Relating to a certificate of public convenience and necessity to provide water or sewer service in an area incorporated or annexed by a municipality.
ModeratePlan for compliance
Medium Cost
Effective:2025-06-20
Enforcing Agencies
Public Utility Commission of Texas (PUC) • District Court of Travis County
01
Compliance Analysis
Key implementation requirements and action items for compliance with this legislation
Implementation Timeline
Effective Date: September 1, 2025.
Compliance Deadline: Immediate for strategic planning; operational changes apply to any CCN proceeding filed on or after September 1, 2025.
Agency Rulemaking: While the statute is self-executing regarding court jurisdiction, the PUC must update procedural rules to reflect that it can no longer order the transfer of title, only determine compensation. Expect procedural confusion between September 2025 and early 2026.
Immediate Action Plan
Audit "Fringe" Assets: Identify all infrastructure located in Extra-Territorial Jurisdictions (ETJs) vulnerable to annexation.
Review Insurance/Bonding: Verify your ability to obtain surety bonds if you are an acquirer; verify the bond sufficiency of the acquirer if you are the target.
Strategic Filing:
Municipalities: File annexation/decertification petitions *before* September 1, 2025, to utilize the old, more favorable "useless or valueless" standard.
Incumbent Utilities: Delay proceedings until *after* September 1, 2025, to leverage the new "trial de novo" and "adversely affected" protections.
Operational Changes Required
Contracts
Franchise Agreements & MSAs: If you are a private utility operating under a municipal franchise, you must amend your Master Service Agreements immediately. The law requires franchised utilities designated to provide service in an annexed area to pay the compensation to the incumbent.
Indemnification Clauses: Insert strong indemnification language protecting your entity from litigation costs and compensation awards if a municipality mandates you take over a service area.
Hiring/Training
Legal Counsel Re-alignment: Retain counsel with specific experience in Travis County District Court civil litigation. Reliance solely on administrative law specialists is no longer sufficient, as appeals now trigger a full civil trial (trial de novo).
Valuation Experts: Train appraisers to value "damages to the remainder" of the system, not just the infrastructure being taken. The standard has shifted from "useless or valueless" to "adversely affected."
Reporting & Record-Keeping
Asset Segregation: You must maintain distinct asset records separating infrastructure located *within* potential annexation zones from infrastructure *outside* that supports those zones.
Impact Modeling: Develop financial models showing how the loss of a specific service area impacts the rates and viability of your remaining system to substantiate "adverse effect" claims.
Fees & Costs
Litigation Budget: Increase legal reserves. The "trial de novo" provision effectively guarantees that contentious valuations will be litigated twice—once at the PUC and once in District Court.
Bonding Requirements: Municipalities or acquiring utilities must secure surety bonds or cash deposits to cover potential damages if they seek possession of the system pending an appeal.
Strategic Ambiguities & Considerations
"Adversely Affected" Standard: The statute replaces the strict "useless or valueless" standard with "damaged or adversely affected." The law does not define the scope of "adverse effects." It is unclear if this includes lost future revenue, stranded costs, or rate destabilization. This will be the primary battleground for early litigation.
Role of PUC Findings: In a "trial de novo," it is legally ambiguous whether the District Court will treat the PUC’s initial valuation as advisory or disregard it entirely.
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The bill author has informed the committee that, in situations in which a municipality seeks a certificate of convenience and necessity to provide water or sewer service in an incorporated or annexed area served by a retail public utility, disputes may arise regarding compensation for the utility's property that may be rendered useless or valueless by the certification. H.B. 1318 seeks to address this issue by revising the compensation to be paid in such a situation.
CRIMINAL JUSTICE IMPACT
It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS
H.B. 1318 amends the Water Code to remove applicable useless or valueless property of a retail public utility from the property to be transferred to a municipally owned utility or franchised utility following the single certification of a municipality to provide water or sewer service in an incorporated or annexed area served by the retail public utility. Accordingly, the bill removes the requirement that the Public Utility Commission of Texas (PUC) determine, in its order granting single certification, the monetary amount that is adequate and just to compensate the retail public utility for any of the retail public utility's property the PUC determines is being rendered useless or valueless by the single certification. The bill instead includes compensation for adverse effects on property remaining in the ownership of the retail public utility after single certification among the adequate and just compensation the PUC is required to determine be paid in its order granting single certification to a municipality that requests the transfer of specified property of the retail public utility to the municipality or to a franchised utility.
H.B. 1318 applies only to a proceeding affecting a certificate of public convenience and necessity that commences on or after the bill's effective date. A proceeding affecting a certificate of public convenience and necessity that commenced before the bill's effective date is governed by the law in effect on the date the proceeding is commenced, and that law is continued in effect for that purpose.
Honorable Cody Harris, Chair, House Committee on Natural Resources
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB1318 by Guillen (Relating to a certificate of public convenience and necessity to provide water or sewer service in an area incorporated or annexed by a municipality.), As Introduced
No significant fiscal implication to the State is anticipated.
It is assumed that any costs associated with the bill could be absorbed using existing resources.
Local Government Impact
No significant fiscal implication to units of local government is anticipated.
Source Agencies:
473 Public Utility Commission of Texas
LBB Staff:
JMc, TUf, JBel
Related Legislation
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HB1318 fundamentally shifts the power to transfer water/sewer utility property from the Public Utility Commission (PUC) to the District Court of Travis County and broadens the compensation standard for incumbent utilities. This law impacts Investor-Owned Utilities (IOUs), Water Supply Corporations (WSCs), and municipalities by replacing administrative review with a "trial de novo" standard, meaning appeals are treated as entirely new trials rather than reviews of agency decisions. Implementation Timeline Effective Date: September 1, 2025.
Q
Who authored HB1318?
HB1318 was authored by Texas Representative Ryan Guillen during the Regular Session.
Q
When was HB1318 signed into law?
HB1318 was signed into law by Governor Greg Abbott on June 20, 2025.
Q
Which agencies enforce HB1318?
HB1318 is enforced by Public Utility Commission of Texas (PUC) and District Court of Travis County.
Q
How urgent is compliance with HB1318?
The compliance urgency for HB1318 is rated as "moderate". Businesses and organizations should review the requirements and timeline to ensure timely compliance.
Q
What is the cost impact of HB1318?
The cost impact of HB1318 is estimated as "medium". This may vary based on industry and implementation requirements.
Q
What topics does HB1318 address?
HB1318 addresses topics including city government, city government--annexation, utilities, utilities--general and utilities--water & sewer.
Legislative data provided by LegiScanLast updated: November 25, 2025
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