premium has not been paid as required by the terms of the plan; (2) the large employer has committed fraud or intentional misrepresentation of a material fact; (3) the large employer has not complied with a material provision of the health benefit plan relating to premium contribution or minimum participation requirements; (4) the large employer has no enrollee, in connection with the plan, who resides or works in the service area of the HMO large employer carrier or in the area for which the large employer carrier is authorized to do business; or (5) membership of an employer in an association terminates, but only if coverage is terminated uniformly without regard to a health status related factor of a covered individual. (b) A large employer carrier may refuse to renew the coverage of an eligible employee or dependent, if applicable, for fraud or intentional misrepresentation of a material fact by that individual and with respect to an eligible employee or dependent who is a subscriber or enrollee in an HMO, for the reasons specified in sec.11.506(4)(A) of this title (relating to Mandatory Provisions: Group and Non-group Agreement and Group Certificate). The coverage is also subject to any policy or contractual provisions relating to incontestability or time limits on certain defenses. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 13, 1998. TRD-9802216 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 5, 1998 Proposal publication date: August 19, 1997 For further information, please call: (512) 463-6327 CHAPTER 26. Small Employer Health Insurance Availability Act Regulation SUBCHAPTER A. Small Employer Health Insurance Availability Act Regulation 28 TAC sec.26.2, sec.26.27 The Texas Department of Insurance adopts repeal of sec.26.2 and sec.26.27 concerning small employer health benefit plans. The repeal of sec.26.2 and sec.26.27 is adopted without changes to the proposed text as published in the August 19, 1997, issue of the Texas Register (22 TexReg 8001) and will not be republished. Section 26.2 concerns forms adopted and incorporated by reference into the Texas Insurance Code, Chapter 26. Repeal of this section is necessary because the forms are included in their entirety in proposed new sec.26.27 and it is not necessary to incorporate these forms by reference. The repeal of sec.26.27, is necessary because new sec.26.27 revises the prototype standard benefit plans and other forms to be used by carriers to implement the provisions of House Bill 1212 as passed by the 75th Legislature, which amended the Insurance Code, Chapter 26. New section sec.26.27 will revise, replace and/or supersede existing sec.26.27. Simultaneous to the adoption of this repeal, new sec.26.27 is published elsewhere in this issue of the Texas Register, along with other amentments to Chapter 26 of this title. The purpose and objective of the new sec.26.27 is to implement changes and additions to the forms referenced in Chapter 26 of this title, which include the prototype standard benefit plans and other forms to be used by carriers subject to Chapter 26. These changes and additions are required to implement House Bill 1212. No comments were received. Repeal of sec.26.2 and sec.26.27 is adopted pursuant to the Insurance Code, Chapter 26; the federal Health Insurance Portability and Accountability Act of 1996; and Insurance Code, Article 1.03A. The Insurance Code, Chapter 26, as amended by the 75th Legislature in House Bill 1212, implements provisions regarding small and large employers, which are necessary to comply with the federal requirements contained in the Health Insurance Portability and Accountability Act of 1996. Under the Insurance Code, Article 26.04, the commissioner shall adopt rules as necessary to implement the Insurance Code, Chapter 26, and to meet the minimum requirements of federal law and regulations. The minimum requirements of federal law for small and large employers are contained in HIPAA. Interim federal regulations implementing HIPAA have been promulgated by the Department of the Treasury, Department of Labor, and the Department of Health and Human Services, 62 Fed. Reg. 16893. Article 1.03A provides that the Commissioner of Insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by statute. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 13, 1998. TRD-9802214 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 5, 1998 Proposal publication date: August 19, 1997 For further information, please call: (512) 463-6327 TITLE 31. NATURAL RESOURCES AND CONSERVATION PART II. Texas Parks and Wildlife Department CHAPTER 65.Wildlife The Texas Parks and Wildlife Commission adopts the repeal of sec.sec.65.262- 65.265, 65.267-65.269, 65.271, and 65.276, and new sec.sec.65.262-65.265, 65.267, 65.269, 65.271, 65.276, and 65.277, concerning regulations for the take, capture, and possession of raptors. Section 65.262 and sec.65.276 are adopted with changes to the proposed text as published in the December 19, 1997, issue of the Texas Register (22 TexReg 12427). The repeal of sec.sec.65.262-65.265, 65.267-65.269, 65.271, and 65.276, and new sec.sec.65.263-65.265, 65.267, 65.269, 65.271, and 65.277 are adopted without change and will not be republished. The change to sec.65.262, concerning Definitions, corrects a grammatical error in the definition of passage bird. The change to sec.65.276, concerning Open Seasons and Bag Limits, corrects a redundancy in the possession limit by eliminating the qualification "per day," which is a given. The repeals and new sections are necessary to implement statutory provisions enacted by the 75th Texas Legislature in House Bill 2542, and to execute the agency's statutory duty under Parks and Wildlife Code, Chapter 49. The new sections will function to define terminology; establish general provisions for possession and display of raptors; set procedures and criteria for permitting; provide for reporting requirements; allow the purchase and sale of captive-bred raptors; institute a nonresident trapping permit; and set open seasons and bag limits for hunting game birds (except migratory game birds, which are subject to federal management frameworks) and game animals by means of falconry. SUBCHAPTER K.Raptor Proclamation 31 TAC 65.262-65.265, 65.267-65.269, 65.271, 65.276 The department received 11 comments in favor of adoption of the proposed rules. The repeals and new sections are adopted under Parks and Wildlife Code, Chapter 49, which provides the commission with authority to promulgate regulations governing the take, capture, propagation, and possession of raptors in this state. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802451 Bill Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: March 10, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 389-4642 31 TAC sec.sec.65.262-65.265,65.267,65.269, 65.271,65.276, 65.277 The new sections are adopted under Parks and Wildlife Code, Chapter 49, which provides the commission with authority to promulgate regulations governing the take, capture, propagation, and possession of raptors in this state. sec.65.262.Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise. All other words and terms shall have the meanings assigned by Parks and Wildlife Code. Captive bred-Raptors, including eggs hatched in captivity, from parents that mated or otherwise reproduced in captivity. Educational display-Activities conducted for the purposes of encouraging management and conservation of raptors or furthering awareness and understanding among the general public of the biology of protected wildlife. Eyas-a young raptor taken from the nest or still in the nest. Holding-Retaining in captivity. Imping - the use of a feather to replace a broken feather of a raptor. Mew-an indoor facility for keeping a raptor. Raptor-A live migratory bird of the Order Falconiformes or the Order Strigiformes. Passage bird-A raptor less than one year of age that has left the nest. Release to the wild-Release of wildlife to an area where it is capable of leaving at will. Take-To trap or capture, or attempt to trap or capture, a wild raptor. Weathering area-Outdoor facilities providing a raptor protection from the environment. sec.65.276. Open Seasons and Bag Limits. There shall be an open season during which game animals and game birds except for migratory birds may be taken by means of falconry. (1) Open season: September 1-August 31. (2) Daily bag and possession limits: (A) game animals: as specified for individual counties in Subchapter A of this chapter; (B) game birds other than migratory birds: one per day, either sex, per raptor, and the possession limit is two, either sex, per raptor. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802452 Bill Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: March 10, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 389-4642 SUBCHAPTER T.Scientific Breeder's Permit The Texas Parks and Wildlife Commission adopts repeal of sec.65.604 and sec.65.606, and amendments to sec.sec.65.601-65.603, 65.605, and 65.607-65.611, concerning scientific breeders. Sections 65.602, 65.609, and 65.610 are adopted with changes to the proposed text as published in the December 19, 1997, issue of the Texas Register (22 TexReg 12432). The repeal of sec.65.604 and sec.65.606, and the amendments to sec.sec.65.601, 65.603, 65.605, 65.607, 65.608, and 65.611, are adopted without changes and will not be republished. The change to sec.65.602 adds the word "with" to the language in subsection (b)(5) to make it grammatically correct. The change to sec.65.609 adds language to subsection (c)(1) to clarify that a purchase permit is not complete unless it contains the unique number of any deer being purchased, eliminates subsection (f), which was redundant, adds language to subsection (g) to make the provision read correctly, and redesignates the subsections accordingly. The change to sec.65.610 adds language to subsection (e)(1) to clarify that a transport permit is not complete unless it contains the unique number of any deer being transported. The repeals and amendments will function to synchronize the period of validity of scientific breeder permits by setting a universal expiration date; standardize the marking requirements for captive deer; allow for the recapture of escaped deer; provide procedures and requirements for the transportation of deer; stipulate that all deer entering the state for the purposes of Subchapter L be tested as required by the Texas Animal Health Commission; and effect housekeeping changes in the interest of clarity. The repeals and amendments are necessary to implement statutory provisions enacted by the 75th Texas Legislature in House Bill 2541, and to prosecute commission policy by simplifying and streamlining the agency's regulations. The department received one comment against adoption of the proposed repeals and amendments. The commenter stated that the proposed rules ignored fence specifications. The department responds that provisions of the Parks and Wildlife Code, Chapter 43, require that fences for scientific breeder facilities be capable of retaining deer within the facility while preventing the entry of wild deer. No changes were made as a result of the comment. 31 TAC sec.65.604, sec.65.606 The repeals and amendments are adopted under Parks and Wildlife Code, Chapter 43, Subchapter L, which provides the commission with authority to promulgate regulations governing the possession of white-tailed deer and mule deer for scientific, management, and propagation purposes. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802453 Bill Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: March 10, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 389-4642 31 TAC sec.sec.65.601-65.603, 65.605, 65.607-65.611 The amendments are adopted under Parks and Wildlife Code, Chapter 43, Subchapter L, which provides the commission with authority to promulgate regulations governing the possession of white-tailed deer and mule deer for scientific, management, and propagation purposes. sec.65.602. Permit Requirement and Permit Privileges. (a) No person may possess a live deer in this state unless that person possesses a valid permit issued by the department under the provisions of Parks and Wildlife Code, Chapter 43, Subchapters C, E, L, or R. (b) A person who possesses a valid scientific breeder's permit may: (1) possess deer within the permitted facility for the purpose of propagation; (2) engage in the business of breeding legally possessed deer within the facility for which the permit was issued; (3) sell deer that are in the legal possession of the permittee; (4) release deer from a permitted facility into the wild as provided in this subchapter; and (5) recapture lawfully possessed deer that have been marked in accordance sec.65.607 of this title (relating to Marking of Deer) that have escaped from a permitted facility. sec.65.609. Purchase of Deer and Purchase Permit. (a)-(b) (No change.) (c) An individual may possess or obtain deer only after a purchase permit has been issued by the department. Purchase permits shall be valid for 30 days from the date that the scientific breeder has: (1) completed (to include the unique number of each deer being purchased), dated, signed, and faxed the permit to the Law Enforcement Communications Center in Austin; (2) received and possesses on their person a return fax from the department in acknowledgment of the fax required by paragraph (1) of this subsection. (d) A purchase permit is valid only during the period of validity of a scientific breeder's permit, is effective for only one transaction, and expires after one instance of use. (e) A one-time, 30-day extension of effectiveness for a purchase permit may be obtained by notifying the department prior to the original expiration date of the purchase permit. (f) The department may issue a purchase permit for liberation for stocking purposes if the department determines that the release of deer will not detrimentally affect existing populations or systems. (g) Deer lawfully purchased or obtained for stocking purposes may be temporarily held in captivity: (1) to acclimate the deer to habitat conditions at the release site; (2) when specifically authorized by the department; (3) for a period to be specified on the purchase permit, not to exceed six months; (4) if the deer are not hunted prior to liberation; and (5) if the temporary holding facility is physically separate from any scientific breeder facility and the deer being temporarily held are not commingled with deer being held in a scientific breeder facility. Deer removed from a scientific breeder facility to a temporary holding facility shall not be returned to any scientific breeder facility. sec.65.610. Transport of Deer and Transport Permit. (a)-(b) (No change.) (c) All deer entering the boundaries of this state shall: (1) be accompanied by a certificate of health, signed by an accredited veterinarian, which bears the purchaser's name and address, specifies the destination of the deer, and certifies that the deer: (A) (No change.) (B) are free of external parasites; (C) (No change.) (D) have been tested in accordance with any applicable regulations of the Texas Animal Health Commission; and (2) (No change.) (d) Deer may not be transported for the purposes of this subchapter during any open season for deer or during the period beginning 10 days immediately prior to an open season for deer unless the scientific breeder notifies the department by contacting the Law Enforcement Communications Center in Austin no less than 24 hours before actual transport occurs. (e) Transport permits shall be effective for 30 days from the date that the scientific breeder has: (1) completed (to include the unique number of each deer being transported), dated, signed, and faxed the permit to the Law Enforcement Communications Center in Austin; and (2) received and possesses on their person a return fax from the department in acknowledgment of the fax required by paragraph (1) of this subsection. (f) A transport permit is valid only during the period of validity of a scientific breeder's permit, is effective for only one transaction, and expires after one instance of use. (g) A one-time, 30-day extension of effectiveness for a transport permit may be obtained by notifying the department prior to the original expiration date of the transport permit. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 18, 1998. TRD-9802454 Bill Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: March 10, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 389-4642 PART X. Texas Water Development Board CHAPTER 355. Research and Planning Fund SUBCHAPTER C. Regional Water Planning Grants 31 TAC sec.sec.355.90-355.100 The Texas Water Development Board (board) adopts new sec.sec.355.93-355.97 and sec.355.100 with changes to the proposed text as published in the December 26, 1997 issue of the Texas Register (22 TexReg 12684). Sections 355.90-355.92, 355.98, and 355.99 are adopted without changes and will not be republished. Sections 355.90-355.100 comprise new Subchapter C of 31 TAC Chapter 355, concerning grants to regional water planning groups. The new sections implement procedures for financial assistance related to development or revision of regional water plans developed pursuant to proposed new Chapter 357 of this title (related to Regional Water Planning Guidelines). Section 355.90 defines the scope of the subchapter as governing the board's use of the research and planning fund to provide grants for development or revision of regional water plans, as authorized in Texas Water Code, sec.15.4061. Section 355.91 provides definitions of terms in the chapter. The adopted definitions are consistent with existing statutory definitions and usage. The definition of "board" follows the definition of Texas Water Development Board in Texas Water Code, sec.6.001(1). "Eligible applicant" is defined as a political subdivision that has been designated, in writing to the executive administrator, by the regional water planning group as a representative of the regional water planning group to receive funds for all or part of the cost of developing or revising regional water plans. This definition reflects the statutory limit in Texas Water Code, sec.15.4061 that allows the board to provide funds only to political subdivisions. Regional water planning groups are not themselves eligible for funding, but under Texas Water Code, sec.15.4061(a) and sec.16.053(c), must designate those political subdivisions which may apply to the board. The definition of "executive administrator" follows that of Texas Water Code, sec.6.001(2) and sec.15.001. Authorization of the delegation of duties is allowed by Texas Water Code, sec.6.183. This definition recognizes that many ministerial duties are performed by the staff of the executive administrator, who is the administrative head of the board. The definition of "political subdivision" is identical to its definition located in Texas Water Code, sec.15.001(5), which governs these planning grants, and is repeated in this rule for convenience. The definition of "regional water plan" makes it clear that the board may fund both initial regional water plans and amendments to approved or adopted plans. This makes all phases of regional water planning eligible for funding if conducted in accordance with the Texas Water Code and Chapters 357 and 358 of this title. The definitions of "regional water planning area" and "regional water planning group" ties them to the board's designation of regional water planning areas and the regional water planning groups formed under the authority of Texas Water Code, sec.16.053 and Chapter 357 of this title. "State environmental planning criteria" is defined consistently with Chapters 357 and 358 of this title, which require regional water planning groups to analyze water management strategies either under state environmental planning criteria or under site specific studies. The definition in those chapters is adopted to provide an increased level of certainty for actions and activities under the purview of the three agencies and is currently available in the 1997 Texas Water Plan. The term is used in this chapter in a list of activities the board will not fund if data is currently sufficient for planning, as required by Texas Water Code, sec.15.4061(g) and maintains continuity and consistency with the other chapters regarding state and regional water planning. "State population and demand projections" is defined consistently with Chapters 357 and 358 of this title, which require both the state and regional water plans to use these projections absent evidence that more accurate projections are available. The term is used in this rule to identify activities that the board will not fund, as required by Texas Water Code, sec.15.4061(g)(4), and maintains continuity and consistency with the other chapters regarding state and regional water planning. "State water plan" is defined as the most recent state water plan adopted by the board under Texas Water Code, sec.16.051. Since this definition references the Texas Water Code provision under which the state water plan is adopted, it makes clear the authority for its passage and provides consistency in the term between this chapter and Chapters 357 and 358 of this title, dealing with the regional and state water plans, respectively. Section 355.92 governs the request for and receipt of applications for grant funding and is authorized by Texas Water Code, sec.15.4061(c). As funds become available and needs identified, the executive administrator publishes notice in the Texas Register requesting applications for grants to develop an initial scope of work, or to develop or revise regional water plans. Scopes of work for the initial funding cycle are to be submitted no later than August 1, 1998. Since the board and entities in regional water planning areas are just beginning to implement the new requirements for state and regional water planning passed in Senate Bill 1 of the 75th Legislative Session (SB 1), the initial demand for funds is expected to be great. By requiring all applications for the first-round of funding to be submitted by that time, the board anticipates that a more equitable allocation of existing appropriations for grant assistance will be made to the regional water planning groups. Applications for future funding may also be submitted and considered for funding at any time, but will depend on the available funds and demonstrated needs. The condensed timetable is consistent with other proposed board rules for regional water planning and is adopted in order to give the regional water planning groups additional time to develop meaningful regional water plans for incorporation into the state water plan. The executive administrator reserves the right to prescribe the form of applications to allow consistency resulting in better evaluation of all applications, and to reject incomplete applications in order to ensure the board has adequate information available to it when it considers the funding requests provided for in Texas Water Code, sec.15.401. Section 355.93 defines those planning activities eligible for funding, as authorized by Texas Water Code, sec.15.4061(c) through (g). Section 355.93(a) allows eligible applicants to apply for grants. Subsection (b) defines eligible activities for funding as those directly related to the development or revision of regional water plans, including public meetings and hearings, and excludes from funding eligibility the collection of data or analysis for which the board determines existing information is sufficient for the planning effort. This subsection also excludes from funding: activities associated with state or federal permits or approvals, administrative or legal proceedings by regulatory agencies, engineering plans and specifications; activities relating to planning for individual system needs (all items generally considered beyond the scope of planning and more closely related to plan implementation); and, until September 1, 2000, funding for areas smaller than a regional water planning area, until the board has committed funds to develop a regional water plan for such regional water planning area. The exclusion of items in subsection (b) from funding, if specific data exists, is consistent with Texas Water Code, sec.15.4061(g), which prohibits funding where sufficient data exists, including specifically those items listed in sec.355.93(b)(1). The board has adopted this rule to allow funding of such efforts if it determines that sufficient data or information does not exist for the planning effort, since certain situations may warrant funding. Subparagraph (b)(1)(E) has been adopted with changes to correctly use the term "state environmental planning criteria" rather than "environmental planning criteria," since the corrected term is the one defined in the chapter. The exclusion from funding of areas less than the entire regional water planning area until September 1, 2000, ensures that the limited amount of board resources are directed first at developing the regional framework for water planning, prior to more detailed analyses, thereby avoiding any possible duplication of funding for those activities under Subchapter A of this chapter. The board has excluded permit activities, legal proceedings, and plans and specifications from eligibility because they are beyond the scope of planning and begin the implementation phase of a project. The board's legislative authorization for these funds is only for regional water planning development, which includes a broad range of activities. The exclusion of planning for individual system needs other than as identification of facilities necessary to transport water on a regional basis, is adopted because the board determines that the scope of funding through Texas Water Code, sec.15.4061 is meant to be for regional level studies and not for individual projects. Subsection (b) is adopted with changes to specify that the board will fund public notices required of applicants for regional water plan funding under this chapter and the notices required in development of regional water plans by Chapter 357 of this title. This will include the notice of meetings and hearings on the planning effort. This change was made in response to comment about the costs involved in providing the notices and whether the board would fund such activities. In passing SB 1, the 75th Legislature incorporated many requirements for public notice and hearing, in the spirit of broad and open public involvement in the planning process, by authorizing the ongoing opportunity for public involvement as provided for by Texas Water Code, sec.16.053(a)(2). Since these items are integral to the planning process, the board considers them eligible for funding. Minor wording change is adopted for clarity to sec.355.93(b)(4). Subsection (c) prohibits the board from funding planning in a regional water planning area until the regional water planning group provides a copy of its bylaws to the executive administrator. This provides an incentive for regional water planning groups to enact bylaws and begin their planning process, which by statute must be completed in a limited period of time. It also helps assure that the board's limited funds are disbursed only to those regional water planning areas that are ready to actively engage in water planning. Subsection (d) requires subcontracts for professional services be secured based on a request for qualifications process. The requirements to secure professional contracts using the request for qualifications process will allow an evaluation of various firms for services and provide an opportunity to perform this work to a wider group of consultants. It will help assure that the qualifications of consultants are reviewed and also provide a documented basis for consultant/subcontractor selection that ensures that the product of board funding will be of a high quality. In providing the criteria for evaluation of applications, sec.355.94 expands upon the criteria outlined in Texas Water Code, sec.15.4061(f) by adding the following: (1) the degree of non-duplication of previous or ongoing planning, added to avoid duplication of effort and to promote the efficient utilization of available resources; (2) project organization and budget, added to assist in the determination of an equitable allocation of resources among the regional water planning groups and to provide responsible oversight of state funds; (3) a project scope of work, added in order that a determination of activities for which existing information is available be performed as a basis for evaluating whether the available resources can achieve the stated objectives within the allowable funding limits and time frame, and assess whether state resources could be provided as technical assistance by the board as required in Texas Water Code, sec.16.053(g); and (4) the eligibility of tasks under sec.355.93. The statute's requirements under sec.355.94 of: (5) applicant's relative need for the funding; (6) applicant's legal authority to participate in development/implementation of regional water plan; and, (7) the degree to which the applicant addresses the water supply needs in the regional water planning area are retained, but (6) differs slightly in that it provides the board's determination that, because individual political subdivisions will be applying for funding, they must only be a participant in the development and implementation of regional water plans, and need not develop and implement the initial regional water plan on their own. Paragraph (6) is adopted with changes based upon comments received to clarify the board's interpretation that the ability to implement a regional water plan is not essential to receive funds for the planning, since no one entity has the authority to plan for or implement water management strategies in an entire regional water planning area, but that if there are competing applications for limited funds, the entity which has authority to participate both in planning and implementation will receive preference in funding. This will allow entities with expertise in planning to take a lead in such efforts even though they do not have full power to implement such plan. Paragraph (5) is adopted with changes based upon comment received to clarify that the board will judge the relative need of a political subdivision based not upon its resource availability, but upon the costs of its planning needs relative to the costs of planning needs statewide. This will allow an equitable division of state funding throughout the state, all areas of which will be involved in this new process of regional water planning. Section 355.95 describes how the board will consider funding applications. Applications will be submitted to the board with a list of recommendations from the executive administrator for consideration at the earliest practical date. The applicant and persons who provide comments under sec.355.97 will be notified of the meeting. This section allows the staff with the appropriate technical expertise to first review the applications and provide recommendations to the board. It also provides that notice of the public meeting required by the Texas Water Code will be focused on those persons or entities, who, after receiving notice of the application under sec.355.97, express an interest in the project. The section is adopted with changes to clarify that the executive administrator provides summaries of all applications to the board and does not present to the board only those applications recommended for funding. Section 355.96 provides for the board to take action on an application, to specify a commitment of funds, and an expiration date by which the applicant must enter into a contract and demonstrate matching funds availability. The section is derived from Texas Water Code, sec.15.4061(d) and (e), which provides for the board's award of funds and conditions relating to contracts based on such award. A time limit on the board's commitment and a requirement to provide evidence of local funds within such time, is required to ensure that the limited funds are utilized in a timely manner and reflect the presence of local commitment. These requirements should foster proper program oversight and timely action by both the board and applicant. Minor grammatical changes are provided by inserting the terms "and" and "an" into the section. Section 355.97 requires applicants seeking funding for an initial scope of work to provide 30-day notice by newspaper publication and by mail to specified cities and to each county judge in the regional water planning area. Applicants for funding to develop or revise regional water plans, other than those applying for funds for the scope of work, must, in addition to the requirements for mailing and publishing notice for the initial scope of work, mail notice to all districts and authorities in the regional water planning area, and to all regional water planning groups in the state. Water districts, authorities and other regional water planning groups are included in the notice requirements for plan development and revision but not for scope of work because the amount of funds established for the scope of work funding has been established at a set amount by rule, and since the regional water planning groups will be designating the appropriate political subdivisions for the scoping work. At the stage of more detailed planning, the board considers it appropriate to notify the additional entities, including all regional water planning groups, because the applications will set out a scope of work and estimated cost of such work. These entities may have an interest in commenting on such aspects. The notice for scope of work was kept to a minimum because the board's discretion at this level is less, and because commenters to earlier versions of the rule asked the board to attempt to lessen the costs and burden of notice. Notice will however, be widespread and content structured to allow citizens and other concerned entities to decide whether to review further and/or comment. Comments must be filed with the board and applicant within 30 days. The board may not act before the 30-day comment period ends, which allows time for receipt of comments before board consideration. This section specifies the notice required by Texas Water Code, sec.15.4061(d) and reflects the expanded public participation noted in Texas Water Code, sec.16.053(h) and throughout SB 1. This section provides expanded opportunities for public input in the planning process. It should result in additional information being available for the board to consider in its deliberations on funding regional water planning studies. The board adopts changes in response to comment to subsection (b) to make references to notice at the city and county level parallel. Before the changes, the scope of work was to be provided to mayors and county judges, and the notice of the more detailed planning was to be provided to cities and counties. The board considers that sending the notice to the highest elected official in each entity provides more clear guidance to applicants on the notice, and makes both phases of notice consistent in this respect. The board also has made changes in response to comment to reflect the ability of the applicant to rely on lists of districts and authorities available from the Texas Natural Resource Conservation Commission (TNRCC) in providing notice under the section. Section 355.98 defines contract procedures for regional water planning and scopes of work. Paragraphs (1) and (2) track Texas Water Code, sec.15.4061(e). Paragraph (3) requires a time for completion, a prudent contract term to assure progress is made on studies within the statutory time constraints for regional water planning established in Texas Water Code, sec.16.053. Paragraph (4) allows the executive administrator to include other terms in the contract and tracks Texas Water Code, sec.15.4061(e)(3). The section should aid in the oversight and responsible management of state funds. Section 355.99 defines funding limitations. Subsection (a) allows 100% grants for initial scoping work, not to exceed $20,000 per planning area in FY 1998, in order to encourage and facilitate the regional water planning groups to form and develop scopes of work. The board has received estimates that an adequate scope of work can be prepared for $20,000 and thus the board's participation is limited to that amount. Subsection (b) limits the total grant funds per planning area to 75% of the total cost of planning in combination with grants for scope development. The 75% limitation on grants is in accordance with the fiscal note prepared for SB 1 and the ensuing legislative appropriations made to the board for the current biennium. The requirement to provide a 25% local match will also encourage buy-in by local interests by providing partial ownership in the planning effort which facilitates acceptance of the results of the planning effort. Subsection (c) allows in-kind services to be used for the local match, if such services: directly support the planning, are properly documented, and approved in advance by the board. The rule allows in-kind services to be used, recognizing that many local public subdivisions will be using their staff for support of these efforts and to reduce anticipated cash costs related to planning. The board requires advance approval to consider in-kind services as the local match so that proper allocation of the state's share is determined for the application and to provide certainty to the applicant and the proper oversight of state funds. Section 355.100 requires that all reports, documents and other products from regional water planning efforts funded by the board be made available to the board, Texas Parks and Wildlife Department (TPWD), and TNRCC, as required by Texas Water Code, sec.15.4061(h), and also one copy of regional water plans be placed in the county clerk's office and at least one public library of each county with land in the regional water planning area. The requirement to place the reports in the county clerk's office and library parallel the requirements of Texas Water Code, sec.16.053(h)(3), which requires initial regional water plans to be so distributed before public hearings. The board considers broad public dissemination of the studies to be important to meet the strong legislative intent in SB 1 for public availability of information, sufficient opportunity for public input required by Texas Water Code, sec.16.053(h)(2), and the board's belief that having such documents widely accessible to the public will serve to provide better local and regional decision-making. The board conducted a hearing on the proposed rules January 21, 1998, in Room 118, Stephen F. Austin Building, 1700 N. Congress Ave., Austin, Texas. The following made comments to board staff, either written or orally, at the public hearing or within the prescribed period following the hearing that the record was held open. Altura Energy, Ltd., Ark-Tex Council of Governments, Brazos River Authority, Brewster County, Brownsville Public Utilities Board, Colorado River Municipal Water District, the East Texas Council of Governments, Freese and Nichols, Inc., the Guadalupe-Blanco River Authority, Hays County, the Lone Star Chapter of the Sierra Club, North Central Texas Water Coalition, the City of Perryton, the Save Our Springs Alliance (SOS), the Texas Chemical Council, the Texas Farm Bureau, the West Central Texas Municipal Water District, and the City of Wichita Falls made comments requesting changes to particular sections of the rules. The following entities commented expressing support for changes made from earlier versions of the rules: Hays County, Lone Star Chapter of Sierra Club, North Central Texas Water Coalition, the Texas Chemical Council, and the Texas Farm Bureau. The following entities commented against portions of the rules: West Central Texas Municipal Water District and City of Perryton. In addition, three individuals commented with questions or suggesting changes to the rules. The Colorado River Municipal Water District commented, relating to sec.355.92, that it will be difficult, at best, to provide the initial scope of work to the board by August 1, 1998. The board has made no change to the rules based on this comment. Texas Water Code, sec.16.053(i) requires regional water plans to be submitted to the board for approval by September 1, 2000. Interim deadlines are necessary to allow the board to equitably distribute limited grant funds to fund regional water planning in all regional water planning areas of the state and to facilitate meeting deadlines prescribed for regional water plan adoption by September 1, 2000. The stipulated deadline can be met, based on the board's experience in funding similar scopes. Freese and Nichols, Inc. commented that provisions of sec.355.93(b)(1) will not allow detailed evaluations of cost to be eligible for funding where recent information is available, and requests the rules be changed to disallow such funding only where credible recent information of adequate quality for planning is available. It requests that a similar change be made in sec.355.93(b)(1)(F) to disallow funding for collection of groundwater data only if the existing available data is credible, published current information. The Colorado River Municipal Water District commented that various provisions of sec.355.93(b)(1) prohibit reimbursement of certain data costs and suggested that the rules should be changed to give the flexibility to evaluate existing data and to collect alternate data, if necessary. Colorado River Municipal Water District specifically commented that sec.355.93(b)(1)(D) prohibits reimbursement of costs related to a revision of the state population and demand projections, and that there exists some question regarding the board's population and water use projections, particularly in those areas which show a projected decline. The board disagrees there is a need to make rule change based on these comments. The language of sec.355.93(b)(1) and (b)(1)(D) comes almost verbatim from the statute. Funding of such costs is not absolutely prohibited by this rule. Rather, the board makes determinations of whether existing information is sufficient for planning purposes. The board will always be looking at the credibility and quality of information to determine whether additional studies and data collection are warranted. The determination of whether data is sufficient for planning includes reasonableness and prudence. Requiring that existing data be published before the board disallows funding for similar data collection could result in duplication of information and effort, as many credible data studies exist which are not published. The Brazos River Authority commented that the total administrative cost for notices, mailings, meeting arrangements, and other tasks associated with the public notice requirements of the rules and conduct of public meetings and hearings should be eligible for 100% funding. The board adopts changes to sec.355.93 to specify that public notices will be eligible for board funding. The rules as proposed already specified that public meetings and hearings are eligible for funding. The legislature appropriated money sufficient to fund only 75% of the estimated cost of producing regional water plans. Therefore, 100% funding of notice and meetings will not be possible. However, notices and meetings associated with grant funds for scope of work will be eligible for 100% reimbursement. However, this will reduce the percentage of grant money for the plan development itself, since both scope of work and plan development together are limited to 75% state grants. The Brazos River Authority commented that under sec.355.93(b), it is evident that local plans cannot deviate from state imposed planning unless the political subdivisions want to pay for the effort locally. It also inquires whether the cost for collecting, reviewing and assessing local plans would be eligible for funding since these are currently available. The board adopts no change in rules based on this comment. The assertion that plans cannot deviate from state imposed planning unless locally funded is not correct. Items can be funded that deviate if the existing data is not sufficient for planning purposes. This funding limit is imposed by statute. The consideration of local plans is an eligible expense under sec.355.93(b) and is used by the executive administrator to assess applications under sec.355.94(1). The Brownsville Public Utilities Board commented that sec.355.93(c) allows a grant recipient to use grant funds to employ consultants and attorneys for services that may otherwise be available from the board, TNRCC, TPWD, or the Attorney General. If grant funds are available for this purpose, the board should impose restrictions that avoid the appearance of impropriety. The board adopts no change in rules based on this comment. The staff resources of state agencies are insufficient to conduct all regional water planning as outlined in SB 1. The rules require an open process for the selection of professional services. The legislature appropriated funds based on the board's fiscal note that professional services would be necessary to accomplish the planning. The board expects all members of regional water planning groups and potential consultants to comply with any laws on conflict of interest or improper actions of the member and with rules of professional conduct. The Colorado River Municipal Water District commented that sec.355.94(5), concerning the consideration of the relative need of the political subdivision for the money, is vague. The District suggested that the need be related to the amount of work necessary to develop the regional water plan. The Brazos River Authority commented that under sec.355.94(5), the criteria for determining relative need should be stated or this item should be deleted. The board adopts changes to sec.355.94(5), concerning the consideration of the relative need of the political subdivision for money, that clarify the criteria set out in rule. It is the board's intention to provide equitable funding to the regional water planning areas by comparing the costs deemed necessary in a regional water planning area scope of work compared to the total cost of planning for all regional water planning areas and compared against available state funds. An individual commented that a political subdivision's selection by the board to serve on a regional water planning group is a de facto certification that the subdivision is eligible to receive funds under sec.355.94 and therefore sec.355.94, subparagraph (6) isn't really necessary. The board adopts no change in rules based on this comment. The political subdivision must have the support of the regional water planning group in order to apply for funding according to Texas Water Code, sec.15.4061(a) and sec.16.053(c). If the regional water planning group certifies a political subdivision then it would be eligible for funding. The board does not select all the political subdivisions that may participate in a regional water planning group. On an individual basis, the political subdivision must demonstrate its authority to plan in order to receive funding. An individual asked: whether the costs of notice were reimbursable from the grant; whether political subdivisions can use such costs as part of its local match; and whether the applicant or regional water planning group was responsible for the matching portion of the grant. The commentor did not request changes to the rules and the board has made none based upon this comment. The costs are reimbursable and may be used as part of the match. The applicant will be responsible for the local match, but may meet this responsibility through agreements with other entities. An individual asked whether local funds that were expended for prior studies that will be used as a part of the planning process could be used as a match to the grant? The commentor did not request changes to the rules and the board has made none based upon this comment. The prior expenditures are not eligible costs under this planning effort. The previous studies should have already resulted in a reduced cost of the planning study. The Brazos River Authority commented that the notice requirements under sec.355.97 are excessive and too expensive for the action taken. The newspaper notice should be sufficient, perhaps with the requirement of consecutive or multiple publications. The board makes no change in rules based on this comment. The board considers this notice to be necessary because to provide notice to potentially interested political subdivisions which may not necessarily be participating in the planning process or may not have representation on the regional water planning group. In addition, public input could be restricted without such notice. An individual suggested that sec.355.97(a)(2) require mailing notice to each mayor and city council of a municipality and to each county judge and commissioners court. The board adopts no change in rules based on this comment. The current proposed rule provides a single point of contact which will reduce the cost of notice while still providing notice to that unit of government. The Colorado River Municipal Water District commented that sec.355.97, Notice Requirements, is somewhat expensive and unnecessary, and therefore suggests publication in the Texas Register as an alternative. The board adopts no change in rules based on this comment. Costs for public notice are reimbursable as eligible expenses. Retaining notice of requirements provides for open planning process and a sufficient opportunity for the public to comment. Other comments on the level of notice were positive. The Lone Star Chapter of the Sierra Club commented that it appreciates and supports the language in sec.355.97 and sec.355.100 which enhances the ability of the public to be informed about the applications for planning assistance to develop regional water plans in their respective areas. The commentor has requested no change but supports the rules as published. Freese and Nichols, Inc. commented that in order to comply with the notification requirements of sec.355.97, the board should provide each regional water planning group with a list of all entities covered by the requirements and include the information required to provide notice. The board adopts changes in rules based on this comment. The rule is changed to reflect that the applicants may rely on certain lists of entities based on records of TNRCC. While no other change is proposed, it would be the board's intent to provide such a list for the convenience of the applicants. The West Central Texas Municipal Water District commented that both the legislature and the board have failed to adequately provide for funding to the local governments for carrying out the regional water planning activities mandated by SB 1. The pre-planning costs required of the initial coordinating body, including travel, telephone, public notice, and public hearing costs and expenses should be covered entirely by grants. The board adopts no change in rules based on this comment. The costs cited are eligible for 100% funding based on the board's assessment of reasonable costs for the development of a scope of work, although it will reduce the percentage of grant money available for plan development itself. The total cost of scope of work and plan development is limited to 75% funding based on the amount of funds appropriated by the 75th Legislature. An individual commented that sec.355.99 suggests that scoping grants are also limited to 75%. The board adopts no change in rules based on this comment. The overall participation by the board in a project is 75%; however, to facilitate participation, the board will provide 100% of the initial cost for development of the scope, not to exceed $20,000. This will allow the initial costs to be funded entirely by grants while the regional water planning groups are continuing to get started. This will assist in meeting the deadlines of SB 1and facilitate participation in the scope of work development. The overall limit of 75% reflects the appropriations made to the board for funding regional water planning. The Brazos River Authority commented that the board should consider reduced local matching requirements due to the inability of smaller cities to generate in-kind matching funds. The board adopts no change in rules based on this comment. The 75% portion is based on the amount appropriated by the legislature. The City of Perryton commented that the requirement for local cost share is an unfunded mandate. The board adopts no change in rules based on this comment. The 75% portion is based on the amount appropriated by the legislature. The Brownsville Public Utilities Board commented that sec.355.100 designates that certain entities have access to the reports, planning documents, and other work products resulting from projects receiving board funding assistance, and recommends that those receiving notice under sec.355.97 should also receive the work products. The board adopts no change in rules based on this comment. The proposed addition is unduly expensive and unnecessary, since the entities can access copies at the public repositories. City of Wichita Falls asked whether there is any estimate on total SB 1 costs? Are there any board guidelines for local match provision or sharing among entities? What are the incentives for participation in the process and is participation required for board funding? The board proposes no change to the rules based on these questions. The board estimates that $16.8 million is the total SB 1 cost to regional water planning groups in developing and adopting their initial regional water plans due September 1, 2000. The proposed rules delegate the guidance for local match provision and/or sharing to the regional water planning groups. The incentives for participation include: better planning, access to board funding programs, and an ability to have a strategy listed in the regional and state water plan thereby placing the political subdivision in a better position to receive either board financing or a surface water right from the TNRCC (each agency must find projects or amendment to address a water supply need in a manner consistent with the state or regional water plan in order to be granted funding or a permit, absent an exception being found justified). While participation is not explicitly required to receive board funding of projects, nonparticipation will allow a regional water planning group to not address the needs of an entity in the regional water plan. Projects must be included or consistent with the regional water plan to be eligible for board funding absent the board's finding a waiver of such requirement is warranted. An individual commented on the requirement to update the State Water Plan every five years and asking if the regional water plans are required to be updated in this same time frame. If so, who is expected to pay for this work? If left up to the local groups, it will be difficult to bring all the players to the table to put up the money when the size of the group is comparatively small. If the state pays, will the legislature continue to appropriate funds or establish a fee to cover the costs. No rule change was requested and no change was made. Section 357.5(b) requires regional water plans to be prepared, adopted, and submitted to the board at least every five years. The proposed rules require a 25% local match (cash or in-kind services) from each regional water planning area. Some entities in the regional water planning area may overmatch to achieve the 25% total for those who can not. The state portion of funding is proposed at 75% (cash) with other assistance provided as technical assistance. The legislature has appropriated funds for the next two years and can not legally appropriate beyond the biennium. Future appropriations will be determined by the appropriate Legislature. The Colorado River Municipal Water District commented that the schedule is too fast. The District aid that the regional water planning group is the key to success and the board should name as few members as possible. Also, financing is critical and the availability of money should be tied to planning needs. Further, the regional water planning groups should consider conservation and reuse and the plans needs to be flexible. The board makes no change in rules based on this comment. The timeframe for rules development was necessarily compressed by the statutorily mandated time of regional water plan completion and the board's desire to give the regional water planning groups the most time possible for its development. Regional water planning group numbers will almost certainly vary from regional water planning area to regional water planning area, as local conditions warrant. The board's adopted rules for funding the regional water plan's development do incorporate the concept of needs to funding level, by requiring that scopes of work be developed. Conservation and reuse are issues to be considered by the regional water planning groups in their development of management strategies. The board believes that the rules, as adopted, provide flexibility in the regional water planning process. The Ark-Tex Council of Governments asked whether the board would be providing a model scope of work, whether any formula exists for funding between regional water planning areas. It observes that local match may be hard to raise. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. Information packets will be provided to the various regional water planning groups upon their selection which will address the required scope of work. No formula exists for funding between the regional water planning areas. Local match should be indicative of local interest in the regional water planning program. The North Central Texas Water Coalition commented on the December 18, 1997 final draft regional water planning areas and proposed rules, endorsing them for adoption. No changes to the rules are requested or necessary as comments are supportive of the existing rule language. The East Texas Council of Governments commented that the planning process that results in a board-driven process rather than a "bottom up" plan and expressed concern about a "hurried process." No change in rules were requested and no changes are made. The schedule for public comments on the second draft was extended to December 15, 1997; all other schedules remain the same. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. Brewster County provided comments regarding the amount of time available to provide comments on the draft rules and regional water planning areas. The revised schedule is too short; more time is needed for the public to become familiar with the areas, guidelines, and their ramifications. The board believes that no changes to proposed rules are necessary. The schedule for public comments on the second draft was extended to December 15, 1997; all other schedules remain the same. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. An individual commented that the rules have improved as the process has unfolded. Notice provisions have improved. There has been a tendency to diminish the role of TPWD from a co-equal decision-making role and their role should be restored to that of the first draft. Instream flows and bay and estuary inflows have been relegated to secondary status and given uneven treatment throughout. The phrase "water management" is used in the first two drafts of the rules. In the final draft it reads "water supply management" and should be restored to the original "water management." The rules were changed to replace phrase "water supply management strategies" with "water management strategies" throughout the rules to better follow Texas Water Code, sec.16.053 and recognizing that additional supply is not the only method of meeting a water need. The public comment process has resulted in changes to the proposed rules which agency staff believes have improved them. The role of TPWD in the proposed rules is stronger than the statutory requirements of SB 1. The board believes that TPWD will have a significant role in the process, but the final responsibility for implementation of the planning process rests with the board according to SB 1. An individual asked if there is an appeals process in Texas courts for SB 1 decisions and, if so, which courts have jurisdiction? No rule change was requested and no change was made. Agency staff believes that no provisions in SB 1 or the proposed rules affect the right to appeal decisions to a court of competent jurisdiction. The Guadalupe Blanco River Authority commented that legislative intent in SB 1 was for the board and river authorities to be facilitators in this process. No rule change was requested and no change was made. SB 1 and the proposed rules are clear that the responsibility for assistance in the planning process is the board's. The proposed rules allow regional water planning groups to designate a river authority or other entity to lead or otherwise facilitate planning efforts for the group. Altura Energy, Ltd. commented on the pace of the comment process. Draft rules are proceeding with little input from interested parties. The board should give comments from interested parties their full consideration. No rule change was requested and no change was made. Numerous public meetings and comment periods were used to gather substantial public input. Several revisions to the draft rules and regional water planning areas resulted from these public comments, and agency staff believes the final draft is a better product as a result of these comments. Hays County commented that they are encouraged by the fact that most of their recommendations on initial drafts of rules were incorporated in the final draft, restated their support for their comments, and suggest that they be adopted. No rule change was requested and no change was made. The comments received in writing and in public meetings were very useful in developing the final draft of the proposed rules. The Texas Chemical Council supported the rules as published. They believe agency staff has done a superb job of responding to the concerns of those interested in this vital process. The comments received in writing and in public meetings were very useful in developing the final draft of the proposed rules. Lone Star Chapter, Sierra Club provided comments expressing appreciation to the board for the hours of hard work, and for the openness shown and assistance provided by staff to all interested parties. The public input during the process both in writing and in public meetings was very useful in developing the final draft of the proposed rules. SOS provided comments relating to ensuring that adequate participation by the public must be ensured. No rule change was requested and no change was made. Full public participation and input to the planning process is guaranteed by SB 1 and the final draft rules. It is evidenced by the numerous public meetings, hearing, and comment periods in which numerous comments were received which resulted in beneficial changes to the proposed rules. The West Central Texas Municipal Water District provided comments related to their appreciation of the openness and responsiveness of the board. They found active evidence that their general concerns and suggestions were being heard. No rule change was requested and no change was made. The public input during the process both in writing and in public meetings was very useful in developing the final draft of the proposed rules. The Texas Farm Bureau commented on the rulemaking process utilized by the board to develop Chapters 355, 357, and 358 of this title. The Bureau indicated that many of their members are reassured by the process and feel an "ownership" in it, and will therefore support the process. Nonetheless, the Bureau hopes the board will remain flexible and amend any rules when circumstances suggest change is appropriate. No request for a rule modification was noted in the comment and the board has made none based upon this comment. The board considers the rules, as adopted, to be flexible enough to handle most circumstances. However, when circumstances suggest otherwise, the board will review the rules and make modifications as necessary. The Brazos River Authority commented that it endorses the board's "open" rulemaking process and applauds the regional water planning concept and effort. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board, however, assuredly appreciates the affirmation of its rulemaking process. The sections are adopted under the authority granted in: Texas Water Code, sec.6.101, which directs the board to adopt rules necessary to carry out the powers and duties of the board provided by the Texas Water Code and other laws of Texas; Texas Water Code, sec.15.403, which directs the board to adopt rules to carry out Texas Water Code, Chapter 15, under which the board provides the funding for regional water plans; and Texas Water Code, sec.15.4061, which requires the board to adopt rules establishing criteria for eligibility for regional water planning money. sec.355.93. Eligibility. (a) Applicants. Eligible applicants may apply for grants to develop an initial scope of work or to develop or revise regional water plans. (b) Activities. Those activities directly related to the development or revision of regional water plans including public notices required under sec.355.97 of this title (relating to Notice Requirements) and Chapter 357 of this title (relating to Regional Water Planning Guidelines), public meetings and hearings are eligible for funding, with the exception of: (1) activities for which the board determines existing information or data is sufficient for the planning effort including: (A) detailed evaluations of cost of water management strategies where recent information for planning is available to evaluate the cost associated with the strategy; (B) evaluations of groundwater resources for which current information is available from the board or other entity sufficient for evaluation of the resource; (C) determination of water savings resulting from standard conservation practices for which current information is available from the board; (D) revision of the state population and demand projections; (E) revision of state environmental planning criteria for new surface water supply projects; and (F) collection of data describing groundwater or surface water resources where information for evaluation of the resource is currently available; (2) activities directly related to the preparation of applications for state or federal permits or other approvals, activities associated with administrative or legal proceedings by regulatory agencies, and preparation of engineering plans and specifications; (3) activities related to planning for individual system facility needs other than identification of those facilities necessary to transport water from the source of supply to a regional water treatment plant or to a local distribution system; and (4) until September 1, 2000, requests from eligible applicants to plan for areas smaller than the regional water planning area in which it is located prior to the commitment of funds by the board to develop a regional water plan for that regional water planning area. (c) Bylaws. The board may not approve funds for a regional water planning area until a copy of the adopted bylaws of the regional water planning group that meet the requirements of sec.357.4(k) of this title (relating to Designation of Regional Water Planning Groups) has been filed with the executive administrator. (d) Subcontracting. A grant recipient or subcontractor of a grant recipient may obtain professional services, including the services of a planner, land surveyor, licensed engineer, or attorney, for development or revision of a regional water plan only if the grant recipient or subcontractor of a grant recipient has secured such services on the basis of demonstrated competence and qualifications through a request for qualifications process. sec.355.94. Criteria. Applications will be evaluated by the executive administrator, considering, at the minimum, the following criteria: (1) degree to which proposed planning does not duplicate previous or ongoing planning; (2) project organization and budget; (3) scope of work of project; (4) eligibility of tasks included in sec.355.93 of this title (relating to Eligibility); (5) the relative need of the political subdivision for the money based upon an assessment of the necessary scope of work and cost to develop the regional water plan which is the subject of the application compared to statewide costs for development of all regional water plans; (6) the legal authority of the political subdivision to participate in the development and implementation of a regional water plan. If there are competing applications within a regional water planning area, preference will be given to political subdivisions with the authority to participate in the implementation of a regional water plan; and (7) the degree to which regional water planning by the political subdivision will address the water supply needs in the regional water planning area. sec.355.95. Board Consideration of Applications. The executive administrator will submit a summary of applications to the board with a list of those applications recommended for approval. The applications shall be scheduled on the agenda for board consideration at the earliest practical date. The board shall notify the applicant and other persons who have provided comments to the board under sec.355.97 of this title (relating to Notice Requirements) of the time and place of such meeting. sec.355.96. Action of the Board on Applications. At the conclusion of the meeting to consider the project, the board may resolve to approve, disapprove, amend, or continue consideration of the application. Approval action shall specify a commitment of funds, and specify a commitment period during which an eligible applicant must enter into a contract and demonstrate matching funds availability, after which time the commitment shall expire, unless a time extension is granted by the board. sec.355.97. Notice Requirements. (a) Initial scope of work grant applications. Eligible applicants requesting funds to develop initial scope of work must, not less than 30 days before board consideration of the application, provide notice that an application for planning assistance is being filed with the executive administrator by: (1) publishing notice once in a newspaper of general circulation in each county located in whole or in part in the regional water planning area; and (2) mailing notice to each mayor of a municipality with a population of 1,000 or more or which is a county seat and that is located in whole or in part in the regional water planning area, and to each county judge of a county located in whole or in part in the regional water planning area. (b) Develop or revise regional water plans. Eligible applicants requesting funds to develop or revise regional water plans must, not less than 30 days before board consideration of the application, provide notice that an application for planning assistance is being filed with the executive administrator by: (1) publishing notice once in a newspaper of general circulation in each county located in whole or in part in the regional water planning area; and (2) mailing notice to each mayor of a municipality with a population of 1,000 or more or which is a county seat and that is located in whole or in part in the regional water planning area, to each county judge of a county located in whole or in part in the regional water planning area, to all districts and authorities created under Texas Constitution, Article III, sec.52, or Article XVI, sec.59, located in whole or in part in the regional water planning area based upon lists of such water districts and river authorities obtained from Texas Natural Resource Conservation Commission, and all regional water planning groups in the state. (c) Notice content and copies. The notice shall include the name and address of the eligible applicant and the name of the applicant's manager or official representative; a brief description of the regional water planning area; the purposes of the planning project; the board's name, address, and the name of a contact person with the board; a statement that any comments must be filed with the executive administrator and the applicant within 30 days of the date on which the notice is mailed or published. Prior to action by the board, the applicant must provide one copy of the notice sent, a list of those to which the notice was sent, the date on which the notice was sent, copies of all notices as published showing name of the newspaper and the date on which the notice was published. (d) Board action. The board may not act on such application before the end of the 30-day notice period. sec.355.100. Availability of Reports and Planning Documents. All reports, planning documents and any other work products resulting from projects receiving board funding assistance must be made available to the board, the Texas Parks and Wildlife Department, and the Texas Natural Resource Conservation Commission and one copy of the regional water plans placed in the county clerk's office for each county and in at least one public library of each county having land in the regional water planning area. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802488 Suzanne Schwartz General Counsel Texas Water Development Board Effective date: March 11, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 463-7981 CHAPTER 357. Regional Water Planning Guidelines 31 TAC sec.sec.357.1-357.14 The Texas Water Development Board (board) adopts new sec.sec.357.2-357.12 and sec.357.14, Regional Water Planning Guidelines, with changes to the proposed text as published in the December 26, 1997, issue of the Texas Register (22 TexReg 12687). Sections 357.1 and 357.13 are adopted without changes and will not be republished. Sections 357.1-357.14 comprise new 31 TAC Chapter 357, concerning regional water planning. New Chapter 357 relates to the development and adoption of regional water supply plans and the approval of such plans by the board. It implements provisions passed in Senate Bill 1 of the 75th Legislative Session (SB 1). SB 1 amends the Texas Water Code by requiring regional water planning areas designated by the board to develop water supply plans which must be approved by the board. The sections were changed throughout to assure consistent uses of the terms "regional planning areas," "regional water planning groups," and "regional water plans." These changes are not substantive. Minor punctuation and clean-up changes were also made. Section 357.1 defines the scope of Chapter 357, including: (1) designating regional water planning areas; (2) designating regional water planning groups; (3) consideration of existing planning efforts; (4) the format of regional water plans; (5) plan development; (6) the adoption of plans by their groups; and, (7) board approval of regional plans. The board is directed by Texas Water Code, sec.16.053(d) to provide guidelines for consideration of existing regional water planning efforts by regional water planning groups, and to provide guidelines for the format in which information is to be presented in the regional plans. Section 16.053(e) requires that regional water plans be consistent with the guidance principles of the state water plan and provide information based on data provided or approved by the board in a format approved by the board. Section 16.053(f) requires the board to adopt rules that provide for the procedures for adoption of regional water plans by the regional water planning groups for approval of regional water plans by the board and to govern procedures for carrying out the responsibilities of the section. Section 357.2 defines terms used in the chapter are: Board refers to the Texas Water Development, and is derived from Texas Water Code, sec.16.001(1). Drought of record is defined as the period when natural hydrological conditions provide the least amount of water supply. Texas Water Code, sec.16.053(e)(3)(A) requires plans to contain specific water management strategies to be used during a drought of record. The term is defined in accordance with current state water planning guidelines and common usage among hydrologists. It is used in the manner that is consistent with Texas Natural Resource Conservation Commission's (TNRCC) use of the term in its evaluation of permits, thereby assuring consistency between the planning and permitting process. Executive administrator follows that of Texas Water Code, sec.16.001(5) and sec.6.001(2). Authorization of the delegation of the executive administrator's duties is allowed by Texas Water Code, sec.6.183. This definition recognizes that many ministerial duties are performed by the staff of the executive administrator, who is the administrative head of the board. Flows at 50 percent of normal and Flows at 75 percent of normal are defined as the amount of water supply based on 50 percent or 75 percent of the normal hydrological condition. The term is used in the Texas Water Code and these rules, both of which require that regional water management plans have specific provisions for water management strategies to be used when flows are at 50 percent and 75 percent of normal. The use of normal hydrologic conditions key the flows to a region's specific situation, thereby making the definition flexible throughout the state. Long-term water needs is defined as those needs which must be met by implementation of water management scenarios within the next 30 to 50 years based on federal census years (2040, 2050, etc.). Near-term water needs is defined as those needs which must be met by implementation of water management strategies within the next 30 years based on federal census years (2000, 2010, 2020, 2030, etc.). The use of scenarios in sec.357.7(a)(8) indicates it is a combination of various strategies, which are specific methods for management of water resources. Texas Water Code, sec.16.053(e)(3) requires recommended strategies to be included in regional water plans. The rules differentiate between long-term water needs and near-term water needs, with less specificity required for demonstrating how long-term needs could be met. The board considers it important to plan one course of action during the near -term period to allow the entities to take necessary action to secure a water source. Sufficiently detailed information on strategies to satisfy near-term needs will permit the board to review the consistency of proposed financial assistance with the regional and state plans, as required by Texas Water Code, sec.16.053(j), and to permit TNRCC to review the consistency of water rights decisions with such plans, as required by Texas Water Code, sec.11.134. The 30-year period is chosen as the period of specific short-term planning because most entities which are anticipating any new water projects that are needed within such time period will have to know such specific information to timely get these projects in place. The board also recognizes that regional water planning groups will be less likely to be able to specify one course of action that it will follow the farther out the water demand. Many situations which cannot be anticipated today can eliminate some options for future supply while making other options more attractive. These could include changing regulations, economics and technology. The definition ties the periods for near-term needs and short-term needs to census years. These reference the U.S. population census that occurs every ten years. The census information provides actual information critical for establishing base year planning criteria including revision of population projections, establishing specific growth trends that have occurred over the last ten years and associated water needs for these growth trends. Historically, most long-term water planning studies for local areas, regions, and the state have used the census years as future points in time and many of these plans could be used as part of the regional water supply plans. The definitions are adopted with change to use the term water management strategies rather than water supply management strategies. The deletion of the term supply from the phrase, based on comment received, reflects that water supply is not the only method of meeting water needs, and also makes the phrase consistent with statute. This change has been made throughout the chapter. Normal hydrological conditions is adopted with change from the published text based on comments received. The definition specifies that for surface water sources, it is the median of all stream flows adjusted for effects of upstream releases, return flows, evaporation, changes in storage and diversion in the flow range that occurs most frequently. This definition removes the effects of man's manipulation of the stream, thereby providing a backdrop on which the regional water planning groups may evaluate the full impact of existing water rights, and future water uses. For ground water sources, it is defined as the median of all precipitation values in the precipitation range that occurs most frequently. This definition is in accord with state water plan guidelines and provides consistency. Flow range and precipitation determinations are covered in sec.357.7(a)(3) which provides that the executive administrator, working with TNRCC, TPWD and the regional water planning groups, shall identify a methodology to calculate normal hydrological conditions. Political subdivision is defined consistently with Texas Water Code, sec.16.001(7). Regional water plan refers to an adopted or approved regional water plan or any amendment to such a plan pursuant to Texas Water Code sec.16.053. It is consistent with the definition in Chapter 358 of this title relating to State Water Planning Guidelines. State water plan is defined as the most recent state water plan adopted by the board under Texas Water Code, sec.16.051. This definition references the Texas Water Code provision under which the state water plan is adopted, making clear the authority for its passage and providing consistency in the term between this chapter and Chapters 355 and 358 of this title, dealing with the grants to regional water planning groups and state water plans, respectively. Section 357.3 provides guidelines on the board's designation of regional water planning areas. Texas Water Code, sec.16.053(b) requires the board to designate areas for which regional water plans shall be developed. Section 357.3(a) lists the seven factors the Board will consider in designating regional planning areas. These factors are statutorily required by Texas Water Code, sec.16.053(b). Such factors are historically integrated into water planning efforts and are consistent with the current state water plan. Section 357.3(b) requires the board to review and update the regional designations as necessary, but at least every five years, a requirement of Texas Water Code, sec.16.053.(b). Subsection (b) also provides that 30-days notice be given should the board seek to amend the designation of regional planning areas by publishing proposed changes in the Texas Register and by mailing notice to regional water planning groups, cities, counties, water districts and river authorities. While the statute imposes no notice requirement on the board on the redesignation of regional water planning areas, the board considers the solicitation of and receipt of public comment in preparation for and during the planning process to be in the spirit of ongoing public involvement, which is a cornerstone of the SB 1 provisions. Subsection (b) is adopted with change requested by public comment to add water districts and river authorities to those entities which receive notice of the proposed change in regional water planning area designations, and to allow the board to rely on a list from TNRCC of such districts and authorities. The concept of providing a list from TNRCC upon which all entities may rely has been added to the notice requirements throughout the chapter, based on the concept that it provides a single, reliable source of such information and removes questions about whether notice has been properly sent. The subsection also has been changed in response to comment to require the board to hold a hearing before making any changes to the regional water planning areas. Section 357.4, which describes the process for designation of regional water planning groups, is adopted with changes. Subsection (a) provides for the naming of an initial coordinating body by the board upon the initial designation of a regional water planning area or when the board makes changes to the designation of such areas. The section requires that the board designate representatives of interests from within each regional water planning area to serve as the initial coordinating body. This language was adopted with changes in response to public comments, to clarify that the interests must have a presence within the regional water planning area, rather than strictly requiring the representative herself to live within the regional water planning area. This change recognizes that an interest with a presence in the region that warrants representation, such as a river authority which has boundaries in a regional water planning area, may be best represented by a person living outside the region. Section 357.4(a) requires the board to designate one representative for each of 11 interests to the initial coordinating body. The 11 interests are set out in Texas Water Code, sec.16.053(c), which requires the initial coordinating body appointed by the board to appoint additional members to assure the adequate representation of interests comprising the region, including the specified11 interests. The board has chosen to appoint representatives of at least these 11 interests to the initial coordinating body to assure adequate representation of all these interests from the beginning of the process. The board received a great deal of input that a broad appointment of the initial coordinating body by the board would ensure the continued balance of these interests on the panel, and would facilitate the overall regional water planning process by avoiding potential conflicts at earlier stages. Some persons providing input to the board indicted concern that if a representative of an interest was not named to the initial coordinating body by the board, the representatives of interests that were named would have much greater control over the planning process and could select persons that did not represent a strong candidate from the unnamed interest. The board has adopted changes to the subsection in response to comment to indicate that where an interest is not present within a designated area, the board will not be required to appoint a representative. The board has up to 60 days in which to appoint representatives to the initial coordinating body after delineating and designating the regions, a time limit set by statute. The board has adopted changes to subsection (b) in response to comment regarding concerns over balanced representation of the initial coordinating body. The new language specifies that the board may name additional representatives to the initial coordinating body to replace representatives who are not able to serve within this 60-day period until the initial coordinating body has informed the executive administrator that it has completed making its appointments to the regional water planning group. This will allow the board to assure continued balance on the initial coordinating body as it goes through its formation stage. The subsection allows the board to designate persons to the initial coordinating body in addition to those representing the 11 interests in order to meet the special needs of the region. This language recognizes that flexibility and adaptability are important where regional water planning areas may have significant and multiple subinterests. For example, many regions have significant and multiple river authorities, competing environmental concerns, and broad geographic diversity which may pit rural interests against urban ones, or farming against ranching concerns within agricultural interests. Additionally, the language allows for the designation of representatives from unidentified interests or interests peculiar to one region. Potential examples include regions with large scale recreational facilities representing significant water use, or institutions with large land holdings, and navigation or port authorities. This section defines the 11 mandated interests. These definitions will impact the board's appointment of initial coordinating body members, and the appointment by initial coordinating body of additional members to represent the interests comprising the region. "Public" is defined as those persons or entities having no economic interest in any of the remaining interests other than that of a normal consumer. The board adopts this definition in order to provide a unique forum for the public as a whole and for those persons or entities without any significant interest group or voice. The board recognizes that no person is without some economic interest in the region in which she lives; thus, consumerism is excluded from this definition. Additionally, the board intends the word "normal" to include all forms of consumerism reasonably associated with the general public's purchasing practices. "Counties" refers to all the 254 recognized counties in Texas. "Municipalities" encompasses all those governments of cities created or organized under the general, home-rule, or special laws of this state. "Industries" are legal entities formed and organized to make a profit and which produce or manufacture goods or services. The board follows legislative designations by intentionally excluding small businesses from this interest category in order to ensure adequate representation of multiple subinterests. Because this term specifically excludes small business, by definition, it incorporates those legal profit-making entities which produce or manufacture goods or services, and have 100 or more employees or $1 million or more in gross annual receipts. "Agricultural interests" are those persons or entities associated with the production or processing of plant or animal products. The board intends the words "associated with" to enlarge the scope of interests in this category; it seeks to include all those persons or entities which aid, support, benefit or profit from the production or processing of plant and/or animal products. It may include non-profit and/or governmental entities. "Environmental Interests" are defined as persons or groups advocating the conservation of the state's natural resources. This definition was amended with changes to remove the phrase "wise use" based upon public comment that such phrase includes those less interested in environmental purposes but more interested in private property rights. "Small businesses" are defined as those legal entities organized to make a profit, which are independently owned and operated, and have fewer than 100 employees or less than $1 million in gross annual sales receipts. The board adopts this definition intending to ensure adequate representation of smaller businesses, which as a group may have large impact on water demand and usage within the designated region. The board seeks interests which represent independently owned and operated regional entities as opposed to large industries, which are more likely to be controlled by absentee owners. Following this idea, the board is capping the number of employees or the businesses' annual gross receipts as a way of distinguishing between the industry and small business interests. "Electric generating utilities" are defined as persons or entities other than municipal corporations or river authorities, owning or operating for compensation, equipment or facilities for producing or generating electricity within a regional water planning area for wholesale or retail sale to others. The board adopts this definition in order to generate representation in regional water planning areas for private electrical generators which generate power for most of the state. Many of these electrical providers have hydroelectric plants and thus have a significant impact on regional water planning efforts. Either through cooling water or use of water to itself generate power, this utility is a large water consumer. The paragraph has been adopted with change based upon comment to make it clear that each of the three criteria must be met. "River authorities" is defined as any districts or authorities legislatively created, containing areas within their boundaries of one or more counties and which are governed by boards of directors appointed or designated in whole or in part by the governor or the board, including, without limitation, the San Antonio River Authority and Palo Duro River Authority. The board intends this definition to generally parallel Texas Water Code, sec.30.003(4). The two river authorities which are specifically listed meet all of the tests of river authorities except the appointment of their governing bodies. They historically have been accorded the authority, power and obligations of river authorities. The section is amended specifically to include Palo Duro River Authority based on comment received. "Water districts" are defined in accord with the Texas Water Code, sec.36.001 as any district or authority created pursuant to the Texas Constitution, Article III, sec.52, or Article XVI, sec.59 including those with authority to regulate the spacing of water wells, the production from water wells or both, but not including river authorities. This is a standard definition of water district, and specifically includes groundwater conservation districts so they would be include in one of the "interests" as they play a major role in water management. "Water utilities" are defined as persons, corporations or cooperative corporations which supply water for compensation except for the other statutorily separate interests already identified -- municipalities, river authorities, or water districts. This category generally includes nonprofit water supply corporations or those private or semi-private entities which supply water. Section 357.4(b) directs the executive administrator to prepare for the board by each regional water planning area a list of nominees for each interest on the initial coordinating body. The list is to give strong consideration to a consensus nominee from the individuals and entities that represent the interest. Other criteria for recommendation include a willingness to serve, water knowledge, regional water planning experience, commitment to the process, and geographic diversity. The board recognizes that this process may entail some subjective choices in its application and search for candidates; however, the board will undertake efforts at ensuring an objective process. It is recognized that there will be great variety in candidates' backgrounds and that they will vary from region to region. Nonetheless, the overall criteria should help to select initial nominees who can facilitate the overall process while also contributing to the consensus-building goals. While consensus nominees are given strong consideration, the board intends it to be balanced with the remaining elements to ensure the choice of the best possible nominee. Wide geographic representation is included in an attempt to ensure region-wide representation in the planning process and on the initial coordinating body. The board adopts this language in order to further ensure adequate representation of interests. The subsection is adopted with change based on comments to clarify that the factors listed for consideration by the executive administrator are not exclusive. Section 357.4(c), which was adopted with changes, based on comments, governs the initial coordinating bodies' meetings and selection of additional members necessary to form a regional water planning group. The subsection repeats the statutory requirement that the initial coordinating body shall designate additional representatives ensuring adequate representation of interests comprising the regional water planning area. The language was changed slightly to make it identical to statutory language. Questions arose from comments received whether the initial coordinating bodies must appoint additional members to comprise the regional water planning group. The board determined it best to utilize the statutory language, which does appear to require additional appointments, ensuring adequate representation of interests comprising the regional water planning area. The references to the addition of non-voting members was deleted from this subsection, as its scope is now limited only to selection of the voting members of the regional water planning group. The reference to subsection (f)(4) was changed to (g)(4) to reflect a numbering change. This subsection was further changed to allow the executive administrator to post and convene a meeting of the initial coordinating body at the request of a majority of its members or if the initial coordinating body does not meet within 30 days of the selection of its members by the board. This change was made in response to public comment that indicated a desire for board assistance in posting and convening the first meeting of the initial coordinating body. The board has chosen to allow the initial coordinating body to take such actions within a limited time frame, in deference to the local control issue. However, realizing the difficulty inherent in the formation of a body and in posting and convening meetings before any structure of the body has been established, the executive administrator may take on this task after 30 days to ensure the entities are able to begin their work to meet statutory time-frames for regional water planning. If the executive administrator determines it necessary to convene such meeting, he is required to consult with members of the initial coordinating body on time and location. The rule also has been changed to require the initial coordinating body to make its selection of additional members that will form the regional water planning group by a two-thirds vote of the designated members of the initial coordinating body. This super-majority vote will help ensure that the initial equity between the represented interests is protected to some degree during the addition of new members, thus addressing concerns raised by comments. It also will ensure that a broad agreement of the representatives is utilized to make selections, and is anticipated to lead to stronger consensus building once the regional water planning group is actually formed. The subsection allows the regional water planning group to designate certain non-voting members as voting members. This will allow the regional water planning groups themselves to determine the value and appropriateness to their planning effort of having a person or entity located in another region to vote on the regional water planning group if it receives a substantial amount of water from or supplies a substantial amount of water to the regional water planning area. Each regional planning group is in the best position to determine whether these representatives should have voting status. Section 357.4(c) also requires the regional water planning group to provide a list of its members to the executive administrator, showing how the interests specified by statute and rule are represented. This requirement will provide the administrator with information that allows him to be certain he is dealing with a duly constituted regional water planning group. The provisions of sec.357.4(d) have been added based on comments received to make it clear that the regional water planning groups themselves make the representations to the board of compliance with the requirements for representation of interests in the regional water planning area. It also makes clear that the regional water planning group is recognized by the executive administrator after the group informs the executive administrator that all interests are represented. The subsection provides that the regional water planning group is comprised of the initial coordinating body members and the members named by that group, and differentiates between voting and non-voting members. These requirements will allow the executive administrator to better perform his duties of making funding available to political subdivisions appointed by the regional water planning groups, and assisting the regional water planning groups with technical and other assistance by establishing a formal recognition mechanism. It also will aid the executive administrator in knowing whether to take action to assist the group during its formation stages. Subsection (e) {formerly subsection (d)} is adopted with change in response to comments to make it clear that regional planning groups may, at their discretion, add representatives at any time after formation. The group is required to continue to ensure adequate representation of interest in the regional water planning area, and language changes were made to ensure the rules more closely track the statutory language. Subsection (f) {formerly subsection (e)} reflects a continuing role for the board in selecting initial group members should changes in the regional water planning area boundaries become necessary. The board considers this necessary to accomplish its mandate of helping to ensure adequate representation of interests within each region. The board is required to consult with members of any existing regional water planning groups affected by the update, a provision designed to ensure the board facilitate a smooth transition between the existing and new regional water planning groups and also recognizing the expertise developed by the existing groups and their knowledge of the area and its interests. Subsection (g) {formerly subsections (f)} requires regional water planning groups to add non-voting members to represent the board, Texas Parks and Wildlife Department (TPWD), and adjacent regional water planning groups. It also requires non-voting membership by and one or more representatives of entities headquartered outside the regional water planning area that supply water to or receive water from the regional water planning area in an amount of 1,000 acre-feet or more per year, a change from the proposed rules, which required each such entity have a non-voting member on the regional water planning group. The change was made to address comments that this number of representatives would create an inequity of representation in favor of out-of- region representation, and also to assure the regional water planning group is not automatically too large to function. Subsection (h) {formerly subsection (g)} has been adopted with change. It provides regional water planning groups with an ability but not requirement to select the following non-voting members: representatives from adjacent states, nations or agencies with binational authority, or representatives of state or federal agencies or other entities the regional water planning group considers important. Change was made to provide discretion on the inclusion of adjacent state, nation and binational authority representatives in response to comment. Language changes in subsection (g) and in subsection (h) makes it clear that certain entities, including state and federal agencies, adjacent regional water planning groups, states or nations, designate their own representatives to serve as non-voting members of the regional water planning group based on comments. Staff members of the board are added to ensure communication and the smooth exchange of data between the regional planning group and the board; this will facilitate statewide water planning efforts and help identify potential interregional conflicts early in the process, thus allowing earlier resolution of such conflict. Staff of the TPWD are included to assist regional planning groups in protecting natural resources, a statutory goal of regional planning. This inclusion will allow a more seamless progression to the permitting of projects, since TPWD often plays a role of reviewing state water permit applications. Adjacent regional planning group members are added to reduce the potential for disputes between groups sharing the same resources and to aid in the exchange of information about such resources. One or more representatives of water suppliers and buyers from outside the regional water planning area are added to allow regional planning groups to have the input of those entities which either receive from or supply to the regional water planning area a significant amount of water. This promotes the regional water planning groups' mandate to consider and protect existing water rights, Texas Water Code, sec.16.053 (e)(4)(D). Adjacent state and national representatives and binational bodies are listed as optional representatives in order to receive comment and exchange information among sovereigns sharing resources and planning efforts if the regional water planning group considers this beneficial in its planning process. All of these entities can add significant knowledge and point-of-view to the regional water planning efforts, resulting in a better product. Subsection (i) {formerly subsection (h)} allows regional water planning groups to form voluntary associations with other such groups to coordinate interregional issues and to voluntarily prepare one plan for all or a portion of their planning regions. Such voluntary associations facilitates coordination on issues of joint concern to regions, and allows joint studies to be conducted. This will conserve resources and serve as an early method to resolve disputes, thus facilitating resolution of interregional conflict. Texas Water Code, sec.16.053(h)(6). Further, groups may enter binding written agreements which may allow for joint planning efforts. This subsection merely states that the groups may utilize any legally available mechanism to enter into agreements for such studies or cooperative arrangements, and are not intended to provide powers beyond those authorized by law. It is adopted to promote the idea of such cooperation rather than mandate it or create additional powers. Subsection (j) {formerly subsection (i)} allows regional water planning groups to form subgroups to conduct planning. These groups may be useful for many purposes, including to study technical or other issues, to break the region down into smaller geographic areas for portions of the regional planning effort, or to allow the participation of greater numbers of entities at various points in the studies. The subsection requires that all of the 11 interests specified in subsection (a) be invited to participate in these groups. These subgroups may prove useful to build consensus support within the regional water planning groups themselves. The board recognizes the great diversity of geography that many regional water planning areas may encompass, which in turn may represent diverse additional interests or multiple subinterests. Thus, this provision also ensures the participation of interests not specifically mentioned and allows regional water planning groups to increase the number of participants or broaden the interests in a structure other than the full regional water planning group itself. In addition, the regional water planning groups may form committees to deal with various issues. The broad cross array of interests is not required on committees. The use of subgroups and committees will give the regional water planning groups additional tools to accomplish planning on various fronts more efficiently, to facilitate the exchange of information and the resolution of potential conflicts of interests and for other reasons determined by the group. Planning efforts of the subgroups or committees may be incorporated into the regional plan upon approval by the regional water planning groups. Subsection (k) {formerly subsection (j)} charges the regional water planning groups with adopting bylaws consistent with the principles and provisions of this chapter. Bylaws validate the existence of a regional water planning group and facilitate planning and funding efforts by providing for a uniform and agreed upon process and framework within which to formulate and administer regional water planning. Additionally, bylaws serve to indicate and reemphasize exactly what duties and which responsibilities a group undertakes. The board received public input during the initial drafts of these rules indicating a desire that the board include such rule provisions. The subsection has been adopted with changes to reflect that a two-thirds vote of the designated members of the regional water planning groups is required to pass bylaws. This super majority will assure that the group has significant support for the rules which will govern its future actions. This will help the group work together and also will help ensure that the initial equity between the represented interests is protected to some degree during the process of establishing rules to govern the group's future operations, a concern raised by commentors. The bylaws are being required to be developed after the regional planning group is formed by the initial coordinating body, again to assure that those who must work together in the future agree to the bylaws. The subsection requires the executive administrator to provide model bylaws to the groups within 30 days of the board naming the members of the initial coordinating body. This will provide a guide to allow the groups to accomplish this task more quickly. Bylaws must address, at a minimum, the following: define the quorum necessary to conduct business, a method to approve such business including adoption of a regional water plan, methodology for adding members, the terms and conditions of membership, methodology to maintain a public record of all proceedings, and methods to resolve disputes among group members regarding group matters. The board believes these parameters to be necessary to facilitate the functioning of regional water planning groups. The requirement is carried out under the board's authority to develop procedures for adoption of regional water plans by the regional water planning groups, Texas Water Code, sec.16.053(f)(2). The board has adopted changes to the subsection to delete the requirement that the bylaws must include the terms of participation that will govern local entities. The regional water planning group is given authority in sec.357.7(5)(b) to not include planning for political subdivisions which choose not to participate in the planning. The board removed the requirement to define the terms of participation in the bylaws as it considered that it was requiring the timing of this decision too early in the process. Regional water planning groups are required to have adopted bylaws before the board will provide funds to the group. It is felt the board should be able to provide scope of work funds to get the planning process started quickly without the adoption of terms of participation. During this scoping process, the groups will be able to resolve the terms of participation in the planning process, having this in place before the entities come to the board for funding for the planning study. Subsection (l) {formerly subsection (k)} conditions board approval for research and planning funds under Chapter 355 upon the executive administrator receiving a copy of adopted bylaws from the group. This assures the board is providing funding to a working group, and also may provide an incentive for the regional water planning group to more quickly become a functional group. Section 357.5 provides guidelines for the development of regional water plans. Subsection (a) specifies the goals of the regional water plans, using language from Texas Water Code, sec.16.053(a). Subsection (b) of the rule requires regional water planning groups to adopt and submit their plans to the executive administrator on or before September 1, 2000, a date statutorily mandated by Texas Water Code, sec.16.053(i). Subsection (c) requires that regional water plans be consistent the guidelines in this chapter on regional water planning guidelines and with the guidelines established by Chapter 357 on state water planning guidelines. It also requires the regional water plans to consider and use as a guide the state water plan and local water plans. This provides consistency with the requirements of Texas Water Code, sec.16.053(a), which requires the regional water planning area to prepare a plan using an existing state water plan and local water plans as a guide, if present, and also with Texas Water Code, sec.16.053(d), which requires regional water planning groups to consider existing local water plans. Requiring the regional water plans to be consistent with Chapters 357 and the requirements of this chapter follows Texas Water Code, sec.16.053(d), which requires the board to provide guidelines for consideration of existing regional planning efforts and the format of information in the regional plans and with sec.16.053(e)(1) and (2) which requires regional water plans to be consistent with guidance principles for the state water plan and to provide information based on data provided or approved by the board in a format consistent with the guidelines provided by the board. Section 357.5(d) requires groups to use state population and water demand projections in the state water plan or projections adopted by the board after consultation with TNRCC and TPWD. Alternatively, a regional water planning group may request the board to revise these figures based on changed conditions or the availability of new information. Population growth projections have been and continue to be an important factor on which future demand is predicted both locally and on a statewide basis. This section acknowledges that role and has its authority in Texas Water Code, sec.16.053(a), (d), and (e)(1) and (2). The use of the state water plan data for population and demand projections, or data approved by the board, will serve to ensure consistency throughout the planning process. Consistent sets of plans are necessary for the board to incorporate the approved regional water plans into an overall state water plan. This provision will ensure realistic projections of water demand in the state water plan and will help identify realistic planning goals for each regional water planning group. The board is providing a mechanism to adjust population and/or demand projections, which may be done at the request of a regional water planning group, if the board agrees that changed conditions or new information warrant the adjustment. The board realizes that factors beyond those anticipated by the board can cause changes in growth rates and/or water demand. This mechanism will allow the board to adjust its projections accordingly, with input from TNRCC and TPWD. The latter input is important as it provides consistent acceptance through the permit process of the population and demand projections upon which a water rights application will be evaluated. Section 357.5(e) provides additional standards for the regional water planning groups to use in developing their water plans. Paragraph (1) requires the evaluation of alternative water management strategies for their effect on environmental water needs, using either site specific environmental studies or the environmental planning criteria included in the state water plan. This fulfills the requirements of Texas Water Code, sec.16.053(a) that the regional water plan protect the natural resources of the region, and the requirements of sec.16.053(e)(4)(F) that the regional water plan consider appropriate provisions for environmental water needs. The paragraph provides for use of the most detailed environmental information available when evaluating water supply alternatives, while not mandating site-specific studies at the planning stage. As part of the planning effort for the state water plan approved in 1997, a team of instream flow and aquatic biology specialists was asked to develop guidelines to be used in planning for water resource projects. The resulting consensus planning methods developed by the state water agencies attempt to balance human and environmental water needs. These criteria provide instream flow recommendations that serve as an initial "placeholder" for instream flow needs until more site-specific assessments can be performed. The criteria provide a consistent method of evaluating projects, making it easier to compare recommendations of various regional water plans. Use of the environmental criteria is less costly than site-specific studies and is sufficient for planning purposes to compare water management strategies. The term "instream flows" has been added to the paragraph's requirements based on comments received to clarify the provision's applicability to study such impacts. Instream flow requirements are a major environmental flow need that should be specifically listed in this section. Section 357.5(e)(2) requires that the regional water plans provide water management strategies to be used during a drought of record, and when flows are at 50% and 75% of normal. This is mandated by Texas Water Code, sec.16.053(e)(3) and will assure that the regional water planning areas have considered how to address water needs in periods of reduced flows. Section 357.5(e)(3) requires that the regional water plans should protect existing water rights, water contracts, and option agreements, but allow consideration of potential amendments to such rights. The paragraph is adopted with change in response to comment to clarify that the contracts referenced are water contracts. Texas Water Code, sec.16.053(e)(4)(D) requires that regional water plans consider protection of existing water rights. Assurance of such protection received significant support during public comment on preliminary drafts leading up to preparation of these rules. Water rights protection is a cornerstone to the water rights system, and allows entities to plan for the future. In addition, it provides the stability to issue long-term debt based on permits, contracts, and option agreements. Section 357.5(e)(4) requires that regional water plans provide specific recommendations of water management strategies based upon identification, analysis and comparison of all water management strategies the regional water planning group determines to be feasible so cost effective water management strategies which are environmentally sensitive are considered and pursued where appropriate. Texas Water Code, sec.16.053(e)(4)(C) requires evaluation of all potentially feasible water management strategies. The regions are given the discretion to determine what strategies they consider potentially feasible. Once that determination is made, the paragraph requires an evaluation of the strategies. This paragraph was adopted with changes based upon comments to eliminate a balancing between cost effectiveness and environmental sensitivity, stressing instead that cost effective strategies which are environmentally sensitive should be considered and pursued. This allows the regional water planning groups to meet the statutory goal of considering appropriate provision for environmental water needs found in Texas Water Code, sec.16.053(e)(4)(F) and the goal to protect the natural resources of the region, stated in Texas Water Code, sec.16.053(a). Section 357.5(e)(5) requires the regional water plans to incorporate water conservation planning and drought contingency planning into strategies and scenarios as methods to address water supply needs. This is in accord with Texas Water Code, sec.16.053(a) which requires conservation of water resources and preparation for and response to drought as goals of regional water plans and Texas Water Code, sec.16.053(e)(4)(A) and (C) which require regional water plans to consider existing water or drought planning efforts and conservation. Paragraph (6) requires that regional water planning groups conduct planning to achieve efficient use of existing supplies, explore regionalization, coordinate actions of local and regional agencies, provide for substantial public involvement in decision-making and provide full dissemination of planning results. These concepts are required by sec.16.053(e) and (h). A number of provisions of SB 1 encourage public input into the planning process. For example, based on Texas Water Code, sec.16.053(b), the board is to consider "public comment" when developing regional water planning areas. Each regional water planning group is to hold at least one public meeting early in the process "to gather suggestions and recommendations from the public as to issues that should be addressed in the plan" based on Texas Water Code, sec.16.053(h)(1). Additionally, a regional water planning group is to "provide an ongoing opportunity for public input during the preparation of the regional water plan" as provided by Texas Water Code, sec.16.053(h)(2). Section 357.5(e)(7) incorporates the statutory requirement to consider the effects of a plan on navigation. See Texas Water Code, sec.16.053(e)(4)(F). Section 357.5(g) is adopted with changes. The section calls for planning consistent with all laws applicable to water use for the region. The section originally listed the jurisdiction of laws the plans must consider. However, based on comments received, it was determined it might not be practical to list all applicable laws. It will be a responsibility of each regional water planning group to identify all laws which could impact water development to assure the planning is consistent with such law. This will make the plans realistic and implementable since all regulatory and legal aspects will be considered. Nothing in statute allows the plans to modify laws. However, consistent with sec.357.7(a)(9), regional water plans can include regulatory, administrative, or legislative recommendations that the regional water planning group believes are needed and desirable, an appropriate role for planning that is recognized by Texas Water Code, sec.16.053(i) which specifies the regional water planning groups should make legislative recommendations on voluntary water transfers and by sec.16.051(e) which requires the state water plan to include legislative recommendations. The inclusion of a full array of such recommendations in the regional plan will enhance this step in the state water plan. Sections 357.5(g) and (h) are adopted with change. The provisions allow the Board to facilitate planning efforts where existing supplies in a region are obligated outside the region. Under the subsection (g), the board may designate special water resources to facilitate planning for supplies obligated to meet demands outside the regional water planning area. The subsection specifies three criteria, any one of which must be met in order for the board to name a resource as a special water resource to facilitate planning. Subsection (h) requires that regional water planning for areas containing the special water resources must protect the rights or options to use such water, require that any plans that could impact rights or options to use water from these areas be based only on potential adjustment of those rights by the entities holding an interest in the rights, and provide for notice to all holders of water rights in the special water resource of all meetings of the regional water planning group or subgroup, and an opportunity to comment on the scope of work affecting the special water resource. The subsections have been adopted with changes to recognize that the designation of special water resources applies only to surface water resources. The board received comment both for and against inclusion of groundwater as a special water resource. The board determines that including groundwater will not further planning due to possible conflicts with groundwater districts. The board adopts additional changes in response to comment by inserting the word "currently" to define water supplies obligated to meet demands outside the regional water planning area to emphasize that groups should consider only existing obligations. The board agrees that the special water resource designation should only be used for supplies currently committed outside the regional water planning area. To designate the resource otherwise would create needless speculation, and potentially impede the regional planning process. If there are competing needs for a resource for the future, the normal regional planning process should resolve this issue. These subsections affirm the statutory mandate to protect existing water rights found in Texas Water Code, sec.16.053(e)(4)(D). The board also considers the special water resource designation as a method to reduce the possibility of conflict between regions by reaffirming the need for an owner's consent to effectuate change over water rights and by allowing such owners to provide early input into the regional water planning process. The ability of these extra regional holders to comment on a region's plans may help build consensus support and avoid conflict. Section 357.5(i) instructs groups to include recommendations for the emergency transfer of surface water and to determine the portion of each transferred right that is allocated for non-municipal use and that does not unreasonably damage the property rights of those holders. This is statutory criteria. See Texas Water Code, sec.16.053(e)(4)(I). Section 357.5(j) allows regional water planning groups to simplify their planning efforts, if they determine they have sufficient supplies in their regional water planning area for the 50-year planning period. In such cases, the regional water planning group may identify supplies available for voluntary redistribution, adopt the state plan information as their regional water plan, or take other activities upon approval of the executive administrator. Texas Water Code, sec.16.053(g) specifically allows this simplification. The board has chosen the criterion of having sufficient supplies to satisfy the regional water planning area's 50-year needs based on the standard period for planning. If there is sufficient water in such area, the regional water planning group need not perform elaborate planning. The board considers it appropriate at that time for the regional water planning group to consider if water may be made available to other regions, an exercise that will help both a region seeking water and the region which has an alleged surplus. It will allow the group to assess if this water is available for others, and if not, will alert the board that an interregional conflict might exist. Section 357.5(k) requires regional water planning groups to consider existing planning efforts, including various plans mandated elsewhere by statute such as water conservation, drought contingency, certified groundwater conservation district management plans, water management plans, water availability requirements of certain county commissioners courts, and any other information available from existing local or regional water studies. It also requires the consideration of the state Clean Rivers Program, federal Clean Water Act, and other planning goals. See Texas Water Code, sec.16.053(a) and (e), sec.16.054. The examination of these plans is necessary to avoid duplication of effort, to facilitate the regional planning process by shortening time consumed in the development of plans, and to ensure consistency with the state water plan and local plans. This will help provide for the orderly development and management of the state's resources by assuring a wide variety of existing plans are reviewed, and ensuring the regional water planning groups give consideration to specific programs that could impact water use planning. Subsection (l) has been added to require the regional water planning groups to consider environmental water needs including instream flows and bay and estuary inflows. This requirement was in a draft version of the rules. The board received significant public comment requesting the reinstatement of the language. The subsection has been added to assure that regional plans meet the requirements of Texas Water Code, sec.16.053(e)(4)(F), requiring the plans to consider appropriate provision for various environmental water needs. Subsection (m) {formerly subsection (l)} specifies that nothing shall prevent development of a plan or project where local or regional needs require action prior to the adoption and approval of a regional plan. This subsection is based on Texas Water Code, sec.16.053(d), and recognizes that entities may need to begin projects or develop short-term plans before the completion of initial regional plans. This assures that the development of the regional plan itself will not be able to be used to block a project which can justify immediate action. Section 357.6 describes activities which a regional planning group shall complete prior to preparing its regional water plan. First, each group is to gather suggestions and recommendations from the public as to what the group should address in its planning efforts. In order to implement this process, each group is to give notice as required by Texas Water Code, sec.16.053(h)(8) and (9). This notice and public input helps build wide-based public support for the process and helps to recognize and address potential conflicts early in the process. The groups are required to determine the terms of public participation at this stage. This will govern what entities need to contribute in order to assure the entity's water needs are addressed in the regional water plan. This requirement has been moved to this section from sec.357.4. Before the change, this item was required to be adopted in a regional water planning group's bylaws. The regional water planning groups must prepare a scope of work. This step is important to assure the actual planning is performed in a structured way, to allow the board to review the proposed planning project for final funding decisions, and ensure regional water planning groups produce consistent products which meet the guidelines established by this chapter and Chapter 358 of this title. The section specifies that regional water planning groups can approve amendments to the scope of work only in an open meeting after proper notice has been given, which ensures both compliance with the open meetings laws and which recognizes the ongoing need for public input and awareness in the process. Texas Water Code, sec.16.053(h)(2). In another preplanning requirement, each regional water planning group must designate eligible political subdivision(s) to apply to the board for funding to perform the regional water planning effort. Texas Water Code, sec.15.4061 calls for this procedure. 