The Texas Commission on Environmental Quality (commission) adopts amendments to §§291.8, 291.15, 291.21, 291.22, 291.24, 291.26, 291.28, 291.29, 291.31, 291.34, 291.41, 291.81, 291.87, 291.121, 291.122, 291.124, 291.125, and 291.127 without changes to the proposed text as published in the November 26, 2004, issue of the Texas Register (29 TexReg 10883). The adopted amendments will not be republished.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES

The commission adopts the amendments to implement House Bill (HB) 1152, HB 2388, and HB 3034, 78th Legislature, 2003. The adopted amendments also implement Senate Bill (SB) 2, Article 10, 77th Legislature, 2001, with regard to aspects concerning regulation of utility rates and services.

HB 1152, an act relating to the authority of certain nonprofit water supply corporations and sewer service corporations to establish and enforce customer water conservation measures, amended Texas Water Code (TWC), §67.011 by adding subsection (a)(5) and subsection (b). Under new TWC, §67.011(a)(5), in a county with a population of less than 3.3 million, a corporation may establish and enforce reasonable customer water conservation practices and prohibit excessive or wasteful uses of potable water. Under new TWC, §67.011(b), a corporation may enforce customer water conservation practices under TWC, §67.011(a)(5) by assessing reasonable penalties as provided in the corporation's tariff. A penalty may be appealed in the same manner as provided for appeal of new customer service costs under TWC, §13.043(g). In an appeal, the commission shall approve a corporation's penalty if the commission determines that the penalty is clearly stated in the tariff, that the penalty is reasonable, and that the corporation has deposited the penalty in a separate account dedicated to enhancing water supply for the benefit of all the corporation's customers.

HB 2388, an act relating to the late payment of certain submetered or allocated water bills and the use of certain submetering equipment, amended TWC, §13.503(a) and (b) and added new §13.503(e). Under amended subsection (a), language was added to require the commission to encourage submetering of individual rental or dwelling units by building owners to enhance the conservation of water resources. Under amended subsection (b), language was added to require commission rules that will allow an owner or manager of an apartment house, manufactured home rental community, or multiple use facility that is not individually metered for water for each rental or dwelling unit to charge a tenant a fee for late payment of a submetered water bill if the amount of the fee does not exceed 5% of the bill paid late. Under new subsection (e), the commission may authorize a building owner to use submetering equipment that relies on integrated radio-based meter reading systems and remote registration in a building plumbing system using submeters that comply with nationally recognized plumbing standards and are as accurate as utility water meters in single application conditions.

HB 2388 also amended TWC, §13.5031 to allow a condominium owner or manager to charge a tenant a fee for late payment of an allocated water bill if the amount of the fee does not exceed 5% of the bill paid late.

HB 3034, an act relating to the rates of certain retail public utilities, amended Chapter 966, §10.08(a), 77th Legislature, 2001, to state that the changes in law being made to TWC, Chapter 13 apply to a proceeding in which the commission has not issued a final order before the effective date of this article, provided, however, that this article does not apply to a public utility that provided utility service in only 24 counties on January 1, 2003. The bill also states that the provisions of TWC, Chapter 13 that were in effect before September 1, 2001 apply to those public utilities.

SB 2, Article 10 contains requirements applicable to water utility systems other than a utility that provided service in only 24 counties on January 1, 2003, including requirements concerning utility business locations, disclosure of affiliated interests, multiple system consolidation, regional rates, alternative ratemaking methodologies, billing comparisons, suspension of proposed rates, refunds, and contracts between certain affiliates.

SECTION BY SECTION DISCUSSION

The commission implements HB 3034 with an amendment to §291.8. Under subsection (b) , the commission includes new statutory language concerning the effective date of proposed rate changes for a utility that provided service in only 24 counties on January 1, 2003. Under adopted §291.8(b), in cases involving proposed rate changes, the effective date of the proposed change must be at least 60 days or 30 days for a utility that provided service in only 24 counties on January 1, 2003 after: 1) the date that an application and notice are received by the commission, provided the application and notice are determined to be administratively complete as filed; 2) the date that the application and notice are determined to be administratively complete for previously rejected applications and notices; or 3) the date that the notice is delivered to each ratepayer, whichever is later. The new language is the phrase "or 30 days for a utility that provided service in only 24 counties on January 1, 2003."

The commission implements HB 3034 with an amendment to §291.15, concerning notices of wholesale water supply contracts. Under subsection (b)(9), the commission adds the following language: "a disclosure of any affiliated interest between the parties to the contract, except that this requirement does not apply to a utility that provided service in only 24 counties on January 1, 2003." The commission also amends §291.15 to make it more readable by reformatting subsection (b) into paragraphs and relocating to new subsection (c) the requirement concerning submittal of the certified copy of the contract. Finally, the commission corrects the name of the division under new subsection (c) by deleting the word "Utilities" and replacing it with the word "Supply."

The commission implements certain aspects of SB 2, Article 10 with an amendment to §291.21, regarding tariffs and rate designs. Under new subsection (m), the commission allows a utility, except as provided in new subsection (o), to consolidate its tariff and rate design for more than one system if: 1) the systems included in the tariff are substantially similar in terms of facilities, quality of service, and cost of service; and 2) the tariff provides for rates that promote water conservation for single-family residences and landscape irrigation. Under new subsection (n), the commission, except as otherwise provided in new subsection (o) , where practicable, shall consolidate the rates by region for applications submitted with a consolidated tariff and rate design for more than one system.

The commission implements HB 3034 with an amendment to §291.21. Under new subsection (o), subsections (m) and (n) do not apply to a utility that provided service in only 24 counties on January 1, 2003.

