Texas Water Conservation Association

Water/Sewer Utility Regulation at the PUC

Tammy Benter, DirectorWater Utility Regulation Division

Public Utility Commission of TexasJune 17, 2016

PUC’s Mission StatementMission Statement:

We protect customers, foster competition, and promote high quality infrastructure.

About the PUC• Created in 1975 by Texas

Legislature to provide statewide regulation of electric, telephone and water utilities.

• Since 1985, the PUC has primarily regulated electric and telephone.

• In mid-1990s, the transition began to move those industries to competitive markets.

Water & Sewer Utility Regulation Transfer

• House Bill 1600 & Senate Bill 567 - PUC Sunset Bill:

• Passed in 2013 - included transfer of financial regulation of water and sewer utility ratemaking from TCEQ to PUC with significant changes to the regulatory ratemaking process.

• Transfer was effective September 1, 2014.

• Significant changes in water and sewer utility ratemaking became effective September 1, 2015.

HB 1600/SB 567—Key Provisions• Certificate of Convenience and Necessity (CCN)

functions transferred with rates program to PUC with no substantive changes – effective September 1, 2014• Office of Public Utility Counsel (OPUC) replaced Office

of Public Interest Counsel (OPIC) – effective September 1, 2014• Created new classification system for Investor Owned

Utilities (IOUs) – effective September 1, 2015

HB 1600/SB 567 – Key Provisions • Created three classifications for IOUs based on number of

active connections and imposed new requirements for rate filing packages

• Class A-10,000 or more connections (approx. 5 utilities)

• Class B—500-9,999 connections (approx. 85 utilities)

• Class C –fewer than 500 connections (approx. 426 utilities)

Water Utility Transfer• Class A: similar to PUC regulation of electric utilities, high bar for

interim rates, 185 day deadline on processing cases, earnings monitoring process, comprehensive rate filing package

• Class B: few changes from TCEQ rate change applications and processes; however, more backup information required upfront with the application, streamlined review process, 240 day deadline on processing cases

• Class C: addition of a new streamlined “cost-of-living” rate adjustment process; 4 adjustments (1 per year); on 5th adjustment, IOU must file Class B rate case

Adjustments for Regulated Community• Water and sewer utilities now have 2 state regulators & must understand which

agency has authority over specific topics– PUC and TCEQ

• All filings must follow PUC procedural rules (i.e., number of copies, electronic filing, confidentiality requirements, discovery)

• OPUC has different authority and is more active in rate cases than OPIC • IOUs have new rules, statutes and forms to complete for rate increases

• All water and sewer utilities must work with both agencies when applying for a CCN and/or for receiverships/temporary managers

Trends & Issues Affecting Regulated Community• Seeing a trend in political subdivisions and non-profit water supply or

sewer service corporations (WSCs) selling their water and sewer utilities to larger IOUs

• Because these utilities were originally funded with public dollars, there are certain fees an IOU is not able to charge at the time of the transfer of ownership and ratemaking treatment is different (ex. Membership fees)

• More conservation rates are being implemented by utilities, to include a higher base rate and tiered volumetric rates that increase in price as usage increases

Trends & Issues Affecting Regulated Community• More pass-through rate adjustments for increases in regulatory fees and water

source (public water service fees, groundwater conservation district fees, subsidence district fees, wholesale water cost increases)

• Aging infrastructure and population growth in Texas causing need to repair, replace or upgrade infrastructure which results in the need for increased rates

• For IOUs, there is a regulatory lag when setting rates (historic test year requirement)

• More petitions being filed to appeal the rate making decision of a city council, an elected board of directors, or other regulatory authority

Questions?