31 TAC sec.355.93 discusses eligibility requirements of the planning groups. Section 357.6(6) establishes a procedure for regional water planning groups to share information in specified areas. The process begins with the regional water planning group asking all other groups if it wishes to have a such an area (an informational subarea) designated. The paragraph establishes the criteria for establishing such areas based on the needs of the areas to share information. The primary criteria focus on areas where water is supplied by or to another region, or is likely to be so served. The board has adopted changes to require this exchange of information to include environmental water needs. Changes also were adopted to allow areas to be designated as informational subareas based on the potential environmental impact on such subarea by another regional water planning area's strategies. These changes were made in response to comments. The executive administrator may also designate these informational subareas. The board believes that creating an informational subarea will facilitate the exchange of information concerning, at a minimum, population, demand, availability, environmental information, and analysis so that duplication of efforts and resources may be avoided. It also allows for communication between adjacent and nonadjacent areas of supply and demand. Currently, only adjacent areas receive direct input and possible information from the exchange of non- voting members. The rule also will enhance the consensus-building process mentioned as a state water planning guideline, and enhance the group's ability to evaluate the impacts of its management strategies. Section 357.7 describes the technical elements that groups must account for or consider while developing their regional water plans. Many of the elements are taken directly from Texas Water Code, sec.16.053(e) which provides details of what must be addressed or considered by the regional water planning groups as they develop their regional water plan. Subsection (a) describes these elements in detail. In sec.357.7(a)(1), the regional water planning groups are to provide a description of the regional water planning area including major water providers, current water use, identified water quality problems, sources of groundwater and surface water including major springs, major demand centers, agricultural and natural resources, social and economic aspects of the region including information on current population and primary economic activities, initial assessment of current preparations for drought within the region, summary of existing regional water plans, summary of recommendation in state water plan, summary of local water plans, and any identified threats to the agricultural and natural resources of the region due to water quantity problems or water quality problems related to water supply. These items are included to provide a basis for developing the remaining portions of the regional water plans. Some of the decision makers at the local, regional, and state level may need this information in order to respond to proposals during plan development, when implementing the plan, and taking other actions. Section 357.7(a)(2) requires a presentation of current and projected population and water demand. Texas Water Code, sec.16.053(a) requires the plans to provide for the public health, safety, and welfare and further economic development and these projections are the quantification of the amount of water needed to protect public health, safety, and welfare and further economic development. These data are a key component of the planning process because there must be a clear explanation of the future demands for water so that later phases of plan development can determine surplus or needs for water. The projections are to be provided in a specific format based on the process the board has used to provide projection for the 1997 state water plan. As referenced in Texas Water Code, sec.16.053(e)(2) and sec.15.4061(g) the plans are to be based on information provided or approved and in a format prescribed by the board. A specific format is necessary to allow the board to use the data in its state planning. The categories of use (municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering) comprise the majority of the fresh water used in Texas and are in general agreement with the categories of use referred to in the surface water permitting program of the TNRCC with some added specificity to facilitate planning. Also, having a common, specified format (such as providing the data by city, county, river basin, by major providers of water, and by category of use) is necessary to facilitate sharing of information with other regional water planning groups, to consider interbasin transfers, and so that the board can incorporate the regional water plans into the state water plan as provided in Texas Water Code, sec.16.051(a). Section 357.7(a)(3) directs the regional water plan to evaluate the adequacy of current water supplies available to the regional water planning area for use during drought of record, when flows are at 50% of normal, and when flows are at 75% of normal. These three flow conditions are required in Texas Water Code, sec.16.053(e)(3). This information is needed so that a determination can be made in later phases as to whether current water supplies are sufficient to meet the projected demands. The subsection provides that the evaluation shall consider data from a number of sources so that currently available information will be used and the plans will not duplicate existing information. The subsection provides that water supply available from reservoirs during the drought of record condition would be based on firm yield calculation and further describes how that calculation is to be made. These provisions are to provide clarity as to how the evaluation is to be conducted for reservoirs and were based on requests, for such clarity by commentors. The reference to using all senior water rights reinforces the provisions in water rights law that senior water rights are to be protected at their fully authorized level in the permitting process. The planning process must honor this same requirement since most strategies identified in planning will require TNRCC permits. The subsection provides that the executive administrator shall identify the methodology for allowing regional water planning groups to make estimates of when flows are at 50% and 75% of normal until the data are available from the TNRCC. This is necessary because the data from TNRCC is not scheduled to be completed until after the regional water plans are well along or finished for some areas. The subsection also provides that the regional water planning groups are not required to incorporate the information from the TNRCC until the next planning cycle because it would be too disruptive to change this basic data in the middle of a planning program. The methodology will be determined after consultations with representatives of the groups involved in the process. The subsection provides that the executive administrator shall provide available technical assistance to the regional water planning groups in determining water supply availability to facilitate their planning. This subsection specifies water supply availability is to be reported by supplies available to the providers of water use (municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering) and by geographic area (city, county, and river basin). This will allow assessment of individual surpluses or shortages (needs) for water. Also, having a common, specified format is necessary to facilitate sharing of information with other regional water planning groups, to consider interbasin transfers, and so that the board can incorporate the regional water plans into the state water plan as provided in Texas Water Code, sec.16.051(a). Section 357.7(a)(4) provides that the plan is to compare demand with supply to determine surplus or need; this is an acceptable industry-wide standard which will validate the reported results. The regional water planning groups must know which water users are in need of additional water so that the provision of Texas Water Code, sec.16.053(a) related to providing for the public health, safety, and welfare and further economic development can be met by the plans. Water shortages do not provide for the public health, safety, and welfare and further economic development. The subsection also provides that the social and economic impact of not meeting these needs shall be evaluated by the regional water planning groups and reported by regional water planning area and river basin. A change was made to this language to require the analysis only of the impacts of not meeting the needs to be consistent with language elsewhere in this chapter and in Chapter 358 of this title. This information requirement was included so that the regional water planning group will have a basis to compare the cost and benefits of acting to meet the needs against the costs of not meeting the needs. This subsection specifies the format necessary to report water supply surpluses or needs. Information on surpluses/need for the providers of water, by category (municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering) and by geographic area (city, county, and river basin) are necessary to assess the individual surpluses or shortages (needs) for water. Also, having a common, specified format is necessary to facilitate sharing of information with other regional water planning groups, to consider interbasin transfers, and so that the board can incorporate the regional water plans into the state water plan as provided in Texas Water Code, sec.16.051(a). Upon request, the executive administrator will provide technical assistance to facilitate the planning program of the regional water planning groups. Section 357.7(a)(5) provides that the regional water planning groups are to develop plans to be used during the drought of record, when flows are at 75% of normal, and when flows are at 50% of normal to provide sufficient water supply to meet the needs identified in paragraph (4) of this subsection. These plans cumulatively will form the regional water plan. These flow conditions are required in Texas Water Code, sec.16.053(e)(3). These separate plans are to include the recommended water management strategies or alternative long-term scenarios for each of the three water supply conditions (drought of record, flows at 50% of normal, and flows at 75% of normal). Alternatively, one or two plans are to be developed that include recommended water management strategies or alternative long-term scenarios applicable for all or a combination of the three water supply conditions. This provision is included because the regional water planning group may determine that one or two plans are the appropriate method of providing water during the three flow conditions. These regional water plans shall meet all needs for the water use categories of municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering except where plans may identify those needs for which no water management strategy is feasible. The board's experience in the 1997 state water plan shows that some needs have no feasible solution. Usually, the cost of providing the water is much greater than there was an ability to pay. Full evaluation of water management strategies must be presented and reasons given for why no water management strategies are feasible so that all persons involved in the effort will understand and accept the determination that no feasible solution exists. This provision is necessary because there are some water needs for which there may be no feasible solution due to cost or other factors. Plans are not required to meet needs where a political subdivision that provides water supply (other than water supply corporations, counties, or river authorities) does not participate in the regional planning effort for needs located within its boundaries or extraterritorial jurisdiction. The regional planning group shall establish terms of participation that shall be equitable and shall not unduly hinder participation. This provision is included so that the regional water planning group is not required to conduct planning for a water provider who is not a participant in the planning. The board's experience also is that participation in the planning is a strong indicator of the willingness for the provider to accept the results of the planning and implement the plan. Regional water planning groups may not exclude planning for areas that would be served only by river authorities, counties or water supply corporations because such areas often include unincorporated areas such as colonias for which planning never would be conducted but for this effort. Also, regional entities, such as river authorities, have large areas of responsibilities, but lack funding for projects that do not involve a local retail customer. Section 357.7(a)(6) lists some of the water management strategies that the regional water planning groups are to evaluate when developing plans to meet water shortages. The groups may consider other methods of meeting needs deemed feasible by the regional water planning group. Twelve strategies are specifically referenced in Texas Water Code, sec.16.053(e)(4) et seq.; the remainder are authorized elsewhere: enhancing existing sources and controlling chlorides are authorized under the same statute's "not limited to" language; brush control, precipitation enhancement, and desalination are authorized in the definition of projects which the board can fund. See Texas Water Code, sec.15.001(6)(A). The listing of strategies is not a limitation on the regional water planning groups, but it does indicate the most common, in the board's opinion, methods of meeting water needs. Section 357.7(a)(7) describes the evaluations to be performed on the management strategies, and include evaluating the quantity, reliability and cost (a reasonable cost analysis), the various environmental factors (protecting natural resources), threats to agriculture (protecting agricultural resources), checking the impacts of other state water resources (accounting for the public interest of the entire state), interbasin transfers and voluntary redistribution of water resources including third party social and economic impacts, equitable comparison and consistent application of strategies, any other factors relevant by the groups, including recreational impacts. Recreational impacts were added as an evaluation factor based on comments received, to recognize that recreational uses of water may be impacted by strategies in differing ways. These provisions are provided to allow decision-makers to readily compare among the strategies so that they may choose the best strategy to pursue. Section 357.7(a)(8) specifies that the plans shall meet identified needs by specifically recommending management strategies for near-term needs or alternative long-term scenarios to meet the long-term needs. The near-term strategies must be in sufficient detail to allow state agencies to make financial or regulatory decisions in order to determine consistency. Sufficient specific detail is necessary so that the board can carry out its responsibilities and ensure that the regional plans can be incorporated into one state water plan. Additionally, the plans must be approved by the board before the board will grant financial assistance to the groups, Texas Water Code, sec.16.053(j). Reasons for adoption of these provisions is described under the definitional section for "long-term water needs" and "short-term water needs." In addition the provisions will allow the board to receive specific detail to ensure consistency, to avoid the overlap of efforts among the planning groups, to coordinate efforts and assure that supplies are neither overlooked nor utilized more than once in planning and to allow the board to build a consensus by building confidence among those groups, agencies and public who participate in the process. Further, specific detail will allow TNRCC to properly allocate surface supplies through its permitting system and to make findings required by Texas Water Code, sec.11.134 regarding consistency of permit decisions with planning. Section 357.7(a)(9) provides that the regional water plans should make regulatory, administrative, or legislative recommendations which they believe facilitate the goals delineated in Texas Water Code, sec.16.053(a). This was provided to ensure that the best methods of regulation, administration, and policy are identified throughout the planning program. The regional water planning groups are also authorized to develop information as to the impacts of various law changes, if enacted. Regional water planning groups are well situated to provide suggestion on improving the system and all Texans will benefit from their advice. This information may serve as a building block for the state water plans' legislative recommendations, which are required by Texas Water Code, sec.16.051(e). Section 357.7(b) allows the exclusion from the regional water plan of an identified water management strategy designed to meet the needs of a political subdivision where that subdivision objects and specifies why it wants such strategy to be excluded from the planning process. This provision will avoid intraregional conflict and recognize the autonomy of local units of government to provide for their citizens. It also facilitates approval of a plan where a political subdivision's objections might delay adoption by the planning group, and recognizes the autonomy of such subdivisions over their own planning. An objection by a political subdivision does not prevent the inclusion of the water management strategy to meet other needs, a recognition that the strategy might meet the needs of more than one political subdivision. Section 357.7(c) implements statutory requirements by committing the executive administrator to providing technical assistance within available resources and to resolving intraregional conflicts if requested Texas Water Code, sec.16.053(g). Section 357.8 provides that regional water planning groups may include in regional water plans recommendations for river and stream segments of unique ecological value, based on Texas Water Code, sec.16.053(e)(5). These recommendations ultimately may be considered by the legislature, which determines whether to make such designation. In response to public comment, the section has been amended to make it clear the recommendations may be for all or parts of the river and stream segment located in the regional water planning area. The section requires specific information to be included in a recommendation package, which is provided to TPWD for comment. A stream segment may be recommended for unique ecological value designation if it meets any one of the following five tests: biological function; hydrologic function; riparian conservation areas; streams and springs significant due to unique or critical habitats and exceptional aquatic life uses; or sites along streams where water development projects would have significant detrimental effects on endangered species, and sites along streams significant due to the presence of unique or extensive natural communities. These tests were developed primarily based on recommendations from TPWD, and will provide the legislature with significant information to decide if a segment warrants designation. Biological function is selected as a criterion in that habitat quantity and quality are some of the basic building blocks allowing organisms to successfully inhabit terrestrial, wetland, aquatic, and estuarine areas. The greater the quantity of habitat, the greater the number of organisms it can support. Similarly, the greater the quality of habitat, the healthier and more stable the population of organisms will likely be. Biodiversity, age, and uniqueness of the habitat enter the formula in that the most diverse habitats likely support the most diverse assemblage of species, the older more established habitats are likely rare and are much harder to reestablish given the time element required, and unique habitats are by nature the rarest (and likely harbor threatened, endangered, or endemic species). Streams which display such significant habitat value have unique ecological value. The criterion of hydrologic function is selected as an indicator of uniqueness of ecological value in that the species relying on a particular stream segment are adapted to certain hydrological and physical-chemical conditions that are heavily influenced by its watershed. Streams that are fringed by habitats that perform such valuable hydrologic functions have unique ecological value. Riparian conservation areas are selected as a criterion of ecological value since streams that are fringed by such areas are likely to be in a relatively undisturbed state and are a key part of the conservation element of the property. In some instances, the waters of a stream may sustain sensitive or unique species that represent the natural heritage of the area. Therefore, these streams have unique ecological value. The definition is amended in response to public comment to reflect that riparian conservation areas need not be publicly owned so long as the areas are managed for conservation purposes under a governmentally approved conservation plan. The requirement that such a conservation plan be approved by a governmental entity is to provide for public involvement and dedication of such land, while recognizing that reliance on governmental ownership of lands would unduly restrict the planning for areas where there is a legally binding agreement that serves the same purposes relating to uniqueness of the ecological value of a stream as does governmental ownership itself. High water quality, exceptional aquatic life, and high aesthetic value are selected as criterion of ecological value in that streams with high water quality will likely harbor and/or sustain a diverse assemblage of species, some of which will likely be sensitive to degradation; those with exceptional aquatic life are comparable to the best situations without human disturbance and contain all or most of the regionally expected species for the habitat and stream size, including the most intolerant forms; and those with high aesthetic value will likely have recreational uses associated with them. A stream segment that is identified as having any one of these attributes has unique ecological value. Threatened or endangered species and unique communities are selected as criteria of ecological value since threatened and endangered species are protected by federal and state laws; whereas, unique communities are justified in that they represent the natural heritage of an area of the state and in many instances are rare or declining. Unique communities will likely include sensitive, endemic, threatened, and/or endangered species. Streams harboring such species and/or communities have unique ecological value. Section 357.9 allows regional water planning groups to recommend to the legislature sites of unique value for reservoir construction. The rule provides a site may be recommended by the regional water planning group as unique for reservoir construction if it is identified for site-specific reservoir development in an approved regional water plan or if specified factors make the site uniquely suited for reservoir development for water supply. The definition is based on Texas Water Code, sec.16.053(e)(5). The rule provision is consistent with the emphasis in SB 1 on regional decision-making, and allows identification to be based on criteria that would make a site attractive for reservoir development when compared to other feasible sites. Such sites are limited in number and may face competition from other development options. Encroachment on such sites may also include surface (highways and electric power lines) and subterranean (gas and oil pipelines) utility corridor routing. Factors included in this definition will provide the legislature with information to determine if a site warrants designation. In response to comment, format change was made to the subsection to clarify that the list of specified factors making the site unique apply either to sites for 50-year needs or for longer-term needs. Section 357.10 describes the format for the information to be presented in regional water plans. Texas Water Code, sec.16.053(d) and (e)(2) recognize the necessity for such consistency by directing the board to develop guidelines for the format in which information is presented in regional water plans. Subsection (a) requires a technical report and executive summary. These will be incorporated into the state water plan. The subsection also requires the regional water plans to include summaries of written comments received and responses thereto, a process designed to assure the regional water planning group is receptive to public participation, and demonstrates its compliance with the requirements of Texas Water Code, sec.16.053(h)(5) to consider public comment. This section also provides that groups transfer copies of reports and data to the executive administrator, in formats and in a technical form specified by the executive administrator. This will facilitate the incorporation of data from many regions into a state-wide data base and ultimately into the state water plan. It will allow such data to be shared between regions and entities. A minor change was made to subsection (b) based on comments received to eliminate redundant language. Section 357.11 describes the procedure for adoption of regional water plans by the regional water planning groups. Subsection (a), which incorporates requirements of Texas Water Code, sec.16.053(h)(4)and (5), requires submittal of the plan to the executive administrator for comments prior to adoption, and requires the regional water planning group's consideration of such comments and public comments. The section provides time limits for executive administrator comments to ensure the regional water planning process proceeds in a timely manner. Subsections (b), (c) and (d) require the regional water planning group to provide the board with information on any known interregional conflict, to attempt to resolve interregional conflicts and participate in board sponsored efforts to resolve interregional conflicts, and to modify regional water plans to incorporate the board's resolution of interregional conflict. This is consistent with the requirements of Texas Water Code, sec.16.053(h)(6) and (7), regarding the board's role in facilitation and resolution of interregional conflict. Subsection (e) provides for amendment of adopted regional water management plans. The subsection has been adopted with changes based on comments received to clarify the level of notice required, and to provide a mechanism for political subdivisions to request the regional water planning group's consideration of specific changes to an adopted regional water plan. This provision specifically requires the regional water planning group to consider the request within 180 days. A mandatory review is considered necessary because the consequences of a proposed project not being consistent with the regional plan is that board funding and TNRCC water rights permits might be unavailable for the project. The local entity should at a minimum have a forum for the consideration of an issue of such magnitude. The provisions does not mandate the nature of action which the regional water planning group must take, but does require its consideration of the issue. Section 357.12 lists the requirements groups and subgroups must meet to ensure proper public notice and participation and distribution of information. Subsection (a) provides procedures for notice and public hearings held before preparation of the plan, after preparation of the plan but before submittal to the board, and before adoption of amendments, all requirements taken directly from the Texas Water Code, sec.16.053(h). The subsection includes specific requirements for the notice of such public hearings, which follows that required by Texas Water Code, sec.16.053(h)(8). Subsection (a) also tracks the statutory requirement for the regional water planning group to provide ongoing opportunities for public input during preparation of the regional water plan. The board has adopted subsection (a) with changes based on comments received to allow the regional water planning groups to rely on lists provided by TNRCC of water districts, river authorities, retail public utilities and water rights holders when providing mailed notice. This will provide appropriate technical support to the regions, provide accurate lists, and relieve the entities of concern about not including a required notice on its list. Subsection (b) requires regional water planning groups to make copies of the regional water plan available for public inspection a month before the public hearing held to submit or adopt the plan, tracking the statutory requirements. In response to comment received, the board has modified the language for clarity, and specified the filing at the county courthouse is with the county clerk's office. Subsection (c) requires regional water planning groups and subgroups to conduct their business in a meeting posted and held in accordance with the Texas Open Meetings Act, with which it legally must comply and also thereby providing additional avenues for public participation and dissemination of information. The meetings of the groups also are to be published in the Texas Register and mailed to those so requesting. Section 357.13 provides standards for the board to use in determining whether a project proposed for board funding is not consistent with regional water plans. Texas Water Code, sec.16.053(j) allows board funding of water supply projects only if they meet needs in a manner consistent with the state and regional water plans. Subsection (a) clarifies the board's interpretation that the board will find that projects will be considered not to be consistent with a regional water plan if it is proposed to meet needs for which a regional water plan has not recommended a water management strategy. Consistent with statute, subsection (b) allows the board to waive the requirement if it determines that conditions warrant a waiver, Texas Water Code, sec.16.053(k), and provides that the board may consider, among other factors, changed conditions. This recognizes the fluid nature of planning and that conditions not anticipated by the regional water plan may have changed the need for a project. The section contains minor language change for consistency of terms. Section 357.14 describes the board's approval process. The board must verify the adoption of a plan by the group and ensure it meets the requirements of Chapters 357 and 358 of this title. The board will only approve a plan after it determines that no interregional conflict exists. The board will not consider approval of a regional water plan until all regional water plans which could contain possible conflicts have been submitted for approval, or the board determines such plans are not likely to be submitted. The board believes this sequence is necessary (1) in order to have input from all groups who may be included or affected by a potential dispute, and (2) to ensure an informational fact basis and record is presented to the board which can be utilized to assess and resolve the dispute. The board is authorized to develop this kind of procedure to carry out its responsibilities, Texas Water Code, sec.16.053(f)(1)(2). If the board finds a plan does not meet all requirements, a procedure is provided whereby the executive administrator will negotiate with the group after notifying the group and seeking their assistance in resolving the problem(s). Should negotiations fail, the executive administrator will describe the problem and recommendations and provide public notice and receive public comment in order to make a recommendation to the board. The board will then entertain the recommendations of both the executive administrator and the group and/or others and determine whether the plan meets the requirements of Chapters 357 and 358. If the board finds a continuing interregional conflict, the executive administrator will continue negotiations; if unsuccessful, the executive administrator will propose a solution, provide notice and opportunity to comment, and recommend a final solution to the board. The board will consider the proposed solution and resolve the conflict and notify regional water planning groups of how their plans must be amended. The section has been revised to provide enhanced board notice of public hearings on resolution of conflict in response to comment that the board should be required to provide notice similar to that required of regional water planning groups in this instance. The revised language requires board publication in newspapers of general circulation in each county in the regional water planning areas involved in the dispute, and by mailing notice to those persons entitled to notice of public meetings and hearings of the regional water planning group. This conflict resolution process is authorized by Texas Water Code, sec.16.053(h)(6) and seeks to build a consensus by continuing to allow public and group input into any problems with plans. The board conducted a hearing on the proposed rules January 21, 1998, in Room 118, Stephen F. Austin Building, 1700 N. Congress Ave., Austin, Texas. The following made comments to board staff, either written or orally, at the public hearing or within the prescribed period following the hearing that the record was held open: an individual, Hays County, Lone Star Chapter of the Sierra Club, North Central Texas Water Coalition, North Plains Ground Water Conservation District No. 2, Texas Chemical Council, Texas Farm Bureau, and West Central Texas Municipal Water District, expressed some general support for the rules. Fourteen individuals: Austin County, Brewster County, City of Greenville, and East Texas Council of Governments opposed parts of the rules. Twenty-eight individuals and the following entities or organizations submitted comments not generally supporting or opposing adoption, but recommending specific changes or seeking clarification: Altura Energy, Ltd., Association of Electric Companies of Texas, Inc., Brazos River Authority, Brewster County, Brownsville Public Utilities Board, Canadian River Municipal Water Authority (CRMWA), Central Power and Light, Chairman of the Texas Parks and Wildlife Commission, Choate Well Services, Compliance Services Group, Inc., City of Amarillo, City of Austin, City of Belton, City of Greenville, City of Kilgore, Clean Air and Water, Inc., Colorado River Municipal Water District, Comal County, Compliance Services, Inc., Ekistics Corporation, Freese and Nichols, Inc., Garwood Irrigation Company, Guadalupe Blanco River Authority, Hays County, High Plains Underground Water Conservation District No. 1, Irion County Water Conservation District, Jefferson County, Kendall County, Lone Star Chapter of the Sierra Club, Lufkin Machining Center, Matagorda County Water Council, McCulloch County, McCulloch County Property Owners Association, Mesa Underground Water Conservation District (UWCD), North Plains Ground Water Conservation District No. Two, Palo Duro River Authority, Panhandle Underground Water District No. 3, Pecos County, Red River Authority, Richland Special Utilities District (SUD), Sabine River Authority, San Antonio Water System, Save Our Springs Alliance (SOS), Texas Alliance of Groundwater Districts, Texas Chemical Council, Texas Center for Policy Studies, Texas Farm Bureau, Texas Oil and Gas Association, Texas Parks and Wildlife Department, Texas Natural Resource Conservation Commission, Texas Private Lands Advisory Board, Texas Utilities Services, Inc., West Central Texas Municipal Water District, and Wharton County Water Council. CRMWA requested clarification in sec.357.2 flow condition definitions and sec.357.5 that those conditions only apply where run-of-the river diversions are involved, and not to supplies diverted from reservoirs where firm yield analysis is the measure of availability as spelled out in sec.357.7(a)(3). They state that the terms defined literally have no meaning when applied to water supplies derived from a surface water reservoir which is being operated to reflect firm yield availability. The board adopts a change in sec.357.7(a)(3) based on this comment to clarify that analysis of surface water available during a drought of record will be based on a firm yield analysis of reservoirs. Texas Water Code, sec.16.053(e)(3) and sec.357.5(e)(2) require that regional water plans have specific provisions for water management strategies to be used during a drought of record, and when flows are at 50% and 75% of normal. Section 357.7(a)(3) provides that the executive administrator, after coordination with TNRCC and TPWD and consultation with representatives of regional water planning groups, shall identify methodology to be used to calculate normal hydrological conditions to be used in the determination of availability of supplies when flows are at 50% and 75% of normal. Brazos River Authority commented that the definitions in sec.357.2 for flows should include some identification of the historical record that should be considered (i.e., the available historical records). The board disagrees that changes need to made to the rule. The length of historical records is dependent upon the availability of the data and hydrologic conditions which vary across the state and thus, cannot be addressed by statewide rule. Lone Star Chapter, Sierra Club provided comments that throughout the chapter the term "water supply management" be changed to "water management." It noted that the phrase "water supply management strategies" narrows the range of considerations and is less comprehensive than the term "water management strategies" and that the traditional concept of "water supply management does not address, for example, environmental water needs. SOS also sought similar changes in the use of this term in the rules, noting that the change in these important definitions from a previous draft reduces SB 1's objective to merely providing supply for uses which are presumably exploitative, instead of managing for all uses and environmental needs. Individuals also asked for this language change. The board agrees and has changed water supply management to water management throughout the chapter. Colorado River Municipal Water District commented on the definition of normal hydrological flows, that in many parts of west Texas, the term "median" used in the definition has no meaning. Most of the time a stream is at low flow conditions. During and immediately after the infrequent rain events, the stream will reach high flow "flood" conditions. Averaging these two conditions gives a number that does not represent the real world. The district recommends the following definition of normal hydrologic conditions--the median of all stream low flows (flows not influenced by significant runoff) legally available to a water user in the monthly flow range that occurs most frequently for surface water sources or the median of all precipitation values in the monthly precipitation range that occurs most frequently for groundwater sources. The board disagrees with the need to make rule changes based on this comment. The definition in the rule is based on selecting the median of flows which occur most frequently. The floods and droughts mentioned by the district will not impact the median when considering the flows that occur most frequently since these flows occur rarely. TPWD commented that the definition in sec.357.2 of normal hydrological conditions is confusing and questioned if "normal" will be determined for each water right permit. They also question how the monthly median will be calculated from some subset of data. TPWD staff agrees with a proposal to convene a panel of experts to define "normal hydrological conditions." The board has made a change in rule based on these comments by removing the reference to months. "Normal" will be determined for each water right permit according to Texas Water Code, sec.16.012(g) and (h) which direct the TNRCC to provide projected amounts of water that would be available during a drought of record and when flows are at 50% and 75% of normal within 90 days of developing water availability models for a river basin. Medians will be calculated using the subset of data which most frequently occurs. Section 357.7(a)(3) provides that the executive administrator, after coordination with TNRCC and TPWD and consultation with representatives of regional water planning groups, shall identify methodology to be used to calculate normal hydrological conditions to be used in the determination of availability of supplies when flows are at 50% and 75% of normal. TNRCC requested a change in the definition in sec.357.2 of normal hydrological condition as follows: "For surface water sources, the median of all stream flows adjusted for the effects of upstream releases, return flows, evaporation, change in storage and diversion. For groundwater sources, the median of all precipitation values in the monthly precipitation range that occurs most frequently." Freese and Nichols, Inc. requested improvement in this definition and asked for clarification of the phrases "flows legally available to the water user," "monthly flow range that occurs most frequently," and "monthly precipitation range that occurs most frequently." SOS requested that the phase "for the water user" be deleted. The board adopts changes to the rule to clarify the definition and to remove the phrase "legally available to the water user." Board staff agree with the need to clarify "range that occurs most frequently" and has provided for such determination in sec.357.7(a)(3). Section 357.7(a)(3) provides that the executive administrator, after coordination with TNRCC and TPWD and consultation with representatives of regional water planning groups, shall identify methodology to be used to calculate normal hydrological conditions to be used in the determination of availability of supplies when flows are at 50% and 75% of normal. An individual expressed concerns with regional water planning area designation provisions in sec.357.3 related to being overpowered by interests in more populated areas. The board has made no change to the rule based on this comment. The language in sec.357.3 is consistent with Texas Water Code, sec.16.053.(b). The board has made changes in sec.357.4 to assure the initial coordinating body maintains a balance of interests by requiring a two-thirds majority to appoint members of the regional water planning groups and to adopt bylaws. This will provide that all interest groups have a strong voice in bylaw adoption. An individual requested that sec.357.3(b) require mailing notice to each mayor and city council of a municipality and to each county judge and the Commissioners Court. The board adopts no change in rule based on this comment. The current proposed rule provides a single point of contact which will reduce the cost of notice while still providing notice to that unit of government. Irion County Water Conservation District and one individual requested modifications of the notice sec.357.3(b) to include groundwater conservation districts and all districts. The board adopts changes to the rule to include notice to groundwater conservation districts and river authorities when changing the designation of a regional water planning area since groundwater management plans required in Texas Water Code, sec.36.1071 must be consistent with approved regional water plans. Freese and Nichols, Inc. suggest that notice requirements for the board to change regional water planning areas provided in sec.357.3(b) should be the same as notice requirements the regional water planning groups must meet in plan development. The board adopts no change in rule based on this comment. The impact of a change to a regional water planning area does not provide a direct impact on many of the person or entities that are required to be noticed by the regional water planning groups in their regional water plan development. Any other notice to these people is more appropriate at the time of the regional water planning itself. Freese and Nichols, Inc. commented that it is not acceptable to change the regional planning areas as provided for in sec.357.3 without providing notice to the members of the regional water planning groups affected. The board adopts no change in rule based on this comment. The rules as proposed require notice to be sent to affected regional water planning groups. An individual urged the board to name more than one representative from one or more of the original named 11 interests to achieve geographical and demographic diversity and balance and presumed the board would specify exactly what new interest it is creating to meet the special needs of the region as provided for in sec.357.4(a). The individual questions why other interests to meet the needs of the region are not listed specifically in the rule. Richland SUD also questioned what special interests to meet the needs of the region would be considered. type-name="italic">The board adopts a change in sec.357.4(a) based on this comment to allow the executive administrator to consider other factors. Special interests vary with regional water planning areas. This language allows the board to respond to regional specific needs and to changed conditions. In order to ensure a balance of interests on initial coordinating bodies prior to formation of regional planning groups, the rule provides the board with the ability to name additional initial coordinating body members if an initial designated members declines or becomes ineligible to serve within 60 days of the board's designation of regional water planning areas. SB 1 provides autonomy to regional water planning groups and the board is providing latitude to initial coordinating bodies and regional water planning groups relating to the ultimate balance of interests on the regional water planning group. Clean Air and Water, Inc. commented that an 11 member group is too small. They would like to see better representation, particularly since the geography of the regions are against such a small group. The board adopts no change to the rule based on this comment. Board action will determine the number of initial coordinating members, which subsequently enlarges to cover all interests in the regional water planning area and becomes the regional water planning group. The regional water planning groups have authority to form subgroups which must invite all interests to participate in the subgroup. The subgroups may help provide a more complete representation of the various regions while still allowing the regional water planning groups to remain at a manageable size. City of Austin and Hays County expressed support for more than one municipality interest category for their respective regions to be proposed when making initial coordinating body member designations to allow for representation of small and large or small, medium, and large municipalities. The board adopts no change to the rule based on these comments. The board is taking such comments into consideration when making recommendations for initial coordinating body member designations. Hays County comments in support of the prospect of some regional planing subgroups having more than one appointee per interest group, especially county representation. The board adopts no change to the rule based on this comment. SB 1 provides autonomy to regional water planning groups and the board is providing latitude in rule to regional water planning groups relating to regional subgroup formation with the exception of the requirement to invite all interests to participate on the regional subgroup. Lone Star Chapter, Sierra Club and an individual suggested that recreational interests be added as another category of interest to sec.357.4(a). Lone Star Chapter, Sierra Club proposed the definition to read: "those persons or groups recognized as regularly using or promoting the recreational use of rivers, streams, lakes, or coastal waters as well as those persons, groups or businesses whose livelihood derives from recreational use of water." An individual recommended the following definition, "those persons who engage in or advocate for generally recognized recreational uses associated with rivers, lakes, streams, bays and estuaries including by way of example but not limited to, fishing, sailing, power boating, hunting, swimming, kayaking, hiking, and camping." The board adopts no change to the rule based on these suggestions. Other interests can be considered and board staff will consider other interests to meet the needs of a region in recommendations to the board for designation of members to the initial coordinating body. Initial coordinating bodies are to expand to include additional representatives from the interests comprising the region according to Texas Water Code, sec.16.053(c), which could include interests other than those listed in sec.357.4(a)(1)-(11). Texas Chemical Council, Association of Electric Companies of Texas, Inc., and Central Power and Light expressed concerns that sec.357.4(a) required initial coordinating body members required to live and work in the planning area. For some interests, such as industrial and utility in particular, the best representative may work in the area but reside elsewhere. Arbitrary criteria not specified in the rules should not be used to rule out the best representative. The board adopts a change to sec.357.4(a) to allow such a representative who lives outside the regional water planning area to serve so long as the interest they represent is located within the regional water planning area. This change recognizes that an individual may himself or herself not reside within the regional water planning area, but be capable of representing an interest that has a presence in the region that warrants representation, such as a river authority which has boundaries in an area but which is best represented by a person living outside the region. Freese and Nichols, Inc. commented that the revised language giving the board more flexibility in designating the initial coordinating body is a significant improvement over previous draft versions of this rule and recommend that the rules should indicate what the board will do when a region does not include one of the interest groups. The board adopts changes in sec.357.4(a) to clarify that no member will be designated on the initial coordinating body if the regional water planning area does not include that interest. Central Power and Light commented that it is their understanding that the board is currently interpreting proposed sec.357.4 as follows: In order for the electric generating utility interest to be included as a member of the initial regional planning group, generating facilities must currently be located within the region. Central Power and Light expressed concern if a nongenerating electric utility in such a region were given a position on a regional planning committee in preference over a generating utility, which could in the future build a plant in the region and in doing so would require significant water rights. The board adopts no change to the rule based on the comment. The board's understanding of the legislative intent is to include electrical generating utilities as an interest to be represented was based on allowing input of groups with significant water use in an area. In the event a new generating facility is located in an area where the interest was not previously located, the interest would be eligible for representation on the regional water planning group. Brazos River Authority expressed support for the concept of additional representatives named by the board to the initial coordinating body to address the special needs of the region. No change is necessary as comment supports rule. Brazos River Authority and Richland SUD requested clarification that the additional members provided for in sec.357.4(a) are voting members. The board adopts a change in sec.357.4(c) to clarify voting membership of regional water planning groups to include all members except those designated as non-voting under sec.357.4(g) and (h). An individual expressed concern about the statement in sec.357.4 the board is allowed to name more than one representative from certain interests to meet special needs of the region. They questioned why certain interests need more than one representative and the potential to upset the balance of the group. They also questioned the criteria for addition of a certain interest and how those interests are designated. They expressed the opinion that representing certain interest groups usually results in problems. The board adopts no change to the rule based on these comments. Special interests vary with regional water planning areas. This language provides the board the ability to respond to regional special needs without limiting those needs. Choate Well Services asked for consideration of groundwater experience when naming initial coordinating body members under sec.357.4(a). The board adopts no change to the rule based on this comment. The requirement in sec.357.4(b) that recommendations for initial coordinating body members are based on factors including the representatives water knowledge which includes groundwater experience. An individual expressed concerns relating to sec.357.4 that the makeup of the regional planning group may result in lopsided votes and/or disputes. The board is providing latitude to the initial coordinating bodies and regional water planning groups relating to the ultimate makeup of regional water planning groups and its operations. An individual commented that representatives on the regional water planning groups will be forced to travel and use time off. The board adopts no change to the rule as the comment is outside of the scope of the rule. Regional water planning groups may develop methods to reduce travel such as work in subgroups, less frequent meetings, or by other means. Regional water planning groups have latitude to determine such matters. An individual questions how long are regional water planning group representatives' terms and how they are replaced. The board adopts no change to the rule based on this comment. Section 357.4(k) requires regional water planning groups to adopt bylaws including terms and conditions of membership and methods of adding new members. Lamar County questions if Indian nations are eligible for non-voting status on regional water planning groups under sec.357.4(f) {new sec.357.4(g)}. The board adopts no change in the rule based on this comment. Indian nations may request a seat with a non-voting status and the regional water planning group is provided with the authority to determine if they would be provided a seat. The City of Greenville commented that the definition of public interest is too restrictive and requested a more precise definition of the various interests in sec.357.4(a)(2)-(11). The board adopts no change to the rule based on this comment. Public interest is defined to exclude anyone with an economic interest in any of the other interests because such interest already has representation on the regional water planning group. The rule follows the direction of SB 1 to look for insight from the general public separate from that representation already provided in the other interest groups and helps provide for ongoing opportunity for public input into the regional water plan as required in Texas Water Code, sec.16.053(h)(2). Lufkin Machining Center comments that processing used in the definition of agricultural interests in sec.357.4(a)(5) could also be a business and questioned how it relates to sec.357.4(a)(7), small businesses. The board adopts no change to the rule based on this comment. Processing of plant and animal products is considered to be an agricultural interest as it has a common tie to the interests of water consistent with agricultural interests. While such interests also could align with small business, the