The commission also implements HB 3034 with an amendment to §291.22, concerning notices of intent to change rates. Under subsections (a), (c), (d), and (e), the commission includes the following sentence: "Utilities that provided service in only 24 counties on January 1, 2003 are required to provide the statement of intent to change rates at least 30 days prior to the proposed effective date." Also under adopted subsection (a), the following exemption language is added with regard to billing comparison information in the notice of intent to change rates: "Paragraphs (3) and (4) of this subsection do not apply to a utility that provided service in only 24 counties on January 1, 2003."

The commission implements certain aspects of SB 2, Article 10 with an amendment to §291.22. Under subsection (a)(3), a notice of intent to change rates must include a billing comparison showing the existing rate and the new computed water rate using: 1) 10,000 gallons of water; and 2) 30,000 gallons of water. Under adopted subsection (a)(4), the notice of intent must include a billing comparison showing the existing sewer rate and the new sewer rate for the use of 10,000 gallons, unless the utility proposes a flat rate for sewer services.

The commission implements HB 3034 and certain aspects of SB 2, Article 10 with an amendment to §291.24, concerning restrictions on contracting to purchase wholesale water service from an affiliated supplier. Under new subsection (b), except for a utility that provided service in only 24 counties on January 1, 2003, the owner of a utility that supplies retail water service may not contract to purchase wholesale water service from an affiliated supplier for any part of that owner's systems unless: 1) the wholesale service is provided for not more than 90 days if service discontinuance or serious impairment in service is imminent or has occurred; or 2) the executive director determines that the utility cannot obtain wholesale water service from another source at a lower cost than from the affiliate.

The commission implements certain aspects of SB 2, Article 10 with an amendment to §291.26, concerning suspensions of proposed rate changes under certain conditions. Under new subsection (c), if the commission receives the required number of protests that would require a contested case hearing, the commission may, pending the hearing and a final decision from the commission, suspend the date the rate change would be effective. Also, the rate may not be suspended for more than 150 days. Finally, under subsection (c), the commission adds the HB 3034 exemption language by stating that this provision does not apply to a utility that provided service in only 24 counties on January 1, 2003.

The commission also implements HB 3034 and certain aspects of SB 2, Article 10 with an amendment to §291.28, regarding actions on notice of rate changes. Under §291.28(1), the commission replaces the phrase "within 60 days" with the phrase "before the 91st day" and adds the phrase "or the 61st day for a utility serving in 24 counties on January 1, 2003." With these revisions, the first sentence under §291.28(1) reads: "If, before the 91st day after the effective date of the rate change or the 61st day for a utility serving in 24 counties on January 1, 2003, the commission receives a complaint from any affected municipality, or from the lesser of 1,000 or 10% of the ratepayers of the utility over whose rates the commission has original jurisdiction, or on its own motion, the commission shall set the matter for hearing."

The commission also implements certain aspects of SB 2, Article 10 with an amendment to §291.29, regarding interim rates and refunds. Under new subsection (c), the commission adds language allowing the commission during a rate proceeding, for good cause, to require the utility to refund money collected under a proposed rate before the rate was suspended or an interim rate was established to the extent the proposed rate exceeds the existing rate or the interim rate. Also, under new subsection (c), the commission adds the HB 3034 exemption language by stating that this provision does not apply to a utility that provided service in only 24 counties on January 1, 2003. In order to account for the addition of adopted new subsection (c), the previously existing subsection (c) is relettered as subsection (d). Also, previously existing subsection (d) is revised to enhance readability by restructuring the language. Therefore, previously existing subsections (d) - (h) are relettered as subsections (e) - (j). In addition, the commission reletters previously existing subsection (i) as subsection (k) and adds the previously mentioned HB 3034 exemption language.

The commission also implements certain aspects of SB 2, Article 10 with an amendment to §291.31, regarding expenses not allowed to be counted as cost of service. Under subsection (b)(2), the commission adopts new subparagraph (J) that disallows the costs of purchasing groundwater from any source if the source of the groundwater is located in a priority groundwater management area and a wholesale supply of surface water is available. In addition, the commission adds the HB 3034 exemption language under new subparagraph (K).

The commission implements HB 3034 and certain aspects of SB 2, Article 10 with an adopted amendment to §291.34, concerning alternative rate methods. Under subsection (a), the commission adds the phrase "more affordable" and adds the HB 3034 exemption language, which states: "The commission may not utilize an alternate method of establishing rates based upon whether the rate is more affordable for a utility that provided utility service in only 24 counties on January 1, 2003."

The commission implements HB 1152 with an adopted amendment to §291.41, which adds new subsection (j) to provide conditions for appealing a water conservation penalty. The adopted language states: "A customer of a water supply corporation may appeal to the commission a water conservation penalty. An appeal under Texas Water Code, §67.011(b) must be initiated by the customer within 90 days after written notice of the water conservation penalty amount is received from the water supply corporation per its tariff. The appeal must be accompanied by a $100 filing fee as required by Texas Water Code, §5.235. The commission shall approve the water supply corporation's water conservation penalty if: 1) the penalty is clearly stated in the tariff; 2) the penalty is reasonable and does not exceed six times the minimum monthly bill in the water supply corporation's current tariff; and 3) the water supply corporation has deposited the penalty in a separate account dedicated to enhancing water supply for the benefit of all of the water supply corporation's customers."

