Updates from the 87th Legislature

SUMMARY OF 87TH LEGISLATIVE SESSION BILLS THAT IMPACT THE TEXAS WATER BUSINESS

By Trent Hightower, TRWA Assistant General Counsel

The 87th Regular Session of the Texas Legislature ended on May 31, 2021, and between the ongoing COVID-19 pandemic and the February winter storm it proved to be a session like no other. COVID precautions meant that large groups couldn’t assemble at the capitol until very late in the session, so for the first time ever, TRWA’s Rural Water Rally was conducted virtually. Meanwhile, for the second session in a row, the House elected a new speaker, Rep. Dade Phelan (R-Beaumont). With the new speaker came a new chair of the House Natural Resources Committee, which handles many bills of interest to TRWA members. This year, longtime committee member Rep. Tracy King (D-Batesville) led that committee, which also included the former chair, Rep. Lyle Larson (R-San Antonio). (CONTINUED ON NEXT PAGE)

At the beginning of session, most of us here in Austin expected a somewhat subdued agenda, with issues such as the biennial budget, pandemic response, and redistricting taking up most of the legislature’s time. However, as is fitting for a notably strange session, there were some surprises. The failure of the state’s electrical grid in February’s storm quickly pushed that issue front and center, and all three members of the Public Utility Commission of Texas (PUCT) resigned in March, along with most of the board of the Electric Reliability Council of Texas (ERCOT). With such a major unexpected issue suddenly thrust to the forefront, it was perhaps fortunate for the legislature that the U.S. Census Bureau was delayed in getting detailed 2020 census data to the state before session came to an end. Rather than taking up much of the regular session’s 140 day schedule, the redistricting process will have to wait for a special session later this year, where the legislature will redraw all election maps on both the state and federal levels. These new maps are expected to reflect a continuing shift of the state’s population to large urban portions of the state. Despite all the challenges associated with conducting a legislative session in the face of a global pandemic and an unprecedented weather emergency, the 87th legislature filed and passed about the same number of bills as they do in a typical session. When they gaveled out on May 31st, the legislature had sent 737 bills to Governor Abbott for his signature out of 6,919 that were filed. Below is a summary of the bills that are relevant to rural water utilities, some of which passed and some of which did not. Unless otherwise noted, all bills signed by the governor become law on September 1, 2021.

RESPONSE TO THE WINTER STORM

S.B.3 (SCHWERTNER)

While the bulk of this bill addressed problems with the state’s electrical grid brought to light during February’s freezing weather event, it also contains several provisions pertaining to water utilities. The version that passed the Senate, which went through that chamber with minimal input from stakeholders, would have required all utilities to maintain emergency generator capacity for critical water infrastructure. It also would have prohibited collection of bills accruing during hot and cold weather events commonly experienced in Texas, and it contained excessive penalties for violations. TRWA participated with a group of water industry stakeholders to develop language that addressed the legislature’s concerns about water service during weather emergencies without being overly burdensome on utilities. We also testified before the House State Affairs Committee and engaged our members to discuss industry concerns directly with their legislatures. The final version of the bill includes the following key provisions:

• Water utilities must provide service during an extended power outage as soon as it is safe and practicable to do so following the occurrence of a natural disaster. • Utilities must also adopt and submit to the Texas Commission on Environmental Quality (TCEQ) a plan demonstrating the utility’s ability to provide emergency operations. Participation in a statewide mutual aid program such as TxWARN counts toward meeting this requirement. The bill also requires TCEQ to develop a template plan for systems to utilize, and mandates that the agency provide systems with access to Financial, Managerial, and Technical (FMT) staff for assistance. TRWA currently provides these services to systems through a contract with TCEQ. • The final version of the bill contains more reasonable billing provisions than those contained in earlier drafts. S.B. 3 now prohibits systems from disconnecting customers for nonpayment or from imposing late fees during an “extreme weather emergency,” which is defined as a period when the previous day’s high temperature did not exceed 28 degrees Fahrenheit and is predicted to remain at that level for the next 24 hours. CONTINUED ON NEXT PAGE