board considers it to be more influenced with the concerns of the agricultural community. An individual requests the deletion of the phrase "and wise use" in sec.357.4(a)(6). The board adopts a change to the rule to delete "wise use" because it removes language which is being read to expand the definition beyond that intended. Lufkin Machining Center commented that the definition in sec.357.4(a)(7) of a small business with $1 million in gross annual receipts is too low to be a valid situation in that it could affect a business with a very high purchased material to billing ratio. The board adopts no change to the rule based on this comment. Overall this definition reflects the nature of small businesses and to expand would increase the category greatly beyond that intended in order to remedy a very small group that has been excluded. It is defined to distinguish between industry and small business interests. Association of Electric Companies of Texas, Inc. and Texas Utilities Services, Inc. requested a change in sec.357.4(a)(8) to either: "electric generating utilities, defined as any persons, corporations, cooperative corporations, or any combination thereof, other than municipal corporations or river authorities, owning or operating for compensation, equipment or facilities which produce or generate electricity for sale to others. Electric generating utilities do not include utilities which solely transmit and distribute electricity to customers or which solely generate or produce electricity for their own consumption;" or as "electric generating utilities, defined as any persons, corporations, cooperative corporations, or any combination thereof, meeting each of the following three criteria: own or operate for compensation equipment or facilities which produce or generate electricity; produce or generate electricity for either wholesale or retail sale to others; and are neither a municipal corporation nor a river authority." The board adopts changes to clarify rule language. Palo Duro River Authority and Freese and Nichols, Inc. comments that the definition of "river authorities" in sec.357.4(a)(9) requires that the board of directors be appointed by the Governor with the apparent exception of the San Antonio River Authority and that the definition excludes the Palo Duro River Authority which was created in 1973 by HB 1531 by virtue of the Texas Constitution, sec.59, Article XVI and has a board of directors appointed by two county commissioners and one city director. Both commentors requested the definition to be broadened to include others that might not precisely fit in the definition of river authorities. The board adopts a change in rule to include Palo Duro River Authority in the definition. The definition of river authority should be narrowly drawn with any exceptions specifically listed for clarity. The board intends this definition to parallel Texas Water Code, sec.30.003(4). Palo Duro River Authority meets all of the tests of river authorities and historically has been accorded the authority, power and obligations of river authorities. No other river authorities have noted their exception and requested their inclusion. CRMWA stated concerns with interpretations of the sec.357.4(a) that no entity will be represented on the planning group whose headquarters is not located within the planning region. It stated while this policy is not stated in the proposed rules, it is implied by sec.357.4(f)(4) {new sec.357.4(g)(4)}. Since there is no entity meeting the definition of a "river authority" as it is defined in the proposed sec.357.4(a)(9) whose headquarters is located in either planning Region A or Region O, it is unclear whether there will be representation for this group of interests on the planning groups for these regions. It noted this condition would appear to affect several of the proposed regions. The board adopts changes to sec.357.4(a) to allow such representation so long as the interest is located within the regional water planning area and to clarify that no member will be designated on the initial coordinating body if the regional water planning area does not include that interest. The changes recognize that an individual who does not reside within the regional water planning area, may be capable of representing an interest that has presence in the region. Brewster County suggested that limiting the number of representatives to 11 and specifying that each member represent a specified interest will ensure dominance by the most populous county within this region. The board adopts changes to the rule based on this comment. The ability to appoint more than 11 members and the requirement to obtain geographical distribution is already present in the rules as factors in the executive administrator's recommendation, should help provide adequate representation of specific interests. In order to ensure a balance of interests on initial coordinating bodies prior to formation of regional planning groups, the rule provides the board with the ability to name additional initial coordinating body members if an initial designated member declines or becomes ineligible to serve within 60 days of the board's designation of regional water planning areas. This should help ensure a balanced representation continues through the stage where the initial coordinating bodies appoint additional members to form the regional water planning groups SB 1 provides autonomy to regional water planning groups and the board is providing latitude to initial coordinating bodies and regional water planning groups relating to the ultimate balance of interests on the regional water planning group. Lufkin Machining Center questioned if decisions to be made by such a selected regional water planning group could stand a test in court based on the process or initial coordinating body member designations as provided in sec.357.4(b). The board adopts no change in rule based on this comment as it is beyond the scope of the rule. SB 1 has established these regional water planning groups to make these decisions. Texas Private Lands Advisory Board, Austin County and one individual commented on the process to be used to implement sec.357.4(b). Texas Private Lands Advisory Board recommended that the board select two to five possible candidates for each slot and provide these individual names for public comment and review as a process to designate the initial coordinating body members. Through this process a consensus could be built for appointments to the planning groups. Austin County requested that the board organize a meeting of all county judges and mayors in their respective areas before final choices are made for the proposed 11 member committee. The county has serious objections to the present mass nomination procedures since many of the nominators are not truly public servants. The board adopts no change in rule based on these comments. The board will not change the procedure to implement sec.357.4(b) which would increase the time for designation of initial coordinating body members beyond the scheduled February 19, 1997 board meeting. Timing of such designations are important as the board is attempting to give regional water planning groups adequate time to conduct their planning. The rule directs the executive administrator to informally develop a consensus by giving a strong preference to the consensus offered by the interests and not the general public's or public servants' opinion. The initial coordinating bodies have the responsibility to appoint additional members. Texas Private Lands Advisory Board expressed concern in sec.357.4 over the limited representation of these regional planning groups. It does not feel the selection of representatives from agriculture and environmental sectors represent the concerns of private landowners with interests and practical experience in wildlife and habitat management. It recommended that the board review and select representatives with this background, and further encourage the regional planning groups to extend membership to a private landowner in their region with practical wildlife and habitat management experience. The board adopts no change in rule based on this comment. The board has limited the listed interests to those specified in SB 1. The initial coordinating bodies and the regional water planning groups have the latitude to include these interests on the regional water planning group. Brownsville Public Utilities Board commented that sec.357.4 does not place limits on individuals who may serve on planning committees and that there is a need for the appointees to be principals with existing authority to compromise and settle disputed issues. The board adopts no change in rules based on these comments. Each voting member of the regional water planning group will have the same authority as all other voting members of the regional water planning group. The authority to make decisions on the regional water planning group is not dependent on the authority to bind an individual entity. Brownsville Public Utilities Board expressed concern that interest groups will seek the appointment of their legal counsel to the regional water planning group. This may adversely affect the ability of other interests to voice their concerns and obtain a free and fair discussion of the issues. The board adopts no change in rules based on these comments. Board staff believe it is poor policy to exclude any profession that could add significantly to the planning process. Altura Energy, Ltd. commented that the 11 proposed persons or entities in sec.357.4(a) cover most, but not all, of those that could be impacted by the final rules. The board adopts no change in rules based on these comments as any other interests are not identified in statute. The board, initial coordinating bodies, and the regional water planning groups are provided with the ability to appoint members to comprise the interests within the regional water planning areas if other significant interests are present in the region. Altura Energy, Ltd. requested expansion of the definition of sec.357.4(a)(4) to include oil and gas operations, especially in regional water planning areas where oil and gas is a main industry. The board adopts no change in rules based on these comments as it is specifically listing only those interests directly identified in statute. Oil and gas production interests are eligible under sec.357.4(a)(4) and (7) and sec.357.4(g)(4). An individual comments that there is no discussion in sec.357.4(b) of how names will be solicited for the 11 interests. The board adopts no change in rules based on this comment. A procedure was not proposed in rule because the board will be seeking consensus nominees and the executive administrator is using a multitude of methods to secure a wide range of nominees. Brewster County comments that it is unlikely that the initial coordinating body in their region will be favorably inclined to appoint additional representatives for the rural counties of the region as it likely would be to the detriment of the most populous county. The board adopts a change in the rule based on this comment. The latitude to balance interests on a regional water planning group is provided to the initial coordinating body and the regional water planning group. The board has made changes in sec.357.4 to assure the initial coordinating body maintains a balance of interests by requiring a two-thirds majority to appoint members of the regional water planning groups and to adopt bylaws. This will provide that all interest groups have a strong voice in bylaw adoption. CRMWA comments that proposed sec.357.4(c) and (f)(4) {new (g)(4)} allow an entity which furnishes or receives more than 1,000 acre-feet of water to or from a region, or which holds surface water rights of that magnitude, but whose headquarters is located in another region, to hold a non-voting position on the planning group of the region. However, the designation is apparently at the discretion of the regional planning group. Such memberships probably should be established by the board as part of the original designation, especially where the volume of water supplied is a major portion of the surface supply of the region. This rule could affect representation on planning groups for CRMWA, the Brazos River Authority, and the City of Lubbock. Since the entity would hold a non-voting seat, an effort should be made to assure representation of the entities which furnish or receive the water in the opposite region. The board adopts a change to the rule to make one or more representatives for outside water rights holders eligible for non-voting membership on regional water planning groups at the discretion of the regional water planning groups. An adopted change in sec.357.4(a) also provides for voting membership for persons representing interests that are contained in the regional water planning area without requiring the representative to have residency within the regional water planning area. Matagorda County Water Council and Texas Oil and Gas Association commented concerning sec.357.4(c) requirement that initial coordinating bodies add members to form the regional water planning group. Matagorda County Water Council questions if the use of the term "shall" in sec.357.4(c) indicates the initial members must designate additional members regardless of the circumstances and interests already represented. Texas Oil and Gas Association agreed with the added language regarding expansion of the initial regional planning group but was concerned that it could be interpreted to mean that the initial planning group doesn't have to add new members which it says would be in conflict with Texas Water Code, sec.16.053(c). The board adopts a change to rule based on these comments by changing the rule language to more closely parallel Texas Water Code language. The rule language follows statute in requiring initial coordinating bodies to add members to form the regional water planning group. An individual questioned if the provision in sec.357.4(c) that meetings shall be posted in accordance with the Texas Open Meetings Act means that the posting requirements should follow the procedures for a state agency, river authority, water district, or city. The board adopts no change to the rule based on this comment. The board will work with regional water planning groups to determine the notice required for such bodies. Association of Electric Companies of Texas, Inc. requested clarification in the rule addressing whether the members of the initial coordinating body have the ability to name both voting and non-voting representatives from the 11 interests identified in sec.357.4(a) or whether all designated representatives from these 11 interests are guaranteed voting privileges on the regional planning group. The board adopts a change to the rule in sec.357.4(d) to clarify voting membership. All members representing interests listed in sec.357.4(a) will be voting members. Freese and Nichols, Inc. commented that sec.357.4(c) allows the regional water planning groups to designate entities described in sec.357.4(f)(4) {new sec.357.4(g)(4)} as voting members of the group and states it is their impression that the regional planning groups can designate anyone as a voting member unless limited by their own bylaws. The regulations should allow the regional planning groups full control over their voting membership. The board adopts no change in rule based on this comment. Interests identified in the statue must have voting membership on the regional water planning group. The provision to allow other members to be designated as voting members clarifies in rule that the regional water planning groups have the latitude to name other voting members. Brazos River Authority questioned who is responsible for posting the notice required in sec.357.4(c) and how the notice requirements will be met including whether notices are to be posted in each county. Their comments also questioned who will act as the entity giving notice of the meeting and thereby satisfying the requirement to post notices at its principal office and how non-voting liaison members of adjoining regions get notice of initial planning group meetings, if they are to receive such notice. The board adopts changes in rule to reflect notice of the first meeting may be provided by the board, if the initial coordinating body in a regional water planning area has not provided such notice and convened a meeting within 30 days of the effective date of board action designating the initial coordinating body members or upon request of a majority of the initial coordinating body members. Notice to other initial coordinating body members of adjoining regions and other potential non-voting interests should be provided. Any initial coordinating body member, in coordination with other members, may post and convene their initial meeting. SOS commented that in sec.357.4(c), the sentence "At the option of the regional planning group, entities identified by subsection (f)(4) {new (g)(4)} of this section may be designated as voting members. . . ." should be stricken. The additional members referred to are holders of or contractors of water, headquartered outside the region. The appropriative or contractual claim on water is plenty of influence for the regional group to contend with already. The proposal to give out-of-region claimants a vote will only disrupt the planning process. The regions should be allowed to evaluate water management strategies without interference from non-voting members. The special water resources, the requirements that regional plans not conflict, and the legal right to the water provide adequate security for these out-of-region users. The board adopts no change in rule based on this comment. The regional planning group are provided autonomy by SB 1 and have the latitude to add anyone they choose as voting members. Brewster County requested substituting "shall" for "may" in sec.357.4(d) {new sec.357.4(e)} and adding language to the subsection similar to the following: "...and to ensure that no single geographical or socioeconomic interest dominates the group." Similar language should be added to sec.357.4(c). The board adopts no change in rules based on the comment. Initial coordinating bodies and regional water planning groups are given the latitude to determine the balance of interests on the regional water planning group. An individual commented that sec.357.4(d) {new sec.357.4(e)} appeared to be redundant, the subject apparently having been covered in the previous paragraph. The board has adopted a change in rule to clarify that the subsection refers to the regional water planning group adding new members after its formation. Texas Oil and Gas Association and Altura Energy, Ltd. commented on sec.357.4(f)(1) and (2) {new sec.357.4(g)(1) and (2)}. Texas Oil and Gas Association commented that state agencies are to be resources for regional planning groups and expressed concern about agency domination (or perceived domination) of the regional planning process. Altura Energy, Ltd. questioned the role non-voting members identified in the plan development other than to provide specific agency information and if that was already the purpose of staff. The board adopts no change in rule based on these comments. Staff of the board and TPWD are included as non-voting members of regional water planning groups to provide for technical assistance, to decrease duplication of effort, to facilitate implementation of plan development and planning, to identify potential interregional conflicts, and to provide knowledge of potential intraregional conflicts in event the board is asked to facilitate resolution. Because the board is required by statute to comment on plan, a staff presence during planning process will facilitate this agency review. Freese and Nichols, Inc. commented that sec.357.4(f)(1) and (2) {new sec.357.4(g)(1) and (2)} may be mandatory, sec.357.4(f)(3)-(6) {new sec.357.4(g)(2)-(4) and sec.357.4(h)(1)-(3)} should be optional. The board adopts a change in rule based on this comment to amend sec.357.4(g) {formerly sec.357.4(f)} to add sec.357.4(h) which provides that non-voting membership is not mandatory for other states or nations or entities with binational authority. CRMWA commented that sec.357.4(c) and sec.357.4(f)(4) {new sec.357.4(g)(4)} allow an entity which furnishes or receives more than 1,000 acre-feet of water to or from a region, or which holds surface water rights of that magnitude, but whose headquarters is located in another region, to hold a non-voting position on the planning group of the region. However, the designation is apparently at the discretion of the regional planning group. Such memberships probably should be established by the board as part of the original designation, especially where the volume of water supplied is a major portion of the surface supply of the region. This rule could affect representation on planning groups for CRMWA, the Brazos River Authority, and the City of Lubbock. Since the entity would hold a non-voting seat, an effort should be made to assure representation of the entities which furnish or receive the water in the opposite region. The board adopts a change to the rule to make one or more representatives for outside water rights holders a mandatory non-voting member on regional water planning groups. The rule previously allowed all such entities to be non-voting members. An adopted change in sec.357.4(a) also provides for voting membership for persons representing interests that are contained in the regional water planning area without requiring the representative to have residency within the regional water planning area. Section 357.4(c) also allows, at the option of the regional water planning groups, for such representative to vote. Altura Energy, Ltd. commented that in sec.357.4(f)(3) and (4) {new sec.357.4(g)(3) and (4)} members and representatives of "entities" located in another regional water planning area, which hold substantial water rights should have a voting position, especially in adjacent regions. The board adopts no change in rule based on this comment. Regional water planning groups are provided with the latitude to designate these representatives as either voting or non-voting members of the regional water planning group. The board does not want to guarantee an out of region interest with a vote when there is no guarantee of a voting position for like internal interests. Freese and Nichols, Inc. commented that the requirement in sec.357.4(f)(4) {new sec.357.4(g)(4)} to include out-of-region entities as non-voting members is seriously flawed in that it will add a great many non-voting members to most of the regional planning groups. The provision grants a privileged position to those transferring water into or out of the region by contract that it does not grant to those who transfer water as part of their basic water right. The provision grants a privileged position to out-of-region owners not granted to holders of similar rights headquartered in the region. Addition of non-voting members should be left to the discretion of the regional water planning groups. They suggested raising the threshold on water rights to a truly substantial interest, such as 10,000 acre-feet per year. The board agrees with portions of the comment and adopts a change in rule to alleviate this concern by allowing one or more representatives for such an interest category without overburdening the regional water planning group with non-voting members. Brazos River Authority commented on sec.357.4(f) {new sec.357.4(g)} that a representative of an entity located in another regional water planning area which has statutory responsibility in the region and which holds substantial water rights in the regional water planning area must be a voting member, not a non-voting member. Brazos River Authority states that the comment was partially addressed in the proposed rules. The board adopts no change in rule based on this comment. Regional water planning groups are provided with the latitude to designate these representatives as either voting or non-voting members of the regional water planning group. Board staff does not want to guarantee an out of region interest with a vote when there is no guarantee of a voting position for internal interests. The board has adopted a change to sec.357.4(a) to include entities with statutory responsibilities related to water supply to be eligible to be designated by the board as initial coordinating body members. SOS suggested that sec.357.4(f)(4) {new sec.357.4(g)(4)} should be changed to allow for a representative of the collective out-of-region users. One thousand acre-feet per year is not a staggering volume of water for large users. The 11 interests initially named to the regional planning groups only receive one member each. There is no reason to pack the regional planning group with out-of- region interests, whether voting or not. Their participation will be helpful, but it should not be disproportionate to the participation of those representing interests from within the region. The board agrees and has adopted a change in sec.357.4(g) to provide for one or more representatives of the subject interest to be included as non-voting members, rather than automatically granting such non-voting membership. Sabine River Authority commented that rules contain provisions in sec.357.4(f)(4) {new sec.357.4(g)(4)} which require that an entity must have headquarters within a regional water planning area in order to be considered for appointment as one of the 11 members of the initial water planning group for that area. Sabine River Authority believes that this situation should not apply in the case of river authorities if the regional planning area contains a portion of the river authority's jurisdictional service area. This situation should not apply especially for a case in which the river authority has one or more operating divisions, reservoirs, canal systems, other projects, or currently used water rights within the regional water planning area. The board adopts changes to sec.357.4(a)) to allow such representation so long as the interest is located within the regional water planning area and to clarify that no member will be designated on the initial coordinating body if the regional water planning area does not include that interest. The changes recognize that an individual who does not reside within the regional water planning area, may be capable of representing an interest that has presence in the region. Brownsville Public Utilities Board suggested the addition of a new sec.357.4(g) to read as follows: No member of the regional planning group shall be a professional employed by or representing: any of the other members of the regional planning group; any entity or interest represented by a member of the regional planning group; or any entity entitled to receive notice of the application under sec.355.97 of this title. The board adopts no change in rules based on this suggestion. The board considers it is poor policy to exclude any profession that could add significantly to the planning process. Texas Oil and Gas Association suggested that specific examples do not need to be named in sec.357.4(g) {new sec.357.4(h)(3)} and that merely suggesting these agencies may imply that they should be added. The board adopts no change in rules based on this comment as these provisions are included for clarification, but does not mandate appointments nor limit appointments to those listed. SOS and an individual commented relating to concerns with sec.357.4(h) {new sec.357.4(i)}. SOS comments that the joint planning by two or more regional groups of one plan needs extra safeguards and should require unanimous approval of the regional groups involved or approval by the board after a full public hearing for dissenters. An individual comments that board approval should be required for two or more regions to combine to write one plan covering all regions provided for in sec.357.4(h) {new sec.357.4(i)} and that dissenting views, if any, of any persons objecting to such combined plan should be heard by the board before making a decision. type-name="italic">The board adopts no change in rule based on this comment. SB 1 directs regional water planning groups to adopt their regional water plan and are therefore given the latitude in rule to approve their own agreements. The plan ultimately would be approved by each regional water planning group. City of Austin commented regarding the sentence in sec.357.4(h) {new sec.357.4(i)} beginning "Regional water planning groups may enter into written agreements." The City agreed with the intent to cooperate with other regions and that those agreements can be in written form, but noted that until it can see how the groups are formed and defined, and how their structures and bylaws are established, it could not support the concept of making such agreements binding by law. The board adopts no change in rule based on this comment. Rule language does not enlarge existing laws relating to binding agreements nor does it require such agreements, but simply notes the abilities of the regional water planning groups to execute these agreements. Brewster County commented that the guidelines are unclear in sec.357.4(i) {new sec.357.4(j)} on how the subregional areas would be established or governed and do not specify what their powers and responsibilities would be. The board adopts no change in rule based on this comment. Regional water planning groups are provided with the latitude to make such determinations as they have better knowledge of their own needs and situations that would benefit from utilization of this provision. Lone Star Chapter, Sierra Club, Altura Energy, Ltd., and an individual stated concerns with representation on subgroups as provided in sec.357.4(i) {new sec.357.4(j)}. Lone Star Chapter, Sierra Club requested a return to language in a previous draft of the proposed rules that required each regional water planning group to "assure that all of the interests listed in subsection (a) of this section are represented on each subregional water planning group formed" rather than simply requiring those interests to be invited to participate. Altura Energy, Ltd. agreed with formation of subregional groups, but requested that these subgroups be able to participate by water use interest as well. An individual also commented that the named interests on the regional water planning group should be given the power to name representative for their interest to any subgroup. The board adopts no change in rule based on these comments. The rule language provides that interests are invited to participate in subgroup planning and does not limit subgroup formation, if an interest doesn't desire to participate. Lone Star Chapter, Sierra Club recommended that recreational interests should be represented on subregional water planning groups even though they are not enumerated in SB 1 as one of the interests that must be represented on the regional planning groups. The board adopts no change in rule based on this comment. Regional water planning groups are provided with the latitude to such decisions. The rule language provides that interests are invited to participate in subgroup planning and does not limit subgroups formation, if an interest doesn't desire to participate. Ekistics Corporation requested that the Galveston Bay Freshwater Inflows Group be considered a subgroup in regional water planning area H. The board adopts no change in rule based on this comment. Regional water planning groups are provided with the latitude to make such decisions relating to subgroup formation. Brazos River Authority questioned whether meetings of the subregional groups or committees are subject to the Texas Open Meetings Act. The board adopts no change in rule based on this comment. The subregional water planning groups are required to hold meetings according to the Texas Open Meetings Act in sec.357.12(c)(1). Brazos River Authority commented that given the high level of cooperation among traditional water supply agencies, regardless of boundaries, the authority strongly supports the formation of subregions, and therefore endorses the current rules which allow and support their creation. No change is necessary as comment supports rule. An individual suggests that it should be made explicit that for purposes of sec.357.4(j) {new sec.357.4(k)}, the term "regional water planning group" shall mean the persons named to the initial coordinating body and the additional persons designated to the group by the initial coordinating body. The bylaws should not be adopted until the full group is named and in place. They also commented that it might be a good idea to set a deadline for the initial coordinating body to name the other persons who will serve as the members of the regional water planning group. The board has adopted a change in rules by adding a new sec.357.4(d) to clarify that the regional water planning group is constituted of the initial coordinating body members and members added by the initial coordinating bodies. Changes to sec.357.4(k) clarify that voting members of the regional water planning group must adopt bylaws. Rules provide that these bylaws must be adopted prior to receiving funds from the board for regional water supply planning. The board has adopted a change in rule to require a two- thirds majority of the regional water planning group in order to adopt bylaws to facilitate buy in to the operations of the regional water planning group by its members. An individual questioned the board's intention to approve the bylaws or to accept the adoption of bylaws by the regional planning groups if they certify that minimum standards are met. The board adopts no change in rule based on this question. The board will not provide grant funds to regional water planning group designees unless bylaws have been adopted and address the minimum requirements. Lone Star Chapter, Sierra Club and the Texas Center for Policy Studies stated support for the requirement that regional planning groups adopt bylaws and the requirement that such bylaws include at a minimum the elements identified in this subsection. No change is necessary as comment supports rule. The City of Greenville requested more direction regarding the bylaws' mandatory provisions and for ensuring such planning groups avoid "politics." In particular they were concerned that a memorandum of understanding and/or cooperation may already exist for the exchange of candidate support and for which studies to pursue with the regions funding. The board adopts no change in rule based on the comment. The board does not recognize such agreements that have not been entered into by regional water planning groups as binding on the board nor are regional water planning groups required to honor agreements they are not a party to. Lufkin Machining Center suggested that the board should define a minimum quorum, how additional members should be added and removed, and maximum terms for which bylaws are required address in sec.357.4(j) {new sec.357.4(k}. The board adopts no change in rule based on this suggestion. Statute provides for autonomy of regional water planning groups and the board is providing them with the latitude to make such decisions relating to their operations. The board has provided for a two-thirds majority vote of members for adoption of bylaws to assure the group has support for such rules throughout the remainder of the regional water planning process. Association of Electric Companies of Texas, Inc. requested specification of when the adoption of bylaws is to take place relative to the designation of additional representatives to the regional planning group by the initial coordinating body. The board has adopted a change in rules to specify bylaws are adopted after additional members are named by the initial coordinating bodies. This will ensure that the all members of a regional water planning group will participate in development of bylaws ultimately providing more buy-in by members. Colorado River Municipal Water District commented that members of the initial coordinating body or regional water planning group may incur significant expenses and recommended an new sec.357.4(l) to read: "Coordinating body and regional planning group representatives shall be entitled to reimbursement of all legitimate expenses incurred while performing their respective duties." The board adopts no change in rule based on this comment. These costs are eligible as part of the regional water planning efforts. However, available state resources are limited and will not prioritize these expenses over that work required to provide information to develop a regional water supply plan. These costs can be used by the regional water planning groups as in-kind services to satisfy part of the local matching funds to be provided under new Chapter 355, Subchapter C of this title. Brewster County requested modification in sec.357.5(a) as follows: "...protection of the agricultural and natural resources of all counties within the regional water planning area." The board adopts no change in rule based on this comment. SB 1 does not specify that planning be specific to counties. An individual suggested adding in sec.357.5(a) ",economic" after the words "agricultural" in the last line of the subsection. The board adopts no change in rule based on this comment. SB 1 does not require protection of economic resources but rather requires plan to further economic development and protect natural resources. Altura Energy, Ltd. suggested in sec.357.5(a) that the word "protect" be struck and insert "to allow for effective, beneficial use of" between "development;" and "the." The board adopts no change in rule based on this comment. The language for which change is sought comes from Texas Water Code, sec.16.051 and sec.16.053. The changes suggested would alter the statutory set goals of regional water planning groups. The City of Belton suggested that the state should allow the regional areas to develop population and water demand projections and that the requirements in sec.357.5(d)(1) are not a bottom-up process, as described by board staff in public meetings. The board adopts no change in rule based on this comment as Texas Water Code, sec.16.053(e)(2) directs the board to provide or approve data for regional water planning groups. Use of consistent data is essential to assure regional plans can merge into the state plan and also to provide for the sharing of data at both the state and regional level. Jefferson County commented that it believes the board's population and economic growth projections, which it characterizes as representing flat and declining projections, respectively, are wrong and suggested that local projections based on local knowledge would better serve the regional water planning group in their region. It also questioned how to get approval to use the local data. The board adopts no change in rule based on this comment as Texas Water Code, sec.16.053(e)(2) directs the board to provide or approve data for regional water planning groups. Use of consistent data is essential to assure regional plans can merge into state plan and to provide for the sharing of data at both a state and regional level. State planning projections have a good historical record of accuracy and have been developed and approved by the board, TPWD, and TNRCC. Information demonstrating changed conditions or new data can be used to negotiate a change in the state's projections. Matagorda County Water Council questions if a regional water planning group must receive board permission to utilize the group's own population projections and supply figures once the group rejects the board's figures. The board adopts no change in rule based on this comment. Rules provide for regional water planning groups to use state population and demand projections or to negotiate change in such projections if they do not agree with state numbers. The City of Belton commented that the alternative in sec.357.5(d)(2) does little to allow the use of local and regionally developed population and water demand projections, as approval must come from those whose own projections are being challenged. The board adopts no change in rule based on this comment. Rules establish criteria the board will consider. The board always seeks to use the most accurate information. Brazos River Authority questions in sec.357.5(d)(2) if "new information" would include existing local information that the board was not aware of or had not considered previously. The board adopts no change in rule based on this comment. Rules establish criteria the board will consider which includes new information. The board always seeks to use the most accurate information and would review existing information about which it had been unaware. Brazos River Authority comments that it appreciated and supported the changes in the final draft which indicates a willingness by the board to consider modifications to population and water demand projections based on changed conditions. No change is necessary as comment supports rule. Texas Center for Policy Studies commented that the elimination of sec.357.5(j), which forced regional planning groups to consider instream and bay and estuary flows is a major step backward in assuring that human and environmental needs are respected by the regional planning effort. While the language in sec.357.5(e)(1) is positive, it does not replace the impact of sec.357.5(j) in previous drafts of this rule, which was not just about considering the effect of water supply options on environmental needs, but assuring the environmental water needs themselves. Both the added language of sec.357.5(e)(1) and sec.357.5(j), which was struck from the text, should be included in the final rules. The board has adopted changes to address the comments. In sec.357.5(e)(1), the term "instream flows" to the evaluation of impacts of strategies. A sec.357.5(l) has been added to restore the language requested by the commentor. Colorado River Municipal Water District commented that the environmental criteria are very broad based and generalized. Using the criteria can alter or restrict water rights and uses, without an appreciable benefit to the ecology of a particular stream. The District recommended replacing sec.357.5(e)(l) with the following language "The feasibility of alternative management strategies for planning purposes shall not be completed until appropriate site-specific studies have been performed." The board adopts no change in rule based on the suggestions as it is not consistent with statute which requires the review of impacts of strategies on bays and estuaries and does not go as far as protecting natural resources as the statute requires. One individual requested in the second line of sec.357.5(e)(1), after the word "on," to insert the following new language "instream flows and." The board agrees and has adopted a change in rule to reflect inclusion of instream flow considerations. Altura Energy, Ltd. suggested the words "and economic" be added in sec.357.5(e)(1) between "environmental information." The board adopts no change in rule based on this comment as economic impacts already a goal of the plan in sec.357.5(a) and are addressed in sec.357.5(e)(4) and sec.357.7(a)(4) and (7). Colorado River Municipal Water District commented that the language in sec.357.5(e)(2) appears to promote some sort of enforcement against not using certain "strategies" which is outside the scope of SB 1. The District recommends returning to the language of the first draft on this item. The board adopts no change in rule based on this comment. The rule contains language very similar to SB 1. Board staff see no substantive change between the proposed rules language and previous drafts of rules. The City of Belton commented that the sentence in sec.357.5(e)(3), "any amendments will require the eventual consent of the owner" is overly vague and suggested the following substitution: "any amendments to any existing water rights, contracts, and option agreements shall require the consent of the parties to such water rights, contracts, and option agreements," The board adopts no change in rule based on this comment. A water rights holder is the one who would have to give eventual consent, however, law on contracts will protect any contractual agreement. An individual recommended a change in sec.357.5(e)(3) to read as follows: "consider existing water rights and contracts, but may consider voluntary amendments of water rights and contracts." The board adopts no change in rule based on this comment as the language is not sufficient to express the legal principle of protection of existing water rights. Altura Energy, Ltd. agreed with sec.357.5(e)(3) that any amendment should require the consent of the owner. No change is necessary as comment supports rule. An individual questioned if the water rights owner refuses consent to have his water rights reallocated for the 50% and 75% analysis, does this constitute a valid reason for the revocation of water rights by TNRCC. The board adopts no change in rule based on this comment as it is beyond the scope of the board rules and jurisdiction. Analysis of when flows are at 50% and 75% of normal will be determined based on the assumption that all senior water rights will be used. Association of Electric Companies of Texas, Inc. and Texas Utilities Services, Inc. commented that items identified for protection should be consistent with those identified in sec.358.3(b)(10). The board agrees and has adopted a change in rule for consistency. Texas Center for Policy Studies commented that as soon as cost and environmental sensitivity are "balanced" the environment usually loses and recommended that the language should be struck from the text of sec.357.5(e)(4). An individual suggested to substitute in its entirety the language from the second draft of the rule in sec.357.5(e)(4). Texas Oil and Gas Association expressed concern that if a faction favoring only one type of management strategy controls the regional planning group, then only that alternative would be considered. Lone Star Chapter, Sierra Club recommended the replacement of consideration of "water management strategies that balance cost-effectiveness and environmental sensitivity" with consideration of water management strategies that are "cost- effective and environmentally sensitive." SOS suggested that sec.357.5(e)(4) should be rewritten to read: "provide specific recommendations of water management strategies based upon identification, analysis and comparison of all water management strategies the regional water planning group determines to be potentially feasible so that the most cost-effective strategies which protect the environment are considered and pursued, where appropriate.' The board agrees clarification of the language is needed. A partial change was made because the definition of balancing was vague and did not provide sufficient guidance. The board considers its changes to require consideration of "cost effective strategies which are environmentally sensitive" to meet statutory requirements to protect natural resources and provide appropriate provisions for water needs required by Texas Water Code, sec.16.051(a) and sec.16.053(a) and (e)(4)(F). This provides a better explanation of the balancing of cost effectiveness and protection of the environment and requires that strategies be chosen which are environmentally sensitive, where appropriate. Brazos River Authority suggested inserting the word "that" after "strategies." The board adopts no change in rule based on this comment as it is grammatical and unnecessary. Colorado River Municipal Water District suggested that the openness as proposed in sec.357.5(e)(6) can have adverse effects. For example, disclosure of a reservoir site can fuel land speculation and price inflation, or tactics to block reservoir construction. Colorado River Municipal Water District recommend removing the phrase "provide substantial involvement by the public in the decision-making process, and provide full dissemination of the planning results." The board adopts no change in rule based on this comment as the statute requires sufficient opportunity for public input into the planning process in Texas Water Code, sec.16.053(h)(2), which is important to achieve support from all affected stakeholders and the best possible regional solution. SOS suggested a change in sec.357.5(e)(6), between "explore opportunities for and the benefits of developing regional water supply facilities or providing regional management of water facilities," and "coordinate the actions of local and regional water resource management agencies," insert the following: "explore opportunities for and the benefits of limiting or reducing water demand." The rules as proposed require regional groups to explore expanding the water supply to meet its demand. It notes the rules should similarly encourage planners to identify management strategies which will reduce demand for water, beyond recycling and reuse of water, thereby preserving or freeing up water for environmental and consumptive uses. The board adopts no change in rule based on this comment. The concepts requested are included in sec.357.7(a)(6) as a water management strategy. An individual questioned the meaning of the definition of navigation. The board adopts no change in rule based on this comment. Regional water planning groups should define navigation in accordance with their specific needs. Brownsville Public Utilities Board recommended that the board should provide guidance to the regional planning groups on reaching a plan and suggested the board should adopt sec.357.5(e)(7) to read as follows: "consider and use the following guidelines: a. Begin with those projects already in existence and work through additional projects as a second step. b. Focus on conservation and those projects which do not affect other water right holders. c. Encourage conservation and planning in both agricultural and municipal areas. d. Analyze first the projects in which large amounts of time and money have been spent to increase the water supply, and where environmental impact studies or work has already been done on a project with other affected third parties. e. Consider the amount of water already stored and available to that area and whether that area has access to only one water source or alternative sources. f. Focus on the amount of population growth in an area and the number of people who will be impacted by less than adequate water resources. g. Develop those projects which could increase the amount of water to an area while not decreasing available water in other areas." The board adopts no change in rule based on this suggestion. SB 1 provides regional water planning groups with autonomy and the board has provided them the latitude in rule to make such determinations of how to meet their water supply needs. An individual requested a change in the third line of sec.357.5(f) to add the following after the word "international" in sec.357.5(f): "and tribal." The board adopts a change to sec.357.5(f) to simplify rule language and to provide for inclusion of all laws applicable to water use in the region without listing all applicable laws in rule. Texas Center for Policy Studies suggested that in sec.357.5(g) and/or (h), language should be added, so that in addition to water supply contracts and option agreements, management plans and inflow requirements are also respected. The board adopts no change in rule based on this comment as these items are required to be considered in sec.357.5(e)(3) and there is no need to specifically include this in the special water resources provision of the rules. Brazos River Authority supported rule language of sec.357.5(g) and (h). It expressed concern with the statement "Any amendments will require the eventual consent of the owner." It would be more in keeping with local planning and would make the regional plan more meaningful if the owner approved prior to consideration rather than eventually. The board adopts no change in rule based on this comment. Regional water planning groups may consider amendments, but any amendment will require the consent of the owner. An individual commented on sec.357.5(g) and (h) that one of the prime purposes of S.B. 1 is to foster planning for those inevitable times when severe droughts occur and water availability falls short of being able to meet all the needs and demands for its use. One of the first tasks of the regional planning groups is to grapple with alternative strategies for use in times of severe shortages. This provision not only seems to give out-of-region users, or even potential users under "options" more protection than regional users themselves, but it also seems to put unreasonable restraints on the flexibility regional groups can employ in trying to come up with reasonable plans for those times of shortages so that the public interest can best be served. When developing strategies and plans, uses for which no contract may exist such as instream flows and bay and estuary inflows deserve consideration as well as existing rights and contracts. This provision needs to be rewritten to provide for "consideration" rather than "protection" of such "special water resources." The board adopts no change in rule based on this comment. Protection of water rights will inherently protect any environmental inflow requirements associated with those permits. Conditions on permits have traditionally been the method for providing environmental flows. If water rights are specifically granted in the future for environmental purposes to be used outside the planning area, such resource would be eligible for designation as a special water resource. Otherwise, the interest itself has adequate means to be represented on the regional water planning group. Existing law already protects permits and therefore this rule does not provide more protection than is already required in the law. The rules provides a specific duty for the region to review these rights since these holders likely have no formal representation on the regional water planning group. CRMWA and the City of Amarillo requested designation of Lake Meredith as a "special water resource" under sec.357.5(g) and (h) and on the map of the regional water planning areas. The comment is outside of the scope of these rules. The board will consider this request when designating special water resources. CRMWA and the City of Amarillo commented that the CRMWA owns about 42,765 acres of underground water rights in eastern Hutchinson and western Roberts County. CRMWA holds a permit from the Panhandle Ground Water Conservation District which allows production of 40,000 acre-feet per year from the portion of these rights which are within the District under normal conditions, and up to 50,000 acre- feet per year under unusual or emergency conditions. The eight CRMWA member cities located in Region O are committed to receive 50.23% of this supply, which will be used conjunctively with Lake Meredith. Therefore the groundwater supplies held by CRMWA should also be designated as a "special water resource." Texas Alliance of Groundwater Districts commented that the designation of a "special water resource" as applied to groundwater under board rules to implement SB 1 could have several implications and in some cases prevent a district from carrying out the provisions of Chapter 35 and 36 of the Texas Water Code. The group opposes the designation of any groundwater, groundwater rights, or surface area including groundwater held by an individual, partnership, or any other entity as a "special water resource." High Plains Underground Water Conservation District No. 1 expressed disagreement with the designation of groundwater supplies held by CRMWA or any other owner of groundwater, groundwater rights, or surface water rights including the groundwater to be a "special water resource." Freese and Nichols commented that the addition of special water resources is a good idea and it should be extended to groundwater resources as well as surface water resources. An individual questioned why is the protection afforded only to surface water since groundwater in sec.357.5(g) and (h) and stated that it could have a significant impact on the planning decisions. The board has adopted a change in rule to clarify that special water resources designation applies only to surface water resources. The board received comments both for and against inclusion of groundwater as a special water resource. The board determines that including groundwater will not further planning, the principle reason for creation of special water resources, due to possible conflicts with groundwater districts and groundwater users. An individual requested that inflow to Amistad be designated a special water resource. The comment is outside of the scope of these rules. The board will consider this request when designating special water resources. The City of Austin commented that it understanding is that the special water resources concept was developed primarily to ease concerns by entities with existing water rights, contracts, or option agreements outside a regional water planning area. It requested that the sec.357.5(g) definition should be clarified to reflect this intent by more specifically addressing existing water rights, contracts, or option agreements, or existing obligations, to avoid unintentionally promoting future interbasin transfers which may not be in the best interest of the region or the state. The board adopted a change in rule to clarify that it is current obligations are eligible to be designated as special water resources. Lone Star Chapter, Sierra Club supported the concept of identifying "special water resources," but requested this concept be modified to refer to needs rather than demands, and that it should address environmental water needs as well as water supply needs. It recommend adding a characteristic to be considered by the board when considering such a designation, as follows: "an existing water management plan or existing requirements for meeting environmental water needs which might be affected by a regional plan developed in a regional water planning area different from the one containing the water resource." The board adopts no change in rule based on this comment as the intent is to protect investments of water right holders which are not voting members of the regional water planning group and which are outside of the regional water planning area where their right is located. Environmental interests are represented on the regional water planning groups. A regional water planning group is required to protect existing water rights, which includes provisions in those rights for environmental flows requirements. Garwood Irrigation Company requested that because its water right falls within the definition set out in the proposed rules that it be designated as a special water resource. The comment is outside of the scope of these rules. The board will consider this request when designating special water resources. Texas Center for Policy Studies commented that in sec.357.5(g) and/or (h), language should be added, so that in addition to water supply contracts and option agreements, management plans and inflow requirements are also respected. The board adopts no change in rule based on this comment. Management plans and inflow requirements are part of a water right and therefore already protected with existing rule language. CRMWA commented that the designations of "special water resources" proposed in the preamble are not presently contained in the proposed rules, and therefore it is assumed that the designation of planning areas and "special water resources" will be accomplished in a board order or by some similar mechanism, with opportunity for comment before action. Based on information at the Plainview public meeting, the action will be accomplished by approval of the map designating the regional water planning areas. The board adopts no change in rule based on this comment. Special water resources are not named in rules but by board action designating regional water planning areas. The board has held extensive public meetings and hearings through out the state to receive input on this issue and has received a large number of comments. TPWD commented that when protecting special water resources, protect only existing water rights, water supply contracts, water supply option agreements, and associated environmental flow provisions. The board has adopted a change in sec.357.5(g) to clarify the provision relates only to supplies currently obligated. Lone Star Chapter, Sierra Club proposed that in sec.357.5(h), the phrase "supplies obligated to meet demands outside the regional planning areas shall not be impacted" is probably too restrictive and is contradicted by subsequent language. It recommended deleting the first full sentence of sec.357.5(h) and rewording the second sentence as follows: "When developing a water plan that involves a special water resource, defined in subsection (g) of this section, any plans that could impact the water rights, water supply contracts, water supply option agreements, water management plans, or environmental water needs requirements associated with the special water resource area shall be based only on potential adjustments to the water rights, water supply contracts or option agreements, water management plans, or environmental water needs requirements by those entities holding interests in such water rights, water supply contract, water supply option agreements, water management plan, or environmental water needs requirements. The board adopts no change in rule based on this comment. Suggested rewrite does not create a substantive change in provisions when read as a whole. Environmental water needs and management plans are included in a water right and are therefore protected as part of that right. SOS commented that sec.357.5(h) is misguided. Out-of-region holders of rights from a special water resource are protected by the water right itself and the prior appropriation system. The rule ties the hand of planning groups so that uses in other regions are given, in effect, a "super-priority" beyond even the scope of the planning group's consideration. It upsets both the planning process and the prior appropriation system, by imposing planning choices on the planning groups which are neither efficient nor consistent with existing