HB 2506 imposes additional regulatory oversight on municipally owned utilities that serve customers outside city limits. It amends the Water Code to classify certain large municipally owned utilities as Class A utilities when implementing rate increases for customers residing outside the municipality. This classification applies only if the municipality has a population over one million and is enacting a drought contingency plan at the time of the rate increase. This reclassification ensures that rate increases are subject to greater scrutiny under state regulatory proceedings.