HB2712

HB2712 lets covered water and sewer utilities choose a historical, forecast, or mixed 12-month “test year” for a rate case. A test year is the period whose financial information regulators use to work out rates. The law replaces the former definition based on the most recent 12 months of available operating data. It does not itself approve a rate increase. Final law

The rule covers Class A, B, C and D utilities, the statutory size categories from the smallest to largest covered public utilities. That does not mean every city-owned system or water district: Chapter 13’s definition of “utility” excludes municipal corporations, most political subdivisions and member-owned water-supply corporations, among others. Municipal governments can nevertheless act as regulators of covered utilities.

The chosen period must start on the first day of a calendar or fiscal quarter and last 12 consecutive months. It may start no later than 18 months after the utility files its notice of intended rate change and must end no earlier than 18 months before that filing. These limits apply to the start and end separately; this is not a requirement that the entire year fall within 18 months of filing.

The law directs regulators to use test-year information in assessing reasonable/fair returns and operating expenses. It requires the rate base—the investment on which a return is calculated—to include facilities projected to be in service through the end of the test year. It also removes “currently used” and “currently used and useful” restrictions from specified depreciation provisions. It retains the exclusion for property funded through explicit customer agreements or customer construction contributions. The separately stated construction-work-in-progress provisions retain their exceptional-relief safeguards; the new projected-in-service provision applies notwithstanding Section 13.185(b).

Two safeguards matter: A utility using a fully forecast test year must file actual results and supporting data no later than 30 days after the last day of the test year’s last quarter, and give the filing to the parties in the rate case. If the information is not available by then, it must give written notice of when it will be available, serve the parties, and file as soon as possible once it is available.

For a future or mixed test year, if the regulator determines in the next rate proceeding that the information produced rates yielding more than a fair return, it must order refunds of collections above the fair-return rate for the period of overcollection. This is not an automatic annual refund or a promise that every forecasting error produces a refund immediately.

The act became effective September 1, 2025, but the changed ratemaking provisions apply only to proceedings beginning on or after the effective date of the implementing rules. The Public Utility Commission was directed to adopt those rules by September 1, 2026. Earlier proceedings remain under the prior law. This briefing verifies the statutory deadline and transition, not whether a particular proceeding has reached the rules’ applicability date.