law. SOS commented that adequate protection is available for such users in existing law, the proposed notice requirements, and a requirement that the groups specifically address the impact of their plan's strategies on out-of-region users of special water resources. The entire subsection of the last sentence should be replaced with: Protecting rights to special water resources. The regional water plan will specifically evaluate the impact of identified water management strategies and water management scenario alternatives on users outside the region who use water from a special water resource located within the region." The board adopts no change in rule based on this comment. Rule language goes no farther than existing law except for special provisions for notice and opportunity to comment. However, the rule emphasizes this requirement. It does not give out-of- area water rights "super-priority" over regional water planning groups or over other water rights within the regional water planning area. It also does not change the existing priority system. Rather than upsetting the planning process, it enhances interregional cooperation by providing for notice and opportunity to comment. Texas Oil and Gas Association commented that if emergency is not defined elsewhere, it does need to be defined in sec.357.5(i). The board adopts no change in rule based on this comment as emergency is defined in Texas Water Code, sec.11.139 and need not be replicated in rule. Brazos River Authority suggested that the non-municipal water rights holder should be given an opportunity to comment in the same fashion as the special water resources water rights holder. The board adopts no change in rule based on this comment. Special water resources are not limited to resources held for municipal use. TNRCC questioned which state water plan information is this referring to, the current plan or the one to be produced. The board adopts no change in rule based on this comment. State water plan is defined as that plan currently in force. TNRCC questioned relating to sec.357.5(j), if the simplified process needs to address the other elements specified to be a part of the regional plan, such as emergency transfers or other such requirements. The board adopts no change in rule based on this comment. If a regional water plan has been previously incorporated into the state water plan, the area will have the subject information. In the event an area does not adopt an initial regional plan that is incorporated into the state plan, they will not be required to develop the subject information. An individual commented that the old sec.357.5(j) concerning environmental water needs has been stricken in its entirety. This should be restored as a new subsection (k), and the subsequent two subsections relettered as (l) and (m) respectively. As a water use, instream flow and bay and estuary inflows should be accorded the same rights as any other water use or right. TPWD expressed strong objection to the deletion of old sec.357.5(j), "Instream and bay and estuary flows." The language in sec.357.5(e)(1) of this section does not serve as an adequate substitute because it doesn't require the regional planning groups to provide for environmental flow needs. Lone Star Chapter, Sierra Club recommended reinstitution of the guideline in an earlier version of the proposed rules as sec.357.5(j) as a new (k) to read as follows: "Instream and bay and estuary flows. In developing a regional water plan, a regional water planning group shall consider environmental water needs including instream flows and bay and estuary inflows." The Sierra Club agreed with retaining the language added to sec.357.5(e)(1) to "evaluate water management strategies for effect on environmental water needs including effect on bays and estuaries using environmental information using information resulting from site-specific studies...." Much discussion during the legislative deliberations on SB 1 focused on how the legislation recognized the need to address environmental water needs as well as other water needs. That assertion rings hollow if the original language of sec.357.5(j) is not reinstated. SOS requested restoration of former sec.357.5(j), "Instream and bay and estuary flows," in its entirety. The board adopted a change in rule to restore previous language as sec.357.5(l) as requested to ensure regional water planning groups meet the requirement of Texas Water Code, sec.16.053(e)(4)(F) that plans consider appropriate provisions for environmental water needs. Brazos River Authority commented that it should be a goal of SB 1 planning not to delay or prevent local action on needed water improvements. The board adopts no change in rule based on this comment as the goal is addressed in sec.357.5(m). Brazos River Authority commented that the regulations should include a means for local entities to submit and have approved changes to the regional plan pertaining to that local area. The regulations should cite how the changes are submitted, reviewed, and approved by the planning group and the board. Time frames should be reasonable but expeditious. The board adopts a change in sec.357.11(e) based on this comment to provide for petition to change a regional water plan. Regional water planning groups must consider such petitions within 180 days after its submittal. Altura Energy, Ltd., suggested that language in sec.357.5(k) be amended to include "publicly available plans or priorities by state agencies." Oil and gas permits issued by the Texas Railroad Commission require operators to exhaust all available water sources before using fresh water. Altura Energy, Ltd. stated while a permit may not be a plan per se, it is a requirement and should be included. The board adopts no change in rule based on this comment as rules provide for consideration of such plans, if the information is provided to the regional water planning group. Lone Star Chapter, Sierra Club recommended adding the following programs and goals to be considered: The State of Texas Surface Water Standards, and the Texas Outdoor Recreation Plan. The board adopts no change in rule based on this comment. State water standards are a part of the Clean Water Act and therefore inclusion would be redundant. Texas Outdoor Recreation Plan can be considered by regional water planning groups. Regional water planning groups have autonomy. For some regional water planning areas, it would not be appropriate to make them consider the Texas Outdoor Recreation Plan. SOS recommended after "regionalization of water and wastewater services," in sec.357.5(k)(2)(C) the addition of "strategies to limit or reduce water demand." The board adopts no change in rule based on this comment. The concepts requested are included in sec.357.7(a)(6) as a water management strategy. Brownsville Public Utilities Board commented that the board should plan to give the state water plan to the regional planning groups as the basis for their regional plans. These groups may accept or reject projects already included; however, it must be stressed that these included projects should be carefully reviewed. Should a group fail to place a project in the regional plan which was included in the state water plan, the board will have the opportunity to review the plan and determine if that project should be included. The Brownsville Public Utilities Board suggested the following language for a new subsection in sec.357.5 that would read as follows: "The regional planning group shall include within its regional plan any and all projects that are included in the state water plan, or amendments or supplements thereto, in existence on June 19, 1997, unless the regional planning group provides to the Texas Water Development Board compelling reasons and evidence why the project should be omitted, and proposes a plan to reimburse persons who have expended money to develop a project that is included in the state water plan on the above-referenced date which is proposed to be deleted from the regional plan." The board adopts no change in rule based on this comment. The request is beyond that authorized in statute. Regional water planning groups are provided autonomy by statute and the rules provides them latitude to make such decisions. Regional water planning groups are directed to consider the state water plan by Texas Water Code, sec.16.053(a). Brazos River Authority questioned if board funds cannot cover all funds associated with the mandate for preplanning activities, how the remaining activities are to be allocated among the members of the planning group. Costs of public notice should be paid with 100% grant funds. The board adopts no change in rule based on this comment. Regional water planning groups determine allocation of costs among the region. The 75% limitation on board funding for grants is in accordance with the fiscal note prepared for SB 1 and the ensuing legislative appropriations made to the board for the current biennium. The notices of scopes of work would be 100% reimbursable at that stage of the funding, within the limits placed on each regional water planning group and scope of work, but would factor in to the limit of 75% overall grant funding. Brazos River Authority recommended that in sec.357.6 or sec.357.7(a)(1), it would be appropriate to include a task to identify existing plans, those funded by the board and locally, in order to eliminate to the degree possible any future conflict between local plans and the adopted regional plan. The board adopts no change in rule based on this comment. Consideration and inclusion of summaries required in sec.357.7(a)(1) makes this item eligible for funding under Chapter 355, Subchapter C of this title. Brazos River Authority suggested that the regulations should provide a means for recognition of existing population and water demand projections by a local entity without requiring a new, comprehensive study. The board adopts no change in rule based on this comment. Regional water plans are required to use board projections. Texas Water Code, sec.16.053(e)(2) directs the board to provide or approve data for regional water planning groups. Use of consistent data is essential to assure regional plans can merge into a state water plan and to provide for the sharing of data. State planning projections have a good historical record of accuracy and have been developed and approved by the board, TPWD and TNRCC. Information demonstrating changed conditions or new data can be used to negotiate a change in the state's projections. Rules do not require comprehensive studies if existing data can show the need for changes. Brazos River Authority commented that apparently amendments to the scope of work for the regional plan must be approved in an open meeting, but there does not appear to be such a requirement for adoption of the initial scope of work. The board adopts no change in rule based on this comment as the requirement is covered in sec.357.12(c)(1). An individual commented that it's not clear who actually selects the consultant(s) to do the plan and questioned if it was the political subdivision applying, the regional planning group, or the regional water planning group making a recommendation to the political subdivision. The board adopts no change in rule based on this comment. Regional water planning groups and political subdivisions participating in the regional water planning are not required to hire consultants. If they choose to do so, they must determine who makes the selection. Lone Star Chapter, Sierra Club suggested in sec.357.6(6) {formerly sec.357.6(5)} for "informational subareas" information on "environmental water needs" needs to be exchanged in addition to other information. The board adopts a change in rule to include environmental water needs information, if available. Lone Star Chapter, Sierra Club suggested adding in sec.357.6(6) {formerly sec.357.6(5)} the following as a criteria for information required if a geographic region comprising the informational subareas meets such a criteria: "is within an area or contains an area where environmental water needs are impacted or are potentially impacted by water management strategies that might be developed in another region." The board adopts a change in this section to enhance the ability to adequately evaluate the impact of a regional water planning area's management strategies on environmental resources. Brazos River Authority commented that sec.357.7(a)(1) has a summary of both "existing water plans" and "local water plans." This seems redundant. The board adopts no change in rule based on this comment as the rule language is not redundant. An individual commented that in the ninth and tenth lines of sec.357.7(a)(1), the words "related to water supply" should be deleted. All threats to the quantity and quality of water of any nature whatsoever should be identified and dealt with. The board adopts no change in rule based on this comment. This plan is a water supply plan and not intended as an all encompassing water quality plan. TNRCC is charged with water quality planning. Altura Energy, Ltd. and Texas Oil and Gas Association requested that ",industrial" be added between "agricultural" and "and" at the end of sec.357.7(a)(1) to address the full range of concerns in a regional planning area. The board adopts no change in rule based on this comment. The word manufacturing is used to avoid confusion with "industrial" water rights. Manufacturing and steam power electric generation comprise what is permitted as industrial water use by TNRCC. SOS recommended in sec.357.7(a)(1), after "sources of groundwater and surface water including major springs," the addition of "and recharge pathways." The board adopts no change in rule based on this comment. Rule language is not trying to describe the resource, but the sources of water. This is a water supply plan and not a description of hydrogeology of a regional water planning area. SOS requested in the last sentence of sec.357.7(a)(1), restoration of the original language. The board adopts no change in rule based on this comment. This plan is a water supply plan and not intended as an all encompassing water quality plan. TNRCC is charged with water quality planning. An individual recommended adding the following words after the words "livestock watering" "and instream flows and bay and estuary inflows." in sec.357.7(a)(2) and (3). The board adopts no change in rule based on this comment. All plans must evaluate impact of water management strategies on instream flows and bay and estuary inflows. There is no statutory requirement to separate instream or bays and estuaries as a separate use. However, the rules do require regional water planning groups to consider environmental water needs in their plan. Instream flows and bay and estuary inflows will also be met by the requirement that all strategies be environmentally sensitive. This keys provision of water resources for the environment to each decision in the plan. An individual commented that the Texas Water Code, sec.11.024 lists seven categories of beneficial water uses in order of their priority for water appropriation. The lists of water uses listed in sec.357.7(a)(2)-(4) of the final draft include five of the seven, and elsewhere in the rules, a sixth (navigation) is mentioned in the final draft as a factor for consideration in water planning. The seventh use in the Texas Water Code, recreation, is not included in any the lists of beneficial water uses in the final draft which are to be considered for purposes of regional and state water planning. The individual suggested that as one of the state's largest industries, recreation should be added to the list of water uses to be considered in the preparation of the regional and state water plans. The board adopts no change in rule based on this comment. Recreation is not a consumptive water use. This section relates to quantification of projections for consumptive water use only. The board has adopted a change in sec.357.7(a)(7) to consider impact on recreation of water management strategies. Brazos River Authority commented that results are reported by city, county, and river basin according to sec.357.7(a)(2). This will be awkward in regions where two or more river basins are included. It is assumed the state water plan will aggregate to report planning information on a river basin basis. Projections of population and demands by river basin for major water providers seems to argue for river basin planning areas. Brazos River Authority stated that this comment was partially addressed in the proposed draft of this rule. The board adopts no change in rule based on this comment. The breakdown by basins is important because it allows the board to perform the necessary calculations for funding of projects involving interbasin transfers and incorporation of regional water plans into the state water plan. Brazos River Authority questioned under what year the firm yield in sec.357.7(a)(3) is based on and if it was the year 2050. The board adopts no change in rule based on this comment. The years considered depend on the planning period being considered. Firm yield is evaluated for each year the plan is developed. Texas Center for Policy Studies stated sec.357.7(a)(3) is flawed. An analysis of surface water availability during a drought based upon the assumption that all senior water rights will be totally utilized will only show that there is not enough water to provide users during a drought. Senior water rights have never been totally utilized and never will be. A number of methods, including historical use and utilization of senior water rights, should be used to give regional water planning groups an idea of what true water needs are during a drought. The board adopts no change in rule based on this comment. A supreme court decision determined that water right permitting is based on the assumption of the full use of water rights. This concept is also included in Texas Water Code, sec.11.122(b). The rules and the Texas Water Code do require an assessment of water rights that could be transferred on an emergency basis. Colorado River Municipal Water District stated that changes in sec.357.7(a)(3) have improved earlier drafts but, issues of studies based on full diversion rights remain. An adequacy evaluation is to be based in part on "existing water rights." This implies all studies should assume the full permitted right is being diverted by each right holder. Yet many right holders have never, and may not ever divert their full right in the foreseeable future. The District recommends changing this clause to read "historically used or reasonably projected estimates of a portion of existing water rights." The board adopts no change in rule based on this comment. A supreme court decision determined that water right permitting is based on the assumption of the full use of water rights. This concept is also included in Texas Water Code, sec.11.122(b). An individual, recommended as a clarification, looking at the impact of groundwater regulation by local districts in sec.357.7(a)(3). Depending on the objectives of the district, it could have a potentially significant impact on the availability of groundwater for future supplies. The board adopts no change in rule based on this comment. Groundwater management plans must be considered by regional water planning groups as provided for in sec.357.5(k)(1). TPWD objects to the deletion of the phrase "and other methods using historical flows" in sec.357.7(a)(3). In addition to assessing water available assuming full utilization of existing water rights, the regional water planning groups should also look at water available under actual or historic water use. While we agree that senior water rights must be recognized, TPWD staff also think that if there are water rights not being used, the regional planning groups should consider purchasing those rights for meeting future needs. The board adopts no change in rule based on this comment. Voluntary redistribution of water rights and water that could be made available by cancellation of water rights are provided as water supply management strategies the regional water planning groups may consider in sec.357.7(a)(6). Information on rights and how they will be used will be available from TNRCC as provided for in SB 1 and sec.357.7(a)(6)(E) and (M). Lone Star Chapter, Sierra Club also disagreed that analysis of surface water available from reservoirs should be based on the "assumption that all senior water rights will be totally utilized..." This is appropriate for a water rights analysis, but not for a regional planning analysis. Information from TNRCC shows no more than 30% of appropriated water rights is used. This type of planning analysis would give a totally inaccurate picture of the need for additional water development. The board adopts no change in rule based on this comment. Voluntary redistribution of water rights and water that could be made available by cancellation of water rights are provided as water supply management strategies the regional water planning groups may consider in sec.357.7(a)(6). Information on rights and how they will be used will be available from TNRCC as provided for in SB 1 and sec.357.7(a)(6)(E) and (M). A supreme court decision determined that water right permitting is based on the assumption of the full use of water rights. This concept is also included in Texas Water Code, sec.11.122(b). These factors should work together to provide the most accurate picture for planning. Brazos River Authority questioned in sec.357.7(a)(3), the purpose of the "evaluation of adequacy of current water supplies" that are available to an area when flows are 50% of normal and when flows are 75% of normal. Brazos River Authority also suggested that if this is related to a water conservation function, it would be helpful to explain its intent and whether this is simply a statutory requirement. The board adopts no change in rule based on this comment as requirement is a statutory requirement. Brazos River Authority commented that sec.357.7(a)(3) and (4) are river basin concepts. The board adopts no change in rule based on this comment as commentor does not suggest change to rule language. SOS suggested in sec.357.7(a)(3), that the following should be added to the end of the second sentence: "evaluation of effects of anticipated growth on availability and quality of future water resources." The board adopts no change in rule based on this comment. The concerns raised in the comments about the effects of anticipated growth are already addressed by the rules. To the extent the suggested language appears to address the issue of growth on water quality, it is beyond the appropriate scope of a water plan, which should address water supply issues. The state relies on the Texas water quality plan developed by TNRCC to maintain current uses of water. An individual suggested that in sec.357.7(a)(4) "Instream and bay and estuary flows" should be added as a "use" here, and at all places in these rules where such "uses" are set out. The board adopts no change in rule based on this comment. All plans must evaluate impact of water management strategies on instream flows and bay and estuary inflows. There is no statutory requirement to separate instream or bays and estuaries as a separate use. However, the rules do require regional water planning groups to consider environmental water needs in their plan. Instream flows and bay and estuary inflows will also be met by the requirement that all strategies be environmentally sensitive. This keys provision of water resources for the environment to each decision in the plan. Texas Oil and Gas Association and Altura Energy, Ltd. recommended including "industrial" in all user categories where listed in both the state and regional planning rules. The board adopts no change in rule based on this comment. The word manufacturing is used to avoid confusion with "industrial" water rights. Manufacturing and steam power electric generation comprise what is permitted as industrial water use by TNRCC. TPWD asked for clarification of the added language in sec.357.7(a)(5), "Alternatively, one or two plans shall be developed that include recommended water supply management strategies or alternative long-term scenarios applicable for all or a combination of the three water supply conditions..." There is already a requirement to develop a strategy for each of the water supply conditions noted. TPWD questioned if the additional language gives the regional planners the option of developing a plan that addresses a progressively worsening water supply future and stated that the additional language seems to describe a drought management plan, but not very clearly. The board adopts no change in rule based on these comments. Rule language allows a regional water planning group to develop one or two plans instead of the three plans required to meet the three water conditions, if one or two plans meet more than one water supply condition. Association of Electric Companies of Texas, Inc. and Texas Utilities Services, Inc. state the provision in sec.357.7(a)(5) is very difficult to understand and suggested a rewrite using reference to plan only when referring to the regional water plans. The board adopts no change in rule based on these comments. Rules provide that plans must be developed for the three flow conditions. Three regional water plans are not being required, if a plan can meet the needs of more than one flow condition. If there are three plans, they will combine to form a regional water plan. The board considers that to meet each of these flow conditions, separate plans likely will need to be developed to combine into one regional water plan. It is a statutory requirement to develop strategies to meet each of these flow scenarios. The board staff will work with regional water planning groups to provide technical assistance to assist in determining appropriate methods to address this requirement. SOS requested a change in sec.357.7(a)(5), the last sentence of the first paragraph as follows: "These plans shall meet all needs for the water use categories of municipal, manufacturing, irrigation, steam electric power generation, mining, livestock watering and identified environmental needs, except:" The board adopts no change in rule based on this suggestion. All water management strategies will be evaluated for their impact on environmental water needs and environmental water needs will be assessed. Environmental needs will be met in the plan by the requirement that all strategies be environmentally sensitive. This keys provision of water resources for the environment to each decision in the plan. Association of Electric Companies of Texas, Inc. suggested the word "supply" should be inserted between water and management in line 1 in sec.357.7(a)(5)(A). The board adopts no change in rule based on this comment. The word "supply" has been removed from the term water supply management strategies to better follow statute. Brazos River Authority commented that the meaning of "The regional planning group shall determine the terms of participation in their planning process..." in sec.357.7(a)(5)(A) is unclear and questioned if this relates to how the local share expenses are allocated. The board adopts no change in rule based on this comment. While cost share allocation could be a factor in determining regional water planning group participation, the regional water planning group will make the determination of what constitutes "participation." An individual expressed concerns about reuse in sec.357.7(a)(6) and asked the board to add that reuse can not harm existing rights. The board adopts no change in rule based on this comment. Rules require protection of water rights. Ultimately the TNRCC determines authorized reuse in relation to existing water rights. An individual suggested adding conjunctive use of groundwater and surface water as part of the feasibility analysis in sec.357.7(a)(6)(C). The board adopts no change in rule based on this comment. Conjunctive use is already provided for in sec.357.7(a) and (a)(6)(C) and sec.357.5(k)(1). Lone Star Chapter, Sierra Club opposed including " precipitation enhancement" in the strategies in sec.357.7(a)(6) as it provides no reliable source of water. The board adopts no change in rule based on this comment. Precipitation enhancement is just one of the methods a regional water planning group may determine to be feasible and the legislature has expressed its view that precipitation enhancement is a potentially viable water supply method by making it eligible for funding from the board. Altura Energy, Ltd. was concerned with the proposed language canceling water rights and imposing requirements for brush control in sec.357.7(a)(6) and requested that this language be clarified. The board adopts no change in rule based on this comment. The rules do not require water rights cancellation or brush control, but these can be considered as a water management strategy. All strategies will have to conform with current laws. An individual commented that the development of some strategies may require the TNRCC to cancel water rights and questioned if TNRCC has indicated what criteria it will use to determine if water rights are to be canceled. The individual stated it would be appropriate to have this information available. The board adopts no change in rule based on this comment. SB 1 directs the TNRCC to provide data on water rights cancellation. Regional water planning groups are to use this data when it is available from the TNRCC as provided for in SB 1 and sec.357.7(a)(6)(M). An individual suggested inserting "specific as well as cumulative" after "including" and before "effects" in sec.357.7(a)(7)(B) and before "impacts" in sec.357.7(a)(7)(D). The board adopts no change in rule based on this suggestion. The question that needs to be examined in the planning process is the current and future needs for instream flow and bay and estuary inflow, both as to what the needs are and as to how the needs might impact water management strategies that might be proposed by the plans. Brazos River Authority commented that sec.357.7(a)(7)(F) is not clear and that the basis for "equitably comparison" (which we assume means a "fair" comparison) should be stated (i.e. cost to the customer, environmental impact, engineering feasibility, etc.). Brazos River Authority stated that this comment was partially addressed in the proposed rule. The board adopts no change in rule based on this comment. The definition of equitable includes the idea of fair comparison as mentioned by the commentor. Association of Electric Companies of Texas, Inc. and Texas Utilities Services, Inc. suggested adding "and involuntary" between "voluntary" and "redistributions" in sec.357.7(a)(7)(H). The Association of Electric Companies of Texas said consideration should be given third party impacts regardless of the nature of the redistribution. Texas Utilities Services, Inc. commented that major third party impacts may occur not only when water is distributed voluntarily, but when it is redistributed involuntarily, as is the case during emergency transfers of water, when a water right holder is required to set aside a portion of their water right for environmental purposes, or when a water right is canceled. The board adopts no change in rule based on this comment. The plan does not provide for involuntary redistribution of water except for that water that could be made available for emergency transfers, therefore the change is not necessary. The statute on emergency transfers provided for compensation for any transfer. Texas Center for Policy Studies suggested specific language should be added to sec.357.7(7) to better insure protection for both under-served areas, like colonias along the border and low-income residents. For example: (I) evaluation of under-served populations or populations who currently receive inadequate water treatment and distribution services; and (J) evaluation of cost of water on different end-users, including lower-income residents, and the ability to pay of those users. The board adopts no change in rule based on this comment. Rules require that all populations served including those "under-served" will be considered. Many of these areas occur outside of cities and must be planned for under sec.357.7(a)(5). All water management strategies must be evaluated for cost. Local entities which implement plans will need to consider the ability of all their users to pay for the water supply. Colorado River Municipal Water District stated the proposed rule states in part that the plan shall include "specific recommendations...of sufficient detail to allow state agencies to make financial or regulatory decisions..." The Colorado River Municipal Water District questioned if the planning committee cannot reach a consensus on a project and does not include it in the plan, would permits and funding be denied since the project wasn't listed and what if unforeseen conditions change an approved project's scope. The Colorado River Municipal Water District recommended adding the following sentence at the end of subparagraph (A): "Exclusion from the regional water plan will not be the sole reason for denying either funding or permits for a proposed water project." The board adopts no change in rule based on this comment. Permits and funding decisions could be denied based on a project not being consistent with an approved regional water plan. Both decisions could waive requirement for consistency with the regional water plan, if conditions have changed a project's scope. Suggested language could conflict with the statutory requirement which requires denial of funding or permits for lack of consistency with an approved regional water plan, absent justification for waiver. Altura Energy, Ltd. suggested in sec.357.7(a)(9) that the words "and protect" be struck and insert "to allow for effective, beneficial use of" between "development" and "the." The board adopts no change in rule based on this comment. The planning goals set out in Texas Water Code, sec.16.051 and sec.16.053 require protection of agricultural and natural resources not their beneficial use. Lone Star Chapter, Sierra Club suggested the language "further economic development" be replaced with the phrase "provide for a strong economy." in sec.357.7(a)(9). The board adopts no change in rule based on this comment. The wording follows the language of Texas Water Code, sec.16.051(a) and sec.16.053(a). An individual questioned if the "opt out" provision for political subdivisions can be a method of resolving disputes and if counties could "opt out" of regional plan provisions. The board adopts no change in rule based on this comment. The board cannot determine impacts on disputes without further information. Counties could decide not to participate in the planning process, if they are water suppliers. This would apply only to the specific strategy for which they would obtain or provide a water supply. The county's non- participation would not take the whole county out of planning process. Freese and Nichols, Inc. questioned what the proposed fall back position is if a political subdivision objects to the regional planning group's proposed strategy and if the regional planning group is required to find some other feasible strategy, or are these needs left unmet. The board adopts no change in rule based on this comment. Regional water planning groups are not required to find other strategies. The Brazos River Authority asked what a designation made under sec.357.8 implies or would result in for future use of a receiving stream as a water supply. The Authority also suggested that streams be protected for other purposes, including water supply and the receiving of treated effluent. Any action should conform with the stream standards process under the Clean Water Act. The board adopts no change in rule based on this comment. The statute specifies that if the legislature takes action to designate a stream as ecologically unique under Texas Water Code, sec.16.051(f), no state agency or political subdivision may obtain fee title or easements which would destroy the unique character of the stream. Recommending streams for preservation for other reasons is beyond the scope of authority given the board, as the statute gives only the legislature the power to designate these streams for unique ecological value or to designate reservoir sites based on their future value as reservoir sites. The Brazos River Authority suggested that recommendations under sec.357.8 should be made only for rivers and stream segments of unique value located in the same regional area as the regional planning group. Designation of river or stream segments that cross regional boundaries will be difficult; the board should specify how this will be done, particularly if the regional planning groups disagree. The board concurs with this concern and therefore adopts changes to clarify that the regional water planning group recommendations may be made only in its respective planning area. The SOS suggested that the wording in sec.357.8(a) be changed by replacing the "may" in the first sentence with "shall." SB 1 directs the board, as opposed to merely permitting it, to make recommendations of segments of unique ecological value to the legislature. The proposed rules indicate that the board will rely on the regional groups to identify segments worth protecting. Accordingly, the board should also direct (not just permit) the regional groups to recommend stream segments to the board. This will ensure the legislature's important mandate is carried out. The board adopts no change in rule based on this comment. Texas Water Code, sec.16.053(e)(5) allows the regional water planning groups the discretion to decide on whether to recommend stream segments under these provisions. An individual suggested that sec.357.8(b) be changed to read: "A regional water planning group may recommend a river or stream segment as being of unique ecological value based upon any one of the following criteria:". The board adopts no change in rule based on this comment. The rule, as written, allows designation to be made based on any one of the criteria. Freese and Nichols, Inc. provided comments suggesting that the guidelines should spell out how the recommendations made under sec.357.8 will be acted on and what the effect of such a designation would be. The board adopts no change in rule based on this comment. The statute specifies that if the legislature takes action to designate a stream as ecologically unique under Texas Water Code, sec.16.051(f), no state agency or political subdivision may obtain fee title or easements which would destroy the unique character of the stream. Board rules cannot control the discretion of the legislature relative to the naming of streams of unique ecological value. The board received several comments on the rule language on riparian conservation areas as a criterion in sec.357.8(b) for recommending river and stream segments of unique ecological value. TPWD, Lone Star Chapter of the Sierra Club, Texas Center for Policy Studies, and SOS disagreed with limiting riparian conservation areas to governmental land, but suggested allowing it to apply to areas held for conservation purposes by non-governmental organizations as well. Two individuals provided similar comments. SOS and one of the individuals noted that because Texas has a small percentage of its land held in public ownership and that most of the water resources traverse and are bordered by private land, it should be state policy to encourage private land owners to be good stewards and conservators of riparian land. SOS felt that the criterion was changed in the last draft because of a past reservoir project which was stopped by conservation rights owned by the U.S. Fish and Wildlife Service. The commentor notes that the only effect of the newly proposed language is to remove an incentive for landowners to protect riparian lands and the water which benefits from such protection. Freese and Nichols, Inc. stated that removal of language from drafts of the rule about private conservation easements is an improvement. The board agrees that eligibility for riparian conservation areas should be broadened. Accordingly, the language of the rule has been expanded to include "other areas managed for conservation purposes under a governmentally approved conservation plan." The requirement that such a conservation plan be approved by a governmental entity is to provide for public involvement in the dedication of such land. The Colorado River Municipal Water District provided comments observing that the listed criteria in sec.357.8(b) relate to hydrologic or ecological criteria. The District noted that since a stream segment that was designated as "ecologically unique" would likely eliminate the stream segment as a potential reservoir site, then perhaps the economic impacts associated with designation should also be considered. The designation process should not be used as tool to prevent reservoir development. The District recommends adding a sixth criterion which would read: "Economic impacts of a stream segment being designated as of a unique ecological value should be considered prior to designated within a plan." The board adopts no change in rule based on this comment. Any impacts will result from future actions of the legislature. Regional water planning groups may choose to not list a segment as ecologically unique, even if it meets these criteria and may weigh the need for reservoir development and the need to preserve stream segments when making this decision. An individual provided comments which observed that there might be the potential for a dual designation of river and stream segments for both unique ecological value and as a potential reservoir site. If the designation of the segment as of a unique ecological character automatically will preclude that area from being reserved as a reservoir site, or conversely if the reservoir site would not allow the other designation, that should be recognized at the outset. No request for a rule modification was noted in this comment, and the board has made none based upon this comment. The regional water planning groups must determine the appropriate recommendations for designations on a case-by-case basis. The Brazos River Authority observed that the Allens Creek Reservoir site should qualify under the provisions of sec.357.9. The Southeast Trans-Texas Program planning included the Allens Creek Reservoir as an important water supply and conveyance option. The current state water plan recognizes Allens Creek Reservoir for future development. The board adopts no change in rule as the comment is outside of the scope of these rules. The regional water planning group will decide which sites should be recommended. The Brownsville Public Utility Board suggested that sec.357.9 be modified to specify that sites included in the current approved state water plan be designated as unique sites for reservoir construction, unless the regional planning group provides evidence showing why the site should not be designated as such. The board disagrees that changes need to be made to the rule because the change would not allow the most current evaluation of a potential reservoir site. Freese and Nichols, Inc. commented that the guidelines should spell out how the sec.357.9 recommendations are to be acted upon and what the effect of such a designation would be. The board disagrees with the need for change in the rule. Texas Water Code, sec.16.051(e) specifies that the board will provide the recommendations, contained in the state water plan, to the governor, lieutenant governor, speaker of the house of representatives, and the appropriate legislative committees, for possible legislative designation under Texas Water Code, sec.16.051(f). The impacts of the designation are contained in Texas Water Code, sec.16.051(g). The Brazos River Authority commented that designation under sec.357.9 has little practical value unless a means of acquiring the designated site and associated water right is provided. No request for a rule modification was noted in this comment and the board has made none based upon this comment as it is outside the scope of these rules. SB 1 did not expressly provide for the acquisition of a site and necessary water rights, based on the legislative designation in Texas Water Code, sec.16.051(f), but rather its preservation for this future use. The SOS suggested that the language in sec.357.9(2) is unreasonably expansive. SOS suggested that subparagraph (B), the last clause, ..."or where it might reasonably be needed to meet needs beyond the 50-year planning period" be deleted. A site which might "reasonably be needed" beyond even the 50-year planning period is simply too vague a standard for designating the site as uniquely valuable for the construction of a reservoir. The board disagrees that changes need to be made to the rule. Needs beyond the 50-year period must be considered to assure future water supply for a state with increasing population and a finite number of reservoir sites, such as Texas. The board has made changes to clarify that the qualities making a reservoir site unique apply to both the planning period for the water plan and to the period beyond the 50-year planning period. Freese and Nichols, Inc. commented on sec.357.10 that the board should not designate which tools (computer programs: such as geographical information system software, word processing software, spreadsheet software, database software, etc.) must be used in the development of the plans. Those choices should be left to the regional planning groups and their consultants. The board has made no change based upon this comment. The board believes that it is very important, for the sharing of data between regions and the development of the state water plan required by Texas Water Code, sec.16.051(a), that these tools be as compatible as possible. A minor modification of the rule however, was adopted by the board to simplify the rule language for clarity. An individual requested clarification in Chapter 357 on board's ability to limit rural water use or to charge a landowner for his own water; does not favor restrictions on private land for personal, livestock, or wildlife use. The proposed rules do not provide the board with any ability to regulate water use. SB 1 does not change existing law in regard to this issue. The board believes that no changes to the proposed rules are necessary. McCulloch County Property Owners Association provided general comments (relating to sec.357.7) appealing to the board to protect property rights in the rules noting that any regulation that restricts the rule of capture will be a "taking." In the rules, there are many references to subordination of existing water rights; they urge that all such references that could result in abuse of private property rights be reconsidered. The board believes that no changes to the rules are necessary. SB 1 and the proposed rules do not change existing law in regard to "takings." Subordination of water rights are not affected by SB 1 or the proposed rules either. Brewster County provided comments regarding the amount of time available to provide comments on the draft rules and planning regions, noting the revised schedule is too short and more time is needed for the public to become familiar with the areas, guidelines, and their ramifications. The board is completing SB 1 planning responsibilities ahead of statutory deadlines so that regional planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. The board believes that no changes to proposed rules are necessary. Wharton County Water Council commented relating to sec.357.3 that delineation of regional boundaries has not represented a bottom-up, grassroots effort. The board finds that the methodology used to delineate the initial regional planning boundaries was based on input from two stakeholders meetings in which a large, diverse group of water interests participated. The numerous public meetings and changes to the initial boundaries resulting from public comments indicate that substantial public involvement did greatly shape the final delineations. Fourteen individuals provided comments relating to sec.357.3 concerning planning region delineation and that the board has ignored rural input in developing state planning procedures. Numerous public meetings and comment periods were used to gather substantial public input. Many of the meetings were held in more rural locations of the state. Several revisions to the draft rules and planning regions resulted from these public comments. An unidentified speaker at the Richmond public meeting commented that although SB 1 requires the planning groups to develop the regional plans, isn't TNRCC ultimately responsible for enforcement? He asked if planning groups are capable of developing guidelines for enforcement, and can planning groups impact financing in any manner? Recommendations in regional plans which ultimately require permitting or other state regulatory actions will still be subject to requirements of the TNRCC. The draft rules do not propose to change this responsibility. Planning groups may develop guidelines for implementation of regional plans; the groups have no legal ability to provide true "enforcement." Recommended projects in approved regional plans are eligible for state financing. North Plains Ground Water Conservation District No. 2 provided comments relating to sec.357.3 supporting the final draft of the rules and the two-region delineation of the Ogallala Aquifer region. The board adopts no change in rule as the comment supports the rule. An individual provided comments relating to the requirement to update the state water plan every five years and asking if the regional plans are required to be updated in this same time frame. If so, who is expected to pay for this work? If left up to the local groups, it will be difficult to bring all the players to the table to put up the money when the size of the group is comparatively small. If the state pays, will the legislature continue to appropriate funds or establish a fee to cover the costs. The board adopts no change in rule based on this comment. Section 357.5(b) requires regional plans to be prepared, adopted, and submitted to the board at least every five years. The proposed rules require a 25% local match (cash or in-kind services) from each regional water planning area. Some entities in the region may overmatch to achieve the 25% total for those who can not. The state portion of funding is proposed at 75% (cash). The legislature has appropriated funds for the next two years and can not legally appropriate beyond the biennium. The intent in SB 1 appears to be for continued state financial participation. Texas Chemical Council provided comments supporting the rules as published. They believe agency staff has done a superb job of responding to the concerns of those interested in this vital process. The board adopts no change in rule as the comment supports the rule. Lone Star Chapter, Sierra Club provided comments expressing appreciation to the board for the hours of hard work, and for the openness shown and assistance provided by staff to all interested parties. The board adopts no change in rule as the comment supports the rule. SOS provided comments relating to ensuring that adequate participation by the public must be ensured. The water planning process must not treat important environmental needs as secondary considerations to exploitative use. Full public participation and input to the planning process is guaranteed by SB 1 and these rules. It is evidenced by the numerous public meetings, hearings, and comment periods in which numerous comments were received which resulted in beneficial changes to the proposed rules. Section 357.5 of the proposed rules describes the role of environmental water needs in the regional water planning process and does not assign them a secondary status. West Central Texas Municipal Water District provided comments related to their appreciation of the openness and responsiveness of the board. They found active evidence that their general concerns and suggestions were being heard. The board adopts no change in rule based on this comment. The Texas Farm Bureau commented on the rulemaking process utilized by the board to develop Chapters 355, 357, and 358 of this title. The Bureau indicated that many of their members are reassured by the process and feel an "ownership" in it, and will therefore support the process. Nonetheless, the Bureau hopes the board will remain flexible and amend any rules when circumstances suggest change is appropriate. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board considers the rules, as adopted, to be flexible enough to handle most circumstances. However, when circumstances suggest otherwise, the board will review the rules and make modifications as necessary. The Brazos River Authority commented that it endorses the board's "open" rulemaking process and applauds the regional planning concept and effort. No request for a rule modification was noted in the comment and the board has made none based upon this comment. The Brazos River Authority noted that the rules impose mandatory public notice requirements for numerous public meetings. The Authority suggested that the financial burden for these costs should be borne by the board with no impact to the funding that regional planning groups would receive, thereby allowing the groups to devote their entire resources to developing their plans. The board makes no change in rules based on this comment. Retaining the current level of notification provides opportunity for an open planning process. Board funding of the notices would reduce the amount of funding available for other planning activities, and would not agree with the supporting details of the Texas Legislature's appropriation to the board. Notices would be an eligible expense for the boards 75% matching grants. The Brazos River Authority commented that existing water contracts, permits, agreements and options must be honored. The board makes no change in rules based on this comment. Section 357.5(e)(3) as adopted, requires their protection, although potential amendments may be considered by the regional planning groups. The Brazos River Authority commented that current and existing planning efforts must also be protected. The board makes no change in rules based on this comment. Section 357.5(c) provide that both state and local plans must be considered by the regional planning groups. The Richland SUD commented that if the regional planning groups must be consistent with state formatting, state data and statewide water planning issues anyway, then why go through with this process? No request for a rule modification was noted in the comment, and the board has made none based upon this comment. Section 357.5 provides the regional planning groups considerable flexibility in the consideration of issues to be used in developing the regional plans. Additionally, the Texas Water Code, sec.16.053(d) and (e)(2) directs the board to provide data under the guidelines specifying format and other information for the regional planning group's use. The City of Greenville expressed displeasure in the notification process for area delineation and the process utilized by the board in initial coordinating body selection. The City expressed support of the regional planning process, but has concerns about the schedule for rulemaking and implementation. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The notification process for area delineation used by the board was very extensive and provided ample opportunity for input. The selection of the initial coordinating body through a nominations process was also extensively publicized. The time frame for rules development was necessarily compressed by the statutorily mandated time of regional plan completion and the board's desire to give the regional planning groups the most time possible for development of its regional water plan. Texas Parks and Wildlife Commission asked that the comments of the Texas Private Lands Advisory Board be carefully considered. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board carefully considered all the comments it received in the rule adoption process. The Colorado River Municipal Water District commented that the schedule is too fast. The regional planning group is the key to success, name as few members as possible. Finance is critical; tie the money to planning needs. Look at conservation and reuse. The plan needs to be flexible. The board makes no change in rules based on this comment. The time frame for rules development was necessarily compressed by the statutorily mandated time of regional plan completion and the board's desire to give the regional planning groups the most time possible for its development. Regional planning group numbers will almost certainly vary from region to region, as local conditions warrant. The board's adopted rules for funding the regional plan's development do incorporate the concept of needs to funding level, by requiring that scopes of work be developed. Conservation and reuse are issues to be considered by the regional planning groups in their development of management strategies. The board believes that the rules, as adopted, provide flexibility in the regional planning process. An individual observed that groundwater in his part of the state was damaged by oil wells. He noted that Loving County has no water. He observed that Texas needs to use desalination of coastal water for cities and industries. He also stated that the right of capture must be protected. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The regional water planning process should address many of the issues noted in this comment. The rules do not impact the rule of capture in any way. Three individuals expressed concerns about the protection of private property rights. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The protection of private property rights is contemplated in the language of sec.357.5(f) which requires the plan to be consistent with applicable state and federal law. An individual observed that education can help save water and also expressed concern about the involvement of the TPWD in the water planning process. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. Numerous statutes give the TPWD a significant role in the management of the state's water resources. The extensive public participation requirements for the regional water plan development should contribute to increased public awareness of water conservation issues. An individual expressed opposition to groundwater districts and groundwater regulation of any sort. No request for a rule modification was noted in the comment, and the board has made none based upon this comment as it is outside of the scope of these rules. A Pecos County Commissioner commented that the local voice needs to be heard. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board anticipates that the regional water planning process will yield a much stronger voice for locals in water management decisions. Two individuals observed that El Paso is buying land to get water to move to El Paso. They wish to know how to prevent this anticipated transport. No request for a rule modification was noted in the comment, and the board has made none based upon this comment as it is outside of the scope of these rules. Three individuals expressed concern about the American Heritage Rivers program; one expressed opposition to the federal biodiversity treaty and environmental programs. No request for a rule modification was noted in the comment, and the board has made none based upon this comment as it is outside of the scope of these rules. One individual asked whether SB 1 forces areas to be in groundwater districts and expressed worry about infringement to his right to use water. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. SB 1 anticipates a stronger role for groundwater districts. This issue, and its related questions, are beyond the scope of these adopted rules. One individual provided comments regarding water planning in California. He questioned whether the regional planning process would be workable. He wondered why the state doesn't do the water projects. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. Statute specifies the regional planning process. The constitution specifies how the state funds water projects. One individual wondered how the funding would be managed for subregions. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board anticipates that the regional planning group will determine how such funding will be managed by some form of agreement. The Mesa UWCD commented that it supports local control. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The Panhandle Underground Water District asked what the drought of record is. It further observed that precipitation enhancement doesn't work. It observed that environmental protection should be costed. It also asked if the project funding would be grant or loan, and what about aquifer studies? No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board defined the drought of record in sec.357.2. The board observes that the type of funding, loan or grant, depends on the type of project to be funded and the funding program being utilized. Board aquifer studies currently underway are not anticipated to be affected by these rules. The North Plains Ground Water District No. 2 observed that the regional plans would consider all water, not just groundwater. A plan on the area size is needed. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The Red River Authority asked what the roles of TNRCC and TPWD would be in the SB 1 process. It also asked what would be required to successfully contest board's demand projections. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The statute specifies important coordination roles for TNRCC and TPWD in the development of the regional water plans. Board rules reflect that by suggesting their presence on the regional planning group, as a non-voting member. New or changed circumstances since the development of the board's demand projection are the most likely reasons for modification to the demand projections. A representative of a water supply corporation asked if the proposed rules affect his ability to drill a water well in the future. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The control of groundwater has been expressly designated as a local function by the Texas Legislature. The rules themselves do not regulate the drilling of wells, nor do state or regional water plans themselves. The development of a regional plan under these rules would have an impact on well drilling only if the approved regional plan recommended a local groundwater district in your area and the district was created and had that power authorized under law. An individual commented that protection of water rights is necessary. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. Section 357.5(e)(3) of the adopted rules provides that protection in the regional planning process. An individual noted that greater media coverage is needed for locally planned meetings. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The City of Kilgore asked whether prior critical groundwater studies will be included in the regional plans and whether that will result in groundwater controls. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. Section 357.5(c) requires the regional planning groups to consider prior state and local plans in the development of the regional plan. Local groundwater district creation could be a recommended management strategy in certain parts of the state. Groundwater regulatory powers would have to be granted to the district by the voters or Legislature before it could exert groundwater controls. McCulloch County Property Owners Association questioned why TPWD should be paid to be on the planning groups and if other state agency staff would be paid if invited to serve on planning groups. McCulloch County Property Owners Association opposed those who are already staff members of some organization being paid by the planning groups for their service. The board adopts no change in rule based on this comment. State employees act for their respective agencies and are paid according to their agencies' appropriations. They will not be paid directly by the regional water planning groups. Their participation could reduce the costs of plan development for the regional planning groups. The appropriations by the legislature to the agencies is reflected in the fiscal note for this rule and must show total impact on state government. Lufkin Machining Center commented that the $1,260,000 estimated cost to local governments for 1998 and 1999 is most conservative at approximately $5,000 per county. The board adopts no change in rule based on this comment. This is the agency's best estimate. Appropriations bill language was based of 25% match. The board anticipates additional funds will be needed in future bienniums to complete the planning which was noted in the fiscal note. McCulloch County Property Owners Association raised questions about the cost to local governments of $16,800,000. What does the term local governments mean in this context? Is it the intent that the local governments raise these funds by taxation? Or by user fees? If by taxation, whom shall be taxed. If by user fees, who will pay the fees? Will those who own the groundwater (landowners) be expected to pay for the use of their own water? Will the amounts to be raised by each local government be set by the board or by the planning groups? "Local governments" is any governmental entity except state agencies. Local governments can raise their funds any way they see fit. The estimate is of the total cost through September 1, 2000. Only 25% of this cost will be born by local governments. A County Judge noted that county judges within Region F were not aware of the tight time frame to nominate consensus candidates. Counties have not had time to meet together as a region to discuss candidates and to take them back to their respective Commissioner's Courts. He urged the board to consider extending the time frame for nominee submission. The board adopts no change in rule based on this comment as it is outside the scope of these rules. Lufkin Machining Center commented that the highly complex and involved selection process is moving too fast with a very small percentage of those to be affected being a part of the selection process. The board adopts no change in rule based on this comment as it is outside the scope of these rules. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. Lufkin Machining Center participated in a meeting to nominate people in Region I. Lufkin Machining Center is concerned that the people present were not a good representation of the total area. Some of those selected can not devote time required to the task. The board adopts no change in rule based on this comment. The executive administrator considers regional diversity and willingness to serve and therefore, will look at all suggested nominees that are being provided by many different sources. Texas Private Lands Advisory Board expressed concern over the rapid pace of the initial planning efforts and formation of the regional planning groups. The board adopts no change in rule based on this comment. The executive administrator considers regional diversity and willingness to serve and therefore, will look at all suggested nominees that are being provided by many different sources. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. The North Central Texas Water Coalition commented on the December 18, 1997 final draft regional water planning areas and proposed rules, endorsing them for adoption. No changes to the rules are requested or necessary as comments are supportive of the existing rule language. The East Texas Council of Governments commented that the planning process results in a board-driven process rather than a "bottom up" plan and expressed concern about a "hurried process." No change in rules were requested and no changes are made. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. An individual commented that the rules have improved as the process has unfolded. Notice provisions have improved. There has been a tendency to diminish the role of TPWD from a co-equal decision-making role and their role should be restored to that of the first draft. Instream flows and bay and estuary inflows have been relegated to secondary status and given uneven treatment throughout. The phrase "water management" is used in the first two drafts of the rules. In the final draft it reads "water supply management" and should be restored to the original "water management." The rules were changed to replace the phrase"water supply management strategies" with "water management strategies" throughout the rules to better follow Texas Water Code, sec.16.053 and recognize that additional supply is not the only method of meeting a water need. The public comment process has resulted in changes to the proposed rules regarding bays and estuaries and instream flows which agency staff believes have improved them. The role of TPWD in the proposed rules is stronger than the statutory requirements of SB 1. The board believes that TPWD will have a significant role in the process, but the final responsibility for implementation of the planning process rests with the board according to SB 1. The Guadalupe Blanco River Authority commented that legislative intent in SB 1 was for the board and river authorities to be facilitators in this process. No rule change was requested and no change was made. SB 1 and the proposed rules are clear that the responsibility for assistance in the planning process is the board's. The proposed rules allow regional water planning groups to designate a river authority or other entity to lead or otherwise facilitate planning efforts for the group. Altura Energy, Ltd. commented on the pace of the comment process. Draft rules are proceeding with little input from interested parties. The board should give comments from interested parties their full consideration. No rule change was requested and no change was made. Numerous public meetings and comment periods were used to gather substantial public input. Several revisions to the draft rules and regional water planning areas resulted from these public comments, and agency staff believes the final draft is a better product as a result of these comments. All comments at all stages have been fully considered. Hays County commented that it is encouraged by the fact that most of its recommendations on initial drafts of rules were incorporated in the final draft, restated support for its comments, and suggest that they be adopted. No rule change was requested and no change was made. The comments received in writing and in public meetings were very useful in developing the final draft of the proposed rules. The sections are adopted under the authority granted in Texas Water Code, sec.6.101, which provides the board with the authority to adopt rules necessary to carry our its powers and duties under the Texas Water Code and laws of Texas, and under the authority of Texas Water Code, sec.16.053, which requires the board to develop rules and guidelines: to provide procedures for adoption of regional water plans by regional water planning groups and approval of regional water plans by the board, to govern procedures to be followed in carrying out the responsibilities in Texas Water Code, sec.16.053; for the consideration of existing regional water planning efforts by regional water planning groups; and for the format in which information is to be presented in the regional water plans. The board also proposes the sections under the authority of the provisions of sec.16.053 which require regional water plans to be consistent with guidance principles for the state plan, and which require regional water plans to provide information based on data provided or approved by the board, and which provides certain statutory requirements for the regional water plans. sec.357.2. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Words defined in the applicable provisions of the Texas Water Code, Chapter 16, and not defined here shall have the meanings provided in Chapter 16. (1) Board - The Texas Water Development Board. (2) Drought of record - The period of time when natural hydrological conditions provided the least amount of water supply. (3) Executive administrator - The executive administrator of the board or a designated representative. (4) Flows at 50% of normal - The amount of water supply based on 50% of the normal hydrological condition. (5) Flows at 75% of normal - The amount of water supply based on 75% of the normal hydrological condition. (6) Long-term water needs - Those needs which must be met by implementation of water management strategies within the next 30 to 50 years based on federal census years (2040, 2050, etc). (7) Near-term water needs - Those needs which must be met by implementation of water management strategies within the next 30 years based on federal census years (2000, 2010, 2020, 2030, etc). (8) Normal hydrological conditions - For surface water sources, the median of all stream flows adjusted for effects of upstream releases, return flows, evaporation, changes in storage, and diversions in the flow range that occurs most frequently. For ground water sources, the median of all precipitation values in the precipitation range that occurs most frequently. (9) Political subdivision - City, county, district or authority created under the Texas Constitution, Article III, sec.52, or Article XVI, sec.59, any other political subdivision of the state, any interstate compact commission to which the state is a party, and any nonprofit water supply corporation created and operating under Acts of the 43rd Legislature, 1933, 1st Called Session, Chapter 76, (Vernon's Texas Civil Statutes, Article 1434a). (10) Regional water plan - Plan or amendment to an adopted or approved regional water plan developed by a regional water planning group for a regional water planning area pursuant to the Texas Water Code, sec.16.053 and this chapter. (11) State water plan - The most recent state water plan adopted by the board under the Texas Water Code, Chapter 16. sec.357.3. Designation of Regional Water Planning Areas. (a) The board shall, no later than September 1, 1998, designate areas for which regional water plans shall be developed, taking into consideration factors such as: (1) river basin and aquifer delineations; (2) water utility development patterns; (3) socioeconomic characteristics; (4) existing regional water planning areas; (5) political subdivision boundaries; (6) public comment; and (7) other factors the board deems relevant. (b) The board shall review and update the designations of regional water planning areas as necessary but at least every five years, on its own initiative or upon recommendation of the executive administrator. The board shall provide notice of its intent to amend the designations of regional water planning areas 30 days before making any change by publishing notice of the proposed change in the Texas Register and by mailing notice of the proposed change 30 days before making any change to the affected regional water planning groups, to each mayor of a municipality with a population of 1,000 or more or which is a county seat that is located in whole or in part in the regional water planning areas proposed to be impacted, to each water district or river authority located in whole or in part in the regional water planning area based upon lists of such water districts and river authorities obtained from Texas Natural Resource Conservation Commission, and to each county judge of a county located in whole or in part in the regional water planning areas proposed to be impacted. After the notice period, the board shall hold a public hearing at a location to be determined by the board before making any changes to the designation of a regional water planning area, and may thereafter take actions to change the regional water planning area. sec.357.4. Designation of Regional Water Planning Groups. (a) The board shall, no later than 60 days after the designation of regional water planning areas under sec.357.3 of this title (relating to Designation of Regional Water Planning Areas), designate initial regional water planning group representatives of interests from within each regional water planning area to serve as the initial coordinating body to include one representative from each of the 11 interests listed in Texas Water Code, sec.16.053(c). If a regional water planning area does not contain an interest listed in Texas Water Code, sec.16.053(c), no nominee will be designated for the subject interest. The board may designate other persons as part of the initial coordinating body in addition to those named to represent the 11 interests in order to meet the special needs of the regional water planning area. The board may name additional representatives to the initial coordinating body to replace a representative selected by the board who has declined to serve or become incapable of serving. The board may make such appointment only within 60 days after designation of the regional water planning area and until such time as the initial coordinating body informs the executive administrator under subsection (d) of this section that all interests comprising the regional water planning area are represented. The interests listed in Texas Water Code, sec.16.053(c) are defined as follows: (1) public, defined as those persons or entities having no economic interest in the interests represented by paragraphs (2) - (11) of this subsection other than as a normal consumer; (2) counties, defined as the county governments for the 254 counties in Texas; (3) municipalities, defined as governments of cities created or organized under the general, home-rule, or special laws of the state; (4) industries, defined as corporations, partnerships, sole proprietorships, or other legal entities that are formed for the purpose of making a profit and which produce or manufacture goods or services and which are not small businesses; (5) agricultural interests, defined as those persons or entities associated with production or processing of plant or animal products; (6) environmental interests, defined as those persons or groups advocating the conservation of the state's natural resources, including but not limited to soil, water, air, and living resources; (7) small businesses, defined as corporations, partnerships, sole proprietorships, or other legal entities that are formed for the purpose of making a profit, are independently owned and operated, and have fewer than 100 employees or less than $1 million in gross annual receipts; (8) electric generating utilities, defined as any persons, corporations, cooperative corporations, or any combination thereof, meeting each of the following three criteria: own or operate for compensation equipment or facilities which produce or generate electricity; produce or generate electricity for either wholesale or retail sale to others; and are neither a municipal corporation nor a river authority; (9) river authorities, defined as any districts or authorities created by the legislature which contain areas within their boundaries of one or more counties and which are governed by boards of directors appointed or designated in whole or part by the governor or board, including, without limitation, San Antonio River Authority and Palo Duro River Authority; (10) water districts, defined as any districts or authorities, created under authority of either Texas Constitution, Article III, sec.52(b)(1) and (2), or Article XVI, sec.59 including districts having the authority to regulate the spacing of or production from water wells, but not including river authorities; and (11) water utilities, defined as any persons, corporations, cooperative corporations, or any combination thereof that provide water supplies for compensation except for municipalities, river authorities, or water districts. (b) The executive administrator shall prepare a list of nominees for the initial coordinating body for each regional water planning area for the board to consider for each interest. The executive administrator shall consider, among other factors, giving strong consideration to a consensus nominee from those individuals and entities that collectively represent that interest, to the willingness, water knowledge, regional water planning experience, and commitment to the regional water planning process of the nominees, and to achieving a wide geographic representation of the members of the initial coordinating body. (c) At the request of a majority of the members of an initial coordinating body, or if a meeting has not been held within 30 days after the effective date of the board's selection of an initial coordinating body, the executive administrator may post and convene the first meeting of the initial coordinating body. The executive administrator shall consult with the initial coordinating body regarding an appropriate time and place for such meeting. The initial coordinating body shall meet only in a meeting posted and held according to the Texas Open Meetings Act. The initial coordinating body shall designate additional representatives by a vote of two-thirds of the designated members of the initial coordinating body ensuring adequate representation of interests comprising the regional water planning area on the regional water planning group, including, but not limited to, the interests identified in subsection (a) of this section. At the option of the regional water planning group, entities identified by subsection (g)(4) of this section may be designated as voting members of the regional water planning group. Each regional water planning group shall provide a list of its members to the executive administrator, keeping the list current with any additions or deletions and showing how the interests shown in subsection (a) of this section are represented. (d) The executive administrator will recognize a regional water planning group after initial coordinating bodies add members and inform the executive administrator that all interests comprising the regional water planning area are represented. Members of the initial coordinating body and representatives added by the initial coordinating body shall comprise the regional water planning group. All members shall be voting members of the regional water planning group except those specified as non-voting members in subsections (g) and (h) of this section. (e) A regional water planning group may at any time after its formation add additional representatives to serve on the regional water planning group, ensuring adequate representation of interests in the regional water planning area. (f) Upon update of a regional water planning area under sec.357.3(b) of this title (relating to Designation of Regional Water Planning Areas), the board shall designate representatives to an initial coordinating body for the new regional water planning group under the provisions of subsections (a) and (b) of this section after consulting with members of any existing regional water planning groups affected by the update. The initial coordinating body for the updated regional water planning area shall follow the procedures in subsection (c) of this section to form the new regional water planning group. (g) Regional water planning groups shall add the following non-voting members of each regional water planning group: (1) staff member of the board to be designated by the executive administrator; (2) staff member of the Texas Parks and Wildlife Department designated by its executive director; (3) member designated by each adjacent regional water planning group to serve as a liaison; and (4) one or more persons to represent those entities with headquarters located in another regional water planning area and which holds surface water rights authorizing a diversion of 1,000 acre-feet a year or more in the regional water planning area, which supplies water under contract in the amount of 1,000 acre- feet a year or more to entities in the regional water planning area, or which receives water under contract in the amount of 1,000 acre-feet a year or more from the regional water planning area. (h) The regional water planning group, at its discretion may add as non-voting members: (1) a representative designated by each state or nation that shares water resources with the regional water planning area; (2) a representative designated by an entity with binational authority, if the regional water planning area shares water resources with another nation; and (3) a representative designated by state or federal agencies, including Texas Natural Resource Conservation Commission, Texas General Land Office, and Texas Department of Agriculture, or other entities that the regional water planning groups determine important to the planning effort. (i) Regional water planning groups may form voluntary associations composed of representatives of one or more regional water planning areas. These interregional planning committees may coordinate interregional issues that will benefit each regional water planning area, and may conduct joint studies of issues affecting their regions. Regional water planning groups may enter into written agreements with one or more other regional water planning groups that are binding to the extent allowed by law. These agreements could, in addition to other purposes, allow two or more regional water planning groups to jointly prepare one plan for all or a portion of their regional water planning areas subject to approval of all regional water planning groups involved. (j) Regional water planning groups may form subregional water planning groups to conduct planning that may be incorporated into the regional water plans such as for metropolitan and non-metropolitan areas, to study technical or other issues, or other reasons determined by the regional water planning groups. The regional water planning group shall assure that all of the interests listed in subsection (a) of this section are invited to participate on each the subregional water planning group formed. Regional water planning groups may form committees to address issues deemed appropriate by the regional water planning group. Any plans or information developed by subregional water planning groups or by committees may be included in the regional water plan only upon approval of the regional water planning group. (k) Regional water planning groups shall adopt, by a vote of two-thirds of the members of the regional water planning group, bylaws that are consistent with provisions of this chapter. The regional water planning group shall provide copies of its bylaws and any revisions thereto to the executive administrator. Within 30 days after the board names members of the initial coordinating body, the executive administrator shall provide to each member of the initial coordinating body a set of model bylaws which the regional water planning group may consider. The bylaws adopted by the regional water planning group shall at a minimum address the following elements: (1) definition of a quorum necessary to conduct business; (2) method to be used to approve items of business including adoption of regional water plans or amendments thereto; (3) methods to be used to name additional members; (4) terms and conditions of membership; (5) methods to record minutes and where minutes will be archived as part of the public record; and (6) methods to resolve disputes between regional water planning group members on matters coming before the regional water planning group. (l) The board may not approve funding under Chapter 355, Subchapter C of this title (relating to Regional Water Planning Grants) for a regional water planning area until a copy of the adopted bylaws of the regional water planning group that meet the requirements of subsection (j) of this section has been filed with the executive administrator. sec.357.5. Guidelines for Development of Regional Water Plans. (a) Goals of plan. The regional water plan shall provide for the orderly development, management, and conservation of water resources and preparation for and response to drought conditions in order that sufficient water will be available at a reasonable cost to ensure public health, safety, and welfare; further economic development; and protect the agricultural and natural resources of the regional water planning area. (b) Submittal of plan. The regional water planning group shall prepare, adopt, and submit a regional water plan to the executive administrator on or before September 1, 2000 and at least as frequently as every five years thereafter, for board approval and inclusion in the state water plan. (c) Relation to state and local plans. Regional water plans shall be consistent with Chapter 358 of this title (relating to State Water Planning Guidelines) and this chapter. Regional water planning groups shall consider and use as a guide the state water plan and local water plans provided for in the Texas Water Code, sec.16.054. (d) Use of population and water demands. In developing regional water plans, regional water planning groups shall use: (1) state population and water demand projections contained in the state water plan or adopted by the board after consultation with the Texas Natural Resource Conservation Commission and Texas Parks and Wildlife Department in preparation for revision of the state water plan; or (2) in lieu of paragraph (1) of this subsection, population or water demand projection revisions that have been adopted by the board, after coordination with Texas Natural Resource Conservation Commission and Texas Parks and Wildlife Department, based on changed conditions and availability of new information. Within 45 days of receipt of a request from a regional water planning group for revision of population or water demand projections, the executive administrator shall consult with the requesting regional water planning group and respond to their request. (e) Plan development. In developing regional water plans, regional water planning groups shall: (1) evaluate alternative water management strategies for effect on environmental water needs including effect on instream flows and bays and estuaries using environmental information resulting from site-specific studies, or, in the absence of such information, using state environmental planning criteria adopted by the board for inclusion in the state water plan after coordinating with staff of Texas Natural Resource Conservation Commission and Texas Parks and Wildlife Department; (2) provide water management strategies to be used during a drought of record, when flows are 75% of normal and when flows are 50% of normal; (3) protect existing water rights, water contracts, and option agreements, but may consider potential amendments of water rights, contracts and agreements. Any amendments will require the eventual consent of the owner; (4) provide specific recommendations of water management strategies based upon identification, analysis, and comparison of all water management strategies the regional water planning group determines to be potentially feasible so that the cost effective water management strategies which are environmentally sensitive are considered and pursued, where appropriate; (5) incorporate water conservation planning and drought contingency planning into the near-term strategies and long-term strategies or alternatives to address water supply needs; (6) conduct their planning to achieve efficient use of existing water supplies, explore opportunities for and the benefits of developing regional water supply facilities or providing regional management of water facilities, coordinate the actions of local and regional water resource management agencies, provide substantial involvement by the public in the decision-making process, and provide full dissemination of planning results; and (7) consider the effect of the regional water plan on navigation. (f) Existing law. Each regional water planning group shall prepare its regional water plan to be consistent with all laws applicable to water use in the regional water planning area. (g) Special water resources. The board may, on its own initiative or upon recommendation of the executive administrator, identify as part of its designation of regional water planning areas or amendment of such designation, surface water resources as special water resources to facilitate planning for surface water supplies currently obligated to meet demands outside the regional water planning area which contains the special water resource. The board shall consider the following characteristics when designating these special water resources: (1) the water rights to the surface water resource are owned in whole or in part by an entity headquartered in a regional water planning area different from the one containing the surface water resource; (2) a water supply contract commits water from the surface water resource to an entity headquartered in a regional water planning area different from the one containing the surface water resource; or (3) an existing water supply option agreement may result in water from the surface water resource being supplied to an entity headquartered in a regional water planning area different from the one containing the surface water resource. (h) Protecting rights to special water resources. When developing a water plan that involves a special water resource, defined in subsection (g) of this section, the regional water planning group for the regional water planning area which contains the special water resource shall protect the water rights, water supply contracts, and water supply option agreements associated with the special water resource so that supplies obligated to meet demands outside the regional water planning areas shall not be impacted. Any plans that could impact the water rights, water supply contracts, or water supply option agreements associated with the special water resource shall be based only on potential adjustments to the water rights, water supply contracts or option agreements by those entities holding interests in such water rights, water supply contract, or water supply option agreements. Any amendments will require the eventual consent of the owner. All holders of interests in water rights, water supply contracts, or option agreements in the special water resource shall be provided notice of all meetings of the regional water planning group or subgroups, and shall be provided an opportunity to comment on the scope of work affecting the special water resource, and on the proposed regional water plan, with such comments being submitted to the executive administrator with submittal of the adopted regional water plan. (i) Emergency transfers. Regional water plans shall include recommendations for emergency transfers of surface water including a determination of the part of each water right for non-municipal use in the regional water planning area that may be transferred without causing unreasonable damage to the property of the non-municipal water rights holder in accordance with Texas Water Code, sec.11.139. (j) Simplified planning. If a regional water planning group determines in its analysis of water needs that it has sufficient supplies in the regional water planning area to meet the needs for the 50-year planning period in accordance with this chapter, regional water planning groups may perform simplified regional water planning as follows: (1) the identification of water supplies that are available for voluntary redistribution within a regional water planning area or to other regional water planning areas; (2) adoption of the state water plan information as the regional water plan; or (3) other activities upon approval of the executive administrator. (k) Existing regional water planning efforts. In developing a regional water plan, the regional water planning group shall consider the following: (1) existing plans and information, including: (A) water conservation plans; (B) drought contingency plans; (C) certified groundwater conservation district management plans; (D) publicly available plans of major agricultural, municipal, manufacturing and commercial water users; (E) water management plans; (F) water availability requirements promulgated by a county commissioners court in accordance with Texas Water Code, sec.35.019; and (G) any other information available from existing local or regional water planning studies; and (2) existing programs and goals, including: (A) the state Clean Rivers Program; (B) the federal Clean Water Act; and (C) other planning goals including, but not limited to, regionalization of water and wastewater services, where appropriate. (l) Instream and bay and estuary flows. In developing a regional water plan, a regional water planning group shall consider environmental water needs including instream flows and bay and estuary inflows. (m) Actions needed for regional water plan adoption and approval. Prior to adoption and approval of a regional water plan, nothing in this chapter shall prevent development of a management plan or project where local or regional needs require action. sec.357.6. Preplanning. Prior to the preparation of the regional water plans the regional water planning group shall perform the following tasks: (1) after 30 day notice to the public as described in sec.357.12(a)(5) and (6) of this title (relating to Notice and Public Participation), hold at least one public meeting to gather suggestions and recommendations from the public as to issues that should be addressed or provisions that should be included in the regional or state water plan; (2) determine terms of participation as used in sec.357.7(a)(5)(B) of this title (relating to Regional Water Plan Development); (3) prepare a scope of work that includes a detailed description of tasks to be performed, identification of responsible parties for task execution, a task schedule, task and expense budgets, and description of any interim products, draft reports, and final reports that are to be developed as part of the planning process; (4) approve any amendments to the scope of work only in an open meeting of the regional water planning group where notice of the proposed action was provided; (5) designate a political subdivision or political subdivisions as a representative(s) of the regional water planning group eligible to apply for financial assistance for scope of work and regional water plan development pursuant to Chapter 355, Subchapter C, of this title (relating to Regional Water Planning Grants); and (6) ask regional water planning groups (responding regional water planning groups) of all other regional water planning areas (responding regional water planning areas) if they desire to have a geographical region designated as an informational subarea so that water planning information may be readily exchanged for such informational subareas. For informational subareas that meet one or more of the requirements of subparagraphs (A)-(E) of this paragraph, regional water planning groups and responding regional water planning groups shall exchange information specified in sec.357.7(a)(2)-(4) of this title (relating to Regional Water Plan Development) on population and water demand data, on water supplies available, on water supply and demand analysis results, and available information on environmental water needs, in addition to any other information the regional water planning groups choose to exchange. The regional water planning group shall develop its scope of work so that information can be exchanged with the responding regional water planning group if the geographic region comprising the informational subarea meets one or more of the following criteria: (A) is currently being provided wholesale or retail water service by an entity whose headquarters is in the responding regional water planning area or from sources of water or facilities within the responding regional water planning area; (B) is within an area designated by the Texas Legislature as an area, either in whole or in part, that may or shall be served by an entity whose headquarters is in the responding regional water planning area or from sources of water or facilities in the responding regional water planning area; (C) is an area identified in current or existing studies as an area likely to be served in the future from entities whose headquarters are in the responding regional water planning area or from sources of water or facilities within the responding regional water planning area; (D) is an area where environmental water needs are impacted or are potentially impacted by water management strategies that might be considered by the regional water planning group; or (E) is designated by the executive administrator as an informational subarea. sec.357.7. Regional Water Plan Development. (a) Regional water plan development shall include the following: (1) description of the regional water planning area including major water providers, current water use, identified water quality problems, sources of groundwater and surface water including major springs, major demand centers, agricultural and natural resources, social and economic aspects of the regional water planning area including information on current population and primary economic activities, initial assessment of current preparations for drought within the regional water planning area, summary of existing regional water plans, summary of recommendations in state water plan, summary of local water plans, and any identified threats to the agricultural and natural resources of the regional water planning area due to water quantity problems or water quality problems related to water supply; (2) presentation of current and projected population and water demands. Results shall be reported by city, county and that portion of a river basin within the regional water planning area for major providers of water for municipal and manufacturing purposes, and for categories of water use including municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering; (3) evaluation of adequacy of current water supplies available to the regional water planning area for use during drought of record, when flows are at 50% of normal, and when flows are at 75% of normal. This evaluation shall consider surface water and groundwater data from the state water plan, existing water rights, contracts and option agreements, other planning and water supply studies, and analysis of water supplies currently available to the regional water planning area. Analysis of surface water available during drought of record from reservoirs shall be based on firm yield analysis of reservoirs. Firm yield is defined as the supply the reservoir can provide during a drought of record using reasonable sedimentation rates and the assumption that all senior water rights will be totally utilized. Until information is provided by the Texas Natural Resource Conservation Commission, regional water planning groups may use estimates of the projected amount of water that would be available from existing water rights during a drought of record, when flows are at 75% of normal, and when flows are at 50% of normal. Once this information is available from the Texas Natural Resource Conservation Commission, the regional water planning group shall incorporate it in its next planning cycle. The executive administrator, after coordination with staff of the Texas Natural Resource Conservation Commission and the Texas Parks and Wildlife Department, shall identify the methodology, in consultation with representatives of regional water planning groups, to be used by regional water planning groups to calculate normal hydrological condition. The executive administrator shall provide available technical assistance to the regional water planning groups upon request to assist them in selecting appropriate methods and data to be used to determine water supply availability. Results of evaluations shall be reported by city, county, and portion of a river basin within the regional water planning area for major providers of municipal and manufacturing water and for categories of water use including municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering; (4) water supply and demand analysis comparing water demands as developed in paragraph (2) of this subsection with current water supplies available to the regional water planning area as developed in paragraph (3) of this subsection to determine if the water users in the regional water planning area will experience a surplus of supply or a need for additional supplies. The social and economic impact of not meeting these needs shall be evaluated by the regional water planning groups and reported by regional water planning area and river basin. Other results shall be reported by city, county, and portion of a river basin within the regional water planning area for major providers of municipal and manufacturing water and for categories of water use including municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering. The executive administrator shall provide available technical assistance to the regional water planning groups, upon request, on water supply and demand analysis, including methods to evaluate the social and economic impacts of not meeting needs; (5) using the water supply needs identified in paragraph (4) of this subsection, plans to be used during the drought of record, when flows are at 75% of normal, and when flows are at 50% of normal to provide sufficient water supply to meet the needs identified in paragraph (4) of this subsection and in accordance with paragraph (8) of this subsection. Separate plans shall be developed to include the recommended water management strategies or alternative long-term scenarios for each of the three water supply conditions (drought of record, flows at 50% of normal, and flows at 75% of normal) under guidelines of paragraph (8) of this subsection. Alternatively, one or two plans shall be developed that include recommended water management strategies or alternative long-term scenarios applicable for all or a combination of the three water supply conditions (drought of record, flows at 50% of normal, and flows at 75% of normal) under guidelines of paragraph (8) of this subsection, respectively. These plans shall meet all needs for the water use categories of municipal, manufacturing, irrigation, steam electric power generation, mining, and livestock watering except: (A) plans may identify those needs for which no water management strategy is feasible. Full evaluation of water management strategies must be presented and reasons given for why no water management strategies are feasible; or (B) where a political subdivision that provides water supply (other than water supply corporations, counties, or river authorities) does not participate in the regional water planning effort for needs located within its boundaries or extraterritorial jurisdiction. The regional water planning group shall establish terms of participation that shall be equitable and shall not unduly hinder participation; (6) evaluation of all water management strategies the regional water planning group determines to be potentially feasible, including: (A) water conservation and drought response planning including water demand management; (B) reuse of wastewater; (C) expanded use or acquisition of existing supplies including systems optimization and conjunctive use of resources; (D) reallocation of reservoir storage to new uses; (E) voluntary redistribution of water resources including water marketing, regional water banks, sales, leases, options, subordination agreements, and financing agreements; (F) subordination of existing water rights through voluntary agreements; (G) enhancements of yields of existing sources; (H) control of naturally occurring chlorides; (I) interbasin transfers; (J) new supply development including construction and improvement of surface water resources; (K) water management strategies identified in the state water plan for the regional water planning area; (L) brush control, precipitation enhancement, and desalinization; (M) water supply that could be made available by cancellation of water rights based on data provided by the Texas Natural Resource Conservation Commission; (N) aquifer storage and recovery; and (O) other measures; (7) evaluations of water management strategies by including: (A) evaluation of the quantity, reliability, and cost of water delivered and treated for the end user's requirements, incorporating factors to be used in the calculation of infrastructure debt payments provided by the executive administrator; (B) environmental factors including effects on environmental water needs, wildlife habitat, cultural resources, and effect of upstream development on bays, estuaries, and arms of the Gulf of Mexico; (C) impacts on other water resources of the state including other water management strategies and groundwater surface water interrelationships; (D) impacts of water management strategies on threats to agricultural and natural resources of the regional water planning area; (E) any other factors as deemed relevant by the regional water planning group including recreational impacts; (F) equitable comparison and consistent application of all water management strategies the regional water planning groups determines to be potentially feasible for each water supply need; (G) consideration of the provisions in Texas Water Code, sec.11.085(k)(1) for interbasin transfers; and (H) consideration of third party social and economic impacts resulting from voluntary redistributions of water; (8) plans to meet needs, which shall include: (A) specific recommendations of water management strategies to meet the near- term needs in sufficient detail to allow state agencies to make financial or regulatory decisions to determine the consistency of the proposed action before the state agency with an approved regional water plan; and (B) specific recommendations of water management strategies or alternative long- term scenarios that meet the long-term needs. An alternative long-term scenario is a combination of various water management strategies; and (9) regulatory, administrative, or legislative recommendations that the regional water planning group believes are needed and desirable to: facilitate the orderly development, management, and conservation of water resources and preparation for and response to drought conditions in order that sufficient water will be available at a reasonable cost to ensure public health, safety, and welfare; further economic development; and protect the agricultural and natural resources of the state and regional water planning area. The regional water planning group may develop information as to the potential impact once proposed changes in law are enacted. (b) Specific recommendations of water management strategies to meet an identified need will not be shown as meeting the need for a political subdivision if the political subdivision to supply or to be provided water supplies objects to inclusion of the strategy for such political subdivision and specifies its reasons for such objection. This does not prevent the inclusion of the strategy to meet other needs. (c) The executive administrator shall provide technical assistance within available resources to the regional water planning groups requesting such assistance in performing regional water planning activities and if requested, may facilitate resolution of conflicts within regional water planning areas. sec.357.8. Ecologically Unique River and Stream Segments. (a) Regional water planning groups may include in adopted regional water plans recommendations for all or parts of river and stream segments of unique ecological value located within the regional water planning area by preparing a recommendation package consisting of a physical description giving the location of the stream segment, maps, and photographs of the stream segment and a site characterization of the stream segment documented by supporting literature and data. The recommendation package shall address each of the criteria for designation of river and stream segments of ecological value found in subsection (b) of this section. The regional water planning group shall forward the recommendation package to the Texas Parks and Wildlife Department and allow the Texas Parks and Wildlife Department 30 days for its written evaluation of the recommendation. The adopted regional water plan shall include, if available, Texas Parks and Wildlife Department's written evaluation of each river and stream segment recommended as a river or stream segment of unique ecological value. (b) A regional water planning group may recommend a river or stream segment as being of unique ecological value based upon the following criteria: (1) biological function - stream segments which display significant overall habitat value including both quantity and quality considering the degree of biodiversity, age, and uniqueness observed and including terrestrial, wetland, aquatic, or estuarine habitats; (2) hydrologic function - stream segments which are fringed by habitats that perform valuable hydrologic functions relating to water quality, flood attenuation, flow stabilization, or groundwater recharge and discharge; (3) riparian conservation areas - stream segments which are fringed by significant areas in public ownership including state and federal refuges, wildlife management areas, preserves, parks, mitigation areas, or other areas held by governmental organizations for conservation purposes, or stream segments which are fringed by other areas managed for conservation purposes under a governmentally approved conservation plan; (4) high water quality/exceptional aquatic life/high aesthetic value - stream segments and spring resources that are significant due to unique or critical habitats and exceptional aquatic life uses dependent on or associated with high water quality; or (5) threatened or endangered species/unique communities - sites along streams where water development projects would have significant detrimental effects on state or federally listed threatened and endangered species, and sites along streams significant due to the presence of unique, exemplary, or unusually extensive natural communities. sec.357.9. Unique Sites for Reservoir Construction. A regional water planning group may recommend sites of unique value for construction of reservoirs by including descriptions of the sites, reasons for the unique designation and expected beneficiaries of the water supply to be developed at the site. The following criteria shall be used to determine if a site is unique for reservoir construction: (1) site-specific reservoir development is recommended as a specific water management strategy or in an alternative long-term scenario in an adopted regional water plan; or (2) the location, hydrologic, geologic, topographic, water availability, water quality, environmental, cultural, and current development characteristics, or other pertinent factors make the site uniquely suited for: (A) reservoir development to provide water supply for the current planning period; or (B) where it might reasonably be needed to meet needs beyond the 50-year planning period. sec.357.10. Format of Information to be Presented in Regional Water Plans. (a) Initially prepared and adopted regional water plans or amendments to approved regional water plans shall include the following: (1) technical report prepared in accordance with this chapter; (2) executive summary that documents the key regional water plan findings and recommendations; and (3) summaries of all written comments received concerning the regional water plan with a response by the regional water planning group explaining how the plan was revised or why changes were not warranted. (b) The regional water planning group will transfer copies of all data and reports generated by the planning process and used in developing the regional water plan to the executive administrator. To the maximum extent possible, data shall be transferred in digital form according to specifications provided by the executive administrator. One copy of all reports prepared by the regional water planning group shall be provided in digital format according to specifications provided by the executive administrator. All digital mapping shall use a geographic information system according to specifications provided by the executive administrator. The executive administrator shall seek the input from the Texas Geographic Information Council regarding specifications mentioned in this subsection. sec.357.11. Adoption of Regional Water Plans by Regional Water Planning Groups. (a) Regional water planning groups shall submit an initially prepared regional water plan to the executive administrator prior to adoption of the regional water plan by the regional water planning group. The executive administrator shall provide written comments to the regional water planning group within 30 days of receipt of the initially prepared regional water plan. The executive administrator may delay providing comments up to a total of 60 days from receipt of the initially prepared regional water plan by providing reasons for the delay to the regional water planning group. The regional water planning group shall consider revisions to the regional water plan based on the executive administrator's written comments and all other public comments received. (b) The regional water planning group shall submit in a timely manner to the executive administrator information on any known interregional conflict between regional water plans. (c) The regional water planning group shall modify the regional water plan to incorporate board resolutions of interregional conflicts. (d) The regional water planning group shall seek to resolve conflicts with other regional water planning groups and shall participate in any board sponsored efforts to resolve interregional conflicts. (e) A regional water planning group may amend an adopted regional water plan at any meeting, after giving notice according to sec.357.12 of this title (relating to Notice and Public Participation). A political subdivision in the regional water planning area may request a regional water planning group to consider specific changes to an adopted regional water plan. A regional water planning group must formally consider such request within 180 days after its submittal and shall amend its adopted regional water plan if it determines an amendment is warranted. A regional water planning group may propose amendments to an approved regional water plan by submitting proposed amendments to the board for its consideration and possible approval under the standards and procedures of this chapter. sec.357.12. Notice and Public Participation. (a) Regional water planning groups and any subregional water planning groups shall provide for public participation which shall include the following: (1) at least one public meeting prior to the preparation of the regional water plan pursuant to sec.357.6(a)(1) of this title (relating to Preplanning) held in some central location within the regional water planning area; (2) ongoing opportunities for public input during preparation of the regional water plan; (3) a public hearing following preparation, but before submittal to the board, of an initially prepared regional water plan, to be held in a central location within the regional water planning area; (4) a public hearing before adoption of an amendment including amendments required by the board's resolution of interregional conflicts, to be held in a central location; (5) notice of the public meetings and public hearings required by paragraphs (1), (3), and (4) of this subsection shall be published in a newspaper of general circulation in each county located in whole or in part in the regional water planning area before the 30th day preceding the date of the public meeting or hearing and mailed to, at a minimum, the following: (A) each mayor of a municipality with a population of 1,000 or more or which is a county seat that is located in whole or in part in the regional water planning area; (B) each county judge of a county located in whole or in part in the regional water planning area; (C) each special or general law district or river authority with responsibility to manage or supply water in the regional water planning area based upon lists of such water districts and river authorities obtained from Texas Natural Resource Conservation Commission; (D) each retail public utility, defined as a community water system, that serves any part of the regional water planning area or receives water from the regional water planning area based upon lists of such entities obtained from Texas Natural Resource Conservation Commission; and (E) each holder of record of a water right for the use of surface water the diversion of which occurs in the regional water planning area based upon lists of such water rights holders obtained from Texas Natural Resource Conservation Commission; and (6) notice of the public meetings and public hearings shall include: (A) a date, time, and location of the public meeting or hearing; (B) a summary of the proposed action to be taken; (C) the name, telephone number, and address of the person to whom questions or requests for additional information may be submitted; and (D) information on how the public may submit comments. (b) Regional water planning groups shall make copies of the regional water plan available for public inspection at least one month before a public hearing required or held in accordance with subsection (a)(3) and (4) of this section by providing a copy of the regional water plan in the county clerk's office and at least one public library of each county having land in the regional water planning area and include locations of such copies in the notice for public hearing. (c) Regional water planning groups and regional water planning subgroups shall: (1) conduct all business in a meeting posted and held in accordance with the Texas Open Meetings Act with a copy of all materials presented or discussed available for public inspection prior to and following the meeting; and (2) provide notice of regional water planning group and subregional water planning meetings in the Texas Register and to persons who requested in writing receipt of such notice. sec.357.14. Approval of Regional Water Plans by the Board. Upon receipt of a regional water plan adopted by the regional water planning group, the board will consider approval of such plan based on the following criteria. (1) The board shall verify adoption of the regional water plan by the regional water planning group. (2) The board shall approve the plan only if it finds that the regional water plan meets the requirements contained in the Texas Water Code, Chapter 16, this chapter, and Chapter 358 of this title (relating to State Water Planning Guidelines). (3) The board shall approve the plan only after it considers information from regional water planning groups of the existence of an interregional conflict and finds that no interregional conflict exists. The board shall not consider approval of a regional water plan unless all regional water plans which could contain conflicts have also been submitted to the board for approval, or the board determines that such plans are not likely to be submitted. (4) In the event the board finds that the regional water plan does not meet the requirements contained in the Texas Water Code, Chapter 16, this chapter, and Chapter 358 of this title (relating to State Water Planning Guidelines) the executive administrator shall: (A) notify the affected regional water planning group of the nature of the problems; and (B) request the affected regional water planning group's assistance in resolving the problems. (5) In the event negotiations fail to produce a plan the executive administrator considers to resolve compliance problems noted under paragraph (4) of this subsection, the executive administrator shall: (A) describe the remaining problems and recommended actions needed to resolve them; (B) provide notice of its intent to hold a public hearing on remaining problems and proposed recommendations for resolution of the problems by publishing notice of the proposed change in the Texas Register and in a newspaper of general circulation in each county located in whole or in part in the regional water planning areas involved in the dispute 30 days before the public hearing and by mailing notice of the public hearing 30 days before public hearing to those persons or entities listed in sec.357.12(a)(5)(A) through (E) of this title (relating to Notice and Public Participation) in the affected regional water planning areas, and to each affected regional water planning group; (C) hold a public comment hearing on the remaining problems and proposed recommendation for resolution of the problems at a time and place determined by the executive administrator. At the hearing, the executive administrator shall take comments from the regional water planning groups, political subdivisions, and members of the public on the issues identified by the board as unresolved problems; and (D) make a recommendation to the board as to whether or not problems remain. (6) The board shall consider the executive administrator's recommendation and statements by a representative for the regional water planning group and others and determine whether the regional water plan meets the requirements contained in the Texas Water Code, Chapter 16, this chapter, and Chapter 358 of this title (relating to State Water Planning Guidelines). (7) The executive administrator shall notify affected regional water planning groups of the board's decision including details of how affected regional water plans must be amended. (8) In the event the board finds that an interregional conflict exists between adopted regional water plans, the executive administrator shall: (A) notify the affected regional water planning groups of the nature of the interregional conflict; (B) request affected regional water planning groups assistance in resolving the conflict; and (C) negotiate resolutions of conflicts with regional water planning groups and other interested parties as determined by the executive administrator. (9) In the event negotiations conducted under paragraph (8) of this subsection to resolve conflicts between adopted regional water plans are unsuccessful, the executive administrator shall: (A) determine a proposed recommendation for resolution of the conflict; (B) provide notice of its intent to hold a public hearing on proposed recommendations for resolution of the conflict by publishing notice of the proposed change in the Texas Register and in a newspaper of general circulation in each county located in whole or in part in the regional water planning areas involved in the dispute 30 days before the public hearing and by mailing notice of the public hearing 30 days before public hearing to those persons or entities listed in sec.357.12(a)(5)(A)-(E) of this title (relating to Notice and Public Participation) in the regional water planning areas proposed to be impacted, and to each county judge of a county located in whole or in part in the regional water planning areas proposed to be impacted and to each affected regional water planning group; (C) hold a public hearing on the proposed recommendation for resolution of the conflict at a time and place determined by the executive administrator. At the hearing, the executive administrator shall take comments from the regional water planning groups, political subdivisions, and members of the public on the issues identified by the board as unresolved problems; and (D) make a recommendation to the board for resolution of the conflict. (10) The board shall consider the executive administrator's recommendation and statements by a representative for each regional water planning group and others and determine the resolution of the conflict. (11) The executive administrator shall notify affected regional water planning groups of board's decision including details of how affected regional water plans must be amended. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802489 Suzanne Schwartz General Counsel Texas Water Development Board Effective date: March 11, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 463-7981 CHAPTER 358. State Water Planning Guidelines 31 TAC sec.sec.358.1-358.4 The Texas Water Development Board (board) adopts new sec.sec.358.2-358.4, concerning State Water Planning Guidelines, with changes to the proposed text as published in the December 26, 1997, issue of the Texas Register (22 TexReg 12698). Section 358.1 is adopted without changes and will not be republished. Sections 358.1-358.4 comprise new 31 TAC Chapter 358, concerning state water planning guidelines. New Chapter 358 is proposed to govern the board's development and adoption of the state water plan, including the incorporation of regional water plans approved pursuant to proposed new Chapter 357 of this title (related to Regional Water Planning Guidelines). Senate Bill 1, 75th Texas Legislature (SB1), requires the executive administrator to develop the state water plan and the board to adopt it no later than September 1, 2001 and at least every five years after that. Section 358.1 states that this chapter will govern the board's development of the state water plan. The chapter itself derives its authority from: Texas Water Code, sec.16.051, which states that the board, in coordination with the Texas Natural Resource Conservation Commission (TNRCC) and the Texas Parks and Wildlife Department (TPWD), shall adopt by rule guidance principles for the state water plan; and language in Texas Water Code, sec.16.053(e) and (e)(1), stating that each regional water planning group shall submit to the board a regional water plan that is consistent with the guidance principles for the state water plan adopted by the board. Section 358.2 provides definitions of terms in the chapter. "Approved regional water plan" is defined as a regional water plan or amendment to an approved regional water plan approved by the board under the Texas Water Code, sec.16.053 and Chapter 357 of this title. The definition of "board" follows the definition of Texas Water Development Board in Texas Water Code, sec.6.001(1). The definition of "guidance principles," proposed as a definition, is deleted in the adopted chapter as it is no longer used in the chapter. "Long-term water needs" is defined as those needs which must be met by implementation of water management strategies within the next 30 to 50 years based on federal census years (2040, 2050, etc.). "Near-term water needs" is defined as those needs which must be met by implementation of water management strategies within the next 30 years based on federal census years (2000, 2010, 2020, 2030, etc.). Texas Water Code, sec.16.053(e)(3) requires recommended water management strategies to be included in regional water plans. The rules in this chapter and in Chapter 357 of this title differentiate between long-term water needs and near-term water needs, with less specificity required for demonstrating how long-term needs could be met. The board considers it important to plan one course of action during the near-period to allow the entities to take necessary action to secure a water source. Sufficiently detailed information on strategies to satisfy near-term needs will permit the board to review the consistency of proposed financial assistance with the regional and state water plans, as required by Texas Water Code, sec.16.053(j), and to permit TNRCC to review the consistency of water rights decisions with the plans, as required by Texas Water Code, sec.11.134(b)(3)(E) and sec.11.134(c). Conversely, the board recognizes that regional water planning groups will be less likely to be able to specify one course of action that it will follow for long-term needs. Many situations which cannot be anticipated today can eliminate some options for future supply while making other options more attractive. These could include changing regulations, economics and technology. The board ties the periods for near-term needs and short-term needs to census years to provide for consistency between state and regional water plans. These reference the U.S. population census that occurs every ten years. The census information collected every ten years provides actual rather than estimated information which is generally published for those years between the census counts. This actual information is critical for establishing base year planning criteria including revision of population projections, establishing specific growth trends that have occurred over the last ten years and associated water needs for these growth trends. Historically, most long-term water planning studies for local areas, regions, and the state have used the census years as future points in time and many of these plans could be used as part of the regional water supply plans. Consequently, there is a need for having consistent future points in time for planning purposes. The 30-year period is chosen as the period of specific short term planning because most entities which are anticipating new water projects to be needed within the time period, will have to know such specific information to timely get these projects in place. The definitions are adopted with a change to use the term "water management strategies" rather than "water supply management strategies." The deletion of the term "supply" from the phrase, based on comment received, reflects that water management is not based simply on the development of new supplies. This change has been made throughout the chapter. "Regional water plan" is defined as a plan or amendment to an adopted or approved regional water plan developed by a regional water planning group for a regional water planning area pursuant to the Texas Water Code, sec.16.053 and Chapter 357 of this title. "Regional water planning area" is defined as an area designated pursuant to the Texas Water Code, sec.16.053 and sec.357.3 of this title (relating to Designation of Regional Water Planning Areas. Regional water planning group is defined as a group designated pursuant to the Texas Water Code, sec.16.053 and sec.357.4 of this title (relating to Designation of Regional Water Planning Groups) to develop regional water plans. "River and stream segments of unique ecological value" are defined as those river or stream segments that may be identified by the board in coordination with the TPWD and the TNRCC or identified in an approved regional water plan based on any one of the following criteria: biological function; hydrologic function; riparian conservation areas; streams and springs significant due to unique or critical habitats and exceptional aquatic life uses; or sites along streams where water development projects would have significant detrimental effects on endangered species, and sites along streams significant due to the presence of unique or extensive natural communities. Biological function is selected as a criterion in that habitat quantity and quality are some of the basic building blocks allowing organisms to successfully inhabit terrestrial, wetland, aquatic, and estuarine areas. The greater the quantity of habitat, the greater the number of organisms it can support. Similarly, the greater the quality of habitat, the healthier and more stable the population of organisms will likely be. Biodiversity, age, and uniqueness of the habitat enter the formula in that the most diverse habitats likely support the most diverse assemblage of species, the older more established habitats are likely rare and are much harder to reestablish given the time element required, and unique habitats are by nature the rarest (and likely harbor threatened, endangered, or endemic species). Streams which display such significant habitat value have unique ecological value. The criterion of hydrologic function is selected as an indicator of uniqueness of ecological value in that the species relying on a particular stream segment are adapted to certain hydrological and physiochemical conditions that are heavily influenced by its watershed. Streams that are fringed by habitats that perform such valuable hydrologic functions have unique ecological value. Riparian conservation areas are selected as a criterion of ecological value since streams that are fringed by such areas are likely to be in a relatively undisturbed state and are a key part of the conservation element of the property. In some instances, the waters of a stream may sustain sensitive or unique species that represent the natural heritage of the area. Therefore, these streams have unique ecological value. The definition is amended in response to public comment to reflect that riparian conservation areas need not be publicly owned so long as the areas are managed for conservation purposes under a governmentally approved conservation plan. The requirement that such a conservation plan be approved by a governmental entity is to provide for public involvement and dedication of such land, while recognizing that reliance on governmental ownership of lands would unduly restrict the planning for areas where there is a legally binding agreement that serves the same purposes relating to uniqueness of the ecological value of a stream as does governmental ownership itself. High water quality, exceptional aquatic life, and high aesthetic value are selected as criterion of ecological value in that streams with high water quality will likely harbor and/or sustain a diverse assemblage of species, some of which will likely be sensitive to degradation; those with exceptional aquatic life are comparable to the best situations without human disturbance and contain all or most of the regionally expected species for the habitat and stream size, including the most intolerant forms; and those with high aesthetic value will likely have recreational uses associated with them. A stream segment that is identified as having any one of these attributes has unique ecological value. Threatened or endangered species and unique communities are selected as criterion of ecological value since threatened and endangered species are protected by federal and state laws; whereas, unique communities are justified in that they represent the natural heritage of an area or the state and in many instances are rare or declining. Unique communities will likely include sensitive, endemic, threatened, and/or endangered species. Streams harboring such species and/or communities have unique ecological value. These factors will provide the legislature with sufficient information to decide if a segment warrants designation. "Sites of unique value for construction of reservoirs" are defined as those sites recommended by the board in coordination with the TPWD and the TNRCC or identified in an approved regional water plan where site-specific reservoir development is recommended as a specific strategy or in a long-term scenario in an adopted regional water plan; or factors make the site uniquely suited for reservoir development for water supply. The definition is based on Texas Water Code, sec.16.051(e), which provides for identification of sites of unique value of construction of reservoirs. The rule provides that a site may be based on a regional water plan recommendation specifically supporting reservoir development. This is consistent with the emphasis in SB 1 on regional decision- making. Alternatively, a site may be identified based on meeting criteria that would make a site attractive for reservoir development when compared to other feasible sites. Such sites are limited in number and may face competition from other development options. Encroachment on such sites may also include surface (highways and electric power lines) and subterranean (gas and oil pipelines) utility corridor routing. Factors included in this definition will provide the legislature with information to determine if a site warrants designation. Changes have been adopted based on comments to provide consistency with Chapter 357 of this title by including water availability as an evaluative criterion, and by making it clear that the criteria apply to both the current and future planning periods. The definition of "state water plan" closely follows language of Texas Water Code, sec.16.051(a). "Water management scenarios" is defined as a combination of various water management strategies. This definition provides an option of meeting future longer-term water needs by a "checklist" of feasible alternatives, rather than requiring selection of a single preferred alternative. This recognizes the uncertainties associated with meeting needs identified by longer-term projections. Devising scenarios can facilitate development of consensus agreements with regional water plan development and limit conflicts (intraregional and interregional) to only those strategies with a reasonable time frame for implementation. The definition is changed from "water supply management scenarios" based on comments received and reflects that water management is not based simply on the creation of new supplies. "Water management strategies" is defined in part as any strategy for the management of water resources to provide for identified needs. The definition lists specific strategies. The Texas Water Code, sec.16.053(e)(3) requires, for each regional water plan, recommended strategies for different water flow conditions. Many of the specific strategies listed as examples are included in the Texas Water Code, sec.16.051(d), sec.16.053(e)(4)(C), and sec.16.053(e)(4)(H), such as, construction and improvement of surface water resources, conservation, reuse, regional water banks, sales, leases and options. Additional water management strategies included in the list have been identified in previous state water plans, in existing local or regional water plans, or recommended based on public comments received on preliminary proposals leading up to these rules. The list is not exclusive. The definition is changed from "water supply management strategies" for the reasons noted previously. Section 358.3(a) states that the state water plan adopted by the board in August 1997 shall remain in effect until a new state water plan is adopted by the board, reiterates the statutory deadlines for completion of the state water plan, and states that the executive administrator shall identify the beginning of the 50-year planning period for the state and regional water plans. Additionally, the executive administrator shall incorporate into the state water plan presented to the board those regional water plans approved by the board. Section 1.08(a) of SB 1 provides that the state water plan in effect on September 1, 1997, the effective date of SB 1, remains in effect until a new state water plan is adopted by the board under the provisions of the bill's revisions to Texas Water Code, sec.16.051. The requirement for a state water plan to be developed and adopted by the board no later than September 1, 2001 is defined in Texas Water Code, sec.16.051(a). The requirement that the executive administrator identify a start date for the planning is based on the need for each regional water plan to be based on the same projection years. This will allow consistent comparison of planning recommendations, including identification of potential conflicts. All of the regional water planning groups preparing information using comparable dates will also support the goal of combining the regional water plans into a more uniform state plan and facilitating sharing of data. In response to comments, a requirement for the board to provide notice and hearing is required before adoption of the state water plan. Section 358.3(b) provides guidance principles for the development of the state plan and regional water plans. The subsection is adopted with changes to use the term water management strategies rather than water supply management strategies, based on comments received and reflects that water management is not based simply on the creation of new supplies. Paragraph 358.3(b)(1) sets the overall goal for planning to identify policies and actions needed to meet water needs, and prepare and respond to drought, so sufficient water will be available at a reasonable cost to satisfy a reasonable projected level of use, to ensure public health, safety and welfare, and further economic development, and protect agricultural and natural resources. This is based primarily on the language of Texas Water Code, sec.16.051(a). Section 358.3(b)(2) requires decision making to be open and accountable to the public; decisions to be based on accurate, objective, reliable information with full dissemination of results. A number of provisions of SB 1 encourage public input into the planning process. For example, based on Texas Water Code, sec.16.053(b), the board is to consider "public comment" when developing planning areas. Each regional water planning group is to hold at least one public meeting early in the process "to gather suggestions and recommendations from the public as to issues that should be addressed in the plan" based on Texas Water Code, sec.16.053(h)(1). Additionally, a regional water planning group is to "provide an ongoing opportunity for public input during the preparation of the regional water plan" as provided by Texas Water Code, sec.16.053(h)(2). The requirement for "accurate, objective and reliable information" is to ensure that plans are based on defensible criteria. Such information can make more apparent to participants and interested parties the underlying basis for key planning recommendations. Section 358.3(b)(3) calls for policies or strategies to consider the public interest, the water supply, and entities providing this supply throughout the state. Texas Water Code, sec.16.051(d) requires consideration of the public interest of the entire state in development of guidance principles. Proper planning necessitates the evaluation of the effects of proposals on the water supply and those entities involved so that decision-makers at the local, regional, and state level have the best information possible upon which to make a decision. Section 358.3(b)(4) is adopted with changes in response to comments. It requires the board to consider all strategies the board determines to be potentially feasible for future water needs and drought response so that cost-effective strategies which are environmentally sensitive are considered and pursued, where appropriate. Texas Water Code, sec.16.053(e)(4)(C) requires evaluation of all potentially feasible water management strategies. The changes adopted reflect that the board must consider all those strategies it considers potentially feasible rather than "all potentially feasible" strategies. The language is consistent with language proposed and adopted in Chapter 357 of this title for regional water planning and reflect that the board must use its judgement to determine what strategies are potentially feasible. This paragraph was adopted with additional changes based upon comments to eliminate a balancing between cost effectiveness and environmental sensitivity, stressing instead that cost effective strategies which are environmentally sensitive should be considered and pursued. This allows the state and regional water planning groups to meet the statutory goal of considering appropriate provision for environmental water needs found in Texas Water Code, sec.16.053(e)(4)(F) and the goal to protect the natural resources of the entire state, as specified in SB 1. In accordance with sec.358.3(b)(5), the planning processes should consider opportunities to encourage voluntary water transfers. In some areas of the state, there is little or no surface water available to be allocated to new uses. The voluntary transfer of water resources provides one way to respond to changing patterns of demands for water. SB 1 included provisions affecting voluntary water transfers. For example, Texas Water Code, sec.16.051(d) states that in adopting guidance principles for the state water plan the board shall give consideration to the application of principles that result in voluntary redistribution of water resources. Consistent with Texas Water Code, sec.16.051(e), the state water plan is to "include legislative recommendations that the board believes are needed and desirable to facilitate more voluntary water transfers." Additionally, the role of the Texas Water Bank acting as a clearinghouse for water marketing information was strengthened, based on Texas Water Code, sec.15.703(a)(8). Changes were adopted based on public comment to provide more specificity in the provision. Section 358.3(b)(6) states the planning processes should consider a balance of economic, social, aesthetic and ecological viability. Recognizing that there are potential competing uses for water, the public interest of the state should include a balancing of effects of water supply solutions. Such a balancing of interests is weighed in permitting decisions. Section 358.3(b)(7) provides that the adopted state water plan and other studies sufficient for planning shall represent the water supply plan for areas without approved plans or for water providers not addressed in regional water plans. To ensure an adequate state water plan to provide for sufficient water supply to meet needs, the board adopted a revised state water plan in August, 1997. For future plans, each regional water planning group is to identify the requirements for political subdivision participation in a regional water planning process. This process is described in Chapter 357 of this title. Regional water planning groups need not develop plans for political subdivisions which do not participate in the regional water planning effort. See sec.357.7(a)(5)(B) of this title. The rationale behind this policy is to not burden regional water planning groups with developing plans for entities that do not themselves put effort or resources into the planning process, and also can prevent such entities from delaying the entire regional water plan. For those entities that choose not to participate in the regional water planning effort, the rule provides that the recommendations of the state water plan or other reliable information will become the water supply plan. Similar requirements would apply for an area which does not have an approved regional water plan. This will ensure that a plan exists for all areas even if an entity does not participate in the regional water plan. It preserves the advantages of sec.357.7(a)(5)(B) of this title, while providing an added incentive to participate in the regional water planning process since failure to do so results in the state, and not the local entity/region water planning group, developing the water plan applicable to the entity. Minor changes are made to make use of language consistent with the definitions in the chapter. Section 358.3(b)(8) provides the plans also are to be guided by the orderly development, management, and conservation of water. This is based on the language of Texas Water Code, sec.16.051(a). Section 358.3(b)(9) recognizes key principles in water rights administration that have been established by statute and common law. Section 358.3(b)(10) is adopted with change. The paragraph discusses protection of existing rights and agreements. Protection of existing water rights is discussed in Texas Water Code, sec.16.053(e)(4)(D). Assurance of such protection received significant support during public comment on preliminary drafts leading to preparation of these rules. Water rights protection is a cornerstone to the water rights system and allows entities to plan for the future. In addition, it provides the stability to issue long-term debt based on permits, contracts, and option agreements. Other rule actions by the board recognize the need to protect water rights, including sec.357.5(g) and (h) of this title, which provide for the designation by the board of special surface water resources to facilitate planning for supplies obligated to meet demands outside the regional water planning area, require that regional water planning for areas containing the special surface water resources must protect the rights or options to use such water, require that any plans that could impact rights or options to use water from these areas be based only on potential adjustment of those rights by the entities holding an interest in the rights, and provide for notice. The paragraph is adopted with change based on public comment that it is unreasonable and inappropriate to expect regional water planning groups to contemplate and consider all potential amendments. The board did not intend for the section to be interpreted in this manner and has modified the rule to clarify that the plan may evaluate potential voluntary amendments to water rights, contracts, or agreements but to eliminate the interpretation that it requires consideration of all potential amendments. Section 358.3(b)(11) states as a principle that use of groundwater in Texas is governed by the right of capture doctrine, unless such use is under the authority of a locally controlled groundwater management district. This provides a very brief statement of the state of the law regarding the right to use and regulate groundwater, which must be followed in compiling state and regional water plans. Section 358.3(b)(12) provides for consideration of recommendations of river and stream segments of unique ecological value to the legislature for potential protection. This is based on Texas Water Code, sec.16.051(e) and (f)(1), which require the state water plan to identify such segments that the board recommends for protection, and that vests the legislature with ultimate power to designate a river or stream segment of unique ecological value. The definitional section of the chapter provides the criteria for consideration of such segments. Section 358.3(b)(13) provides for consideration of recommendation of sites of unique value for the construction of reservoirs to the legislature for potential protection. This is based on Texas Water Code, sec.16.051(e) and (f)(2) which require the state water plan to identify such sites that the board recommends for protection, and that vests the legislature with ultimate power to designate a site of unique value for the construction of a reservoir. The definition of this term amplifies the types of information to be provided to the legislature as a basis for making a designation. The term "of" was added after the third word in the paragraph as a grammatical change. Section 358.3(b)(14) emphasizes the importance of coordination of water planning and management activities of local, regional, state, and federal agencies. A traditional goal of planning, including regional water planning, is to improve coordination of numerous activities of the various agencies participating in providing for or regulating water supplies. This coordination will facilitate implementation of projects by avoiding conflicts with other projects or permitting requirements and makes projects more likely to be approved in the permitting process and completed by the elimination of unfeasible projects. This can help to facilitate resolution of conflicts and avoid potential duplication of effort. Chapter 357 of this title includes provisions to encourage coordination between regional water planning areas, such as liaisons for adjacent regional water planning areas and opportunities for adjacent regional water planning groups to plan jointly. Additionally, regional water plans are to take into account existing local water planning efforts. Section 358.3(b)(15) relates to improving or maintaining designated water quality and related uses. The TNRCC is the lead state agency for water quality planning. However, this rule and recent state water plans emphasize the interactions and potential linkages between water supply and water quality. A poor quality of water may not provide a useful supply depending on the type of water use proposed. Section 358.3(b)(16) calls for coordination of regional water planning groups to identify common needs and to resolve conflicts. Chapter 357 of this title includes several provisions intended to ensure coordination, especially between adjacent regional water planning areas and in situations where water resources are shared between more than one area. These provisions should help to resolve potential disputes, and to assist the board in its role of resolving any interregional conflicts as described in Texas Water Code, sec.16.053(h)(6). A grammatical change was made to the paragraph. Section 358.3(b)(17) requires management strategies in approved regional water plans to meet near-term needs in sufficient detail to allow agencies making regulatory or financial decisions to determine if a proposed action is consistent with an approved regional water plan. An adequate level of detail in the plans will support the board's review of proposed financial assistance. Texas Water Code, sec.16.053(j) requires the board to provide such assistance only to projects which are not inconsistent with the state and regional water plans. The TNRCC's water rights decisions are required to be consistent with the state and regional water plans as required under Texas Water Code, sec.11.134(b)(3)(E) and sec.11.134(c). Section 358.3(b)(18) discusses evaluating alternative management strategies using site-specific planning data or adopted state environmental planning criteria in the absence of site-specific data. This provides for use of the most detailed environmental information available when evaluating water supply alternatives, while not mandating site-specific studies at the planning stage. As part of the planning effort for the state water plan approved in 1997, a team of instream flow and aquatic biology specialists was asked to develop guidelines to be used in planning for water resource projects. The resulting consensus planning methods developed by the state water agencies attempt to balance human and environmental water needs. These criteria provide instream flow recommendations that serve as an initial "placeholder" for instream flow needs until more site-specific assessments can be performed. The criteria provide a consistent method of evaluating projects, making it easier to compare recommendations of various regional water plans. Use of the environmental criteria is less costly than site-specific studies and is sufficient for planning purposes to compare water management strategies. Section 358.3(b)(19) requires considering environmental water needs including instream flows and inflows to bays and estuaries. Texas Water Code, sec.16.053(e)(4)(F) provides that each regional water plan is to include "appropriate provision for environmental water needs and for the upstream development on the bays, estuaries, and arms of the Gulf of Mexico." Additionally, the state water plan, as stated in the Texas Water Code, sec.16.051(a) is to protect the "natural resources of the entire state." Section 358.3(b)(20) is adopted with changes. The section calls for planning consistent with all laws applicable to water use for the regional water planning area. The section originally listed the jurisdiction of laws the plans must consider. However, based on comments received, it was determined it might not be practical to list all applicable laws. It will be a responsibility of the state, and of each regional water planning group, to identify all laws which could impact water development to assure the planning is consistent with such law. This will make the plans realistic and implementable since all regulatory and legal aspects will be considered. Nothing in statute allows the plans to modify laws. However, consistent with sec.357.7(a)(9) of this title, regional water plans can include "regulatory, administrative, or legislative recommendations that the regional water planning group believes are needed and desirable," and an appropriate role for planning, as recognized by Texas Water Code, sec.16.051(e) which specifies the state water plan is to include legislative recommendations. A new paragraph (21) is added in response to comment to state that the state water plan shall include ongoing water development projects which has been issued permits by TNRCC. This requirement is found in SB 1. Section 358.4 provides minimum requirements for the contents of the state water plan, including the incorporation of regional water plans into the state plan as required by Texas Water Code, sec.16.051(a). It requires that the regional water plans be approved by the board for inclusion in the state plan, also consistent with statute. The section is adopted with changes to use the term "water management strategies" rather than "water supply management strategies," based on comment received. Section 358.4(1) provides that one of the topics of the state water plan will be the basis for planning, including sections on planning history, Texas water statutes, rules, regulations, and Texas' water supply institutions. This text will provide the institutional setting and description of previous planning efforts, typically included as background information in major planning studies. This provides a resource to water planners by clarifying the basis of water plan development. Water supply institutions should be considered due to the large number of entities providing some aspect of water services (over 4,500 entities according to the 1990 State Water Plan) and the potential key role that many of these institutions may play in implementing plan recommendations. Section 358.4(2) calls for a description of methods used for projecting future water demands for specified uses. The water use categories are those used in recent state water plans and represent the majority of fresh water needs in Texas. The methods for preparing projections will be of interest to regional water planning groups and others preparing plans, and others who use the projections for other demographic purposes. Section 358.4(3) calls for a description of methods to address water quality problems related to water supply, to ensure public health, safety and welfare, to further economic growth, to protect agricultural and natural resources, to determine water supply availability, and to address drought response planning. Most of this language is based on Texas Water Code, sec.16.051(a). The inclusion of addressing water quality problems relating to water supply is important as water quality can limit availability of supplies or timing of delivery of these supplies. Section 358.4(4)(A)-(C) requires a description of future conditions which shall, at a minimum, include: demands for water, supplies currently available, and a comparison of water demand and supply to identify surpluses or needs of water. The types of information in (4)(A), (4)(B) and (4)(C) are necessary to assess the anticipated state water supply situation. It also will provide information to Texas citizens on the water supply available in various areas of the state. Section 358.4(4)(D) calls for a description of social and economic impact of needs. This will assist in decision-making by providing information on needs, supply available and issues related to needs. The provision has been changed in response to public comment to clarify that it will allow a comparison of the costs of meeting water needs with an estimate of the potential impacts of not meeting future water needs. Section 358.4(4)(E) calls for recommended solutions to meet needs, which shall include specific recommendations of water management strategies to meet the near-term needs; and specific recommendations of water management strategies or alternative management scenarios that meet the long-term needs. An alternative management scenario is a combination of various water management strategies. These topics have been previously discussed in the definitions of near-term needs and long-term needs. Minor changes are made to make use of language consistent with the definitions in the chapter. Based on sec.358.4(4)(F), the plan is to identify needs for which no feasible water management strategy exists. The 1997 state water plan identified some water needs where, after all available options were considered, no economically feasible supply alternative could be identified. This is likely to occur in the regionally-based state water planning process as well. For example, a regional water plan may anticipate that future agricultural water demand may exceed supply in an area. However, based on likely future commodity prices, agricultural interests would not find it profitable to pay the projected costs of developing new supplies. This provision requires identification of such needs to allow planners to anticipate other actions that might need to occur if water needs are not met, but also recognizes that there can not always be economically feasible solutions. Minor changes are made to make use of language consistent with the definitions in the chapter. Section 358.4(4)(G) provides guidance on how the information developed in subparagraphs (A) through (F) of this paragraph shall be presented by area, and by specified use. Information presented by basin will be of interest, especially if any interbasin transfer of water is proposed. This will allow the board to make determinations required by the Texas Constitution that its project funding actions cannot contemplate or result in the removal of surface water from the river basin of origin if the water supply involved will be required for the reasonably foreseeable water supply requirements within the river basin of origin during the next ensuring 50-year period, except on a temporary, interim basis. Additionally, SB 1 added other provisions affecting interbasin transfers, notably Texas Water Code, sec.11.085(k)(1), which provides for the TNRCC to consider the need for the water in the basin of origin and in the proposed receiving basin based on the period for which the water supply is requested, but not to exceed 50 years. Information presented by county is of interest since most of the regional water planning areas delineated for SB 1, with few exceptions, are based on clusters of whole counties. Demands are developed by county as the most logical accounting unit, as much demographic and economic information is reported by county. Section 358.4(5) calls for consideration of recommendations of river and stream segments of unique ecological value and sites of unique value for construction of reservoirs to the legislature for potential protection. Section 358.4(6) calls for regulatory, administrative, and legislative recommendations that the board believes are needed and desirable to facilitate the orderly development, management, and conservation of water resources, to facilitate more voluntary water transfers, and the preparation for and response to drought conditions in order that sufficient water will be available at a reasonable cost to ensure public health, safety and welfare, further economic development, and protect the agricultural and natural resources of the entire state. Texas Water Code, sec.16.051(e) specifically requires that the state water plan include legislative recommendations that the board believes are needed and desirable to facilitate more voluntary transfers. Recent water plans have included a variety of policy recommendations regarding issues such as alternative water supples, financing water supplies, and surface water supply source management and protection. This information will assist decision-makers at all levels make policy choices with the input of an overall state view of the issues. The board conducted a hearing on the proposed rules January 21, 1998, in Room 118, Stephen F. Austin Building, 1700 N. Congress Ave., Austin, Texas. The following made comments to board staff, either written or orally, at the public hearing or within the prescribed period following the hearing that the record was held open: the Lone Star Chapter of the Sierra Club and the TPWD expressed some general support for the rules. Four individuals and the following entities or organizations submitted comments not generally supporting or opposing adoption, but recommending specific changes or seeking clarification: Altura Energy, Ltd., the Association of Electric Companies of Texas, Inc., the Brazos River Authority, the Brownsville Public Utilities Board, Freese and Nichols, Inc., the Lone Star Chapter of the Sierra Club, the Richland Special Utility District, the Save Our Springs Alliance (SOS), the Texas Center for Policy Studies, the Texas Oil and Gas Association, TPWD, and Texas Utilities Services, Inc.. Lone Star Chapter, Sierra Club, provided comments that throughout the chapter the term "water supply management" be changed to "water management." It noted that the phrase "water supply management" narrows the range of considerations and is less comprehensive than the term "water management" and that the traditional concept of "water supply management" does not address, for example, environmental water needs. SOS also sought similar changes in the use of this term in the rules, noting that the change in these important definitions from a previous draft reduces the objective of SB 1 to merely providing supply for uses which are presumably exploitative, instead of managing for all uses and environmental needs. Individuals also asked for this language change. The board agrees and has changed "water supply management" to "water management" throughout the chapter. An individual seeks changes in the definition of "river and stream segments of unique ecological value" in sec.358.2 to read: "...or identified in an approved regional water plan based upon any one of the following criteria:." The board disagrees that changes need to be made to the rule. The section as drafted already allows designation based upon any one of the criteria. Freese and Nichols, Inc. provided comments regarding the definition of "river and stream segments of unique ecological value" in sec.358.2. It noted that a reference in rule drafts to legislative approval has been removed, which would seem to imply that the decision of the board is final, and asked the board to clarify that if the designation has any effect on regulatory decisions, it should be made by the legislature rather than the board. The board disagrees that changes need to be made to the rule. The statute clearly provides that the legislature not the board actually designates a stream as ecologically unique. The rules cannot either remove that authority from the legislature nor grant it to the board. The rule is consistent with the Texas Water Code which provides for the state water plan to identify recommendations of streams of unique ecological value for possible legislative action. Freese and Nichols, Inc. provided comments regarding the definitions of "river and stream segments of unique ecological value" and the "site of unique value for the construction of reservoirs," noting that the rules allow the board to identify such segments or sites even if they are not identified in approved regional water plans. It comments that this type of unilateral agency action is contrary to the ideas of local control and consensus-based planning that the regulations should embody and that the board should be allowed to identify segments or sites only if they are identified in approved regional water plans. The board disagrees that changes need to be made to the rule. The rule is consistent with statute which requires the board to identify in the state water plan such segments or sites that the board recommends for legislative protection. The board received several comments on the rule language on riparian conservation areas as a criterion in the definition of river and stream segments of unique ecological value in sec.358.2. TPWD, Lone Star Chapter Sierra Club, Texas Center for Policy Studies, and SOS disagreed with limiting riparian conservation areas to governmental land, but suggested allowing it to apply to areas held for conservation purposes by non-governmental organizations as well. Two individuals provided similar comments. SOS and one of the individuals noted that because Texas has a small percentage of its land held in public ownership and that most of the water resources traverse and are bordered by private land, it should be state policy to encourage private land owners to be good stewards and conservators of riparian land. SOS felt that the definition was changed in the last draft because of a past reservoir project which was stopped by conservation rights owned by the U.S. Fish and Wildlife Service. The commentor notes that the only effect of the newly proposed language is to remove an incentive for landowners to protect riparian lands and the water which benefits from such protection. Freese and Nichols, Inc. stated that removal of language from drafts of the rule about private conservation easements is an improvement. The board agrees that eligibility for riparian conservation areas should be broadened. Accordingly, the language of the rule has been expanded to include "other areas managed for conservation purposes under a governmentally approved conservation plan." The requirement that such a conservation plan be approved by a governmental entity is to provide for public involvement and dedication of such land. Brazos River Authority comments regarding definitions in sec.358.2 that since the statute and proposed regulations give special attention to "streams of unique ecological value" and "sites of unique value for construction of reservoirs," the board should recognize, either as a definition or as part of the planning process, stream segments critical or unique to the water supply needs of the state both now and in the future. The board disagrees that changes need to be made to the rules. Agency staff believe that the suggestion is beyond the authority provided in SB 1. Brownsville Public Utility Board seeks changes to the definition of "site of unique value for construction of reservoirs" in sec.358.2 to add an additional criterion as follows: the site is shown as a possible site for a reservoir in the state water plan in effect on the effective date of SB 1. The board disagrees that changes need to be made to the rule because the change would not allow the most current evaluation of a potential reservoir site. Brazos River Authority requested that the consequence of the designation of "site of unique value for construction of reservoirs" in sec.358.2 be stated. It noted that without a water right, the site designation may be useless. The board disagrees with the need for change. Impacts of such designations are contained in Texas Water Code, sec.16.051. The rule provides for the consideration of water availability when making such recommendations. SOS and one individual requested changes to the definition of "site of unique value for construction of reservoirs" in sec.358.2. They suggested that in paragraph (B), the last clause, "or where it might reasonably be needed to meet needs beyond the 50-year planning period," should be deleted. SOS also commented that a close reading of this definition reveals that meeting this description alone is sufficient to warrant protection as a unique reservoir site. The legislature intended for potential reservoir sites to be protected based on unique qualities making them suitable for a reservoir. A site which might "reasonably be needed" beyond even the 50-year planning period is simply too vague a standard for designating a site as uniquely valuable for the construction of a reservoir. The board disagrees that changes need to be made to the rule. Needs beyond the 50-year period must be considered to assure future water supply for a state with increasing population and a finite number of reservoir sites such as Texas. The board has made changes to clarify that the qualities making a reservoir site unique apply to both the planning period for the water plan and to the period beyond the 50-year planning period. An individual provided comment on the definition of the state water plan in sec.358.2, noting the definition highlights a weakness of the entire planning process as a failure to provide for a series of alternative plans designed to meet competing objectives. Without such alternatives, noted the commentor, the people and the legislature of Texas are left with one view of an optimal solution to water planning. The definition of the state water plan should be expanded to include alternatives that, for example, maximize supply or maximize ecological water needs and natural resource protection in addition to proposing a preferred alternative. The board disagrees that changes need to be made to the rule. The plan should look at multiple alternatives and may list these alternatives as a scenario of options to meet long-term needs. The plan needs to identify specific solutions for short term needs to ensure that future water needs will be met. These concepts are incorporated in various parts of the rules. Richland Special Utility District commented on the definition of the "state water plan" in sec.358.2, expressing concern about the statement that water be available at a reasonable cost. The district asked whether the state was going to set water rates throughout the state, and asked what economic area will this be based on since wage scales differ throughout the state. The board disagrees that changes need to be made to the rule. The language is required by statute. Agency staff propose the meaning of reasonable costs be determined by the regional water planning groups, which will allow for regional variation. Both the state and regional water plans are by nature planning documents and not regulatory documents. Any water rate jurisdiction lies within local governments or TNRCC. The board has no jurisdiction of rates. Brazos River Authority commented that the definition of "water management strategies" in sec.358.2, which includes the cancellation of water rights should be modified to make clear that water rights will only be canceled based on data which conclusively show that such rights will not be perfected within the planning horizon. Altura Energy, Ltd. also expressed concern about the proposed language on water rights cancellation in this definition, including concern about what data TNRCC is to collect and how it will be used to determine cancellation of water rights. It suggests clarification of the language. The board disagrees that changes need to be made to the rules based on these comments. Under present authority criteria for cancellation are set out in statute and or TNRCC in rules. The board has no authority to determine appropriate cancellation criteria. One factor in the TNRCC's decision for cancellation includes whether the supply was obtained for long term demands. Entities doing planning must weigh the likelihood that a right might be canceled and made available for other uses. Under SB 1, Article 7, after completing a water availability model for a river basin, the TNRCC shall provide to each regional water planning group in that river basin the projected amount of water that would be available if cancellation procedures were instigated under the provisions of Texas Water Code, Chapter 11, Subchapter E. Altura Energy, Ltd. commented on the definition of water management strategies in sec.358.2, expressing concern about the definition's imposing requirements on brush control. The board disagrees that changes are needed in the rules. The rules do not require brush control, but this can be considered as a water management strategy. All strategies will have to conform with current laws. Lone Star Chapter, Sierra Club provided comments on sec.358.2, the definition of "water management strategies," supporting the board's inclusion of aquifer storage and recovery in the list of strategies. The commentor has requested no change but supports the rule as published. Lone Star Chapter, Sierra Club provided comments on sec.358.2, the definition of water management strategies, opposing listing precipitation enhancement as a strategy. The board disagrees that changes need to be made to the rules. The legislature has authorized board funding of projects related to precipitation enhancement. Previous public comment has supported inclusion of precipitation enhancement as a potentially feasible water management strategy. Altura Energy, Ltd. requested changes to sec.358.3(b)(1), to change the phrase "and protect the agricultural and natural resources of the state" by striking the word "protect" and insert after "and" "to allow effective, beneficial use of." It requests the word "industrial" be added after agricultural in the same sentence. The comment noted that the current phrasing does not seem to properly characterize what the objective should be. It notes the word "protect" implies preserving and what we really want to do is have the agricultural, industrial and natural resources of Texas developed and used responsibly to the benefit of the people of the state. It suggests this wording also be changed in other places where it appears in the guidelines. The board disagrees that changes need to be made to the rules. The planning goals set out in Texas Water Code, sec.16.051 and sec.16.053 require protection of agricultural and natural resources not beneficial use. Protection of industrial resources is beyond the language of goals set out by these rules and the planning authority provided by SB 1. Lone Star Chapter, Sierra Club, supports language in sec.358.3(b)(1). It agrees that policies and action should be identified to insure that "sufficient water will be available at a reasonable cost to satisfy a reasonable projected use of water to ensure public health, safety, and welfare, and protect the agricultural and natural resources of the state." It requests other changes in sec.358.3(b)(1) by deleting the phrase "to further economic development" and substituting something more comprehensive such as to "provide for a strong economy." It notes the term "economic development" is sometimes associated with activities which are not necessary for a strong economy and may have adverse effects on meeting all water needs. The board disagrees that changes need to be made to the rules. The wording follows the language of Texas Water Code, sec.16.051(a) and sec.16.053(a). Brazos River Authority commented that in sec.358.3(b)(3) the term "consideration" is vague. It asked the board to define this more specifically, noting it will be important in the scoping of the work to know the extent to which the board regards "consideration" of the various items that must be addressed in the regional water plans. The board disagrees that changes need to be made to the rules. The board is providing latitude for regional water planning groups to interpret these requirements in their planning, not mandating how regional water planning groups should resolve these issues. It is asking them to evaluate and discuss these various points as part of their consideration of the impacts in an open public forum. The term "consideration" is used in the statute. TPWD, Lone Star Chapter of Sierra Club, SOS and an individual requested changes to restore sec.358.3(b)(4) to language proposed in the second draft of this section. TPWD and Sierra Club preferred that language that regional water planning groups should consider all potentially feasible water supply management strategies when developing plans to meet future water needs and respond to drought so that the "most cost-effective and environmentally-sensitive strategies" are considered and pursued rather than "water management strategies that balance cost-effectiveness and environmental sensitivity." Sierra Club noted that whenever a financial balancing test is introduced in the environmental arena, environmental protection loses because it is much easier to calculate the tangible costs of actions to protect the environment than it is to calculate the benefits, often intangible, of environmental protection. Sierra Club noted that the concept of balancing is not required by SB 1, and that strategies that are both cost-effective and environmentally sensitive are needed. SOS noted the language was inconsistent with and misinterprets SB 1's charge to the board as it discards protection of natural resources in favor of balancing "environmental sensitivity" against cost effectiveness, and provides bad policy. SOS noted SB 1 requires a state water plan which shall protect the natural resources of the entire state, understanding that protection of the environment and natural resources is necessary because that protection makes more water available for all kinds of uses. SOS comments that the proposed paragraph (4) falsely assumes that environmental preservation and cost-effective water planning are antagonistic. Instead, it suggests the correct principle is to choose alternatives which best achieve both objectives. SOS suggested rewording the paragraph to read: "consideration of all potentially feasible water management strategies when developing plans to meet future water needs and to respond to drought so that the most cost-effective strategies which protect the environment are considered and pursued, where appropriate." The individual notes the reference to "balance" seems redundant in the light of the language of paragraph (6) of this section. The board agrees clarification of the language is needed. A partial change was made because the definition of balancing was vague and did not provide sufficient guidance. The board considers its changes to require consideration of "cost effective strategies which are environmentally sensitive" to meet statutory requirements to protect natural resources and provide appropriate provision for water needs required by Texas Water Code, sec.16.051(a) and sec.16.053(a) and (e)(4)(F). This provides a better explanation of the balancing of cost effectiveness and protection of the environment and requires that strategies be chosen which are environmentally sensitive. Association of Electric Companies of Texas, Inc. and Texas Utilities Services requested sec.358.3(b)(4) be changed to insert line 3, the term "supply" between "water" and "management." The board disagrees, as this recommended language would be inconsistent with changes made in response to other comments to delete this word throughout the rules. Freese and Nichols, Inc. commented, regarding sec.358.3(b)(4), that neither time nor budget will allow detailed analysis of all strategies. It requests that "All" should be deleted or changed to "a range of." The board agrees and has made such change. Brazos River Authority commented on sec.358.3(b)(5) that the phrase "voluntary transfers of water resources" is vague and should be clarified. The board has made changes consistent with statutory examples to clarify this phrase. These include regional water banks, sales, leases, options, subordination agreements and financing agreements. Local and regional decisions provide for flexibility in determining appropriate transfers. Lone Star Chapter, Sierra Club, requested that sec.358.3(b)(6) be restated as "consideration of economic, social, aesthetic, and ecological viability." SOS asked that the phrase "a balance of" be changed to "impacts and effects on." The board disagrees that changes should be made to the rules. Permitting and implementing decisions often involve balancing between various factors such as those included in this section and the plan should address the issues of balance as will be addressed by later implementing agencies. An individual asks two questions regarding sec.358.3(b)(7): when is it too late for the regional water planning group to say they will do the planning; and, if the state is to compile the information for the regional water plan, will it comply with the various notification and public involvement requirements for meetings and reports the same as a regional water planning group? The commentor requests no change to the rules. By statute, regional water planning groups are to submit their plans to the board by September 1, 2000. Regional water planning groups may amend adopted plans at any time. The board is to use regional water plans if they are approved. The board has made changes to sec.358.3(a) that specifies notice be published in the Texas Register and mailed to regional water planning groups 30 days before adoption or amendment of the state water plan. One hearing would be required. Scope of notice is less than for regional water planning groups because the state water plan will be a compilation of the regional water plans, which themselves will have undergone significant public notice and review. An individual requests clarification of the statement in sec.358.3(b)(9) that states the use of surface water is governed by the prior appropriation doctrine, unless adjudicated otherwise. The board disagrees that changes need to be made to the rules. State law establishes the priority system for water rights. A more detailed restatement of the statutory and common law on this issue would be lengthy and serve no purpose. SOS supports language in sec.358.3(b)(9), stating that consideration of the public trust is important and should remain in sec.358.3(b)(9). The commentor has requested no change but supports the rule as published. An individual requests changes to sec.358.3(b)(10) to read as follows: "consideration of existing water rights and water contracts, including voluntary amendments to water rights or contracts." The commentor notes it is impossible to fathom what is meant by a potential amendment as that phrase is used. The board agrees that clarification is needed. The term "potential" in the paragraph is used to reflect that a regional water planning group may study alternatives that could involve amendments to water rights even though it does not have the consent of the rights holder at that time. The term "voluntary" has been added before the reference to amendments to water rights, contracts, or agreements to ensure the paragraph as a whole recognizes that any amendments of a water right must be done voluntarily by the rights holder. An individual provided comments regarding sec.358.3(b)(10) expressing concern that small water rights holders may have to justify their rights and permits during every five-year planning cycle in order to avoid the expected bidding wars with large cities. Such a situation would be an unreasonable economic hardship. The commentor notes that this five-year cycle occurs much more frequently than current TNRCC permit reviews. Is there a Public Interest Counsel that could help? The board has made some change in response to the comment. Language has been inserted to refer to "voluntary" amendments as discussed previously to respond to a portion of this comment. There is no Public Interest Counsel established by SB 1 provisions to assist in the regional water planning or state water planning process. An individual asked, regarding sec.358.3(b)(10), how "potential" amendments to water rights, contracts or agreements" will be verified, and suggests including language in the section to address the need for protection of property rights for land adjacent to surface water resources. The board disagrees that such changes need to be made to the rule. Evaluations of existing data should indicate how much supply could be provided. The board considers protection of private property rights adjacent to water resources to be beyond the statutory authority in developing guidelines for the state and regional water plans. Association of Electric Companies of Texas, Inc. and an individual requested changes to sec.358.3(b)(10) by striking the following from the end of the text: "...including potential amendments to water rights, contracts, or agreements;" Both noted it is unreasonable and inappropriate to expect regional water planning groups to contemplate and consider all potential amendments. The board agrees and has modified the rule to clarify that the plan may evaluate potential voluntary amendments to water rights, contracts, or agreements. This section does not require consideration of all potential amendments, but only those that the regional water planning group considers most feasible or likely. An individual provided comments regarding sec.358.3(b)(10). The language in 358.3(b)(10) regarding the protection of water rights seems to require that, before any recommendation for designation of unique areas, a test would have to be done to make sure that water rights were not being adversely impacted and if water rights were to be harmed, then there could be no designation of a unique area. The board disagrees that these changes need to be made to the rules. Designation of unique streams does not impact existing water rights, it will only impact future governmental actions as provided by statute. Altura Energy, Ltd. requested clarification to sec.358.3(b)(11) as to how a locally controlled groundwater management district gains control over the use of groundwater and that control supersedes the right of capture doctrine. The board disagrees that changes need to be made to the rule. This comment is beyond the scope of the board's authority in adopting guidelines for state and regional water planning and goes to jursidiction of groundwater districts that is spelled out elsewhere in the Texas Water Code. The paragraph is intended to direct that the state and regional water plans follow the legal principles established for ownership and control of groundwater. SOS and an individual requested the board to delete, in sec.358.3(b)(12), the word "potential" in front of the word "protection." SOS requested a similar change in sec.358.3(b)(13). SOS notes that the term is redundant and unnecessary given the legislative scheme, and recommendations are made for protection, not "potential" protection. Assuming that some streams and sites are eventually designated by the legislature, they should also be considered. SOS requests a rewrite to the sections as "river and stream segments designated or recommended for protection as segments of unique ecological value." The board disagrees that changes need to be made to the rule. Texas Water Code, sec.16.051 provides for the legislature to make final decisions on protection, thus use of the word potential. The task of the board and regional water planning groups is merely to provide recommendations to the legislature under the requirements of Texas Water Code, sec.16.051 and sec.16.053. TPWD and Lone Star Chapter Sierra Club support the language in sec.358.3(b)(15) as written, and agree with the board's deletion of phrase: "unless there is evidence the loss is outweighed by other essential benefits" from earlier draft versions of the paragraph. Altura Energy, Ltd. and Association of Electric Companies of Texas, Inc. suggest revising sec.358.3(b)(15) to include that phrase. The board disagrees that changes need to be made in response to the comment. SB 1 does not allow regional water planning groups to change water quality rules nor does it place water supply in a superior position related to quality. Water supplies must be of high quality for certain uses. Association of Electric Companies of Texas, Inc. requested changes to sec.358.3(b)(16) to insert the word "to" in line 2 after "...issues and..." and before "...achieve efficient use..." The board agrees and has made this grammatical change. An individual requested changes to sec.358.3(b)(18) to restore the language of the second draft version of the rules. The board disagrees that changes need to be made to the rule. The board wants to preserve coordination of other state agencies. The language revisions between the second draft of the paragraph and the language as published in the Texas Register from proposed adoption was modified be more clear as to intent based on public comments. Altura Energy, Ltd. requested sec.358.3(b)(18) be modified by inserting the words "and economic" be inserted between "environmental" and "information" so that economic information will be a factor in determining water supply management strategies. The board disagrees that changes need to be made to the rule. Economic information is required to be evaluated under paragraphs (1) and (6) of sec.357.3(b) and sec.357.7(a)(7). An individual requested changes to sec.358.3(b)(18) to add "...and after external peer review of the biological and ecological scientific basis of said environmental criteria" to the end of this guideline. The commentor notes that external peer review is necessary to ensure that future so-called environmental planning criteria are based upon biological and ecological science rather than engineering solutions developed to maximize yield from water development projects. External peer review will bring credibility to future environmental criteria. The board disagrees that changes need to be made to the rule. Criteria were developed through public process involving many entities and professionals involved in water supply and environmental matters, and are supported by TPWD and TNRCC. Association of Electric Companies of Texas, Inc. seeks to simplify sec.358.3(b)(18) in the following manner: "(18) Evaluation of alternative water supply management strategies using environmental information resulting from site-specific studies. If site-specific studies are not available, then the evaluation shall use state environmental planning criteria which has been included in the state water plan. Prior to inclusion in the state water plan, the state environmental planning criteria must be developed by the board after coordinating with the staff of the Texas Natural Resource Conservation Commission and the Texas Parks and Wildlife Department and must be adopted by the board." The board disagrees that changes need to be made to the rule. Recommended words are not a significant change in content of section to warrant change from the version provided to the public by its publication as a proposed rule. SOS and an individual requests, in sec.358.3(b)(19), that the word "consideration" be changed to the word "protection." SOS cites specifically Texas Water Code, sec.16.051(a). The board disagrees that changes need to be made to the rule. Statutes do not mandate absolute protection of environmental water needs. See Texas Water Code, sec.11.147. While sec.16.051(a) and sec.16.053(a) state that the state and regional water plans are to protect natural resources, that phrase is not absolute in relation to environmental flows. Section 16.053(e)(4)(F) specifically notes that the regional water plans must consider appropriate provisions for environmental flow. The rules overall have have been modified to enhance the requirement to consider impacts on the environment and provide for environmental flows, such as revision of language in sec.358.3(b)(4) and its counterpoint in Chapter 357 of this title, and in restoring language now found in sec.357.5(k) of this title. An individual requested that sec.358.3(b)(19) and sec.358.4 be amended to require consideration of the cumulative impacts of past and future water supply projects and diversions on instream uses and bays and estuaries. The board disagrees that changes need to be made to the rule. The question that needs to be examined in the planning process is the current needs for instream flow and bay and estuary inflow, both as to what the needs are and as to how the need might impact water management strategies that might be proposed by the plans. Association of Electric Companies of Texas, Inc. requests the addition of a new sec.358.3(b)(21) to place more emphasis on voluntary efforts to redistribute water by adding a principle that reflects the legislative intent of encouraging the voluntary redistribution of water and the use of the Texas Water Trust as a mechanism for providing water for environmental purposes: "(21) The preferred methods for providing water for environmental purposes are the purchase of water rights specifically for environmental uses and the voluntary contribution of water rights (either on a temporary basis or in perpetuity) to the Texas Water Trust." The board disagrees that changes need to be made to the rule. Statute does not name voluntary transfers or any other method as the preferred method of providing water for the environment. The statute does require that the plan consider application of principles that result in voluntary transfer of water resources, a concept that is reflected in sec.358.3(b)(5). Altura Energy, Ltd. requests that the word "industrial" be added between "commercial" and "institutional" in sec.358.4(2) to address industrial concerns. Texas Oil and Gas Association requests that the board include "industrial" in all user categories where listed in both the state and regional water planning rules. The board disagrees that changes need to be made to the rule. The word manufacturing is used to avoid confusion with "industrial" water rights. Manufacturing and steam power electric generation, which are separate categories for planning purposes, are both permitted as industrial use by TNRCC. Lone Star Chapter, Sierra Club requests that sec.358.4(3) be amended to replace the phrase "to further economic growth" with a more comprehensive concept such as " to provide for a strong economy." The board disagrees that changes need to be made to the rules. The wording follows the language of Texas Water Code, sec.16.051(a) and sec.16.053(a). SOS requested the board amend sec.358.4(3) to delete the phrase "problems related to water supply," which was added to previous unpublished versions of the paragraph. It notes that all water quality problems relate to water supply, by reducing the availability of water which is fit for either instream or consumptive uses. The board disagrees that changes need to be made to the rule. This plan is a water supply plan and is not intended as an all encompassing water quality plan. TNRCC is the lead state agency for water quality planning. Brazos River Authority provided comments that under sec.358.4(4), the state water plan should identify streams with significant or unique water supply value both now and in the future. It also noted that sec.358.4 and sec.357.7 of this title have problems with outlining and are not consistent with other sections. type-name="italic">The board disagrees that changes need to be made to the rule. This type of recommendation is not authorized by statute. An individual provided comments on sec.358.4(4)(E), that recommended solutions should include a range of alternatives with one preferred alternative. At least one alternative should maximize natural resource protection. The board disagrees that changes need to be made to the rules. Texas Water Code, sec.16.053(e)(3) requires regional water management plans, which are incorporated into the state plans, to include specific water management strategies to be used under various scenarios. Nor does the Texas Water Code provide for "maximizing natural resources" but calls for protecting natural resources. Brazos River Authority provided comments on 358.4(4)(G). It states that if planning data and results are to be presented by county and river basin boundaries, why would regional water planning areas be established that do not conform to river basin boundaries. The effort of planning in one regional water planning area and reporting by county and river basin could, depending on the regional boundary, be redundant. Beyond exchanging data between regional water planning groups, it will be difficult to coordinate, collate, and report data by river basin for regional water planning areas that overlap river basins. The board disagrees that changes need to be made to the rule. The breakdown by basins is important because it allows the board to perform the necessary calculations for funding of projects involving interbasin transfers and incorporation of regional water plans into the state water plan. An individual provided comments on 358.4(4)(G) requesting inclusion of instream flows and bay and estuary inflows to the categories into which data on demand and supply, social and economic impact, and solutions for meeting needs will be provided. The board disagrees that changes need to be made to the rules. Water management strategies will be evaluated using the state environmental planning criteria when there is inadequate site specific information available. Texas Water Code, sec.16.051(a) and sec.16.053(a) stipulate that the plan is to provide sufficient water to ensure public health, safety and welfare and further economic development. The process is designed to protect natural resources which includes instream flows and inflows to bays and estuaries. Altura Energy, Ltd. requested the category of industrial be added to those listed in sec.358.4(4)(G). Texas Oil and Gas Association requests that the rules include "industrial" in all user categories where listed in both the state and regional water planning rules. The board disagrees that changes need to be made to the rule. The word manufacturing is used to avoid confusion with "industrial" water rights. Manufacturing and steam power electric generation, which are separate categories for planning purposes, are both permitted as industrial use by TNRCC. SOS comments that in sec.358.4(4) an important element is missing in the required description of future conditions. It notes the future conditions subsection should account for the changes in quality and availablity over the next 50 years from urban development and other changes. It notes this will be especially important for aquifers which will suffer from pollution and increasing withdrawals as an effect of growth. The water planning process needs to account for these changes if it is to ensure water availability and protect natural resources. SOS requests a new paragraph (E) to be inserted before the paragraph on recommended solutions to read: (E) Effects of anticipated growth on availability and quality of water resources. The board disagrees that changes need to be made to the rule. The concerns raised in the comments about the effects of anticipated growth are already addressed by the rules. To the extent the suggested language appears to address the issue of growth on water quality, it is beyond the appropriate scope of a water plan, which should address water supply issues. The state relies on the Texas water quality plan developed by TNRCC to maintain current uses of water, an idea expressed in sec.358.3(b)(15). SOS and an individual requested change to sec.358.4(5) to replace the phrase "to the legislature for potential protection" with "for protection" The board disagrees that changes need to be made to the rules. It is up to the legislature to provide protection, thus the word "potential." Altura Energy, Ltd. requested that the word "protect" be struck in sec.358.4(6), and that the board insert the phrase "to allow for effective, beneficial use of" between "and" and "the." It also requests the word "industrial" be added between "commercial" and "institutional" to address industrial concerns. The board disagrees that changes need to be made to the rules. Statutes require protection of agricultural and natural resources not beneficial use. Protection of "industrial" is beyond the authority provided in SB 1. Brownsville Public Utility Board proposes the addition of a new sec.358.5 to state that the state water plan in effect when SB 1 became law should serve as the basis for the development of regional water plans and the new state water plan. The regional water planning groups may accept or reject projects already included; however, it should be required that these projects should be carefully reviewed, as a great deal of planning has already occurred on these projects. It proposed the following wording: The State Water Plan shall include all projects that are included in the State Water Plan, or amendments or supplements thereto, in existence on June 19, 1997, (the "Existing State Water Plan") unless the board, after notice and hearing, finds compelling reasons and evidence why the project should be omitted from the State Water Plan. If a project is omitted, the board, as part of its order adopting the State Water Plan, shall adopt a plan to reimburse persons who have expended money to develop a project that is included in the State Water Plan and which is proposed to be deleted from the new State Water Plan. The board disagrees that changes need to be made to the rules. The suggested language is in conflict with SB 1 requirements that the state water plan incorporate approved regional water plans and that the regional water planning groups be given discretion over those types of choices. The proposal for a board plan to provide reimbursements is beyond the authority and resources authorized by SB 1. The suggested changes would not allow the most current evaluations of a potential reservoir site. Brownsville Public Utility Board states that projects already included in the existing state water plan should not be held up by the regional water planning process. The projects specifically allowed for should be given first consideration in regional water planning, as much time, effort, money and other resources have already been expended on these projects. It requests the addition of a new sec.358.6 to read as follows: (a) Except as provided by subsection (b) of this section, the State Water Plan in effect on June 19, 1997 remains in effect until a new State Water Plan is adopted by the Board. (b) The State Water Plan shall include ongoing water development projects that have been issued a permit by the TNRCC, or a predecessor agency, in regional water supply planning. Based on previous comments on earlier drafts of the rule, sec.358.3(a) contains a statement that the 1997 state water plan remains in effect until a new plan is adopted by the board. The board has made the second change in substantially the form requested by adding sec.358.3(b)(21). The request is consistent with requirement found in SB 1. The North Central Texas Water Coalition commented on the December 18, 1997 final draft regional water planning areas and proposed rules, endorsing them for adoption. No changes to the rules are requested or necessary as comments are supportive of the existing rule language. The East Texas Council of Governments commented that the planning process that results in a board-driven process rather than a "bottom up" plan and expressed concern about a "hurried process." No change in rules were requested and no changes are made. The schedule for public comments on the second draft was extended to December 15, 1997; all other schedules remain the same. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. Brewster County provided comments regarding the amount of time available to provide comments on the draft rules and regional water planning areas. The revised schedule is too short; more time is needed for the public to become familiar with the areas, guidelines, and their ramifications. The board believes that no changes to proposed rules are necessary. The schedule for public comments on the second draft was extended to December 15, 1997; all other schedules remain the same. It is the board's intent to complete SB 1 planning responsibilities ahead of statutory deadlines so that regional water planning groups will have additional time to form, determine procedures, receive public input, develop a scope of work, apply for state financial assistance, and complete and adopt regional water plans by September 1, 2000. An individual commented that the rules have improved as the process has unfolded. Notice provisions have improved. There has been a tendency to diminish the role of TPWD from a co-equal decision-making role and their role should be restored to that of the first draft. Instream flows and bay and estuary inflows have been relegated to secondary status and given uneven treatment throughout. The phrase "water management" is used in the first two drafts of the rules. In the final draft it reads "water supply management" and should be restored to the original "water management." The rules were changed to replace phrase "water supply management strategies" with "water management strategies" throughout the rules to better follow Texas Water Code, sec.16.053 and recognizing that additional supply is not the only method of meeting a water need. The public comment process has resulted in changes to the proposed rules which agency staff believes have improved them. The role of TPWD in the proposed rules is stronger than the statutory requirements of SB 1. The board believes that TPWD will have a significant role in the process, but the final responsibility for implementation of the planning process rests with the board according to SB 1. The West Central Texas Municipal Water District provided comments related to their appreciation of the openness and responsiveness of the board. They found active evidence that their general concerns and suggestions were being heard. No rule change was requested and no change was made. The public input during the process both in writing and in public meetings was very useful in developing the final draft of the proposed rules. The Texas Farm Bureau commented on the rulemaking process utilized by the board to develop Chapters 355, 357, and 358 of this title. The Bureau indicated that many of their members are reassured by the process and feel an "ownership" in it, and will therefore support the process. Nonetheless, the Bureau hopes the board will remain flexible and amend any rules when circumstances suggest change is appropriate. No request for a rule modification was noted in the comment and the board has made none based upon this comment. The board considers the rules, as adopted, to be flexible enough to handle most circumstances. However, when circumstances suggest otherwise, the board will review the rules and make modifications as necessary. The Brazos River Authority commented that it endorses the board's "open" rulemaking process and applauds the regional water planning concept and effort. No request for a rule modification was noted in the comment, and the board has made none based upon this comment. The board, however, assuredly appreciates the affirmation of its rulemaking process. The sections are adopted under the authority granted in Texas Water Code, sec.6.101, which directs the board to adopt rules necessary to carry out the powers and duties of the board provided by the Texas Water Code and other laws of Texas, and also pursuant to Texas Water Code, sec.16.051, which requires to board, in coordination with the TNRCC and TPWD to adopt by rule guidance principles for the state water plan which reflect the public interest of the entire plan. Texas Water Code, sec.16.053 also provides authority for the adoption of these rules to govern regional water plans, since it requires that regional water plans be consistent with the guidance principles for the state water plan adopted by the board. sec.358.2. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Words defined in the applicable provisions of the Texas Water Code, Chapter 16, and not defined here shall have the meanings provided in Chapter 16. (1) Approved regional water plan - A regional water plan or amendment to an approved regional water plan approved by the board under the Texas Water Code, sec.16.053 and Chapter 357 of this title (relating to Regional Water Planning Guidelines). (2) Board - The Texas Water Development Board (3) Long-term water needs - Those needs which must be met by implementation of water management strategies within the next 30 to 50 years based on federal census years (2040, 2050, etc.). (4) Near-term water needs - Those needs which must be met by implementation of water management strategies within the next 30 years based on federal census years (2000, 2010, 2020, 2030, etc.). (5) Regional water plan - Plan or amendment to an adopted or approved regional water plan developed by a regional water planning group for a regional water planning area pursuant to the Texas Water Code, sec.16.053 and Chapter 357 of this title (relating to Regional Water Planning Guidelines). (6) Regional water planning area - Area designated pursuant to the Texas Water Code, sec.16.053 and sec.357.3 of this title (relating to Designation of Regional Water Planning Areas). (7) Regional water planning group - Group designated pursuant to the Texas Water Code, sec.16.053 and sec.357.4 of this title (relating to Designation of Regional Water Planning Groups) to develop regional water plans. (8) River and stream segments of unique ecological value - Those river or stream segments that may be identified by the board in coordination with the Texas Parks and Wildlife Department and the Texas Natural Resource Conservation Commission or identified in an approved regional water plan based on the following criteria: (A) biological function - stream segments which display significant overall habitat value including both quantity and quality considering the degree of biodiversity, age, and uniqueness observed and including terrestrial, wetland, aquatic, or estuarine habitats; (B) hydrologic function - stream segments which are fringed by habitats that perform valuable hydrologic functions relating to water quality, flood attenuation, flow stabilization, or groundwater recharge and discharge; (C) riparian conservation areas - stream segments which are fringed by significant areas in public ownership including state and federal refuges, wildlife management areas, preserves, parks, mitigation areas, or other areas held by governmental organizations for conservation purposes, or stream segments which are fringed by other areas managed for conservation purposes under a governmentally approved conservation plan; (D) high water quality/exceptional aquatic life/high aesthetic value - stream segments and spring resources that are significant due to unique or critical habitats and exceptional aquatic life uses dependent on or associated with high water quality; or (E) threatened or endangered species/unique communities - sites along streams where water development projects would have significant detrimental effects on state or federally listed threatened and endangered species; and sites along streams significant due to the presence of unique, exemplary, or unusually extensive natural communities. (9) Site of unique value for construction of reservoirs - Those sites identified by the board in coordination with the Texas Parks and Wildlife Department and the Texas Natural Resource Conservation Commission or identified in an approved regional water plan where: (A) site-specific reservoir development is recommended as a specific water management strategy or in an alternative long-term scenario in an adopted regional water plan; or (B) the location, hydrologic, geologic, topographic, water availability, water quality, environmental, cultural, and current development characteristics, or other pertinent factors make the site uniquely suited for reservoir development to provide water supply for: (i) the current planning period; or (ii) where it might reasonably be needed to meet needs beyond the 50-year planning period. (10) State water plan - A comprehensive statewide water plan adopted by the board covering a 50-year planning period, based on federal census years, that incorporates approved regional water plans and that provides for the orderly development, management, and conservation of water resources and preparation for and response to drought conditions, in order that sufficient water will be available at a reasonable cost to ensure public health, safety and welfare, further economic development, and protect the agricultural and natural resources of the entire state. (11) Water management scenarios - A combination of various water management strategies. (12) Water management strategies - Any strategy for the management of water resources to provide for identified needs including water conservation and drought response planning including water demand management, reuse of wastewater, expanded use or acquisition of existing supplies including systems optimization, aquifer storage and recovery, conjunctive use of resources, reallocation of reservoir storage to new uses, voluntary redistribution of water including water marketing, regional water bank, sales, leases, options, subordination agreements, and financing agreements, subordination of existing water rights through voluntary agreements, enhancements of yields of existing sources, control of naturally occurring chlorides, interbasin transfers, new supply development including construction and improvement of surface water resources, brush control, precipitation enhancement, desalinization, and water supply that could be made available by cancellation of water rights based on data provided by the Texas Natural Resource Conservation Commission, and other measures. sec.358.3. Guidelines. (a) The state water plan adopted by the board in August 1997 shall remain in effect until a new state water plan is adopted by the board. A state water plan shall be developed by the executive administrator and adopted by the board no later than September 1, 2001, and at least every five years thereafter. The executive administrator shall identify the beginning of the 50-year planning period for the state and regional water plans. The executive administrator shall incorporate into the state water plan presented to the board those regional water plans approved by the board pursuant to Chapter 357 of this title (relating to Regional Water Planning Guidelines). The board shall, not less than 30 days before adoption or amendment of the state water plan, publish notice in the Texas Register of its intent to adopt a state water plan and shall mail notice to each regional water planning group. The board shall hold a hearing, after which it may adopt a water plan or amendments thereto. (b) Development of the state water plan and of regional water plans shall be guided by the following principles: (1) identification of those policies and actions that may be needed to meet Texas' near- and long-term water needs and preparation for and response to drought conditions, in order that sufficient water will be available at a reasonable cost to satisfy a reasonable projected use of water to ensure public health, safety and welfare, further economic development, and protect the agricultural and natural resources of the state; (2) decision-making that is open to and accountable to the public with decisions based on accurate, objective and reliable information with full dissemination of planning results; (3) consideration of the effect of policies or water management strategies on the public interest of the state, water supply, and those entities involved in providing this supply throughout the entire state; (4) consideration of all water management strategies the board determines to be potentially feasible when developing plans to meet future water needs and to respond to drought so that cost effective strategies which are environmentally sensitive are considered and pursued, where appropriate; (5) consideration of opportunities that encourage and result in voluntary transfers of water resources, including but not limited to regional water banks, sales, leases, options, subordination agreements, and financing agreements; (6) consideration of a balance of economic, social, aesthetic, and ecological viability; (7) for regional water planning areas without approved regional water plans or water providers for which revised plans are not developed through the regional water planning process, the use of information from the adopted state water plan and other completed studies that are sufficient for water planning shall represent the water supply plan for that area or water provider; (8) the orderly development, management, and conservation of water resources; (9) the principles that all surface waters are held in trust by the state, their use is subject to rights granted and administered by the Texas Natural Resource Conservation Commission, and the use of surface water is governed by the prior appropriation doctrine, unless adjudicated otherwise; (10) protection of existing water rights, water contracts, and option agreements, but the plan may evaluate potential voluntary amendments to water rights, contracts or agreements; (11) the principle that use of groundwater in Texas is governed by the right of capture doctrine, unless such use is under the authority of a locally controlled groundwater management district; (12) consideration of recommendations of river and stream segments of unique ecological value to the legislature for potential protection; (13) consideration of recommendation of sites of unique value for the construction of reservoirs to the legislature for potential protection; (14) coordination of water planning and management activities of local, regional, state, and federal agencies; (15) designated water quality and related water uses as shown in the state water quality plan should be improved or maintained; (16) coordination of water planning and management activities of regional water planning groups to identify common needs and issues and achieve efficient use of water supplies, including the board and the neighboring regional water planning groups, working together to identify common needs, issues, and/or problems and working together to resolve conflicts in a fair, equitable, and efficient manner; (17) the water management strategies identified in approved regional water plans to meet near-term needs shall be described in sufficient detail to allow a state agency making a financial or regulatory decision to determine if a proposed action before the state agency is consistent with an approved regional water plan; (18) evaluation of alternative water management strategies using environmental information resulting from site-specific studies, or in the absence of such information, using state environmental planning criteria adopted by the board for inclusion in the state water plan after coordinating with staff of the Texas Natural Resource Conservation Commission and the Texas Parks and Wildlife Department; (19) consideration of environmental water needs including instream flows and bay and estuary inflows; (20) planning consistent with all laws applicable to water use for the state and regional water planning area; and (21) the inclusion of ongoing water development projects which have been issued a permit by the Texas Natural Resource Conservation Commission or a predecessor agency. sec.358.4. State Water Plan. The state water plan shall include summaries for the state and from approved regional water plans, when available, which shall address, at a minimum, the following topics: (1) basis for planning, including sections on planning history, Texas water statutes, rules, regulations, and Texas' water supply institutions; (2) description of methods used for projecting future water demands which shall include methods for projecting future population and water demands for municipal and associated commercial and institutional uses, manufacturing, irrigation, thermal electric power generation, mining, and livestock watering; (3) description of methods to address water quality problems related to water supply, to ensure public health, safety and welfare, to further economic growth, to protect agricultural and natural resources, to determine water supply availability, and to address drought response planning; (4) description of future conditions which shall, at a minimum, include: (A) demands for water; (B) supplies currently available; (C) comparison of water demand and supply to identify surpluses or needs of water; (D) social and economic impact of not meeting needs; (E) recommended solutions to meet needs, which shall include: (i) specific recommendations of water management strategies to meet the near- term needs; and (ii) specific recommendations of water management strategies or alternative management scenarios that meet the long-term needs. An alternative management scenario is a combination of various water management strategies; (F) needs for which no feasible water management strategy exists; and (G) descriptions in subparagraphs (A) - (F) of this paragraph shall be presented for each county and basin by the major providers of water for municipal uses and for the following water use categories: municipal and associated commercial and institutional uses; manufacturing; irrigation; thermal electric power generation; mining; and livestock watering; (5) consideration of recommendations of river and stream segments of unique ecological value and sites of unique value for construction of reservoirs to the legislature for potential protection; and (6) regulatory, administrative, and legislative recommendations that the board believes are needed and desirable to facilitate the orderly development, management, and conservation of water resources, to facilitate more voluntary water transfers, and the preparation for and response to drought conditions in order that sufficient water will be available at a reasonable cost to ensure public health, safety and welfare, further economic development, and protect the agricultural and natural resources of the entire state. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802490 Suzanne Schwartz General Counsel Texas Water Development Board Effective date: March 11, 1998 Proposal publication date: December 26, 1997 For further information, please call: (512) 463-7981 CHAPTER 371. Drinking Water State Revolving Fund The Texas Water Development Board (board) adopts amendments to sec.sec.371.2, 371.21 and 371.24 and new sec.371.25, concerning the Drinking Water State Revolving Fund. Section 371.25 is adopted with changes to the proposed text as published in the January 16, 1998, issue of the Texas Register (23 TexReg 411). Sections 371.2, 371.21 and 371.24 are adopted without changes and will not be republished. The amendments establish subsidy levels, provide financial assistance for consolidation, add new definitions, amend the disadvantaged community definition, amend the existing Criteria and Methods of Distribution section and add a new Criteria and Methods of Distribution section for the new Disadvantaged Community Program. Section 371.24(c) establishes the interest rates and subsidy levels. The amount of subsidy and interest rate are determined by the percentage of the system's adjusted median household income to the state median household income. The initial 75% threshold is consistent with the eligibility threshold for the board's Economically Distressed Areas Program. Using the basic premise that the lower the median household income of the system, the less that the system can repay, a sliding scale of subsidies was created using four ranges of adjusted median household income, with greater subsidies going to systems with lower adjusted median household incomes. Utilizing the present list of public water systems in violation of safety and health factors and water supply source data provided by the Texas Natural Resource Conservation Commission, a potential universe of disadvantaged communities was identified. The median household incomes of the potential universe were ascertained based on census track information. The percentage of each potential applicant's adjusted median household income to the state median household income was determined. The adjusted median household incomes of the potential universe fell almost evenly among the four ranges of median household income. Pursuant to the Safe Drinking Water Act (SDWA) and Texas Water Code, sec.15.604(a)(1)(A) the board was authorized to make loans from the Drinking Water Revolving Fund on the condition that the loans are made at or below market interest rates, including interest-free loans. For the level one subsidy, the applicant will receive a loan with a 1% interest rate. For levels two through four, the applicant will receive a loan with a 0% interest rate. Pursuant to the SDWA and Texas Water Code, sec.15.6041(d), the board was given the authority to determine the amount of the loan that the political subdivision cannot pay and the board shall forgive repayment of that portion of the principal of the loans which it determines the political subdivision cannot repay. The Drinking Water State Revolving Fund is intended to be a fund available in perpetuity for providing financial assistance. In order to ensure that money does come back into the fund, the board will require every applicant to repay some portion of the loan. Additionally, it has been the board's experience that if an applicant has ownership in a project it helps to insure the long-term integrity of the project. Applicants that fall within level one or level two will not have any principal forgiven. Applicants eligible for the level three subsidy will have 15% of the loan principal forgiven, while applicants eligible for the level four subsidy will have 35% of the loan principal forgiven. Section 371.24(g) provides for subsidies for consolidations. Subsidies, in addition to the amount of subsidy that the disadvantaged community is eligible to receive, will be provided to the consolidating system. Normally, the customers of the consolidating system must assume an additional financial burden to pay for the cost of providing service to the consolidated system. Because of the costs associated with consolidations, viable systems may be discouraged from extending service to non-viable systems. This additional subsidy is provided to lessen the financial burden on the consolidating system, thus encouraging viable systems to extend service to or purchase non-viable systems. A greater subsidy was provided to consolidations that include purchases or retail service because of the greater cost and responsibility that the consolidating system would assume as compared to solely providing wholesale service. Section 371.21 was amended to specifically exclude projects funded from the disadvantaged community account. The criteria and method for distribution of funds from this account is addressed in new sec.371.25. Under sec.371.21, applicants have six months from notification of available funds to receive a commitment from the board. Under sec.371.25, applicants seeking funding from the disadvantaged community account are given six months from notification of available funds to submit an application and 12 months to receive a commitment from the board. Experience with the board's Economically Distressed Areas Program indicates that disadvantaged (or economically distressed) applicants may not have sufficient access to the technical expertise necessary to both prepare an application and receive a commitment within six months. In addition, the new sec.371.21(g) provides significant incentives for consolidation projects, which will require the negotiation of interlocal agreements. Because of this additional time may be required to prepare an application and receive a commitment. Section 371.24(g)(2)(B) was added to exclude the purchase of existing capacity in the consolidating system from the costs of consolidation that are eligible for funding from the disadvantaged community account. Existing capacity is an ineligible cost because of the difficulty in determining a value and because in older systems the capacity has already been paid for by the existing customer base. Section 371.25 is being adopted with changes to the proposed rules. Changes are made to subsections (g) and (i). The following language is added to sec.371.25(g): "In order to receive funding, disadvantaged communities projects above the funding line must submit applications for assistance, as defined, within six months of the date of notification of the availability of funds." The following language is added to sec.371.25(i): "Applicants for funding from the disadvantaged community account will be allowed 12 months after submittal of an application to receive a loan commitment." Additionally in sec.371.25(i), the sentence "Potential applicants receiving such notice will be given 12 months to submit an application" is amended to read "Potential applicants receiving such notice will be given 6 months to submit an application." These change were made in order to be consistent with other references to the application and commitment deadlines in sec.371.25. No comments were received on the proposed amendments and new section. Introductory Provisions 31 TAC sec.371.2 The amendment is adopted under the authority of the Texas Water Code, sec.6.101 and sec.15.605 which provide the Texas Water Development Board with the authority to adopt rules necessary to carry out the powers and duties in the Water Code and other laws of the State. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802502 Suzanne Schwartz General Counsel Texas Water Development Board Effective date: March 11, 1998 Proposal publication date: January 16, 1998 For further information, please call: (512) 463-7981 Program Requirements 31 TAC sec.sec.371.21, 371.24, 371.25 The amendments and new section are adopted under the authority of the Texas Water Code, sec.6.101 and sec.15.605 which provide the Texas Water Development Board with the authority to adopt rules necessary to carry out the powers and duties in the Water Code and other laws of the State. sec.371.25. Criteria and Methods for Distribution of Funds for Disadvantaged Communities. (a) The board will determine annually the amount of capitalization grant funds to be reserved for projects for disadvantaged communities and will include this information in the intended use plan, provided however that no more than 30% of any capitalization grant can be so reserved. (b) After the executive administrator determines the amount of funds available for disadvantaged communities projects from capitalization grant reserves, state match, or any other sources, the available funds will be applied to the list of systems that serve fewer than 10,000 persons and the list of systems that serve 10,000 and over persons in accordance with sec.371.21(a) of this title (relating to Criteria and Methods for Distribution of Funds for Water System Improvements). All projects will be listed in priority ranking order as determined by sec.371.19 of this title (relating to Rating Process). Disadvantaged communities projects assigned identical rating scores will be listed in the order of their adjusted median annual household income (AMAHI), with those communities having the lower AMAHI being listed higher on the priority list than those having higher AMAHIs. In the event that one or more disadvantaged communities have rating scores identical to the rating scores of non-disadvantaged communities, the disadvantaged communities will be listed above the non-disadvantaged communities on the priority list. (c) After projects have been ranked, a funding line will be drawn on the priority lists according to the amount of available funds in accordance with sec.371.21(b) of this title. After the funding line is drawn, the executive administrator shall notify in writing all potential applicants above the funding line of the availability of funds and will invite the submittal of applications. In order to receive funding, disadvantaged communities projects above the funding line must submit applications for assistance, as defined, within six months of the date of notification of the availability of funds. Upon receipt of an application for assistance, the executive administrator shall notify the applicant, in writing, that an application has been received. The executive administrator may request additional information regarding any portions of an application for funding from the disadvantaged community account after the six month period has expired without affecting the priority status of the application. Applicants for funding from the disadvantaged community account will be allowed 12 months after submittal of an application to receive a loan commitment. (d) Applicants for funding from the disadvantaged community account above the funding line which do not submit applications before the six month deadline will be moved to the bottom of the priority list in priority order. (e) If after six months, there are insufficient applications to obligate all of the funds set aside for disadvantaged communities, the executive administrator will return any incomplete applications and move all projects for which no applications or incomplete applications were submitted to the bottom of the priority list, where they will be placed in priority order. (f) Following the re-ranking of the priority list, a line will again be drawn not to exceed the amount of funds available, in accordance with the criteria of subsection (b) of this section. (g) Projects above the funding line shall be eligible for assistance. After the funding line is re-drawn, the executive administrator shall notify, in writing, all potential applicants for funding from the disadvantaged community account of the availability of funds and will invite the submittal of applications. In order to receive funding, disadvantaged communities projects above the funding line must submit applications for assistance, as defined, within six months of the date of notification of the availability of funds. Applicants for funding from the disadvantaged community account will be allowed 12 months after submittal of an application to receive a loan commitment. (h) If, after six months, there are insufficient applications to obligate the remaining funds of the funds set aside for disadvantaged communities, the executive administrator will return any incomplete applications. Any funds remaining that exceed the amount needed to fund completed applications will be transferred from the fund for disadvantaged communities to the fund for large and small communities. (i) If, at any time during either six month period of availability of funds, a potential applicant above the funding line submits written notification that it does not intend to submit an application or if additional funds become available for assistance, the funding line may be moved down the priority list to accommodate the additional projects. The executive administrator will notify such additional potential applicants for funding from the disadvantaged community account in writing and will invite the submittal of applications. Potential applicants receiving such notice will be given six months to submit an application. Applications for funding from the disadvantaged community account will be allowed 12 months after submittal of an application to receive a loan commitment. (j) Should an applicant which has submitted an application in a timely manner be unable to receive a loan commitment within 12 months of the date on which the application was received, the applicant's project will be placed at the bottom of the priority list. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802501 Suzanne Schwartz General Counsel Texas Water Development Board Effective date: March 11, 1998 Proposal publication date: January 16, 1998 For further information, please call: (512) 463-7981 PART XV. Texas Low-Level Radioactive Waste Disposal Authority CHAPTER 449.General Provisions SUBCHAPTER E.Fees for Open Records Requests 31 TAC sec.sec.449.61-449.65 The Texas Low-Level Radioactive Waste Disposal Authority repeals Subchapter E., Fees for Open Records Requests, sec.sec.449.61-449.65, concerning the fees to be charged for open records requests without changes to the sections as published in the December 12, 1997, issue of the Texas Register (22 TexReg 12253). The sections are being repealed because the General Services Commission has adopted rules that govern fees for public information requests. The General Services rules must be followed by agencies when charging for public information requests. No comments were received regarding the repeal of the sections. The rules are repealed under the Health and Safety Code, sec.sec.402.054 which provides the Texas Low-Level Radioactive Waste Disposal Authority with the authority to adopt rules, standards, and orders necessary to properly carry out the Texas Low-Level Radioactive Waste Disposal Authority Act. Government Code Chapter 552, Subchapter F, is affected by this repeal. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802491 Lee H. Mathews Deputy General Manager and General Counsel Texas Low-Level Radioactive Waste Disposal Authority Effective date: March 11, 1998 Proposal publication date: December 12, 1997 For further information, please call: (512) 451-5292 TITLE 40. SOCIAL SERVICES AND ASSISTANCE PART VI. Texas Commission for the Deaf and Hard of Hearing CHAPTER 181.General Rules of Practice and Procedures SUBCHAPTER A.General Provisions 40 TAC sec.181.28 The Texas Commission for the Deaf and Hard of Hearing adopts new sec.181.28, concerning Camp Sign without changes to the text as published in the December 19, 1997, issue of the Texas Register (22 TexReg 12450). This rule will clarify the requirements under this program. No comments were received regarding adoption of the new rule. The new rule is adopted under the Human Resources Code, sec.81.006(b)(3), which provides the Texas Commission for the Deaf and Hard of Hearing with the authority to adopt rules for administration and programs. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 17, 1998. TRD-9802304 David W. Myers Executive Director Texas Commission for the Deaf and Hard of Hearing Effective date: March 9, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 407-3250 CHAPTER 182.Specialized Telecommunications Devices Assistance Program SUBCHAPTER A.Definitions 40 TAC sec.182.3 The Texas Commission for the Deaf and Hard of Hearing adopts new sec.182.3, concerning Definitions without changes to the text as published in the December 19, 1997, issue of the Texas Register (22 TexReg 12450). This rule will clarify the terms used for this program. No comments were received regarding adoption of the new rule. The new rule is adopted under the Human Resources Code, sec.81.006(b)(3), which provides the Texas Commission for the Deaf and Hard of Hearing with the authority to adopt rules for administration and programs. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 17, 1998. TRD-9802305 David W. Myers Executive Director Texas Commission for the Deaf and Hard of Hearing Effective date: March 9, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 407-3250 TITLE 43. TRANSPORTATION PART III. Texas Automobile Theft Prevention Authority CHAPTER 57.Automobile Theft Prevention Authority 43 TAC sec.57. (The Texas Automobile Theft Prevention Authority is transferring all rules from Title 1, Part I, Chapter 4 to Title 43, Part III, Chapter 57. Notice that 1 TAC sec.sec.4.2, 4.7, 4.14, and 4.47 are not to be transferred at this time. These rules will be repealed at a later date by Texas Automobile Theft Prevention Authority. The transfer is effective February 24, 1998. The Texas Register is administratively transferring the following rules listed in the conversion chart published in the issue under the Tables and Graphics section. The table lists the old rule numbers and the new rule numbers that correspond to them. ) Figure: 43 TAC Chapter 57 43 TAC sec.57.48 The Automobile Theft Prevention Authority adopts an amendment to sec.57.48, concerning the statutory fee assessment on insurance companies. The amendment to sec.57.48 is adopted without changes to the proposed text as published November 7, 1997, in the Texas Register (22 TexReg 10948). The text of the rule will not be republished. The amendment adds a new subsection (b) to sec.57.48. Subsection (b) adopts by reference the Texas Automobile Theft Prevention Authority Assessment Report form and instructions for the computation of the ATPA assessment of the Comptroller of Public Accounts. This rule was previously found at 1 TAC sec.4.47, which is being repealed simultaneously with this amendment by separate rulemaking. The amendment changes the previous rule by deleting the reference to the 1994 form and replacing it simply with a reference to the form and instructions without reference to a particular year. The amendment is necessary to provide insurers with a form and instructions for the most recent assessment period. Timely and accurate payment of the assessment is necessary for funding the operations of the Authority. The purpose of this amendment is to update this rule and to transfer it to chapter 57 of Title 43 TAC, which is the appropriate location of the Authority's rules. The Authority has filed copies of these forms and instructions with the Secretary of State's Office, Texas Register Section. Persons desiring copies of the form and instructions can obtain copies from Comptroller of Public Accounts, Tax Administration, 111 West Sixth Street, Austin, Texas 78701. The effect of the amendment as adopted will be notice to the regulated industry of the appropriate form and instructions to facilitate proper filing and payments by insurers who are required to report and pay the assessment to the State Comptroller. No comments were received regarding the proposed amendment to sec.57.48. This amendment is adopted under Texas Civil Statutes, Article 4413(37), sec.sec.6(a), 6A, 10. Section 6(a) authorizes the agency to adopt rules implementing its statutory powers and duties, which includes administration of the assessment and collection of the statutory fee, provided for in sec.6A and sec.10, in coordination with the state comptroller's office and the department of insurance. Texas Civil Statutes, Article 4413(37) sec.6(a) and sec.10 are affected by this rule. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on February 19, 1998. TRD-9802505 Agustin De La Rosa Acting Director Automobile Theft Prevention Authority Effective date: March 11, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 416-4600