The commission also implements certain aspects of SB 2, Article 10 with an adopted amendment to §291.81, concerning customer relations. The commission adopts revisions to §291.81(d), regarding requirements for local offices. The commission reformats subsection (d) by dividing the subsection into paragraphs. The primary change under paragraph (2) involves location of the utility's business location. To conform with SB 2, the commission adopts the requirement that, unless otherwise authorized by the executive director in response to a written request, each utility shall make available and notify customers of a business location where applications for service can be submitted and payments can be made to prevent disconnection of service or to restore service after disconnection for nonpayment, nonuse, or other reasons specified in 30 TAC §291.88. The business must be located in each county where utility service is provided or not more than 20 miles from any residential customer if there is no location to receive payments in that county. Minor editorial changes are also adopted under paragraph (2), including insertion of the word "otherwise" just before "authorized" and replacement of the word "pursuant" with "in response." Also to conform with SB 2, the commission adopts new paragraph (3) to address the waiver provisions, by adding the rule language: "Upon request by the utility, the requirement for a local office may be waived by the executive director if the utility can demonstrate that these requirements would cause a rate increase or otherwise harm or inconvenience customers."

In §291.81(d), the commission adopts new paragraph (4) to address the HB 3034 exemption provision by adding the rule language: "Paragraphs (2) and (3) of this subsection do not apply to a utility that provided service in only 24 counties on January 1, 2003. Unless otherwise authorized by the executive director in response to a written request, such utility shall make available and notify customers of a location within 20 miles of each of its utility service facilities where applications for service can be submitted and payments can be made to prevent disconnection of service or restore service after disconnection for nonpayment, nonuse, or other reasons specified in §291.88 of this title."

The commission adopts an amendment to §291.87 by adding new subsection (b)(2), which provides a requirement relating to the bill due date. The adopted rule language states: "If a utility has been granted an exception to the requirements for a local office in accordance with §291.81(d)(3) of this title (relating to Customer Relations), the due date of the bill for utility service must not be less than 30 days after issuance."

The commission implements HB 2388 with amendments to §§291.121, 291.122, 291.124, 291.125, and 291.127. Under adopted §291.121, a new definition is added and an existing definition is revised. The adopted new definition of "Point-of-use submeter" is defined as "A device located in a plumbing system to measure the amount of water used at a specific point of use, fixture, or appliance, including a sink, toilet, bathtub, or clothes washer." The definition of "Submetered utility service" is revised by adding "water utility service measured by point-of-use submeters when all of the water used in a dwelling unit is measured and totaled; or wastewater utility service based on total water use as measured by point-of-use submeters" at the end of the definition. The commission also renumbers previously existing definitions in paragraphs (11) - (13) to account for the addition of a new definition in paragraph (11).

In §291.122, Owner Registration and Records, subsection (e)(7)(B) is revised by adding the phrase "or point-of-use submeters."

In §291.124, Charges and Calculations, subsection (f) is revised by deleting language referring to an obsolete date and by adding the word "immediately" prior to the phrase "provide notice."

In §291.125, Billing, subsection (c), concerning submeter reading schedule, is revised by adding the phrase "or point-of-use submeters must" and by deleting the word "shall." Under subsection (g), concerning information on submetered service, paragraph (1) is deleted. Also, previously existing paragraph (2) is renumbered as paragraph (1) and revised to read: "the total number of gallons, liters, or cubic feet submetered or measured by point-of-use submeters." This adopted revision involves inserting the word "total" before the word "number" and replacing the word "metered" with the phrase "submetered or measured by point-of-use submeters." Previously existing paragraphs (3) and (4) are renumbered as paragraphs (2) and (3), respectively, to account for the deletion of paragraph (1). Under subsection (i), concerning estimated bill, the phrase "or point-of-use submeter" is added. Under subsection (k), concerning overbilling and underbilling, the phrase "or point-of-use submeter" is added. New subsection (m) is adopted to read: "Late fee. A one-time penalty not to exceed 5% may be applied to delinquent accounts. If such a penalty is applied, the bill must indicate the amount due if the late penalty is incurred. No late penalty may be applied unless agreed to by the tenant in a written lease that states the percentage amount of such late penalty."

Under §291.127, Submeters and Plumbing Fixtures, numerous revisions are adopted concerning point-of-use submeters. First, the title of this section is amended to insert the phrase "or Point-of-Use Submeters." References to point-of-use submeters are added to the rule language under subsection (a) in paragraphs (1) - (5), (6)(C) and (E), (7)(A) and (B), (8) (B), (9), and (10). In addition, under subsection (a)(4), the following sentence is added: "Point-of-use submeters must be calibrated as closely as possible to the condition of zero error and within the accuracy standards established by the American Society of Mechanical Engineers (ASME) for point-of-use and branch-water submetering systems." Also, under subsection (a) (5), the phrase "or ASME standards for point-of-use submeters" is added, and the word "reading" is deleted. Under subsection (a)(8)(A), the phrase "or ASME standards for point-of-use submeters" is added and a reference is corrected. Under subsection (a)(7)(C), the phrase "or the point-of-use submeter meets ASME accuracy standards" is added. Under subsection (a) (9), the phrase "or a point-of-use submeter does not meet ASME accuracy standards" is added. Under subsection (a)(10), the first full sentence is revised to refer to submeters and the American Water Works Association (AWWA), and the phrase "applicable to utilities under §291.89(e) of this title (relating to Meters)" is deleted. Finally, subsection (a)(10) is amended to add the sentence: "For point-of-use meters, an owner shall comply with ASME's meter testing requirements."

Administrative and grammatical changes are adopted throughout the sections to be consistent with Texas Register requirements and other commission rules, to conform with the Texas Legislative Council Drafting Manual, and to improve readability.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking does not meet the definition of a "major environmental rule" as defined in that statute. A "major environmental rule" means a rule, the specific intent of which is to protect the environment or reduce risks to human health from exposure and that may adversely affect in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The adopted rules concern regulation of utility rates and services, including relatively minor revisions regarding: 1) a utility that provided service in only 24 counties on January 1, 2003; 2) conditions for appealing a water conservation penalty; 3) point-of-use submeters; and 4) late fees. The adopted amendments incorporate new state legislative requirements and provide for regulatory consistency. Because of their relatively minor significance and impact, the adopted amendments will not adversely affect in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state.

