HOUSE BILL REPORT
2SHB 1906
As Amended by the Senate
Title: An act relating to increasing transparency and consumer protection in water system rates.
Brief Description: Increasing transparency and consumer protection in water system rates.
Sponsors: House Committee on Appropriations (originally sponsored by Representatives Tharinger, Shavers, Parshley and Hill).
Brief History:
Committee Activity:
Environment & Energy: 2/13/25, 2/20/25 [DPS];
Appropriations: 2/7/26, 2/9/26 [DP2S].
Floor Activity:
Passed House: 2/16/26, 91-1.
Senate Amended.
Passed Senate: 3/3/26, 49-0.
Brief Summary of Second Substitute Bill
  • Requires the Utilities and Transportation Commission (UTC) to adopt certain rules for determining rates of water companies. 
  • Prohibits the UTC from approving any transaction that changes the controlling interest in a water company unless the transaction provides net benefits to customers of the company and the company has complied with specified requirements.
  • Requires public water systems to provide notice of changes of ownership to specified entities.
  • Requires Group A public water systems to submit certain plans and documents to the Department of Health.
HOUSE COMMITTEE ON ENVIRONMENT & ENERGY
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass.Signed by 20 members:Representatives Doglio, Chair; Hunt, Vice Chair; Dye, Ranking Minority Member; Klicker, Assistant Ranking Member; Abbarno, Abell, Barnard, Berry, Duerr, Fey, Kloba, Ley, Mena, Mendoza, Ramel, Stearns, Street, Stuebe, Wylie and Ybarra.
Staff: Matt Sterling (786-7289).
HOUSE COMMITTEE ON APPROPRIATIONS
Majority Report: The second substitute bill be substituted therefor and the second substitute bill do pass.Signed by 29 members:Representatives Ormsby, Chair; Gregerson, Vice Chair; Macri, Vice Chair; Couture, Ranking Minority Member; Connors, Assistant Ranking Minority Member; Penner, Assistant Ranking Minority Member; Schmick, Assistant Ranking Minority Member; Berg, Bergquist, Burnett, Callan, Corry, Cortes, Doglio, Dye, Fitzgibbon, Keaton, Leavitt, Lekanoff, Manjarrez, Marshall, Peterson, Pollet, Ryu, Springer, Stonier, Street, Thai and Valdez.
Staff: Emily Stephens (786-7157).
Background:

Regulation of Public Water Systems.
The State Board of Health adopts rules, administered by the Office of Drinking Water (ODW) under the Department of Health (DOH), that pertain to the operations of public water systems.  Local governments are authorized to establish operating permit requirements for public water systems, provided these requirements receive approval from the DOH and lead to an enhanced level of service for the public water system. 

 

The ODW has received delegated primary authority from the United States Environmental Protection Agency to administer and enforce federal regulations for primary drinking water requirements from the federal Safe Drinking Water Act.  The ODW may impose penalties for noncompliance with public water system laws and regulations, and may direct water system owners and operators to resolve known or suspected public health threats.  These regulations establish primary drinking water requirements for larger public water systems, known as Group A public water systems.  Group A public water systems are public water systems that:

  • have 15 or more service connections;
  • serve an average of 25 or more people per day for at least 60 days within a calendar year, regardless of the number of service connections; or
  • serve 1,000 or more people for two or more consecutive days.

 

In contrast, Group B public water systems encompass all other public water systems.

 

For Group B public water systems, there is an additional requirement that the local operating permit requirements must be at least as strict as the state regulations.  The rules set drinking water standards and requirements for monitoring, reporting, and responding to emergencies.

 

Water System Rate Regulation.

The Utilities and Transportation Commission (UTC) regulates the rates and charges of privately-owned water companies that serve more than 100 customers or have charges that exceed an average of $557 per customer per year.  The UTC does not regulate the rates or services of city, town, or county water systems; Public Utility Districts (PUDs); or cooperative or homeowners' associations.

 

The UTC may provide for the funding of a reserve account by a regulated water company to perform construction or maintenance required by the Department of Ecology (Ecology) to secure safety to life and property.  Expenditures from the fund shall be subject to prior approval by the UTC, and shall be treated for rate-making purposes as customer contributions.

 

The UTC may not approve any transaction that would result in a person acquiring a controlling interest in a gas or electrical company without finding that the transaction would provide a net benefit to customers of the company.

 

Water System Plans.

Water system plans are intended to demonstrate system capacity and demonstrate how the system will address present and future needs.  Water system plans must address several elements, including:

  •  description of the water system;
  •  basic planning data;
  •  demand forecasts;
  •  system analysis;
  •  water resource analysis; and
  •  other plans and documents.
Summary of Second Substitute Bill:

Regulation of Public Water Systems.

Prior to a change in ownership, public water systems must:

  • provide notification to the county, any water district or public utility district operating a water system in the county, and any adjacent publicly owned water systems;
  • for transfers to a publicly owned water system, inform customers of the acquisition by mailed notice or public posting; and
  • for transfer to a privately owned utility, provide the customers of the system with a right of first refusal to acquire the water system.

 

Group A public water systems must submit water system plans, small water system management plans, or engineering documents as required by the DOH.

 

Water System Rate Regulation.

In determining the rates to be charged by each water company subject to its jurisdiction, the UTC must adopt rules that:

  • account for any federal, state, or other external funding sources for system improvements;
  • require all capital improvement projects to be included in the water system plan that has been approved by the DOH;
  • consider the extent to which the company provided notice of planned capital projects to consumers and the impact of the projects on rates;
  • promote rate smoothing and the avoidance of excessive or sudden rate changes; and
  • consider the ability for a public water system that is owned and operated by a special purpose district to be able to comply with the water system planning requirements.

