1. (a) Application. A water supply or sewer service corporation or a water and sewer utility owned by an entity required to possess a certificate of convenience and necessity (CCN) must comply with this section. A municipality, district, or political subdivision may, but is not required to, comply with this section.

2. (b) Notice and filing requirements for commission approval of the transaction to proceed. No later than 120 days before the effective date of any sale, transfer, merger, consolidation, acquisition, lease, or rental, an applicant must file an application with the commission and give public notice of the transaction in accordance with this section. Notice is considered given under this subsection on the later of:

   1. (1) the last date the applicant mailed the required notice as stated in the applicant's affidavit of notice; or
   2. (2) the last date of the publication of the notice in the newspaper as stated in the affidavit of publication, if required.

3. (c) Transaction involving a municipal utility system. A transaction involving the sale of a municipal utility system to an entity to which this section applies must comply with this subsection. For purposes of this subsection, a municipal utility system means one or more retail water or sewer utility systems that comprise all or part of the facilities used by a municipally owned utility to provide retail water or sewer utility service. If the municipal utility system being acquired does not include all of the facilities used by the municipally owned utility to provide retail water or sewer utility service, the applicant must provide sufficient detail in its application to identify the specific retail water or utility systems and facilities being acquired.

   1. (1) A water supply or sewer service corporation or a water and sewer utility required to possess a CCN may purchase a municipal utility system if:

      1. (A) the sale has been authorized by a majority vote of the qualified voters of the municipality in an election held by the governing body of the municipality in the manner provided for bond elections in the municipality including, if applicable, Tex. Gov't Code Title 9, Subtitle C, Chapter 1251; or
      2. (B) the Texas Commission on Environmental Quality (TCEQ) has issued a notice of violation to the municipality for one or more of the retail water or sewer systems that comprise the municipal utility system, and the governing body of the municipality finds by official action that the municipality is either financially or technically unable to restore the retail water or sewer system or systems to compliance with the rules or statutes cited in the notice of violation. For purposes of this section, any official written notification from the TCEQ, such as a notice of violation letter, a notice of enforcement letter, or a field citation, that a retail water or sewer system is out of compliance with a rule or statute within the TCEQ's jurisdiction will be considered a notice of violation.
   2. (2) For a sale authorized under paragraph (1)(A) of this subsection, the applicant must include with its application documentation that the sale was authorized by a majority vote in compliance with the requirements of this section.

   3. (3) For a sale authorized under paragraph (1)(B) of this subsection, the applicant must provide notice to the TCEQ of the transaction in writing. For a sale authorized under paragraph (1)(B) of this subsection, the applicant must also include the following information to the commission as a part of its application:

      1. (A) a copy of the notice of violation issued by the TCEQ involving the municipal utility system;
      2. (B) a copy of the written notice provided to the TCEQ as required by this paragraph; and
      3. (C) documentation of the official action taken by the governing body of the municipality finding the municipality is financially or technically unable to restore the municipal utility system to compliance with the rules or statutes cited in the notice of violation.
4. (d) Intervention period. The intervention period for an application filed under this section must not be less than 30 days. The presiding officer may order a shorter intervention period for good cause shown.

5. (e) Notice.

   1. (1) Unless notice is waived by the commission, proper notice must be given to affected customers and to other affected parties as required by the commission on the form prescribed by the commission. The notice must include the following:

      1. (A) the name and business address of the utility currently holding the CCN (transferor) and the retail public utility or person that will acquire the facilities or CCN (transferee);
      2. (B) a description of the requested area;
      3. (C) the following statement: "Persons who wish to intervene in the proceeding or comment upon the action sought should contact the Public Utility Commission, P.O. Box 13326, Austin, Texas 78711-3326, or call the Public Utility Commission at (512) 936-7120 or (888) 782-8477. Hearing- and speech-impaired individuals with text telephones (TTY) may contact the commission through Relay Texas at 1-800-735-2989. The deadline for intervention in the proceeding is (date 30 days from the mailing or publication of notice, whichever occurs later, unless otherwise provided by the presiding officer). If you wish to intervene, the commission must receive your letter requesting intervention or motion to intervene by that date; and

      4. (D) if the transferor is a nonfunctioning utility with a temporary rate in effect and the transferee is requesting that the temporary rate remain in effect under TWC §13.046(d), the following information:

         1. (i) the temporary rates currently in effect for the nonfunctioning utility; and
         2. (ii) the duration of time for which the transferee is requesting that the temporary rates remain in effect.