Furthermore, the adopted rulemaking does not meet any of the four applicability requirements listed in Texas Government Code, §2001.0225(a). This section only applies to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. This rulemaking does not meet any of these four applicability requirements because this rulemaking: 1) does not exceed any standard set by federal law for utility rates and services; 2) does not exceed the requirements of state law, including TWC, Chapter 13; TWC, §67.011; or HB 3034, 78th Legislature, 2003; 3) does not exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement any state and federal program on utility rates and services, because there are no such delegation agreements or contracts concerning utility rates and services to which these rules apply; 4) is not adopted solely under the general powers of the agency, but also under TWC, Chapter 13, which was adopted to regulate the rates and services of retail public utilities; TWC, §67.011, which was adopted to address powers of corporations in certain counties; and HB 3034, 78th Legislature, 2003, an act exempting a utility that provided service in only 24 counties on January 1, 2003, from certain requirements relating to the rates of and services of utilities. The commission invited, but received no public comment on the final regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

The commission evaluated the adopted amendments to Chapter 291 and performed an assessment of whether they constitute a takings under Texas Government Code, Chapter 2007. The primary purpose of the adopted amendments is to incorporate new state legislative requirements and provide for regulatory consistency in the regulation of utility rates and services by proposing relatively minor revisions regarding: 1) a utility that provided service in only 24 counties on January 1, 2003; 2) conditions for appealing a water conservation penalty; 3) point-of-use submeters; and 4) late fees. The adopted amendments would also provide non-substantive revisions, including typographical and formatting corrections to conform with Texas Register and agency requirements.

Promulgation and enforcement of the adopted amendments would constitute neither a statutory nor a constitutional taking of private real property. There are no burdens imposed on private real property under this rulemaking because the adopted amendments neither relate to, nor have any impact on the use or enjoyment of private real property, and there would be no reduction in value of property as a result of this rulemaking. The rulemaking relates primarily to the relationships between water utility operators and their customers, establishment of rates, procedures for providing services, and billing for the services. The adopted rules would provide protection to both the utility operators and their customers. Therefore, this rulemaking will not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission reviewed this rulemaking and found that it is not a rulemaking subject to the Texas Coastal Management Program (CMP) because the rulemaking is neither identified in 31 TAC §505.11, nor will it affect any action or authorization identified in §505.11. Therefore, the rulemaking is not subject to the CMP. The commission invited, but received, no public comment on the CMP.

PUBLIC COMMENT

No public hearing was held on this rulemaking. The comment period ended December 27, 2004. No comments were received.

Subchapter A. GENERAL PROVISIONS

The Texas Commission on Environmental Quality (commission) adopts amendments to §§293.1, 293.11, 293.41, 293.44, 293.51, 293.59, 293.80, 293.83, 293.113, 293.201, and §293.202. Sections 293.11, 293.41, 293.44, 293.51, 293.59, and 293.202 are adopted with changes to the proposed text as published in the October 29, 2004, issue of the Texas Register (29 TexReg 10073). Sections 293.1, 293.80, 293.83, 293.113, and 293.201 are adopted without changes to the proposed text and will not be republished.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES

The commission has the statutory duty and responsibility to create, supervise, and dissolve certain water and water-related districts and to approve the issuance and sale of bonds for district improvements in accordance with Texas Water Code (TWC), Chapters 12 and 49 - 67. The commission oversees approximately 1,100 active water districts in Texas. Chapter 293 of the commission's rules governs the creation, supervision, and dissolution of all general and special law districts and the conversion of certain districts. Chapter 293 also governs the commission's review of bond applications by districts relating to the engineering standards and economic feasibility of district construction project design and completion.

A corresponding rulemaking published in this issue of the Texas Register includes changes to 30 TAC Chapter 301, Levee Improvement Districts, District Plans of Reclamation, and Levees and Other Improvements.

The adopted rulemaking establishes new or revises existing requirements relating to the administration of water districts and the commission's supervision over the districts' actions under TWC, Chapters 49, 54, and 57. House Bill (HB) 1541, 78th Legislature, 2003, amends provisions in TWC, Chapter 49, relating to the administration, management, operation, and authority of water districts and authorities. HB 1541 also amends provisions in TWC, Chapter 54, concerning municipal utility districts and in Chapter 57, concerning levee improvement districts. HB 2887 amends TWC, §49.278, to exempt construction of temporary erosion control facilities from having to comply with competitive bidding requirements. Senate Bill (SB) 624, 78th Legislature, 2003, amends provisions in TWC, Chapter 49, to allow districts located in certain areas of the state to use tax proceeds for the construction and/or maintenance of recreational facilities, subject to voter authorization. SB 898 amends TWC, §49.181, to include additional requirements that exempt certain districts from having to obtain commission approval of its bond issues.

Specifically, the adopted rules provide certain districts with additional exemptions from having to obtain commission approval of bonds and notes; modify requirements that establish when a district is to obtain commission approval of refunding bonds; allow districts in specific counties to submit bond applications for recreational facilities that are supported by taxes; add provisions relating to the definition of recreational facilities and the funding of recreational facilities; specify bidding requirements; add provisions to allow a construction contract to include certain economic incentives or disincentives; specify provisions for the use of proceeds from the sale of property; modify provisions regarding the ability of a district and water supply corporation to require connection to the provider's wastewater collection system; and modify provisions regarding a municipal utility district's petitioning the commission for road utility district powers.

