Adopted Rules Title 30

TITLE 30. ENVIRONMENTAL QUALITY

PART 1. TEXAS COMMISSION ON ENVIRONMENTAL QUALITY

CHAPTER 291. UTILITY REGULATIONS

The Texas Commission on Environmental Quality (TCEQ or commission) adopts amendments to §291.3 and §291.144; and adopts new §291.147.

Sections 291.144 and 291.147 are adopted with changes to the text and will be republished. Section 291.3 is adopted without changes to the proposed text as published in the August 22, 2008, issue of the Texas Register (33 TexReg 6736) and will not be republished.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES

In 2007, the 80th Legislature passed House Bill (HB) 149, relating to water utilities. HB 149 amended Texas Water Code (TWC), Chapter 13, Subchapter C, by adding §13.046, which requires the commission by rule to provide a streamlined process to allow the retail public utility that takes over the nonfunctioning retail water or sewer utility to apply for a ruling on the reasonableness of the newly implemented rates. The bill further requires the commission to establish, in consultation with the utility, a reasonable amount of time for the retail public utility to bring the water or wastewater system into compliance, and prohibits the commission from imposing a penalty during this period for any violation that existed at the time the nonfunctioning system was taken over.

On January 16, 2008, the commission approved for proposal a set of rules (Rule Project 2007-048-291-PR) that contained amendments to implement HB 149. This rule proposal was published in the February 1, 2008 issue of the Texas Register (33 TexReg 871). During the comment period for the proposed rule, the commission received comments that caused it to reconsider the way it was implementing HB 149 and the commission withdrew the sections of the proposed rule related to HB 149 from that rulemaking.

The rules adopted in the Texas Register today are the commission's implementation of HB 149.

SECTION BY SECTION DISCUSSION

Subchapter A: General Provisions

§291.3, Definitions of Terms

The commission adopts a definition for "nonfunctioning system" in §291.3(28). The commission adopts the following definition: A retail public utility under the supervision of a receiver, temporary manager, or that has been referred for the appointment of a temporary manager or receiver, pursuant to §291.142 of this title (relating to Operation of Utility That Discontinues Operation or Is Referred for Appointment of a Receiver) and §291.143 of this title (relating to Operation of a Utility by a Temporary Manager). This adopted definition increases the number of systems that qualify as nonfunctioning. By being classified as a nonfunctioning system, a system can qualify to have a temporary manager or receiver appointed. The individual appointed will have the necessary expertise to help the nonfunctioning system move toward compliance. The commission adopts this change to provide guidance in implementing TWC, §13.046, as added by HB 149, 80th Legislative Session, 2007. The subsequent definitions were relettered to accommodate this new definition.

Subchapter J: Enforcement, Supervision, and Receivership

§291.144, Fines and Penalties

The commission adopts §291.144(b) which would mandate that the commission not impose a penalty on the retail public utility taking over the nonfunctioning system for a period to be determined in cooperation with the retail public utility, which includes municipalities, districts, river authorities, and other local governments to ensure that the commission did not impose a penalty on an entity taking over a nonfunctioning utility. The commission adopts this change to implement TWC, §13.046, as added by HB 149, 80th Legislative Session, 2007. With the addition of adopted subsection (b), the implied subsection (a) becomes subsection (a). The commission also deletes the catchline in the implied subsection (a). The commission also correctly references "Water Code" as "Texas Water Code."