      5. (E) if the transferor is a municipality, the notice must also provide the following information as an attachment, as applicable:

         1. (i) If subsection (c)(1)(A) of this section applies, a statement describing the details of the authorizing election, including the date and outcome of the election and the text of the applicable ballot provision.

         2. (ii) If subsection (c)(1)(B) of this section applies, a statement:

            1. (I) indicating that the TCEQ has issued a notice of violation for one or more systems within the municipal utility system and that the governing board of the municipality has found that it is either financially or technically unable to restore the system to compliance with the applicable rules or statutes;
            2. (II) providing a basic description of the violations cited in the notice of violation, including the systems involved, the nature of the violations, and the rules or statutes cited in the notice of violation; and
            3. (III) describing the details of the official action of the governing board including the date and forum in which the official action was taken and how to locate a transcript or recording of the official action, if available.
   2. (2) The transferee must mail the notice to cities and neighboring retail public utilities providing the same utility service whose corporate limits or certificated service area boundaries are within two miles from the outer boundary of the requested area, and any city with an extraterritorial jurisdiction that overlaps the requested area.
   3. (3) The commission may require the transferee to publish notice once each week for two consecutive weeks in a newspaper of general circulation in each county in which the retail public utility being transferred is located. The commission may allow published notice in lieu of individual notice as required by paragraph (2) of this subsection.
   4. (4) The commission may waive published notice if the requested area does not include unserved area, or for good cause shown.
6. (f) Fair market valuation. An application filed under this section for approval of a transaction that includes a fair market valuation of the transferee or the transferee's facilities must follow the process established in §24.238 of this title (relating to Fair Market Valuation).
7. (g) A retail public utility or person that files an application under this section to purchase, transfer, merge, acquire, lease, rent, or consolidate a utility or system must demonstrate adequate financial, managerial, and technical capability for providing continuous and adequate service to the requested area and any area already being lawfully served by the transferee, including the area in the transferee's certificated service area, as required by §24.227(a) of this chapter (relating to Criteria for Granting or Amending a Certificate of Convenience and Necessity).
8. (h) If the transferee cannot demonstrate adequate financial capability, the commission may require that the transferee provide financial assurance to ensure continuous and adequate retail water or sewer utility service is provided to both the requested area and any area already being served under the transferee's existing CCN. The commission will set the amount of financial assurance. The form of the financial assurance must meet the requirements of §24.11 of this title (relating to Financial Assurance). The obligation to obtain financial assurance under this title does not relieve an applicant from any requirements to obtain financial assurance to satisfy another state agency's rules.
9. (i) The commission will, with or without a public hearing, investigate the sale, transfer, merger, consolidation, acquisition, lease, or rental to determine whether the transaction will serve the public interest. If the commission decides to hold a hearing, or if the transferee fails either to file the application as required or, except for an expedited application under subsection (u) of this section, to provide public notice, the transaction proposed in the application may not be completed unless the commission determines that the proposed transaction serves the public interest.

10. (j) Before the expiration of the 120-day period described in subsection (b) of this section, the commission will determine whether to require a public hearing to determine if the transaction will serve the public interest. The commission will notify the transferee, the transferor, all intervenors, and the Office of Public Utility Counsel whether a hearing will be held. The commission may consider the following factors when determining whether a hearing is required:

    1. (1) the application filed with the commission or the public notice was improper;
    2. (2) the transferee has not demonstrated adequate financial, managerial, and technical capability for providing continuous and adequate service to the requested area and any area already being served under the transferee's existing CCN;

    3. (3) the transferee has a history of:

       1. (A) noncompliance with the requirements of the TCEQ, the commission, or the Texas Department of State Health Services; or
       2. (B) continuing mismanagement or misuse of revenues as a utility service provider;
    4. (4) the transferee cannot demonstrate the financial ability to provide the necessary capital investment to ensure the provision of continuous and adequate service to the requested area; or