• S.B. 3 requires utilities to work with customers that request a payment schedule for unpaid bills during extreme weather emergencies, which most systems were already voluntarily doing. • While the Senate version of the bill authorized fines of up to $1 million per violation of its billing provisions, the final version caps those fines at $50,000 and mandates that only extreme cases qualify for fines of more than $5,000. • Utilities have until November 1, 2021 to submit critical infrastructure and emergency contact information to the PUCT, their electric provider(s), their local office of emergency management, and the governor’s division of emergency management. They have until March 1, 2022 to submit their emergency preparedness plan to TCEQ, and until July 1, 2022 (or later, if approved by TCEQ) to implement that plan. TRWA will be providing information and guidance on this new requirement.

CYBERSECURITY TRAINING FOR DISTRICT EMPLOYEES AND DIRECTORS

H.B. 1118 (CAPRIGLIONE)

Last session, the legislature mandated that all political subdivision employees and board or council members must complete an annual cybersecurity training approved by the Texas Department of Information Resources. TRWA developed a training which was approved by the agency and offers it online and in person at many of our conferences.

H.B. 1118 narrows the scope of the cybersecurity requirement and became effective immediately upon the governor signing it on May 18. Under the new law, only employees and board or council members who use a system computer to perform at least 25% of their required duties must complete the annual cybersecurity training. This should eliminate most board or council members and some field staff from the requirement. TRWA recommends that staff of utilities not required to take this training and who utilize system computers voluntarily complete the training anyway, as water systems continue to be a target for this type of breach.

RETAIL RATES (CITIES) S.B. 387 (SCHWERTNER)

Initially, this bill would have allowed customers in a city’s extraterritorial jurisdiction (ETJ) to appeal their rates to the PUCT if their rates increased following a takeover of service by another utility, regardless of the utility type. TRWA met with Sen. Schwertner’s office and found that they filed the bill in response to a situation in his district where one city took over service of an area from another city. Because the initial bill would have disincentivized many rural utilities from agreeing to take over failing utilities, we assisted the sponsor in drafting language that would address their specific constituent issue. As passed, S.B. 387 only authorizes rate appeals for customers within a city’s ETJ when their service is taken over by another municipal utility. Districts and water supply corporations are no longer impacted by this bill.

H.B. 3689 (CORTEZ)

Chapter 13 of the Water Code gives municipal utility customers located outside a city’s limits the right to appeal their rates to the PUCT since they are not able to vote in city elections. However, in a recent appeal on the reasonableness of a city’s rates outside its limits, the PUCT assumed jurisdiction to review not only those rates but also the rates charged to customers within the city limits. H.B. 3689 clarifies that the PUCT’s jurisdiction extends only to the rates charged to out-of-city customers.

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WHOLESALE RATES

S.B. 997 (NICHOLS)

The PUCT handles wholesale rate appeals in a bifurcated process: first, they must determine whether a wholesale rate is adverse to the public interest, and if it is, the second phase focuses on what the proper rate should be. Dissatisfied parties may only appeal the PUCT’s decision to district court once both phases are complete. S.B. 997 would allow the losing party in the first phase to appeal that decision immediately before moving on to the rate-setting phase. This may reduce the time it takes to litigate these cases.

CCN ISSUES

H.B. 837 (LUCIO)

Last session, TRWA was successful in passing legislation that enables utilities to receive compensation when their service area is decertified. Since then, several utilities have been able to work out agreements on compensation with developers who decertify land from their service area. H.B. 837 simply adds to last session’s legislation by requiring the landowner/developer to notify the PUCT once the compensation is paid.

