According to the Legislative Budget Board (LBB), HB 2712 is not expected to have a significant fiscal impact on the State of Texas. The Public Utility Commission (PUC), the primary regulatory agency affected by this legislation, is anticipated to absorb any additional administrative responsibilities resulting from the bill within its existing budget and staff resources.

For local governments, the bill similarly carries no significant fiscal implications. Although local regulatory authorities, such as municipalities that exercise original jurisdiction over utility rates, may experience a modest increase in workload due to the broader range of rate filing methodologies (including projections and combined test years), these are not expected to require additional expenditures or staffing. This is particularly relevant for municipalities that opt to adopt alternate ratemaking methodologies under Section 13.183(c) of the Water Code.

Overall, while the bill introduces more complex ratemaking processes for utilities, it does not mandate any costly new infrastructure, technology, or staffing. Therefore, both state and local agencies can likely implement the provisions without incurring substantial new costs.

HB 2712 proposes to modernize the ratemaking process for water and sewer utilities by allowing them to base rates not just on historical costs, but also on projected future costs or a combination of both. The bill's intent is to provide utilities with greater flexibility to plan capital investments, align rates with anticipated inflation and service upgrades, and reduce the frequency of rate cases—potentially leading to more stable utility operations and infrastructure improvements.

However, despite these operational advantages, the bill in its current form raises substantial concerns when evaluated against core liberty principles, particularly those of limited government, free enterprise, and protection of individual and property rights. By authorizing utilities to recover costs based on projections rather than actual expenditures, the bill risks shifting speculative financial burdens onto consumers. This undermines a fundamental accountability standard: that ratepayers should pay for services rendered and infrastructure in use, not for forecasts that may later prove inaccurate or unnecessary.

Additionally, the bill expands the scope of government oversight by increasing the complexity of ratemaking evaluations. Regulatory authorities like the Public Utility Commission and municipal rate regulators will be tasked with analyzing future-oriented data and validating projections that are inherently more uncertain than historical data. This not only increases administrative discretion but introduces greater subjectivity into rate approval processes, raising the risk of regulatory capture, inconsistent outcomes, and diminished transparency. While the bill does require that utilities provide “clear and convincing evidence” to support certain cost inclusions (e.g., construction work in progress), it lacks robust mechanisms to ensure these standards are applied consistently or enforced with meaningful consequences.

Moreover, HB 2712 alters long-standing consumer safeguards by allowing utilities to include facilities that are not yet in service in their rate base, and to depreciate assets regardless of current use. These changes weaken the historical requirement that utility investments be “used and useful” to customers before they are included in rates. Without strong regulatory guardrails—such as post-implementation audits, caps on forecasted expenses, or refund mechanisms if projected projects are delayed or canceled—ratepayers could end up subsidizing unproductive or inefficient spending.

Lastly, while the fiscal note finds no significant impact on government budgets, that neutrality does not extend to the financial impact on consumers. Particularly in areas where residents have no alternative water provider, this bill could lead to higher rates without adequate consumer recourse, disproportionately affecting lower-income and rural communities.

For these reasons, Texas Policy Research recommends that lawmakers vote NO on HB 2712 unless amended to include meaningful consumer protections, such as stronger evidentiary standards, sunset clauses for projected cost recovery, independent audits, or limits on non-operational asset inclusion.

• Individual Liberty: While the bill does not directly restrict individual rights or freedoms, it could indirectly affect individuals by increasing utility costs without guaranteeing corresponding service improvements. Higher water or sewer rates—based on projected future costs rather than actual usage—could strain household budgets, particularly for consumers with no choice in service providers. In that sense, individual liberty may be constrained by reduced economic freedom and lack of consumer alternatives.
• Personal Responsibility: The principle of personal responsibility is not directly advanced or undermined by this legislation. However, by allowing utilities to recover speculative costs from ratepayers, the bill may inadvertently reduce financial discipline for utility companies. If rate recovery is based on projections rather than performance, utilities may have less incentive to manage costs prudently or deliver efficient service, potentially shifting responsibility away from the provider and onto the customer.
• Free Enterprise: The bill weakens competitive market discipline by allowing monopoly or quasi-monopoly utilities to pass through costs based on future projections, regardless of whether those investments are ultimately justified or realized. In a competitive market, businesses cannot charge customers for uncompleted or speculative work. The bill creates a regulatory structure that insulates utilities from normal market risks, thereby undermining the “risk-reward” dynamic fundamental to free enterprise. It also gives regulated utilities a state-sanctioned mechanism to recover projected costs, creating a distortion that would be unacceptable in any other market-driven industry.
• Private Property Rights: Private property rights are not explicitly infringed by the bill, but they may be affected in practice. Water and sewer services are essential for property use and occupancy. When utility rates increase significantly due to forecasted investments, especially in areas with no competitive alternatives, property owners face higher fixed costs. This could make housing less affordable, reduce investment potential, and impose hidden costs on property usage, particularly in rural and lower-income communities. While not a direct violation, this erosion of affordability impacts practical property enjoyment.
• Limited Government: The bill significantly expands the scope of regulatory oversight without a corresponding increase in checks and balances. By allowing forward-looking test years, inclusion of construction work in progress (CWIP), and depreciation of non-operational assets, the bill introduces more discretion, complexity, and subjectivity into regulatory decisions. It broadens the role of the Public Utility Commission and municipal regulators, potentially inviting more government involvement in pricing decisions while reducing transparency and accountability. It also gives regulated monopolies broader authority to impose costs on the public with fewer restrictions—an approach antithetical to limited government ideals.

• SB 1891 (Same As)