SECTION BY SECTION DISCUSSION

Administrative and grammatical changes are adopted throughout the sections to bring the existing rule language into agreement with guidance provided in the Texas Legislative Council Drafting Manual , October 2002.

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

Adopted §293.1(c) adds the definition for "recreational facilities" to be consistent with TWC, §49.462, and in accordance with SB 624, §7, which adds TWC, §49.466.

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

Adopted §293.11(a)(10) includes the requirement that a creation application contain a detailed summary of proposed recreational facility projects, the projects' estimated costs, and proposed financing methods for the projects as part of the preliminary engineering report. This will allow the executive director to implement SB 624, §4, which amends TWC, §49.463, and states that financing recreational facilities for the people in the district is an authorized purpose for which a district is created.

§293.41, Approval of Projects and Issuance of Bonds

Adopted §293.41(a) requires commission approval for refunding bonds if the debt being refunded was not originally approved by the commission, exempts refunding bonds from commission approval if issued by a district to refund bonds issued by a municipality that paid the cost of financing facilities, and exempts from commission approval bonds issued to and approved by the North American Development Bank, in accordance with HB 1541, §12, which amends TWC, §49.181(a). Adopted §293.41(d) exempts from commission approval bonds issued by a municipal utility district that is located in two counties, has long-term indebtedness rated BBB or better by a nationally recognized rating agency for municipal securities, and has at least 5,000 active water connections, in accordance with SB 898, §1, which amends TWC, §49.181(h). Adopted §293.41(e) allows districts in certain counties to submit tax-supported bond applications that include funding for certain recreational facilities and limits principal debt for recreational facilities to 1% or less of a district's taxable assessed valuation, in accordance with SB 624, §6, which adds TWC, §49.4645. Section 293.41(e)(1) requires a copy of a district's park plan to be provided with a bond application, in accordance with SB 624, §7, which adds TWC, §49.466. Section 293.41(e)(2) and (3) details the types of recreational facilities that can be funded by a district and items that are not allowed to be funded, in accordance with SB 624, §7, which adds TWC, §49.466. Section 293.41(e)(4) states that principal debt for recreational facilities can be no more than 1% of a district's taxable assessed valuation or the estimated cost in the park plan, whichever is less, in accordance with SB 624, §6, which adds TWC, §49.4645. Section 293.41(e)(5) provides that a district may submit a bond application for recreational facilities if the district has funded water, wastewater, and drainage facilities, or either of those facilities, depending on a district's authorized functions, to serve the section that includes the recreational facilities or to serve areas along roads necessary to provide access to the recreational facilities, in accordance with SB 624, §7, which adds TWC, §49.466. Section 293.41(e)(6) requires plans and specifications for recreational facilities to be signed by an appropriate design professional, in accordance with SB 624, §7, which adds TWC, §49.466. SB 624, §7, adds TWC, §49.466, which requires the commission to develop rules for districts that emphasize the primary goal of financing water, wastewater, and drainage facilities, and the secondary goal of financing recreational facilities. Adopted §293.41(e) implements these goals.

§293.44, Special Considerations

Section 293.44(a)(1) is adopted to reference recreational facility service, in addition to the existing water, wastewater, and drainage services referenced, in accordance with SB 624, §7, which adds TWC, §49.466. Adopted §293.44(a)(12) and (24) reflects that costs for the portion of an amenity lake considered a recreational facility may be funded by the district, in accordance with SB 624, §4, which amends TWC, §49.463 and SB 624, §7, which adds TWC, §49.466. Adopted §293.44(b)(4) modifies the reference regarding a definition of recreational facilities, in accordance with SB 624, §7, which adds TWC, §49.466; deletes the reference to TWC, §54.772, in accordance with HB 1541, §27, which amends TWC, §54.201(b); reflects that districts in certain counties may issue tax-supported bonds for recreational facilities, in accordance with SB 624, §6, which adds TWC, §49.4645; and deletes the reference to requiring a 30% developer contribution for recreational facilities, in accordance with SB 624, §7, which adds TWC, §49.466. Adopted §293.44(b)(5) reflects that bidding requirements are not applicable to contracts or services related to temporary erosion-control devices or to cleaning of silt and debris from streets and storm sewers, in accordance with HB 2887, §1, which amends TWC, §49.278(a). Adopted §293.44(b)(6) allows a district's construction contract to include economic incentives for early completion or disincentives for late completion of the work, in accordance with HB 1541, §19, which amends TWC, §49.271. The economic incentives for early completion or disincentives for late completion will be part of the proposal prepared by each bidder before the bid opening, and not negotiated after bid opening.

§293.51, Land and Easement Acquisition

Section 293.51(a) is adopted to require that easements or right-of-way areas for recreational facilities be donated without reimbursement, in accordance with SB 624, §7, which adds TWC, §49.466. Adopted new §293.51(b)(8) adds district funding of recreational facility sites at a cost similar to sites for other district facilities, in accordance with SB 624, §7, which adds TWC, §49.466. Adopted §293.51(c) allows funding of land within a floodplain (including land for recreational purposes) to be the lessor of original cost plus carry or the appraised value, in accordance with SB 624, §7, which adds TWC, §49.466.

Section 293.51(d) is adopted to allow district funding of land costs for that portion of an amenity lake considered a recreational facility, in accordance with SB 624, §4, which amends TWC, §49.463; and SB 624, §7, which adds TWC, §49.466. Amended §293.51(g) allows funding of a regional site for recreational facilities, in accordance with SB 624, §7, which adds TWC, §49.466. New §293.51(i) reflects that costs for dual-use recreational and drainage/detention sites should be split 50% for each use, and that the costs for recreational sites should be reduced due to an existing drainage/detention easement, if any, in accordance with SB 624, §7, which adds TWC, §49.466. Allocating costs 50% to each use for dual-use items is common in the commission's existing Chapter 293 rules, such as clearing and grubbing right-of-way for district and developer use.