    5. (5) there are concerns that the transaction does not serve the public interest based on consideration of the following factors:

       1. (A) the adequacy of service currently provided to the requested area;
       2. (B) the need for additional service in the requested area;
       3. (C) the effect of approving the transaction on the transferee, the transferor, and any retail public utility of the same kind already serving the area within two miles of the boundary of the requested area;
       4. (D) the ability of the transferee to provide adequate service;
       5. (E) the feasibility of obtaining service from an adjacent retail public utility;
       6. (F) the financial stability of the transferee, including, if applicable, the adequacy of the debt-equity ratio of the transferee if the transaction is approved;
       7. (G) environmental integrity;
       8. (H) the probable improvement of service or lowering of cost to consumers in the requested area resulting from approving the transaction; and
       9. (I) whether the transferor or the transferee has failed to comply with any commission or TCEQ order. The commission may refuse to approve a sale, transfer, merger, consolidation, acquisition, lease, or rental if conditions of a judicial decree, compliance agreement, or other enforcement order have not been substantially met.

11. (k) If the commission does not require a public hearing, the sale, transfer, merger, consolidation, acquisition, lease, or rental may be completed as proposed:

    1. (1) at the end of the 120-day period described in subsection (a) of this section; or
    2. (2) at any time after the transferee receives notice from the commission that a hearing will not be required.
12. (l) Within 30 days of the commission order that approves the sale, transfer, merger, consolidation, acquisition, lease, or rental to proceed as proposed, the transferee must provide a written update on the status of the transaction, and every 30 days thereafter, until the transaction is complete. The transferee must inform the commission of any material changes in its financial, managerial, and technical capability to provide continuous and adequate service to the requested area and the transferee's service area.

13. (m) If there are outstanding customer deposits, within 30 days of the actual effective date of the transaction, the transferor and the transferee must file with the commission, the following information supported by a notarized affidavit:

    1. (1) the names and addresses of all customers who have a deposit on record with the transferor;
    2. (2) the date such deposit was made;
    3. (3) the amount of the deposit; and
    4. (4) the unpaid interest on the deposit. All such deposits must be refunded to the customer or transferred to the transferee, along with all accrued interest.
14. (n) Within 30 days after the actual effective date of the transaction, the transferee and the transferor must file a signed contract, bill of sale, or other appropriate documents as evidence that the transaction has closed as proposed. The signed contract, bill of sale, or other documents, must be signed by both the transferor and the transferee. If there were outstanding customer deposits, the transferor and the transferee must also file documentation that customer deposits have been transferred or refunded to the customers with interest as required by this section.
15. (o) Except as otherwise provided by this section, the commission order granting approval for the transaction to proceed expires 180 days after the date the order is issued. If the transaction has not been completed within the 180-day period, the commission's approval to proceed with the transaction will expire by operation of law unless, prior to the expiration of the 180-day period, the commission in writing extends the period.
16. (p) If the commission does not require a hearing, and the transaction is completed as proposed, the commission may issue the final order approving the transaction.
17. (q) A sale, transfer, merger, consolidation, acquisition, lease, or rental of any water or sewer system or retail public utility required by law to possess a CCN, or transfer of customers or service area, owned by an entity required by law to possess a CCN that is not completed in accordance with the provisions of TWC §13.301 is void.

18. (r) The requirements of TWC §13.301 do not apply to:

    1. (1) the purchase of replacement property;
    2. (2) a transaction under TWC §13.255; or
    3. (3) foreclosure on the physical assets of a utility.

19. (s) This subsection applies if a utility's facility or system is sold and the utility's facility or system was partially or wholly constructed with customer contributions in aid of construction derived from specific surcharges approved by the regulatory authority over and above revenues required for normal operating expenses and return. This subsection does not apply to a utility facility or system sold as part of a transaction where the transferor and transferee elected to use the fair market valuation process set forth in §24.238 of this title (relating to Fair Market Valuation).