H.B. 3476 (SCHOFIELD)

The Water Code requires cities with a population of 500,000 or more to give their consent when a new CCN is requested within the city’s boundaries or extraterritorial jurisdiction (ETJ). As a condition of giving consent, the city may require that all water and sewer facilities be designed and constructed in accordance with its standards. In general, cities have less authority in their ETJ than they do within their boundaries, and H.B. 3476 makes a similar distinction in this area. Under the new law, affected cities may no longer require facilities within their ETJ to comply with the city’s standards. Instead, those facilities are subject to standards set forth by TCEQ. The bill does not affect cities’ ability to require that facilities within their city boundaries be designed and constructed in accordance with their standards.

RURAL BROADBAND

H.B. 5 (ASHBY)

There were several bills filed on expanding broadband access to rural parts of the state, but H.B. 5 emerged as the vehicle for this legislative priority. This bill creates a Broadband Development Office within the Office of the Comptroller, which is charged with studying broadband expansion to rural Texas. The new entity will also develop a map of underserved areas, defined as places where fewer than 80% of households have access to broadband; and create a development program to provide grants, low-interest loans, and other incentives to internet providers to expand access. The overall impact of this bill will likely depend on the manner in which it is implemented, as well as funding by future legislatures.

EMPLOYMENT

S.B. 45 (ZAFFIRINI)

Current protections against sexual harassment in the workplace only apply to employers with 15 or more employees. S.B. 45 expands those protections to all employers, regardless of the number of people they employ. The bill does not distinguish between public and private sector employees, so it applies to all TRWA members, regardless of whether they are a district, WSC, city, or investor-owned utility. Under the new law, employers commit an unlawful employment practice if sexual harassment occurs in the workplace and the employer or its management knew or should have known of the conduct and failed to take immediate corrective action. “Sexual harassment” is defined as an unwelcome sexual advance, a request for a sexual favor, or any other verbal or physical conduct of a sexual nature if: • submission to the advance, request, or conduct is made a term or condition of an individual's employment, either explicitly or implicitly; • submission to or rejection of the advance, request, or conduct by an individual is used as the basis for a decision affecting the individual's employment; • the advance, request, or conduct has the purpose or effect of unreasonably interfering with an individual’s work performance; or • the advance, request, or conduct has the purpose or effect of creating an intimidating, hostile, or offensive working environment.

PUBLIC INFORMATION ACT

S.B. 1225 (HUFFMAN)

Last session, the legislature allowed entities to temporarily suspend their requirements under the Public Information Act for requests made during a period of “catastrophe.” The ensuing COVID-19 pandemic prompted the legislature to clarify what that term means this session. S.B. 1225 clarifies that a situation does not qualify as a catastrophe simply because a governmental entity’s office is closed and its staff is working from home if the staff is still able to access information responsive to a request. Additionally, entities may only postpone their response by seven days due to a catastrophe, with one additional seven-day extension before they must comply. The bill also requires governmental entities to make a good faith effort to provide responsive information when their offices are required to be closed due to a catastrophic event.

H.B. 1082 (KING)

The Public Information Act has historically protected the home address, home telephone number, emergency contact information and social security number of a statewide elected officer or member of the legislature from requests for public information. H.B. 1082 expanded this protection to elected local public officers of any entity subject to the Public Information Act, including districts, water supply corporations and cities, without those individuals having to proactively request this information be kept confidential. The law became effective immediately after being signed by the governor on May 19.

H.B. 872 (BERNAL)

Section 182.052 of the Utilities Code currently requires utilities to keep confidential the address, phone number, social security number, and usage information of their customers, but only if the customer requests that they do so. H.B. 872 flips this “opt in” confidentiality process to an “opt out” structure. Beginning September 1, utilities can automatically withhold this information from Public Information Act requests without express permission from their customers. Instead, customers may request that the information be made available on request. This should make responding to this type of request much easier because utilities will no longer need to redact the information of some customers while providing the information of others. TRWA will be updating our Sample Tariff and the associated sample confidentiality form this summer to reflect the new law before it goes into effect.

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EMINENT DOMAIN S.B. 721 (SCHWERTNER)

This bill requires entities using their eminent domain authority to disclose to the landowner all current and existing appraisal reports produced or acquired by the entity relating to that property. The entity must disclose the reports no later than the third business day before the special commissioner’s hearing on the property’s value.