§293.59, Economic Feasibility of Project

Section 293.59(e) is adopted to include taxes attributable to recreational facilities in the calculation for projected combined no-growth tax rate of all overlapping entities, in accordance with SB 624, §7, which adds TWC, §49.466. Section 293.59(f) is adopted to include taxes attributable to recreational facilities in the calculation for combined projected tax rate of all overlapping entities, in accordance with SB 624, §7, which adds TWC, §49.466. Section 293.59(i) is adopted to be amended to include taxes attributable to recreational facilities in the calculation for the rebate of taxes to a city or other entity, in accordance with SB 624, §7, which adds TWC, §49.466.

§293.80, Revenue Notes

Section 293.80(a) is adopted to exempt from commission approval revenue notes executed by the North American Development Bank, in accordance with HB 1541, §11, which amends TWC, §49.153(e).

§293.83, District Use of Surplus Funds for Any Purpose and Use of Maintenance Tax Revenue for Certain Purposes

Section 293.83(a) is adopted to reflect that proceeds from the sale of property originally acquired with bond funds are subject to commission rules regarding surplus funds, unless the proceeds are used to retire outstanding bonds of a district, in accordance with HB 1541, §16, which amends TWC, §49.266(d).

§293.113, District and Water Supply Corporations' Authority Over Wastewater Facilities

Section 293.113(a) is adopted to reflect that a district or corporation may not require a property owner who installed an on-site wastewater system before the adoption of the district or corporation's rule to connect to the district or corporation's system, in accordance with HB 1541, §17, which amends TWC, §49.234(a).

§293.201, District Acquisition of Road Utility District Powers and §293.202, Application Requirements for Commission Approval

Sections 293.201 and 293.202 are adopted to reflect that a municipal utility district only needs to petition the commission for road utility district powers, in lieu of the commission and Texas Department of Transportation (TxDOT), in accordance with HB 1541, §29, which amends TWC, §54.234.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in the statute. A "major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The intent of the adopted rules is to primarily establish new or revise existing requirements relating to the administration of water districts and the commission's supervision over their actions under TWC, Chapters 49, 54, and 57, as amended by HB 1541, HB 2887, SB 624, and SB 898. Furthermore, the rulemaking does not meet any of the four applicability requirements listed in §2001.0225(a). Specifically, the adopted rules do not exceed a federal standard because no applicable federal standards exist. The adopted rules do not exceed an express requirement of state law nor exceed a requirement of a delegation agreement. The adopted rules are not developed solely under the general powers of the agency; but also under the specific authority of TWC, §49.466, which requires the commission to adopt rules regarding the provision and financing of recreational facilities funded through the issuance of bonds that are supported by ad valorem taxes. The adopted rules are also specifically developed to implement TWC, §§49.463, 49.4645, and 49.466, as amended by SB 624; to implement TWC, §§49.153, 49.181, 49.234, 49.266, 49.271, and 54.234, as amended by HB 1541; to implement TWC, §49.278, as amended by HB 2887; and to implement TWC, §49.181, as amended by SB 898. The adopted rules do not exceed the express requirements of those state statutes. The commission invited, but received, no public comment on the regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

The commission evaluated the adopted rules and performed a preliminary assessment of whether the rules constitute a taking under Texas Government Code, Chapter 2007. The purpose of this rulemaking is to establish new or revise existing requirements relating to the administration of water districts and the commission's supervision over their actions under TWC, Chapters 49 and 54, as amended by HB 1541, HB 2887, SB 624, and SB 898. Promulgation and enforcement of this rulemaking will constitute neither a statutory nor a constitutional taking of private real property. This rulemaking will impose no burdens on private real property because the adopted rules neither relate to, nor have any impact on the use or enjoyment of private real property, and there is no reduction in value of the property as a result of this rulemaking.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission reviewed the adopted rulemaking and found that it is subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act, Texas Natural Resources Code, §§33.201 et seq ., and therefore must be consistent with all applicable CMP goals and policies. The commission conducted a preliminary consistency determination for the adopted rules in accordance with Coastal Coordination Act Implementation Rules, 31 TAC §505.22, and found the adopted rulemaking is consistent with the applicable CMP goals and policies.

The CMP goal applicable to the adopted rules is to ensure sound management of all coastal resources by allowing for compatible economic development and multiple human uses of the coastal zone.

The CMP policy applicable to the adopted rules requires that the commission's rules and approvals for the creation of special districts and for infrastructure projects funded by issuance of bonds by water districts under TWC, Chapter 49; water control and improvement districts under TWC, Chapter 51; municipal utility districts under TWC, Chapter 54; regional plan implementation agencies under TWC, Chapter 54; special utility districts under TWC, Chapter 65; storm water control districts under TWC, Chapter 66; and all other general and special law districts subject to and within the jurisdiction of the commission comply with the policies in 31 TAC §501.14(m).

The adopted rules do not alter the allowable location, standards, or stringency of requirements for infrastructure on coastal barriers. The adopted rules, which implement HB 1541, HB 2887, SB 624, and SB 898, amend the existing rules that govern construction and funding of district facilities and that govern the commission's process for reviewing applications for district creation, bond issue, and other district matters.

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

The commission invited, but received, no comments on the consistency of this rulemaking with the CMP.