    1. (1) The utility may not sell or transfer any of its assets, its CCN, or a controlling interest in an incorporated utility, unless the utility provides a written disclosure relating to the contributions to both the transferee and the commission before the date of the sale or transfer.
    2. (2) The disclosure must contain, at a minimum, the total dollar amount of the contributions and a statement that the contributed property or capital may not be included in invested capital or allowed depreciation expense by the regulatory authority in rate-making proceedings.
20. (t) For any transaction subject to this section, the retail public utility that proposes to sell, transfer, merge, acquire, lease, rent, or consolidate its facilities, customers, service area, or controlling interest must provide the other party to the transaction a copy of this section before signing an agreement to sell, transfer, merge, acquire, lease, rent, or consolidate its facilities, customers, service area, or controlling interest.
21. (u) Special requirements for certain transactions. For a transaction under this section that involves a nonfunctioning system to which a temporary manager has been appointed under §24.357 of this title (relating to Temporary Manager Appointment, Powers, and Duties), upon final commission approval of the transaction, the temporary manager's appointment and temporary manager's fee must be terminated.

22. (v) Expedited acquisition of assets. An eligible applicant may apply for the expedited acquisition of the assets and, if applicable, the certificated service area of a utility in accordance with this subsection.

    1. (1) Eligibility. To be eligible for expedited acquisition under this subsection, an applicant must meet the criteria in subparagraphs (A) and (B) of this paragraph.

       1. (A) Prior to filing an application for expedited acquisition, an applicant must, for the utility being acquired, be either:

          1. (i) a person appointed by the commission or TCEQ as a temporary manager or supervisor; or
          2. (ii) appointed as a receiver at the request of the commission or TCEQ.

       2. (B) In addition to meeting one of the criteria under subparagraph (A) of this paragraph, an applicant must also be either:

          1. (i) a Class A utility;
          2. (ii) a Class B utility;
          3. (iii) a municipally owned utility;
          4. (iv) a county;
          5. (v) a water supply or sewer service corporation;
          6. (vi) a public utility agency; or
          7. (vii) a district or river authority.

    2. (2) Application.

       1. (A) An application filed by an eligible applicant under paragraph (1) of this subsection must comply with the requirements of this section, except that the following are waived:

          1. (i) any public notice requirements required by this chapter, regardless of whether the person elects to charge initial rates in accordance with §24.240 of this title or use a voluntary valuation determined under §24.238 of this title; and
          2. (ii) as applicable, any requirements of this chapter that do not apply to an entity over which the utility commission does not have original rate jurisdiction.

       2. (B) An applicant's appointment as a temporary manager, supervisor, or receiver of the utility subject to the application is sufficient to demonstrate adequate financial, managerial, and technical capability for providing continuous and adequate service to:

          1. (i) the service area to be acquired; and
          2. (ii) any areas currently certificated to the applicant or, as applicable to municipally owned utilities or districts, any areas being served by the applicant within jurisdictional boundaries.

    3. (3) Commission approval and effects of approval.

       1. (A) The commission will approve an application under this subsection if the commission considers the transaction to be in the public interest in accordance with the processes specified under Texas Water Code §13.246 and §13.301, and subsections (i) and (j) of this section. In determining whether the transaction is in the public interest, the commission may also consider whether the applicant is currently in compliance with commission rules, orders, and other applicable laws.
       2. (B) The commission will approve an application under this subsection without the signature of the owner of the utility being acquired that is required by other law if the utility owner has abandoned operation of the facilities that are the subject of the transaction and cannot be located, or does not respond to an application filed under this subsection.
       3. (C) Unless otherwise specified by §24.363 of this title (relating to Temporary Rates for Services Provided for a Nonfunctioning System), the applicant acquiring the utility may seek recovery of all used and useful invested capital and just and reasonable operations and maintenance costs incurred during the applicant's appointment term as a regulatory asset in the applicant's next comprehensive rate proceeding under §24.41 of this title (relating to Cost of Service) or system improvement charge application under §24.76 of this title (relating to System Improvement Charge).

Source Note:The provisions of this §24.239 adopted to be effective October 17, 2018, 43 TexReg 6826; amended to be effective August 20, 2020, 45 TexReg 5627; amended to be effective March 29, 2023, 48 TexReg 1629; amended to be effective January 1, 2026, 50 TexReg 8561.