wa-law.org > bill > 2025-26 > HB 1906 > Passed Legislature
The legislature finds that water systems provide a critical utility service to the residents of Washington state, and due to scale economies, generally function as a natural monopoly in a given area. The legislature finds that due to the many challenges facing public water systems, regional solutions are a preferred alternative to ensuring economies of scale to keep water supply affordable. Ownership of water systems by a competent public entity or state-regulated private water company is preferred.
The legislature finds that the utilities and transportation commission, the regulating agency responsible for approving water system rate changes and ensuring adequate consumer protections for privately owned, for-profit public water systems, does not have specific statutory standards to guide its review and approval of proposed water system rate changes.
The legislature finds that water systems are subject to a number of public health standards and requirements from the department of health that require comprehensive planning and capital investments to ensure that residents have continuous access to safe drinking water. The costs of these critical investments are reflected in rate changes in order to provide a reasonable rate of return and keep a water company in business. However, planning materials and information supporting capital investments are not currently required to be shared with the utilities and transportation commission.
The legislature further finds the current rate setting process does not provide the utilities and transportation commission sufficient structure or guidance to determine whether capital improvement costs included in a proposed water rate change are prudently incurred and will result in rates that are just, fair, reasonable, and sufficient. Likewise, the water system ratepayers subject to the change are not provided sufficient notice of planned system investments and their anticipated impacts on rates, which can lead to sudden and significant rate increases.
The legislature intends to provide additional structure and guidance to the water system rate setting process in order to enable the utilities and transportation commission to effectively regulate in this area as a consumer protection agency. The legislature also intends to increase notice and transparency to consumers about water companies' planned investments and their impacts by leveraging the existing planning process required for safe drinking water standards.
The legislature further finds that a growing number of small, failing, or financially distressed water systems are unable to reliably meet public health, operational, and financial requirements, resulting in higher long-term costs, service disruptions, and increased risks to public health and ratepayers.
The legislature finds that consolidation of failing water systems into existing, well-managed public water systems, where feasible, can improve operational efficiency, enhance regulatory compliance, stabilize rates over time, and better protect public health and consumer interests.
The legislature intends that for small water systems, consolidation into an existing public water system is the preferred outcome when addressing failing or nonviable water systems, provided that such consolidation is technically feasible, financially reasonable, and does not adversely impact the customers of the receiving public water system.
The legislature intends that acquisition of a failing water system that does not involve consolidation with an existing public water system should occur only after reasonable efforts have been made by the water system to evaluate consolidation with existing public water systems and such options are determined to be infeasible.
The legislature finds that successful consolidation of failing water systems requires active state support, including technical assistance, planning support, and financial resources, to reduce barriers to consolidation and avoid undue cost impacts on customers of receiving systems.
The legislature intends that the state of Washington support system consolidation efforts through coordinated technical assistance and access to financial tools including, but not limited to, grants, loans, and other funding mechanisms, in order to promote sustainable water systems and protect public health and ratepayers statewide.
To assure safe and reliable public drinking water and to protect the public health:
Public water systems shall comply with all applicable federal, state, and local rules and prior to a change of ownership:
(A) The county in which any water system is located;
(B) Any water district or public utility district operating water systems within such county; and
(C) Any adjacent public water systems, as defined in RCW 70A.125.010; and
ii. For any change in ownership of a water system, inform customers of the acquisition by mailed notice or public posting at least 90 days prior to the acquisition, and provide customers with a good faith estimate of future capital improvements and water system rate changes;
b. Group A public water systems shall:
i. Protect the water sources used for drinking water;
ii. Provide treatment adequate to assure that the public health is protected;
iii. Provide and effectively operate and maintain public water system facilities;
iv. Plan for future growth and assure the availability of safe and reliable drinking water;
v. Provide the department with the current names, addresses, and telephone numbers of the owners, operators, and emergency contact persons for the system, including any changes to this information, and provide to users the name and 24 hour telephone number of an emergency contact person;
vi. Submit water system plans, small water system management plans, or engineering documents as required by the department; and
vii. Take whatever investigative or corrective action is necessary to assure that a safe and reliable drinking water supply is continuously available to users.
No new group A public water system may be approved or created unless: (a) It is owned or operated by a satellite system management agency established under RCW 70A.100.130 and the satellite system management system complies with financial viability requirements of the department; or (b) a satellite management system is not available and it is determined that the new system has sufficient management and financial resources to provide safe and reliable service. The approval of any new system that is not owned by a satellite system management agency shall be conditioned upon future management or ownership by a satellite system management agency, if such management or ownership can be made with reasonable economy and efficiency, or upon periodic review of the system's operational history to determine its ability to meet the department's financial viability and other operating requirements. The department and local health jurisdictions shall enforce this requirement under authority provided under this chapter, chapter 70A.100 or 70.05 RCW, or other authority governing the approval of new water systems by the department or a local jurisdiction.