S.B. 726 (SCHWERTNER)

Landowners whose property is taken by eminent domain have the right to repurchase property if the condemning entity fails to demonstrate actual progress toward the public use of the property by the 10th anniversary of the date the land was acquired. Condemning entities can demonstrate actual progress if they can demonstrate that they have completed two out of five affirmative steps toward developing the property, such as the performance of a significant amount of labor or hiring of a significant amount of architectural or engineering work. S.B. 726 raises the standard for demonstrating actual progress. Beginning September 1, condemning entities must demonstrate that they have completed three out of the five enumerated actions rather than two out of five.

S.B. 157 (PERRY)

All entities with eminent domain authority must file an annual report with the Texas Comptroller relating to their eminent domain activity in the previous year. This is the report that TRWA’s Legal Department submits on our subscribing members’ behalf ahead of the annual February 1 deadline each year. Under the new law, districts and cities with populations of less than 25,000 must only submit the annual report if some of the information required on the report has changed since the previous filing. Systems must still verify the accuracy of the report on an annual basis, so this bill may not change a lot from an administrative perspective. The Legal Department will monitor how the Comptroller implements this bill to further assess its impact on our district and city members. WSC members are unaffected by S.B. 157 and must continue submitting a report each year.

POLITICAL SUBDIVISIONS

S.B. 58 (ZAFFIRINI)

The Local Government Code authorizes political subdivisions to finance the purchase of personal property, including computer hardware and equipment. Recognizing the increasing use of cloud-based services for data storage, processing, and cybersecurity, S.B. 58 adds those services to the list of types of personal property political subdivisions may finance.

H.B. 1476 (BELL)

This bill requires political subdivisions to provide vendors with notice of an error or a disputed amount under a contract not later than the 21st day after the political subdivision receives an invoice. The notice must include a detailed statement of the amount in dispute, and the political subdivision may withhold from payments no more than 110% of the disputed amount.

BOARD OF PLUMBING EXAMINERS SUNSET H.B. 636 (THOMPSON)

Like all agencies, the Texas State Board of Plumbing Examiners (TSBPE) is subject to the sunset review process, in which the legislature decides whether to continue the agency’s existence and makes changes to their responsibilities and duties. Last session, the legislature planned to abolish the agency and transfer its functions to the Texas Department of Licensing and Regulation (TDLR), which oversees a variety of other professional licenses. However, that bill failed to pass at the last minute, so Governor Abbott continued the board’s existence through 2021 by executive order to prevent the industry from being totally unregulated. This year was less dramatic. Rather than transferring oversight of the plumbing industry to TDLR, the legislature decided to continue the TSBPE’s existence through 2027. CONTINUED ON NEXT PAGE

WATER PROGRAM OVERSIGHT

H.B. 3650 (LUCIO, III)

Many in the water industry, including TRWA members, were closely watching this bill, which would have transferred oversight of water utilities back to TCEQ from the PUCT, which has overseen rate and CCN issues since 2013. TRWA testified in support of this bill due to the challenges of water utilities being regulated by two agencies. The House Natural Resources Committee unanimously voted it out for consideration by the entire House, but it was never set for debate in that chamber and did not proceed any further. This bill could be the starting point for more conversations about this issue moving forward.

FEES

H.B. 3802 (LOZANO) S.B. 1719 (HALL)

Senator Hall filed this bill in response to a cost of service dispute in his district between a WSC and one of its new customers in 2019. TRWA assisted in resolving the dispute at that time, and we worked with the senator’s office in the interim to develop legislation to address the underlying issue. S.B. 1719 would have allowed PUCT to review membership and tap fees charged to new applicants for service to ensure they were consistent with the WSC’s tariff. The bill passed the Senate but did not receive a committee hearing in the House.

