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Water and sewer utilities require funds to provide services to their customers. Capital improvements are funded through various sources, including surcharges from customers in certain situations. Daily operations are funded by charging customers a rate. Typically, water utilities charge a base rate and gallonage charge. The base rate covers fixed costs and the gallonage charge covers the utility's variable expenses.


Rate Policies

IOUs that provide retail water and sewer service outside the corporate limits of a city must file with the PUC to change their rates and service policies. There are different rate applications and filing requirements varying in complexity based on the number of connections served by the IOU. An IOU providing service inside the corporate limits of a city must file or apply with the city to change its rates and service policies, unless the municipality has surrendered its jurisdiction over IOUs to the PUC.

The following cities have surrendered jurisdiction over IOUs that serve inside their corporate limits to the PUC:

  • City of Coffee City ‒ effective 12/4/1993;
  • City of Nolanville ‒ effective 04/18/1996;
  • City of Aurora ‒ effective 04/04/1997;
  • City of Arcola ‒ effective 05/05/1998;
  • City of Waco ‒ effective 02/07/2012;
  • City of San Antonio ‒ effective 01/30/2014; and
  • Village of Jones Creek ‒ effective 12/04/2014;

WSC, Districts and Cities have elected board of directors or city council members that are responsible for setting the rates and service policies for their customers. The PUC has appellate jurisdiction over the retail water, sewer and drainage fees charged by WSCs, Districts (both inside and outside the District's corporate boundaries) and Cities (outside the city's corporate boundaries only).


Rate Appeals

Ratepayers served by the following types of retail public utilities may file an appeal in the form of a petition regarding the decision made by a retail public utility to change the water, sewer or drainage fees. The petition must be signed by then percent or 10,000 (whichever is less) of the affected ratepayers (customers) eligible to appeal.

  • WSCs;
  • Water District or River Authority;
  • IOU operating inside a city;
  • City-owned utilities serving customers outside the city;
  • County; and
  • Affected County (within 50 miles of the U.S.-Mexico border).

Rate Setting

Establishing rates based on sound principles is one of the most critical parts of the water and wastewater industry. Rates must be set at a level that covers all of the costs to produce, treat, store, and distribute water to all customers. Rates must also be fair and equitable. Good rate structures are based on actual, accurate financial information and good customer records.

Chapter 13 of the Texas Water Code establishes a regulatory system to regulate retail public utilities to assure rates, operations, and services are just and reasonable to the consumers and to the retail public utilities. The PUC must also set a rate that maintains the financial integrity of the utility.

IOU Rate Case Types


An IOU that purchases water or sewage treatment may include a provision in its tariff to pass through to its customers changes in such costs. The provision must be approved by the PUC in a rate proceeding and must specify how the change in the cost is calculated and how it affects customer billings. The utility must submit documentation supporting the increase in charges.


An IOU may collect a surcharge over a specified time period to recover the actual increase in costs for sampling, inspection fees, and other governmental requirements that are beyond the utility's control but only after the utility has been authorized in writing by the regulatory authority with jurisdiction over its rates and services.


IOUs located outside the corporate limits of a city are required to complete and file a rate filing package with the PUC to seek approval to change their retail water or sewer rates and service policies.

IOUs may file once per calendar year unless the IOU is experiencing financial hardship or to increase the rate of a newly acquired system.

There are several versions of the rate application and notice forms available. The application and notice form that corresponds to your utility's classification as either a Class A, Class B, Class C or Class D utility, should be used. The complexity and supporting documentation required also vary depending on the utility's classification.


A Class D utility (fewer than 500 active taps or connections) may adjust its base rate and gallonage charge up to five percent using the Class D application form. The utility may not increase rates more than once per calendar year and not more than four times between comprehensive rate proceedings.

f the utility is making its fifth consecutive request for an annual rate adjustment, or if the utility needs a rate increase that is more than five percent, then it will need to file the more detailed application package and notice forms used by Class C utilities.


  • Introduction of New Customer Classes;
  • Cash Needs Method;
  • Phased and multi-step rate changes; and
  • System Improvement Charges (SIC).


The Hearing Process

The hearing process is required by law if:

  1. The applicant is a Class A utility. These applications are automatically referred to the State Office of Administrative Hearings by law; or
  2. The regulatory authority receives a complaint from any affected municipality, or if the lesser of ten percent or 10,000 ratepayers of the utility's affected customers request a hearing.
puct Division of Utility Outreach Filing Help icon image

Filing Help

The PUC has a contract with an outside third party to provide on-site, free assistance to utilities to help them file a complete rate package. To get help with your rate application, please contact the PUC at





A tariff is an IOU's schedule that contains all rates, tolls, and charges stated separately by type or kind of service and by customer class. The tariff also states the IOU's service policies, rules and regulations stated separately by type or kind of service and by customer class.

The PUC has model water and sewer tariff forms for use by IOUs in Texas. These forms should be used when an IOU applies to change its rates or to obtain or amend a CCN.


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