Water Utility's Handling of Customer Deposits

Texas Water Lawyer & Water Rights Attorney Trey Wilson wrote:

Ever wondered what happens to water customer deposits, or whether there are any laws or rules governing what a Texas water utility does with them?

The Texas Legislature has specifically authorized governmental water districts to require deposits as a condition of supplying water to a customer. In addition, the Lege has left to each District's discretion the decision of whether interest will be paid on the deposits.  Below is the partial text of Water Code section 49.212.

Sec. 49.212.  FEES AND CHARGES.  (a)  A district may adopt and enforce all necessary charges, mandatory fees, or rentals, in addition to taxes, for providing or making available any district facility or service, including fire-fighting activities provided under Section 49.351.

(b)  A district may require a deposit for any services or facilities furnished and the district may or may not provide that the deposit will bear interest.

The TCEQ has also adopted a Rule governing the handling of water customer deposits. That Rule provides the following:

Records of deposits.

(1) The utility shall keep records to show:

(A) the name and address of each depositor;

(B) the amount and date of the deposit;

(C) each transaction concerning the deposit; and

(D) the amount of interest earned on customer deposit funds.

(2) The utility shall issue a receipt of deposit to each service applicant or customer from whom a deposit is received.

Notably, there is no requirement in the Rule that the funds be kept in a separate account. However, the funds are held in trust/escrow, and need to be accounted for separately from the District’s funds.

With regard to interest on deposits, the Rule provides:

(d) Interest on deposits. Each utility shall pay a minimum interest on all customer deposits at an annual rate at least equal to a rate set each calendar year by the Public Utility Commission of Texas in accordance with the provisions of Texas Civil Statutes, Article 1440a. Payment of the interest to the customer shall be made annually if requested by the customer, or at the time the deposit is returned or credited to the customer's account. Inquiries about the appropriate interest rate to be paid each year a deposit is held may be directed to the Water Utilities Division of the commission.

This portion of the Rule (relating to Interest on deposits) is in direct conflict with  Texas Water Code Section 49.212(b), as it appears above. Further, the TCEQ apparently doesn't enforce this portion of the Rule, since they issued this TCEQ memo, which provides (in relevant part):

Can They Make Me Pay a Deposit?

Yes. The Water Code allows districts to require a deposit

for any services or facilities furnished. Districts do not have

to pay interest on deposits or return deposits after a set

amount of time has passed. Typically, a district will hold a

customer’s deposit until the account has been terminated and

all outstanding balances have been paid.

Most utilities have adopted their own rules or regulations that comply with the Water Code and TCEQ Rules.