§291.147, Temporary Rates for Services Provided for a Nonfunctioning System

The commission adopts new §291.147 which would establish a procedure for a retail public utility other than a municipally owned utility or a water or sewer utility subject to the original rate jurisdiction of a municipality that acquires a nonfunctioning system to charge a temporary rate to recover the reasonable costs incurred for interconnection or other costs incurred in making services available and any other reasonable costs incurred to bring the nonfunctioning system into compliance. The commission adopts this new section to implement TWC, §13.046, as added by HB 149, 80th Legislative Session, 2007.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rules in light of the regulatory analysis requirements of Texas Government Code, §2001.0225 and determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in the Texas Administrative Procedure Act. 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 specific intent of the adopted rules is to implement provisions enacted in HB 149 of the 80th Legislature. Generally, these rules are intended to impact only the economic regulation of water and sewer providers. More specifically, the provisions provide a streamlined process to allow a retail public utility other than a municipally owned utility or a water or sewer utility subject to the original rate jurisdiction of a municipality that takes over a nonfunctioning retail water or sewer system to implement temporary rates and to apply for a ruling on the reasonableness of the newly implemented rates. It also allows the commission to establish a reasonable amount of time for the retail public utility that takes over a nonfunctioning system to bring the water or wastewater system into compliance. Furthermore, it prohibits the commission from imposing a penalty during this period for any violation that existed at the time the nonfunctioning system was taken over. The adopted rules are not intended to have any impact on environmental regulations. Furthermore, this rulemaking does not qualify as a major environmental rule because it will not have an adverse economic effect. Based on the foregoing, the adopted rulemaking does not constitute a major environmental rule, and thus is not subject to the regulatory analysis provisions of Texas Government Code, §2001.0225. Furthermore, the rulemaking does not meet any of the four applicability requirements listed in Texas Government Code, §2001.0225(a).

This rulemaking does not meet the definition of a major environmental rule because it does not meet any of the four applicability requirements listed in Texas Government Code, §2001.0225(a). Texas Government Code, §2001.0225, only applies to a major environmental rule, the result of which is to: (1) exceed a standard set by federal law, unless the rule is specifically required by state law; (2) exceed an express requirement of state law, unless the rule is specifically required by federal law; (3) exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; or (4) adopt a rule solely under the general powers of the agency instead of under a specific state law. This rulemaking does not meet any of these four applicability requirements because the adopted rules: (1) are specifically required by state law, namely the TWC, and do not exceed a standard set by federal law; (2) do not exceed the express requirements of the TWC; (3) do not exceed a requirement of federal delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; and (4) the adopted rules will not be adopted solely under the general powers of the commission.

Based on the foregoing, the adopted rulemaking does not constitute a major environmental rule, and thus is not subject to the regulatory analysis provisions of Texas Government Code, §2001.0225.

The commission invited public comment regarding the draft regulatory impact analysis determination during the public comment period. No comments were received on the draft regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

The commission evaluated these adopted amendments to Chapter 291 and performed an analysis of whether these adopted rules constitute a taking under Texas Government Code, Chapter 2007. The intent of the adopted rules is to implement amendments enacted in HB 149 of the 80th Legislature.

The adopted rules would substantially advance the intent of the rulemaking by creating a streamlined process to allow a retail public utility other than a municipally owned utility or a water or sewer utility subject to the original rate jurisdiction of a municipality that takes over a nonfunctioning water or sewer system to implement temporary rates and to apply for a ruling on the reasonableness of the newly implemented rates. It also allows the commission to establish a reasonable amount of time for the retail public utility that takes over a nonfunctioning system to bring the water or wastewater system into compliance, during which the commission will not impose a penalty for any violation that existed at the time the nonfunctioning system was taken over.

Promulgation and enforcement of these adopted rules will constitute neither a statutory nor a constitutional taking of private real property. The adopted regulations do not adversely affect a landowner's rights in private real property, in whole or in part, temporarily or permanently, because this rulemaking does not burden nor restrict or limit the owner's right to property. More specifically, these rules implement retail water and sewer utility rate regulations, and other related regulations of retail water and sewer service providers, none of which imposes any burdens or restrictions on private real property. Therefore, the adopted rules do not constitute a taking under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission reviewed the adopted rules and found that they are neither identified in Coastal Coordination Act Implementation Rules, 31 TAC §505.11(b)(2) or (4), nor will they affect any action/authorization identified in Coastal Coordination Act Implementation Rules, 31 TAC §505.11(a)(6). Therefore, the adopted rules are not subject to the Texas Coastal Management Program.