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No new group B public water systems that are described by any of the criteria in (a)(i) through (iv) of this subsection may be approved or created unless it is owned or operated by a satellite system management agency consistent with the requirements applicable to group A public water systems:
The group B public water system is required to provide treatment to meet water quality standards;
The group B public water system provides fire flow;
The group B public water system has atmospheric storage; or
The group B public water system serves 10 or more service connections.
The local board of health may adopt, under RCW 70.05.060 or 70.46.060, more stringent satellite management system requirements than the requirements of (a) of this subsection.
For group B water systems, the department and local health jurisdictions shall enforce the requirements of this subsection under authority provided under this chapter, chapter 70A.100 RCWor 70.05 RCW, or other authority governing the approval of new water systems by the department or a local jurisdiction.
The department and local health jurisdictions shall carry out the rules and regulations of the state board of health adopted pursuant to RCW 43.20.050(2) (a) and (b) and other rules adopted by the department relating to public water systems.
No public service company shall sell, lease, assign or otherwise dispose of the whole or any part of its franchises, properties or facilities whatsoever, which are necessary or useful in the performance of its duties to the public, and no public service company shall, by any means whatsoever, directly or indirectly, merge or consolidate any of its franchises, properties or facilities with any other public service company, without having secured from the commission an order authorizing it to do so. The commission shall not approve any transaction under this section that would result in a person, directly or indirectly, acquiring a controlling interest in a gas, water, or electrical company without a finding that the transaction would provide a net benefit to the customers of the company. Prior to approving any transaction under this section that would result in a change of a controlling interest in a water company, the commission shall verify that the company has provided notification to the county in which any water system of the company is located, any water district or public utility district operating water systems within such county, and any adjacent water systems, and that customers of the company have been provided 90 days' notice of the acquisition and a good faith estimate of future capital improvements and water system rate changes.
This section shall not apply to any sale, lease, assignment or other disposal of such franchises, properties or facilities to a special purpose district as defined in RCW 36.96.010, city, county, or town.
In determining the rates to be charged by each water company subject to its jurisdiction, the commission :
Must adopt rules that establish a structure for incorporating the allowable cost of capital in the determination of rates or charges under this chapter that:
Accounts for any federal, state, or other external funding sources for system improvements;
Requires a showing that the water company is following its water system plan approved by the department of health and provides for a waiver process in the rate setting process for emergency improvements that are necessary for public health and safety;
Considers the extent to which the water company provided notice of planned capital projects to consumers and the impact of the projects on rates;
Promotes rate smoothing and the avoidance of excessive or sudden rate changes; and
Considers the extent to which a public water system, as defined in RCW 70A.125.010, is able to comply with the planning requirements given the size and capability restraints of the system;
May provide for the funding of a reserve account exclusively for the purpose of making capital improvements approved by the department of health as a part of a long-range plan, or required by the department to assure compliance with federal or state drinking water regulations, or to perform construction or maintenance required by the department of ecology to secure safety to life and property under RCW 43.21A.064(2). Expenditures from the fund shall be subject to prior approval by the commission, and shall be treated for rate-making purposes as customer contributions; and
Must allow any water company filing a general rate case, beginning January 1, 2027, to include a proposal for a multiyear rate plan. The commission may, by order after an adjudicative proceeding as provided by chapter 34.05 RCW, approve, approve with conditions, or reject, a multiyear rate plan proposal made by a water company or an alternative proposal made by one or more parties, or any combination thereof. The commission's consideration of a proposal for a multiyear rate plan is subject to the same standards applicable to other rate filings made under this title, including the public interest and fair, just, reasonable, and sufficient rates.
The commission may approve, disapprove, or approve with modifications any proposal to recover from ratepayers up to five percent of the total revenue requirement approved by the commission for each year of a multiyear rate plan for tariffs that reduce the water burden of low-income residential customers including, but not limited to: (i) Bill assistance programs; or (ii) one or more special rates.
If it approves a multiyear rate plan, the commission shall separately approve rates for each of the initial rate year, the second rate year, and if applicable, the third rate year, and the fourth rate year.
The commission shall ascertain and determine the fair value for rate-making purposes of the property of any water company that is or will be used and useful under RCW 80.04.250 for service in this state by or during each rate year of the multiyear rate plan. For the initial rate year, the commission shall, at a minimum, ascertain and determine the fair value for rate-making purposes of the property of any water company that is used and useful for service in this state as of the rate effective date. The commission may order refunds to customers if property expected to be used and useful by the rate effective date when the commission approves a multiyear rate plan is in fact not used and useful by such a date.
The commission shall ascertain and determine the revenues and operating expenses for rate-making purposes of any water company for each rate year of the multiyear rate plan.
In ascertaining and determining the fair value of property of a water company pursuant to (b)(i) of this subsection and projecting the revenues and operating expenses of a water company pursuant to (b)(ii) of this subsection, the commission may use any standard, formula, method, or theory of valuation reasonably calculated to arrive at fair, just, reasonable, and sufficient rates.
The commission may by order establish terms, conditions, and procedures for a multiyear rate plan and ensure that rates remain fair, just, reasonable, and sufficient during the course of the plan.
Nothing in this section precludes any water company from making filings required or permitted by the commission.