PUBLIC COMMENT

A public hearing was held November 18, 2004. One oral comment was received from Sam Jones Consulting, Inc. (Jones) supporting the rules. The comment period closed on November 29, 2004 and was extended to December 15, 2004. The commission received five written comments requesting changes to the rules from Allen Boone Humphries, L.L.P. (ABH); Association of Water Board Directors-Texas (AWBD-Texas); Blake Magee Company, L.P. (BMC); Jim Box - Consultant, Inc. (JBC); and Tiemann Land and Cattle Development, Inc. (Tiemann). Oral comments were also received from ABH as a follow-up to their written comments.

RESPONSE TO COMMENTS

§293.41, Approval of Projects and Issuance of Bonds

ABH, AWBD-Texas, BMC, JBC, and Tiemann indicated that the rules should specifically state the types of recreational facilities for which a district can incur debt. ABH, AWBD-Texas, and JBC listed separate items that may and should not be funded by a district as a recreational facility; stated that a district's park plan should be included in a district's application for approval of bonds for recreational facilities; stated that commission rules should reflect that plans and specifications for recreational facilities may be signed by a design professional allowed by law to engage in landscape architecture; and stated that commission rules should reflect greater flexibility for mature (more than 90% of infrastructure financed) districts in funding recreational facilities. BMC and Tiemann submitted similar comments requesting that commission rules reflect that amenity/recreation centers and perimeter walls be allowable items to be funded as recreational facilities.

The commission concurs that the rules should include details about facilities that may and should not be funded as recreational facilities in order to reduce confusion regarding what is acceptable and to save staff time in reviewing an application by reducing debate over the eligibility of an item. Accordingly, the rules are revised to include a detail of items that may be funded and items that may not be funded. As a compromise between the ABH, AWBD-Texas, and JBC comments and BMC and Tiemann comments, the rules allow mature districts to fund amenity/recreation centers and a portion of perimeter fences. The commission concurs that a copy of a district's park plan should be submitted with a bond application and that plans and specifications should be signed by an appropriate design professional. The rules have been revised to reflect such requirements.

§293.44, Special Considerations

ABH, AWBD-Texas, and JBC commented that recreational facilities should be exempt from the 30% developer contribution requirement and that only mature districts should be allowed to fund certain recreational facilities (trails, sidewalks, landscaping, etc.) within the right-of-way required by governmental jurisdictions to be dedicated for streets. The comments from ABH, AWBD-Texas, and JBC expressed a belief that developers should continue to fund those items (sidewalks, landscaping, swimming pools, amenity centers, etc.) that they have historically funded, and that district funding of recreational facilities should be automatically exempt from the 30% developer contribution requirement in order to encourage developers to plan for and build additional recreational facilities. Additionally, comments from ABH expressed that the 1% cap on the debt for recreational facilities to a district's assessed valuation effectively limits what a district can fund and what a developer can be reimbursed.

The commission concurs that funding of recreational facilities should be exempt from the 30% developer contribution requirement in order to encourage the planning for and construction of additional recreational facilities. The commission recognizes that excluding some facilities from district funding, only allowing for mature districts to fund certain facilities, and the 1% cap on debt for recreational facilities to a district's assessed valuation encourages developer participation in funding recreational facilities. Accordingly, the rules have been revised to automatically exempt allowable recreational facilities from the 30% requirement. Additionally, the rules are modified to clarify a conflict with §293.47(d)(12).

§293.51, Land and Easement Acquisition

ABH, AWBD-Texas, and JBC commented that land within the floodplain is worth less than other land, and, in mature districts, often represents the majority of available land for recreational purposes. ABH, AWBD-Texas, and JBC commented that the cost of land in the floodplain should be the lower of the developer's original cost, plus carry or fair market value. Additionally, ABH, AWBD-Texas, and JBC commented that land for regional recreational facility sites should be subject to the same provisions as other regional district sites in order to encourage planning for and construction of regional facilities. BMC and Tiemann commented that the rule referencing recreational facility sites should be expanded to reflect greenbelts, park facilities, trails, etc.

The commission concurs that land within the floodplain is worth less than other land, and that land should be purchased at the lowest possible cost. The commission also concurs that regional facility sites should be subject to the same provisions as regional sites for other district facilities. The rules are modified accordingly. In response to the BMC and Tiemann comment, the commission responds that the reference to recreational facility sites automatically includes sites for allowable projects as detailed in §293.41(e)(2). No change has been made in response to this comment.

Other Comments

ABH, AWBD-Texas, and JBC commented that rules for recreational facilities should be included in a separate subchapter, and that funding of recreational facilities should not be subject to all of the provisions in Subchapter F, District Actions Related to Construction Projects and Purchase of Facilities.

The commission made no changes in response to these comments. The rules for funding recreational facilities have been incorporated into the existing subchapters. The concept of a separate subchapter setting forth rules for recreational funding is not opposed, however, to do so at this time would cause significant delays in this rulemaking. The commission determined that the Subchapter F requirements should apply to recreational facilities in the same manner as those rules that apply to other district projects.

Subchapter A. GENERAL PROVISIONS

The Texas Commission on Environmental Quality (commission) adopts amendments to §§301.1 - 301.4, 301.6, 301.21, 301.31, 301.38, 301.43, 301.45, 301.51, 301.71, 301.73, and 301.74; and the repeal of §§301.5, 301.22, and 301.23 without changes to the proposed text as published in the October 29, 2004, issue of the Texas Register (29 TexReg 10089), and the text will not be republished.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULEMAKING

The commission has the statutory duty and responsibility to create, supervise, and dissolve certain water and water-related districts and to approve the issuance and sale of bonds for district improvements in accordance with numerous chapters of the Texas Water Code (TWC). The commission oversees approximately 1,100 active water districts in Texas. Chapter 301 of the commission's rules governs the creation of levee improvement districts and the planning and review of levees and drainage projects for such districts.

