Key implementation requirements and action items for compliance with this legislation
Implementation Timeline
Effective Date:June 20, 2025 (Effective immediately upon signature due to supermajority vote).
Compliance Deadline:Immediate. The new penalty structure applies to any lawsuit filed by a GCD on or after June 20, 2025. If you are currently in violation, you are exposed to the new rates if a suit is filed next week.
Agency Rulemaking: While GCDs will likely update enforcement rules in Q3 2025, the court's authority to assess these enhanced penalties is statutory and self-executing immediately; do not wait for district rule changes.
Immediate Action Plan
Audit Permits Immediately: Compare current pumpage against permit limits today. If you are over-pumping, you are accruing liability at the new rates.
Update Tariffs: Utilities must file amended tariffs incorporating DCP violation pass-through language immediately to protect the utility from customer-driven fines.
Recalculate Reserves: Legal and Finance must adjust litigation reserves to account for the increase from a $300,000 cap (30-day violation) to a $750,000 minimum cap, plus potential profit disgorgement.
Prepare Defense Models: Finance teams should create economic models now that demonstrate the *lack* of correlation between water usage and total revenue to counter future "economic benefit" claims.
Operational Changes Required
Contracts
Water Utilities (IOUs/MUDs): You must amend Tariffs and Service Agreements to explicitly allow for the "pass-through" of GCD civil penalties to specific customers who violate Drought Contingency Plans (DCPs), as authorized by Section 36.1022.
Industrial/Commercial: Update Master Service Agreements (MSAs) with third-party water operators. Indemnity clauses must be expanded to cover the new uncapped "economic benefit" liability if a vendor’s negligence causes a permit breach.
Hiring/Training
Operations Management: Train facility managers that over-pumping to avoid a production shutdown is no longer a viable financial decision; the "economic benefit" penalty clause allows courts to confiscate profits derived from that production.
Utility Staff: Staff must be trained to actively enforce Drought Contingency Plans (not just monitor them) to establish the "reasonable diligence" defense required to pass fines to customers.
Reporting & Record-Keeping
"Cure" Documentation: Establish a protocol to log every dollar and hour spent rectifying a violation immediately upon discovery. This is now a statutory factor courts must consider to mitigate penalties.
Maintenance Logs: Maintain granular records of meter and pump maintenance. To utilize the "mechanical failure" defense, you must prove the violation was beyond your control and not due to deferred maintenance.
Fees & Costs
Civil Penalties: Statutory liability increases to a maximum of $25,000 per violation, per day.
Disgorgement: Courts are now empowered to assess penalties exceeding the $25,000 cap if necessary to offset the economic benefit gained from the violation.
Insurance: Legal departments must review policies immediately; civil penalties and profit disgorgement are typically uninsurable exclusions, placing this risk directly on the balance sheet.
Strategic Ambiguities & Considerations
Definition of "Economic Benefit": The statute does not define how to calculate the benefit gained. GCDs may argue that "economic benefit" equals the *total gross revenue* generated by a facility during the violation period. Businesses must be prepared to argue that the benefit is limited strictly to the *avoided cost* of alternative water supplies.
"Reasonable Diligence" Standard: Utilities can only pass fines to customers if they exercised "reasonable diligence" in enforcing drought plans. The law does not define if this requires physical flow restriction or merely written warnings.
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Under current statute, groundwater conservation districts can enforce their rules by setting reasonable civil penalties that may be assessed by a court against a violator. The cap for these civil penalties is currently set at $10,000 per violation, with each day of a continuing violation constituting a separate violation. The bill author has informed the committee that as water supplies in Texas have become scarcer and more valuable, this maximum civil penalty cap, which has not been increased by the legislature in almost a quarter century, is inadequate to deter overpumping and other rule violations for large water projects for which the economic benefit of unauthorized pumping may greatly outweigh the maximum cost exposure in civil penalties to the violator. H.B. 5560 addresses this issue by increasing the cap on civil penalties from $10,000 to $25,000 and authorizing a court to assess a higher penalty if it finds that the economic benefit gained by the violator as a result of the violation is higher than that amount.
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. 5560 amends the Water Code to increase from $10,000 to $25,000 the daily cap on the amount of the civil penalty that the board of directors of a groundwater conservation district by rule may set against a person for breach of a district rule. The bill specifies that such penalty is a penalty that the district may recover from the person. The bill authorizes a court, in an enforcement action brought by a district against a person, to assess a penalty greater than this cap if the court determines that the person gained an economic benefit as a result of the violation that was greater than the cap. The bill requires this penalty to be in an amount determined by the court to be necessary and appropriate to outweigh the economic benefit gained by the person as a result of the violation and discourage future violations.
H.B. 5560 applies only to a suit involving a groundwater conservation district that is filed on or after the bill's effective date. A suit filed before such date is subject to the law in effect on the date the suit is filed, and that law is continued in effect for that purpose.
HB5560 immediately escalates the financial risk of groundwater compliance by raising the civil penalty cap from $10,000 to $25,000 per day and introducing an uncapped "economic benefit" penalty mechanism. This legislation effectively eliminates the "cost of doing business" strategy for permit violations, impacting all industrial users, agricultural operators, and water utilities holding Groundwater Conservation District (GCD) permits. Implementation Timeline Effective Date: June 20, 2025 (Effective immediately upon signature due to supermajority vote).
Q
Who authored HB5560?
HB5560 was authored by Texas Representative Cody Harris during the Regular Session.
Q
When was HB5560 signed into law?
HB5560 was signed into law by Governor Greg Abbott on June 20, 2025.
Q
Which agencies enforce HB5560?
HB5560 is enforced by Groundwater Conservation Districts (GCDs) and Texas Civil Courts.
Q
How urgent is compliance with HB5560?
The compliance urgency for HB5560 is rated as "critical". Businesses and organizations should review the requirements and timeline to ensure timely compliance.
Q
What is the cost impact of HB5560?
The cost impact of HB5560 is estimated as "high". This may vary based on industry and implementation requirements.
Q
What topics does HB5560 address?
HB5560 addresses topics including civil remedies & liabilities, special districts & authorities, special districts & authorities--groundwater conserve dist., special districts & authorities--water & utility and water.
Legislative data provided by LegiScanLast updated: November 25, 2025
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