The commission invited public comment regarding the consistency with the coastal management program during the public comment period. No comments were received regarding the consistency of this rulemaking with the coastal management program.

PUBLIC COMMENT

The proposal was published in the August 22, 2008 Texas Register (33 TexReg 6736). The commission held a public hearing for this rule on September 18, 2008, in Austin, Texas. Due to potential impacts from Hurricane Ike, the public comment period for this rulemaking was extended by two weeks and closed on October 6, 2008.

The commission received written comments from Thompson & Knight, LLP, on behalf of American States Utility Services, Inc. (American States) and Bickerstaff Heath Delgado Acosta, LLP, on behalf of the City of Houston (Houston).

American States supported the rule. Houston suggested changes to the proposed rule as described in the RESPONSE TO COMMENTS section of the preamble.

RESPONSE TO COMMENTS

American States commented that they are in support of proposed §291.144(b) and §291.147.

The commission appreciates these comments in support of the proposed rules.

Houston commented that the proposed rule allows implementation of a temporary rate upon notice to the Executive Director. Houston recommends that the proposed rule be changed to require notice of the temporary rate to be sent to a municipality with original jurisdiction over the nonfunctioning system at the same time the notice is sent to the executive director. Pursuant to TWC, §13.042, a municipality has original jurisdiction over the rates and services of a utility operating within its corporate limits unless the municipality surrenders original jurisdiction to the TCEQ.

The commission agrees that TWC, §13.042, gives municipalities original jurisdiction over rates and services of a utility operating within its corporate limits unless the municipality surrenders original jurisdiction to the TCEQ. With original jurisdiction, municipalities can set their own requirements for utilities that operate within their boundaries. In this adopted rule, the commission only requires a retail public utility other than a municipally owned utility or a water or sewer utility subject to the original rate jurisdiction of a municipality to provide notice to the executive director that the retail public utility has begun charging a temporary rate. Therefore, the commission made no change with regard to this comment.

Houston commented that as the rule is currently proposed, there is no time limit under which a retail public utility may charge the "temporary rate." Houston asserts that without a time limit, the retail public utility taking over a nonfunctioning system could evade the rate review process of a municipality because there is no limit on how long the "temporary rate" may be charged. Houston recommends that the temporary rate approved by the TCEQ come under the authority of a municipality's original jurisdiction and lose the "temporary" status after the rate is established by the municipality. Houston asks that the TCEQ require inside municipal limit retail public utilities that have set a temporary rate to file a rate application with the municipality having original jurisdiction within 180 days after the TCEQ sets the temporary rate. Houston stated that the temporary rate would then be subject to the municipality's original rate jurisdiction under TWC, §13.042.

The commission responds that under the commission's revisions to the rule, temporary rates will not apply to a water or sewer utility under the original rate jurisdiction of a municipality. For all other retail public utilities, §291.147(c) requires the executive director to issue an order regarding the reasonableness of the temporary rate. The commission expects that the executive director will include a time limit or benchmarks for the suspension of the temporary rates in the order. Additionally, the commission responds that an across-the-board 180-day deadline for the suspension of the temporary rate and a requirement of a rate application at the end of that deadline are both unnecessary. The commission anticipates that in some cases 180 days will be a reasonable time period for a temporary rate while in other instances it may be too long. Requiring a specific deadline will undermine the purpose of this rulemaking, which is to provide the commission flexibility in allowing a retail public utility to charge temporary rates when taking over a nonfunctioning utility. This allows the retail public utility to focus its efforts on complying with regulations relating to public health and safety and avoid unnecessary costs of time and money involved in formal rate proceedings. The commission has made no change in response to this comment.

Houston commented and asked the TCEQ to clarify that, when a municipality takes over a nonfunctioning system inside the municipality's corporate limits, the municipality is not required to go through the TCEQ to set rates for the system. Houston recommends that since the TCEQ has appellate jurisdiction under TWC, §13.043(b) for the municipality, a municipality sets the rates for retail public utilities inside its corporate limits, that municipality would be exempt from this requirement.