A corresponding rulemaking published in this issue of the Texas Register includes changes to 30 TAC Chapter 293, Water Districts.

The adopted rulemaking revises existing requirements relating to levee improvement districts, levees and other improvements, and the commission's supervision of such districts under TWC, Chapters 5, 16, and 57, as amended by House Bill (HB) 1541, 78th Legislature, 2003. HB 1541 amends various sections of TWC, Chapter 57, to delete references to "plans of reclamation," to delete the requirement to obtain commission approval of such plans, and to add the requirement that an engineer's report be prepared in lieu of a plan of reclamation.

Specifically, the adopted rules delete all references to plans of reclamation, including deleting references to application requirements and having to obtain commission approval.

The adopted rules also correct a rule reference regarding fees and delete references to a previous name of the agency.

SECTION BY SECTION DISCUSSION

Administrative and grammatical changes are adopted throughout the sections to bring the existing rule language into agreement with guidance provided in the Texas Legislative Council Drafting Manual , October 2002. These changes also update references to reflect the agency's name change.

Adopted amendments to §§301.1, 301.2, 301.4, 301.31, 301.38, 301.43, 301.45, 301.51, 301.73, and 301.74 exclude references to plans of reclamation, in accordance with HB 1541, §§34 - 55, which amend various sections of TWC, Chapter 57; and HB 1541, §57, which repeals various sections of TWC, Chapter 57.

Sections 301.5, 301.22, and 301.23 are adopted to be repealed to exclude references to plans of reclamation, in accordance with HB 1541, §§34 - 55, which amend various sections of TWC, Chapter 57; and HB 1541, §57, which repeals various sections of TWC, Chapter 57.

Adopted amendments to §301.71 correct the reference for fees from TWC, §5.235 to §5.701.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in the statute. A "major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The intent of the adopted rules is to primarily establish new or revise existing requirements relating to the administration of certain water districts and the commission's supervision over their actions under TWC, Chapters 5, 16, and 57, as amended by HB 1541. Furthermore, the rulemaking does not meet any of the four applicability requirements listed in §2001.0225(a). Specifically, the adopted rules do not exceed a federal standard because no applicable federal standards exist. The adopted rules do not exceed an express requirement of state law nor exceed a requirement of a delegation agreement. The adopted rules were not developed solely under the general powers of the agency; but were specifically developed to implement TWC, §§57.015, 57.092, 57.104, 57.108, 57.116 - 57.118, 57.177, 57.216, 57.260, 57.261, 57.265 - 57.267, 57.269, 57.270, and 57.273 - 57.275 as amended by HB 1541 and the adopted rules do not exceed the express requirements of those state statutes. The commission invited, but received, no public comment on the draft regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

The commission evaluated the adopted rules and performed a preliminary assessment of whether the adopted rules constitute a taking under Texas Government Code, Chapter 2007. The purpose of this rulemaking is to establish new or revise existing requirements relating to the administration of certain water districts and the commission's supervision over the districts' actions under TWC, Chapters 5, 16, and 57, as amended by HB 1541. Promulgation and enforcement of this rulemaking will constitute neither a statutory nor a constitutional taking of private real property. This rulemaking will impose no burdens on private real property because the adopted rulemaking neither relates to, nor has any impact on the use or enjoyment of private real property, and there is no reduction in value of the property as a result of this rulemaking.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission reviewed the adopted rulemaking and found it is subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act, Texas Natural Resources Code, §§33.201 et seq ., and therefore must be consistent with all applicable CMP goals and policies. The commission conducted a consistency determination for the adopted rules in accordance with Coastal Coordination Act Implementation Rules, 31 TAC §505.22, and found the adopted rulemaking is consistent with the applicable CMP goals and policies.

The CMP goals applicable to the adopted rules include to protect, preserve, restore, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas and to ensure sound management of all coastal resources by allowing for compatible economic development and multiple human uses of the coastal zone.

The CMP policy applicable to the adopted rules states that the commission's rules and approvals for the levee construction, modification, drainage, reclamation, channelization, or flood- or floodwater-control projects, under TWC, §16.263, must comply with the policies in 31 TAC §501.14(s).

The purpose of the adopted rules is to implement HB 1541. Specifically, the adopted rules delete all the requirements and references related to "plans of reclamation." Additionally, this rulemaking will update the name of the agency. HB 1541 amends TWC, Chapter 57, by deleting all references to plans of reclamation and replacing plans of reclamation with an engineer's report. Deleting the requirements related to plans of reclamation in the commission's rules should not have an adverse effect on coastal areas because the plans for construction projects will still be reviewed by counties. When the legislature originally passed TWC, Chapter 57, many counties did not have the staff to review projects that were part of a plan of reclamation, so the commission conducted the reviews. Most counties now have staff available to review construction plans and engineering reports, which have replaced the plans of reclamation. Additionally, counties are responsible for flood-related issues under the Federal Emergency Management Agency and, therefore, already review projects that are included in an engineer's report.

Promulgation and enforcement of these rules will not violate or exceed any standards identified in the applicable CMP goals and policies because the adopted rules are consistent with the CMP goals and policies, because these rules do not create or have a direct or significant adverse effect on any coastal natural resource areas, and because the rules do not alter the allowable location, standards, or stringency of requirements for infrastructure on coastal barriers. The commission invited, but received, no comments on the consistency of this rulemaking with the CMP.

PUBLIC COMMENT

A public hearing was held November 18, 2004. The comment period closed on November 29, 2004, and was extended to December 15, 2004. No oral or written comments were received related to Chapter 301.

Subchapter A. GENERAL PROVISIONS