This bill started as one TRWA members were concerned about, but through our legislative efforts we turned it into a bill that would have been very good for our industry. TCEQ counts each space at an RV park as a full connection for purposes of determining the capacity a utility must maintain to serve those properties. Some WSCs charge RV parks an additional fee to recover the cost associated with this extra capacity. As filed, H.B. 3802 would have prohibited WSCs from charging these fees, which are already prohibited for districts. The TRWA Legislative Team worked with Rep. Lozano’s office, the bill’s Senate sponsor (Sen. Zaffirini), and representatives of the RV park industry to draft a compromise bill that all sides could support. Under the final version, TCEQ would have been required to count individual RV spaces as a percentage of a standard single family home, rather than as a full connection, for purposes of determining the property’s number of connections. Without a disproportional impact on the utility’s capacity requirement, utilities would no longer need to charge an additional fee.

Unfortunately, while the bill passed the House, made it through the Senate Water, Agriculture, and Rural Affairs Committee, and was placed on the full Senate’s intent calendar near the end of session, like many bills it simply ran out of time. It is frustrating that this bill came so close to passing, but we are well-positioned to make progress on this issue next session. In the meantime, utilities should continue to seek variances from TCEQ based on their actual demand if RV parks are having a substantial impact on their capacity requirements.

CCN ISSUES

H.B. 1435 (LUCIO, III)

This bill would have amended Section 13.255 of the Water Code pertaining to decertification of a utility’s certificate of convenience and necessity (CCN) by cities. Under current law, the PUCT automatically grants a city’s petition for single certification of an area within its limits, subject to the city paying compensation to the decertified utility. The proposed law would have required cities to demonstrate that the CCN holder was unable to provide continuous and adequate service to the area in question before decertifying it. It also removed the “useless and valueless” language in current law that has hindered systems receiving fair compensation in cases before the PUCT, bringing the city-instigated decertification statute into alignment with the one for developers. TRWA supported this bill before the House Natural Resources Committee, but they did not vote it out.

SERVICE EXTENSION POLICIES

H.B. 1926 (WILSON)

TRWA fought hard against this bill, which would have established a new appeal process for the PUCT to review the finding of a water supply corporation or special utility district that a developer failed to comply with the system’s service extension policy or engineering requirements for service. We asked TRWA’s members to contact their

representatives about this bill on two occasions when it was set for hearing in the House Natural Resources Committee, and it was pulled from consideration both times. The bill was filed in response to a conflict between a developer and an investor-owned utility that had purchased a water supply corporation several years ago. TRWA facilitated discussions between these parties near the end of session, and we are hopeful that they will be able to work out their conflict locally without the need for legislation next session.

OPEN MEETINGS

H.B. 768 (PATTERSON)

TRWA members testified against this bill, which applied to all political subdivisions located wholly or partly within a county of more than 5,000 people. As filed, H.B. 768 required these political subdivisions to upload an audio and visual recording of their meetings to their website, which would have been a challenge for many of our members due to technical or staffing limitations. The bill was ultimately amended to apply only to counties, cities and school districts. It was voted out of committee but did not receive a vote on the House floor.

REMOTE MEETINGS

(NUMEROUS BILLS)

In March 2020, Governor Abbott temporarily relaxed numerous requirements under the Texas Open Meetings Act (TOMA) to allow entities to conduct meetings virtually or by phone. With almost a year of entities operating in this way when the legislative session convened in January, numerous legislators filed bills that would make some or all parts of this new way of doing business a permanent option. Some bills would have made permanent all facets of the governor’s ongoing temporary order. Others expanded on emergency remote meeting provisions currently in law or allowed individual board members to participate remotely if a quorum was still convened in a single physical location. Somewhat surprisingly, none of these bills passed despite TOMA being an often-amended statute even in a more typical session. In July, Governor Abbott rescinded his order, effective September 1, 2021. Since none of the proposed bills passed this session, entities subject to the Open Meetings Act must return to the fully in-person meetings they were accustomed to holding before COVID-19 changed things last year. Fully remote meetings are still allowed at each entity’s discretion through the end of August. Engineering Architecture

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