The commission acknowledges that municipalities have original rate jurisdiction over water and sewer utilities within their corporate limits under TWC, §13.042. Thus, the commission has revised §291.147(a) by adding language to specifically define that only a retail public utility other than a municipally owned utility or a water or sewer utility subject to the original rate jurisdiction of a municipality need to submit notice to the executive director for a determination regarding the reasonableness of their rates.

Houston commented and asked the TCEQ to change the word "utility," in §291.144(b) to "retail public utility." The word "utility" is mentioned twice in the section. The term "utility" is a defined term, and does not have the same meaning as "retail public utility."

The commission agrees that the terms "utility" and "retail public utility" have different meanings and that "retail public utility" should be the term used in §291.144(b). The commission changed the term "utility" to "retail public utility" in §291.144(b) in response to this comment.

Houston commented that the TCEQ should clarify the term "takes over" in §291.147(a). Houston claims that it is unclear what actions by a retail public utility would be considered a "take over." Houston asks, "Has a retail public utility taken over a nonfunctioning utility if it simply takes over the operations of the system, but does not acquire the system?" Houston recommends that this term be defined, or that the TCEQ clarify that "take over" includes operating a system without acquiring it.

The commission responds that it is implicit in the term "takes over" that this will include any situation in which a retail public utility assumes the operational responsibilities for a nonfunctioning system whether the retail public utility has acquired the system or not. The commission made no change in response to this comment.

Houston commented that the TCEQ change the term "nonfunctioning retail public water and sewer utility service provider" in §291.147(a) to "nonfunctioning system." Houston recommends this change to avoid any confusion and to ensure consistency throughout the rules.

The commission responds that, as much as possible, it attempts to track the language of the statute. The legislature used both the terms "nonfunctioning retail water or sewer service provider" and "nonfunctioning system" in HB 149, §13.046(a). In this section of the bill, the legislature was referring to the provider of service to the nonfunctioning system and the nonfunctioning system separately and did not intend to create a separate definition for each term. The commission made no change in response to this comment.

Houston commented that the TCEQ define reasonable costs and outline what could be included in determining the "reasonable costs" incurred to interconnect a system, to make service available, or to bring the system into compliance. Houston also recommends that the TCEQ require the retail public utility to submit documentation to justify the reasonableness of the costs incurred at the time it provides written notice to the executive director, and as proposed above, to the municipality.

The commission acknowledges that creating the streamlined process envisioned by the legislature may require the executive director to make a subjective determination of what is a "reasonable cost." Certainly, costs associated with interconnecting a system, bringing a system into compliance, and making service available could all be "reasonable costs." However, the commission does not want to limit potential other costs which may be reasonable in some situations; therefore, the commission has not included a definition for "reasonable costs." Additionally, the commission does not feel it is necessary to change the rule to require the retail public utility to submit documentation because §291.47(c) already states that the executive director will consider information submitted by the retail public utility taking over the nonfunctioning system and the customers of the nonfunctioning system in deciding whether the temporary rates are reasonable. The commission will issue an order within 90 days of receiving notice of the temporary rate increase; therefore, if the retail public utility fails to provide any information within that 90-day period, the executive director would deem the temporary rates to be unreasonable. The commission made no change in response to this comment.