 

The UTC may not approve any transaction that would result in a person acquiring a controlling interest in a water company without finding that the transaction would provide a net benefit to customers of the company.  Prior to approving any such transaction, the UTC must verify that the water company has provided the customers with a right of first refusal to purchase the water system and provided notification to:

  • the customers of the company;
  • the county in which any water system of the company is located;
  • any water district or PUD operating water systems within such county; and
  • any adjacent water system.
EFFECT OF SENATE AMENDMENT(S):

In comparison to the second substitute House bill, the Senate amendment:

  • removes the requirement that customers of a water company are provided with a right of first refusal prior to a water system acquisition or the Utilities and Transportation Commission (UTC) approving a water system transaction that would result in a change in controlling interest of a water company;
  • requires a water system, prior to a change in ownership, provide notification to:
    • the county in which the water system is located;
    • any water district or public utility district operating a water system in such county;
    • any adjacent public water systems; and
    • customers of the water system by mailed notice or public posting at least 90 days prior to the acquisition and include a good faith estimate of future capital improvements and water system rate changes;
  • requires the UTC to adopt rules for setting water rates that require a water system to show it is following its water system plan, rather than require that the water system includes all capital improvement projects in the water system plan;
  • authorizes a water company to file a multiyear plan when filing a rate plan with the UTC;
  • requires the UTC, for multiyear rate plans, to:
    • approve each years' rates separately;
    • ascertain and determine the revenues and operating expenses for rate-making purposes of any water company for each rate year of the multiyear plan; and
    • establish terms, conditions, and procedures for the multiyear rate plan that ensure rates remain fair, just, reasonable, and sufficient; and
  • authorizes rates sufficient for a water system to recover from ratepayers up to 5 percent of the total revenue requirement approved by the UTC for each year of the multiyear rate plan if such rates are part of a tariff that also reduces the water burden of low-income residential customers through mechanisms such as bill assistance programs or special rates.
Appropriation: None.
Fiscal Note: Available.  New fiscal note requested on March 3, 2026.
Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.
Staff Summary of Public Testimony (Environment & Energy):

(In support) Safe water systems are a critical need for everyone in the state.  In this state, Ecology controls the quantity of water and the DOH control the quality of the water.  The UTC controls the systems that provide that water.  In many states, there is a separate agency that is the consumer advocacy agency that looks out for the consumer in this process.  In Washington, the UTC is that consumer advocacy board.  The UTC has been making decisions on water systems based on policies and a sort of historic precedent with the agency.  That has led to problems with water rates increasing 90 to 120 percent based on people buying up these systems and looking to get return off those systems.  So, this bill tries to put into statute some guidelines for that process and strengthen the UTC's role as a consumer advocacy agency.  Currently, water systems are required to submit plans at least every 10 years.  In the bill it was shortened to three years.  That is problematic, so there will be an amendment to address that which should also drive down the fiscal note because there should be less staff needed to do that work.  It would be helpful to add PUDs, water districts, and counties to the types of entities that get notice when a water system is sold.  It has generally been the policy of the state to try to consolidate smaller systems into larger systems.  These larger systems have a bigger rate base and can be better managed.  This change would give customers of water systems a choice of whether to be acquired by a private system or to be acquired by their local PUD.  When the Legislature implemented the current policies for utility companies to serve small groups of consumers the intent was good, but it provides for a guaranteed 12 percent profit which is far too much.  This bill is fair and provides protection for utility companies while giving consumers transparency.  It protects the UTC with concrete information to make informed decisions and protects them from expensive and lengthy lawsuits.

 

(Opposed) None.

 

(Other) There is support for the overall goal of this bill.  It could lead to better management of these systems within the UTC, but there are concerns about the planning timeline in the bill.  Currently, water systems are required to submit plans at least every 10 years.  The bill would require an update every 3 years, so this change in frequency would be expensive and borne by ratepayers.  The bill should include language that addresses the different sizes and complexities of water systems.  Port members manage small water systems and have concerns about the impacts of the bill on small members.
Staff Summary of Public Testimony (Appropriations):

(In support) There are hundreds, if not thousands, of small water systems in a state of disrepair that need to be consolidated into existing water systems.  The regulation of these small water systems is inadequate.  They fail, go into receivership, and then are owned by the county.  This is an attempt to be more proactive and transparent with owners of water systems and to work with customers to make sure their water systems are safe and affordable.

 

(Opposed) Cascadia Water Company had three water systems that were failing, and these water systems had many other issues.  Their water systems were in a state of disrepair which generated this bill.
Persons Testifying (Environment & Energy):

(In support) Representative Steve Tharinger, prime sponsor; Terri DiMartino; Lily Todd; Susan Gilman; Rick Smith; Vicki Colburn; and Bill Clarke, WA PUD Association and Pierce Water Cooperative.

(Other) Eric ffitch, Washington Public Ports Association; and Kelsey Hulse, Association of Washington Cities.
Persons Testifying (Appropriations):

(In support) Bill Clarke, WA PUD Association and Pierce County Water Cooperative.

(Opposed) Charlie Brown, Northwest Natural.
Persons Signed In To Testify But Not Testifying (Environment & Energy): None.
Persons Signed In To Testify But Not Testifying (Appropriations): None.