SUBCHAPTER A. GENERAL PROVISIONS

30 TAC §291.3

STATUTORY AUTHORITY

The amendment is adopted under TWC, §5.102, which provides the commission the general powers to carry out duties under the TWC and TWC, §5.103, which provides the commission with the authority to adopt any rules necessary to carry out the powers and duties under the provisions of the TWC and other laws of this state. In addition, TWC, §13.041 states that the commission may regulate and supervise the business of every water and sewer utility within its jurisdiction and may do all things, whether specifically designated in TWC, Chapter 13 or implied in TWC, Chapter 13, necessary and convenient to the exercise of this power and jurisdiction. Further, TWC, §13.041 also states that the commission shall adopt and enforce rules reasonably required in the exercise of its powers and jurisdiction, including rules governing practice and procedure before the commission. Finally, TWC, §13.046 requires the commission to adopt rules that allow a retail public utility that takes over the provision of services for a nonfunctioning retail water or sewer utility service provider to charge a reasonable rate for the services provided to the customers of the nonfunctioning system and TWC, §13.046 also requires the commission to provide a reasonable period for a retail public utility that takes over the provision of services for a nonfunctioning retail water or sewer utility system to bring the nonfunctioning system into compliance with the commission rules during which the commission shall not impose a penalty for any deficiency in the system that is present at the time the utility takes over the nonfunctioning system.

The adopted amendment implements TWC, §13.046.

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 January 30, 2009.

TRD-200900376

Robert Martinez

Director, Environmental Law Division

Texas Commission on Environmental Quality

Effective date: February 19, 2009

Proposal publication date: August 22, 2008

For further information, please call: (512) 239-2548

SUBCHAPTER J. ENFORCEMENT, SUPERVISION, AND RECEIVERSHIP

30 TAC §291.144, §291.147

STATUTORY AUTHORITY

The amendment and new section are adopted under TWC, §5.102, which provides the commission the general powers to carry out duties under the TWC and TWC, §5.103, which provides the commission with the authority to adopt any rules necessary to carry out the powers and duties under the provisions of the TWC and other laws of this state. In addition, TWC, §13.041 states that the commission may regulate and supervise the business of every water and sewer utility within its jurisdiction and may do all things, whether specifically designated in TWC, Chapter 13 or implied in TWC, Chapter 13, necessary and convenient to the exercise of this power and jurisdiction. Further, TWC, §13.041 also states that the commission shall adopt and enforce rules reasonably required in the exercise of its powers and jurisdiction, including rules governing practice and procedure before the commission. Finally, TWC, §13.046 requires the commission to adopt rules that allow a retail public utility that takes over the provision of services for a nonfunctioning retail water or sewer utility service provider to charge a reasonable rate for the services provided to the customers of the nonfunctioning system and TWC, §13.046 also requires the commission to provide a reasonable period for a retail public utility that takes over the provision of services for a nonfunctioning retail water or sewer utility system to bring the nonfunctioning system into compliance with the commission rules during which the commission shall not impose a penalty for any deficiency in the system that is present at the time the utility takes over the nonfunctioning system.

The adopted amendment and new section implement TWC, §13.046.

§291.144.Fines and Penalties.

(a) Fines and penalties collected under Texas Water Code, Chapter 13, from a retail public utility that is not a public utility in other than criminal proceedings shall be paid to the commission and deposited in the general revenue fund.

(b) The commission shall provide a reasonable period for a retail public utility that takes over a nonfunctioning system to bring the nonfunctioning system into compliance with commission rules, during which the commission may not impose a penalty for any deficiency in the system that is present at the time the retail public utility takes over the nonfunctioning system. The commission must consult with the retail public utility before determining the period and may grant an extension of the period for good cause.

§291.147.Temporary Rates for Services Provided for a Nonfunctioning System.

(a) Notwithstanding other provisions of this chapter, upon sending written notice to the executive director, a retail public utility other than a municipally owned utility or a water and sewer utility subject to the original rate jurisdiction of a municipality that takes over the provision of services for a nonfunctioning retail public water or sewer utility service provider may immediately begin charging the customers of the nonfunctioning system a temporary rate to recover the reasonable costs incurred for interconnection or other costs incurred in making services available and any other reasonable costs incurred to bring the nonfunctioning system into compliance with commission rules.

(b) Notice of the temporary rate must be provided to the customers of the nonfunctioning system no later than the first bill which includes the temporary rates.

(c) Within 90 days of receiving notice of the temporary rate increase, the executive director will issue an order regarding the reasonableness of the temporary rates. In making the determination, the executive director will consider information submitted by the retail public utility taking over the provision of service, the customers of the nonfunctioning system, or any other affected person.